Zyngainc 20111117 S1a 0

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FORM S-1/A
ZYNGA INC - N/A
Filed: November 17, 2011 (period: )
Amendment to general form for registration of securities under the Securities Act of 1933
Table of Contents As filed with the Securities and Exchange Commission on November 17, 2011 Registration No. 333-175298
UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549
Amendment No. 6 to FORM S-1 REGISTRATION STATEMENT

Under The Securities Act of 1933
Zynga Inc.
(Exact name of Registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 7371 (Primary Standard Industrial Classification Code Number) 42-1733483 (I.R.S. Employer Identification Number) 699 Eighth Street San Francisco, CA 94103 (855) 449-9642 (Address, including zip code, and telephone number, including area code, of Registrants principal executive offices) David M. Wehner Zynga Inc. 699 Eighth Street San Francisco, CA 94103 (855) 449-9642 (Name, address, including zip code, and telephone number, including area code, of agent for service) Eric C. Jensen Kenneth L. Guernsey John T. McKenna Cooley LLP 101 California Street, 5 th Floor San Francisco, CA 94111 (415) 693-2000 Copies to: Reginald D. Davis Karyn R. Smith Devang S. Shah Zynga Inc. 699 Eighth Street San Francisco, CA 94103 (855) 449-9642 Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement. 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. Large accelerated filer Accelerated filer Non-accelerated filer x (Do not check if a smaller reporting company) Smaller reporting company 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, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission acting pursuant to said Section 8(a), may determine. Keith F. Higgins Brian C. Erb Ropes & Gray LLP Three Embarcadero Center San Francisco, CA 94111 (415) 315-6300
Source: ZYNGA INC, S-1/A, November 17, 2011
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Table of Contents The information in this preliminary prospectus is not complete and may be changed. We and the selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we and the selling stockholders are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.
PROSPECTUS (Subject to Completion) Issued November 17, 2011
Shares
Class A Common Stock

Zynga Inc. is offering shares of its Class A common stock, and the selling stockholders are offering shares of Class A common stock. We will not receive any proceeds from the sale of shares by the selling stockholders. This is our initial public offering, and no public market currently exists for our shares of Class A common stock. We anticipate that the initial public offering price will be between $ and $ per share.
Following this offering, we will have three classes of authorized common stock, Class A common stock, Class B common stock and Class C common stock. The rights of the holders of each class will be identical, except with respect to voting and conversion. Each share of Class A common stock will be entitled to one vote per share. Each share of Class B common stock will be entitled to seven votes per share. Each share of Class C common stock will be entitled to 70 votes per share. Each share of the Class B common stock and Class C common stock will be convertible at any time into one share of Class A common stock. Outstanding shares of Class B common stock will represent approximately % of the voting power of our outstanding capital stock following this offering, and outstanding shares of Class C common stock, all held by our founder and Chief Executive Officer, Mark Pincus, will represent approximately % of the voting power of our outstanding capital stock following this offering.
We have applied to list our Class A common stock on the NASDAQ Global Select Market under the symbol ZNGA.
Investing in our Class A common stock involves risks. See Risk Factors beginning on page 14.
PRICE $ A SHARE
Price to Public
Underwriting Discounts and Commissions
Proceeds to Zynga
Proceeds to Selling Stockholders
Per Share Total
$ $ $
$ $
$ $
We have granted the underwriters the right to purchase up to an additional
shares of Class A common stock to cover over-allotments.
The Securities and Exchange Commission and state securities regulators have not approved or disapproved 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 Class A common stock to purchasers on , 2011.
MORGAN STANLEY
BofA MERRILL LYNCH BARCLAYS CAPITAL ALLEN & COMPANY LLC
, 2011
GOLDMAN, SACHS & CO.

J.P. MORGAN
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Page
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Prospectus Summary Risk Factors Letter From Our Founder Special Note Regarding Forward-Looking Statements Market Data and User Metrics Use of Proceeds Dividend Policy Capitalization Dilution Selected Consolidated Financial Data Managements Discussion and Analysis of Financial Condition and Results of Operations Business
1 14 32 34 35 36 36 37 39 41 47 76
Management Executive Compensation Certain Relationships and Related Person Transactions Principal and Selling Stockholders Description of Capital Stock Shares Eligible for Future Sale Material United States Federal Income Tax Consequences to Non-U.S. Holders of Our Class A Common Stock Underwriting Legal Matters Experts Where You Can Find More Information Index to Consolidated Financial Statements
97 103 128 132 136 142 144 147 153 153 153 F-1
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, the selling stockholders, nor the underwriters have authorized anyone to provide you with additional information or information different from that contained in this prospectus or in any free writing prospectus filed with the Securities and Exchange Commission. We and the selling stockholders are offering to sell, and seeking offers to buy, our Class A 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 our Class A common stock. Through and including , 2011 (the 25th day after the date of this prospectus), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers obligations to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. For investors outside of the United States: Neither we, the selling stockholders, nor 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. References in this prospectus to DAUs mean daily active users of our games, MAUs mean monthly active users of our games, MUUs mean monthly unique users of our games, and ABPU means average daily bookings per average DAU. Unless otherwise indicated, these metrics are based on internally-derived measurements across all platforms on which our games are played. For further information about DAUs, MAUs, MUUs and ABPU as measured by us, see the section titled Managements Discussion and Analysis of Financial Condition and Results of OperationsKey MetricsKey Operating Metrics. We also refer in this prospectus to DAUs and MAUs as measured and published by AppData, an independent service that publicly reports traffic data for games and other applications on facebook. For further information about DAUs and MAUs as measured by AppData, including an explanation of differences between these metrics as measured by AppData and the corresponding metrics as measured by us, see the section titled Market Data and User MetricsUser Metrics. i
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PROSPECTUS SUMMARY The following summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our Class A common stock, you should carefully read this entire prospectus, including our consolidated financial statements and the related notes included in this prospectus and the information set forth under the headings Risk Factors and Managements Discussion and Analysis of Financial Condition and Results of Operations. ZYNGA INC. Our Vision for Play We founded Zynga in 2007 with the vision that playlike search, share and shopwould become one of the core activities on the Internet. As a pioneer of online social games, we have made them accessible, social and fun. We are excited that games have grown to become the second most popular online activity in the United States by time spent, even surpassing email. We have a lot of hard work, innovation and growth ahead of us to create a future where social games are a daily habit for nearly everyone.
Our mission is to connect the world through games.
Overview We are the worlds leading social game developer with 227 million average monthly active users, or MAUs, in 175 countries. We have launched the most successful social games in the industry in each of the last three years and have generated over $1.5 billion in cumulative revenue and over $2.0 billion in cumulative bookings since our inception in 2007. Our games are accessible to players worldwide on facebook, other social networks and mobile platforms, wherever and whenever they want. Currently, substantially all of our revenue is generated from players accessing our games via the Facebook platform. We operate our games as live services, by which we mean that we continue to support and update games after launch and gather daily, metrics-based player feedback that enables us to continually enhance our games by adding new content and features. All of our games are free to play, and we generate revenue through the in-game sale of virtual goods and advertising. We believe our leadership position in social games is the result of our significant investment in our people, content, brand, technology and infrastructure. Our leadership position in social games is defined by the following: Large and Global Community of Players. According to AppData, as of September 30, 2011, we had the largest player audience on Facebook, with more MAUs than the next eight social game developers combined. Our players are also more engaged, with our games being played by 54 million average daily active users, or DAUs, worldwide as of September 30, 2011. According to AppData, as of September 30, 2011, our games were played by more DAUs than the next 14 social game developers combined. Leading Portfolio of Social Games. We have many of the most popular and successful online social games, including CityVille, FarmVille, Mafia Wars, Words with Friends and Zynga Poker. As of September 30, 2011, according to AppData, we had four of the top five social games on Facebook based on DAUs. On mobile platforms, we have several of the most popular games, including Words with Friends and Hanging with Friends , which were the top two games in the word category based on the number of downloads from the Apple App Store for iPhone as of September 30, 2011. 1
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Rapid Game Growth. Our games have achieved rapid and widespread adoption. FarmVille grew to 43 million MAUs in its first 100 days and CityVille grew to 61 million MAUs in its first 50 days. One of our newest web-based games, Empires & Allies, grew to be the second most popular game on Facebook, based on MAUs as measured by AppData, less than a month after launch. In June 2011, we launched Hanging with Friends, which became the most downloaded game in the Apple App Store for iPhone during its first week. Scalable Technology and Data. We process and serve more than a petabyte of content for our players every day, a volume of data that we believe is unmatched in the social game industry. We continually analyze game data to optimize our games. We believe that combining data analytics with creative game design enables us to create a superior player experience. We leverage our scale to increase player engagement, cross-promote our portfolio of games, continually enhance existing games, launch new games and build the Zynga brand. We believe our scale results in network effects that deliver compelling value to our players, and we are committed to making significant investments that will further grow our community of players, their engagement and our monetization over time. We have achieved significant growth in our business in a short period of time. From 2008 to 2010, our revenue increased from $19.4 million to $597.5 million, our bookings increased from $35.9 million to $838.9 million, we went from a net loss of $22.1 million to net income of $90.6 million and our adjusted EBITDA increased from $4.5 million to $392.7 million. For the nine months ended September 30, 2011, our revenue was $828.9 million, our bookings were $849.0 million, our net income was $30.7 million and our adjusted EBITDA was $235.5 million. For a discussion of the limitations associated with using bookings and adjusted EBITDA rather than GAAP measures and a reconciliation of these measures to revenue and net income (loss), see the section titled Summary Consolidated Financial DataNon-GAAP Financial Measures. Consistent with our free-to-play business model, only a small portion of our players are paying players. During the nine months ended September 30, 2011, we had approximately 6.7 million unique payers. This number excludes payers on certain mobile platforms and those who used certain smaller web-based payment methods. Because the opportunity for social interactions increases as the number of players increases, we believe that maintaining and growing our overall number of players, including the number of players who may not purchase virtual goods, is important to the success of our business. As a result, we believe that the number of players who choose to purchase virtual goods will continue to constitute a small portion of our overall players as our business grows. Our top three games historically have contributed the majority of our revenue. Our top three games accounted for 93%, 83%, 78% and 59% of our online game revenue in 2008, 2009, 2010, and for the nine months ended September 30, 2011, respectively. Our Opportunity Our opportunity is being driven by the confluence of three primary trends regarding how people use, communicate through and socialize on the Internet: Growth of Social Networks . Over the past decade, social networks have emerged as mainstream platforms that enable people to connect with each other online, share information and enjoy experiences with their friends and families. IDC, a market research firm, estimates that there will be approximately 1.1 billion users of social networks globally, including over 800 million active users on Facebook, in 2011. IDC forecasts that the number of users on social networks globally will grow to 1.6 billion by 2014. Emergence of the App Economy. In order to provide users with a wider range of engaging experiences, social networks and mobile operating systems have opened their platforms to developers, transforming the creation, distribution and consumption of digital content. We refer to this as the App Economy. In 2
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the App Economy, developers can create applications accessing unique features of the platforms, distribute applications digitally to a broad audience and regularly update existing applications. Rapid Growth of Free-to-Play Games. Most social games are free to play and generate revenue through the in-game sale of virtual goods. According to In-Stat, a market intelligence firm, the worldwide market for the sale of virtual goods was $7.3 billion in 2010 and is expected to more than double by 2014. Compared to pay-to-play business models, the free-to-play approach tends to attract a wider audience of players, thereby increasing the number of players who have the potential to become paying users. By attracting a larger audience, the freeto-play model also enables a higher degree of in-game social interaction, which enhances the game experience for all players. We believe social games represent a new form of entertainment that will continue to capture an increasing proportion of consumer leisure time. In addition, social games are the most popular applications on facebook and we believe they have been, and will continue to be, a key driver of engagement on social networks, and increasingly on mobile platforms. As consumers gravitate toward more social forms of online entertainment, we believe that social games will capture an increasing portion of the overall $49 billion video game software market, as estimated for 2011 by IDC, as well as the global entertainment market. Our Player-Centric Approach We believe that a player-centric approach is the key to our continued success. We design our games to be: Accessible by Everyone, Anywhere, Any Time. Our games are easy to learn, playable in short sessions and accessible on multiple platforms. We operate our games as live services that can be played anytime and anywhere. Social. We believe games are most engaging and fun when they are social. We have devoted significant efforts to providing our community of players with simple ways to find their friends online and connect, play and share with them. Free. Our free-to-play approach attracts a larger audience than a traditional pay-to-play approach. This enables a higher degree of social interaction and improves the game experience for all players. Our players can choose to purchase virtual goods to enhance their game experience. Fun. We keep our games fun and engaging by regularly delivering new content, features, quests, challenges and virtual goods that enhance the experience for our players. Supportive of Social Good. Our players are able to enjoy fun social games while also contributing to charitable causes that they support through the purchase of special virtual goods. Our Core Strengths We believe the following strengths provide us with competitive advantages: Deep Base of Talent. Our unique company culture serves as the foundation of our success and helps us attract, grow and retain world class talent. We believe our culture and success to date have made us an employer of choice amongst innovators in our industry. Large and Global Community of Players. We have 227 million average MAUs in 175 countries. According to AppData, as of September 30, 2011, we had more MAUs on Facebook than the next eight social game developers combined. Leading Portfolio of High Quality Social Games. Our portfolio of games includes many of the most popular and successful social games on social networks and mobile platforms, including CityVille, FarmVille, Mafia Wars, Words with Friends and Zynga Poker. As of September 30, 2011, we had four of the top five games on Facebook, based on DAUs, as measured by AppData. 3
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Sophisticated Data Analytics. The extensive engagement of our players provides over 15 terabytes of game data per day that we use to enhance our games by designing, testing and releasing new features on an ongoing basis. Scalable Technology Infrastructure and Game Engines. We have invested extensively in developing proprietary technology to support the growth of our business. We have developed a flexible game engine that we leverage for the development and launch of new games. With each release, we add features and functionality to improve our core code base for future game development. Powerful Network Effects. Because of our large community, our players are more likely to find and connect with others to play and build relationships. Our games are more social and fun as more people play them, creating an incentive for existing players to encourage their friends and family to play. Our Key Metrics We measure our business by using several key financial metrics, which include bookings and adjusted EBITDA, and operating metrics, which include DAUs, MAUs, MUUs and ABPU. Our operating metrics help us to understand and measure the engagement levels of our players, the size of our audience, our reach and overall monetization of our players. For a description of how we calculate each of our key metrics and factors that have caused fluctuations in these metrics, see the section titled Managements Discussion and Analysis of Financial Condition and Results of OperationsKey Metrics. In July 2010, we began migrating to facebook Credits as the primary payment method for our games played through Facebook, and by April 2011, we had completed this migration. Facebook remits to us an amount equal to 70% of the face value of Facebook Credits purchased by our players for use in our games played through Facebook. We record bookings and recognize revenue net of the amounts retained by Facebook. The charts and the table below show the metrics for the 11 quarters indicated:
Mar 31, 2009 Average DAUs Average MAUs Average MUUs ABPU NA means data is not available. NA NA NA NA
Jun 30, 2009 NA NA NA NA
Sep 30, 2009 24 99 63 $ 0.044
Dec 31, 2009 58 207 110 $ 0.027
For the Three Months Ended Mar 31, Jun 30, Sep 30, 2010 2010 2010 (users in millions) 67 60 49 236 234 203 124 119 110 $ 0.030 $ 0.036 $ 0.049
Dec 31, 2010 48 195 111 $ 0.055
Mar 31, 2011 62 236 146 $ 0.051
Jun 30, 2011 59 228 151 $ 0.051
Sep 30, 2011 54 227 152 $ 0.058
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Our Strategy Our mission is to connect the world through games. In pursuit of our mission, we encourage entrepreneurship and intelligent risk taking to produce breakthrough innovations, which we call bold beats. The key elements of our strategy are: Make Games Accessible and Fun. We operate our games as live services that are available anytime and anywhere. We design our social games to provide players with easy access to shared experiences that delight, amuse and entertain, and we will continue to update our games on an ongoing basis with fresh content and new features to make them more social and fun for our players. Enhance Existing Franchises. We will continue to enhance our market-leading franchises including CityVille, FarmVille, FrontierVille, Words with Friends and Zynga Poker. We regularly update our games after launch to encourage social interactions, add new content and features and improve monetization. Launch New Games. We will continue to invest in building new games to expand the genres of games that we offer, further engage with our existing players and attract new players. For example, in June 2011, we launched Empires & Allies, a strategy combat game, which within its first month, became the second most played game on Facebook based on MAUs, as measured by AppData. Continue Mobile Growth. We believe there is a large opportunity to extend our brand and games to mobile platforms such as Apple iOS and Google Android. We will continue to make our games accessible on a large number of mobile and other Internet-connected devices and invest in developing and acquiring mobile development talent, technologies and content. Continue International Growth. We intend to expand our international audience by making more of our games available in multiple languages, creating more localized game content and partnering with leading international social networking sites and mobile partners. We believe we have a significant opportunity to better monetize our games in international markets as we offer more targeted virtual goods and additional payment options. Extend Our Technology Leadership Position. Our proprietary technology stack and data analytics are competitive advantages that enhance our ability to create the worlds best social games. We will continue to innovate and optimize our network infrastructure to cost-effectively ensure high performance and high availability of our social games. We believe continued investments in infrastructure and systems will allow us to extend our technology leadership. Increase Monetization of Our Games. We strive to offer increased selection, better merchandising and more payment options to increase the sales of our virtual goods. Our players purchase these virtual goods to extend their play sessions, personalize their game environments, accelerate their progress and send unique gifts to their friends. We will also continue to pursue additional revenue opportunities from advertising, including branded virtual goods and sponsorships. Risks Associated with Our Business Our business is subject to numerous risks and uncertainties, including those highlighted in the section titled Risk Factors immediately following this prospectus summary. Some of these risks are: if we are unable to maintain a good relationship with facebook, our business will suffer; we operate in a new and rapidly changing industry, which makes it difficult to evaluate our business and prospects; we have a new business model and a short operating history, which makes it difficult to evaluate our prospects and future financial results and may increase the risk that we will not be successful; 5
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we rely on a small portion of our total players for nearly all of our revenue; a small number of games have generated a majority of our revenue, and we must continue to launch and enhance games that attract and retain a significant number of players in order to grow our revenue and sustain our competitive position; if our top games do not maintain their popularity, our results of operations could be harmed; a significant majority of our game traffic is hosted by a single vendor, and any failure or significant interruption in our network could impact our operations and harm our business; security breaches, computer viruses and computer hacking attacks could harm our business and results of operations; if we fail to effectively manage our growth, our business and operating results could be harmed; our growth prospects will suffer if we are unable to develop successful games for mobile platforms; expansion into international markets is important for our growth, and as we expand internationally, we face additional business, political, regulatory, operational, financial and economic risks, any of which could increase our costs and hinder such growth; and the three class structure of our common stock has the effect of concentrating voting control with those stockholders who held our stock prior to this offering, including our founder and Chief Executive Officer and our other executive officers, employees and directors and their affiliates; this will limit your ability to influence corporate matters. Corporate Information We were originally organized in April 2007 as a California limited liability company under the name Presidio Media LLC, and we converted to a Delaware corporation in October 2007. We changed our name to Zynga Inc. in November 2010. Our principal executive offices are located at 699 Eighth Street, San Francisco, CA 94103, and our telephone number is (855) 449-9642. Our website address is www.zynga.com. 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. Unless the context requires otherwise, the words Zynga, we, company, us and our refer to Zynga Inc. and its subsidiaries. Zynga, the Zynga logo and other trademarks or service marks of Zynga appearing in this prospectus are the property of Zynga. Trade names, trademarks and service marks of other companies appearing in this prospectus are the property of their respective holders. 6
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THE OFFERING Class A common stock offered By us By the selling stockholders Total Class A common stock to be outstanding after this offering Class B common stock to be outstanding after this offering Class C common stock to be outstanding after this offering Total Class A, Class B and Class C common stock to be outstanding after this offering Over-allotment option Use of proceeds
shares shares shares shares
shares
shares
shares
shares We intend to use the net proceeds to us from this offering for general corporate purposes, including working capital, game development, marketing activities and capital expenditures. We intend to use approximately $ million of the net proceeds to satisfy tax withholding obligations related to the vesting of restricted stock units, or ZSUs, in connection with this offering. In addition, we may use a portion of the proceeds from this offering for acquisitions of or investments in complementary businesses, technologies or other assets. We also intend to contribute a portion of the net proceeds to charitable causes through Zynga.org, our philanthropic initiative. We will not receive any of the proceeds from the sale of shares to be offered by the selling stockholders. See Use of Proceeds. See Risk Factors beginning on page 14 and the other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our Class A common stock. ZNGA
Risk factors
Proposed NASDAQ Global Select Market symbol
The number of shares of Class A common stock, Class B common stock and Class C common stock to be outstanding after this offering is based on no shares of our Class A common stock, 564,931,115 shares of our Class B common stock (including preferred stock on an as-converted basis) and 20,517,472 shares of our Class C common stock outstanding as of September 30, 2011, and excludes: 109,157,667 shares of Class B common stock issuable upon the exercise of stock options outstanding as of September 30, 2011 under our 2007 Equity Incentive Plan at a weighted-average exercise price of $0.93 per share; 99,994,695 shares of Class B common stock issuable upon the vesting of restricted stock units, or ZSUs, outstanding as of September 30, 2011 under our 2007 Equity Incentive Plan; 7
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18,854,848 shares of Class B common stock issuable upon the exercise of warrants outstanding as of September 30, 2011 at a weightedaverage exercise price of $0.0246 per share, which warrants are expected to remain outstanding after this offering; 4,632,918 shares of Class B common stock reserved for future issuance under our 2007 Equity Incentive Plan as of September 30, 2011; provided, however, that immediately upon the signing of the underwriting agreement for this offering, our 2007 Equity Incentive Plan will terminate so that no further awards may be granted under our 2007 Equity Incentive Plan; 42,500,000 shares of Class A common stock reserved for future issuance under our 2011 Equity Incentive Plan, which we plan to adopt in connection with this offering; and 8,500,000 shares of Class A common stock reserved for future issuance under our 2011 Employee Stock Purchase Plan, which we plan to adopt in connection with this offering. Unless we specifically state otherwise, the share information in this prospectus is as of September 30, 2011 and reflects or assumes: the net issuance of shares of Class B common stock upon the vesting of outstanding ZSUs in connection with this offering;
the filing of our amended and restated certificate of incorporation on September 14, 2011 to (i) redesignate our previously outstanding Class A common stock and Class B common stock as Class B common stock and Class C common stock, respectively, (ii) create a new class of Class A common stock to be offered and sold in this offering and (iii) create a new series of blank check preferred stock; the filing of our amended and restated certificate of incorporation at the closing of this offering to, among other things, eliminate the various series of our preferred stock currently outstanding; the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 304,887,421 shares of Class B common stock immediately prior to the closing of this offering; and no exercise of the underwriters over-allotment option to purchase up to an additional 8 shares of Class A common stock.
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SUMMARY CONSOLIDATED FINANCIAL DATA The following tables summarize our consolidated financial data and should be read together with our consolidated financial statements and related notes, as well as the sections titled Selected Consolidated Financial Data and Managements Discussion and Analysis of Financial Condition and Results of Operations, appearing elsewhere in this prospectus. We have derived the consolidated statements of operations data for the years ended December 31, 2008, 2009 and 2010 and the consolidated balance sheet data as of December 31, 2009 and 2010 from our audited consolidated financial statements appearing elsewhere in this prospectus. The consolidated statements of operations data for the nine months ended September 30, 2010 and 2011 and consolidated balance sheet data as of September 30, 2011 have been derived from our unaudited consolidated financial statements appearing elsewhere in this prospectus. We have prepared the unaudited financial data on the same basis as the audited consolidated financial statements. We have included, in our opinion, all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of the financial information set forth in those statements. Our historical results are not necessarily indicative of the results that should be expected in the future, and our interim results are not necessarily indicative of the results that should be expected for the full year.
Nine Months Ended Year Ended December 31, September 30, 2008 2009 2010 2010 2011 (in thousands, except per share data) Consolidated Statements of Operations Data: Revenue Costs and expenses: Cost of revenue Research and development Sales and marketing General and administrative Total costs and expenses Income (loss) from operations Interest income Other income (expenses), net Income (loss) before income taxes Provision for income taxes Net income (loss) Deemed dividend to a Series B-2 convertible preferred stockholder Net income attributable to participating securities Net income (loss) attributable to Class B and Class C common stockholders (1) Net income (loss) per share attributable to Class B and Class C common stockholders (1) : Basic Diluted Weighted-average common shares used to compute net income (loss) per share attributable to Class B and Class C common stockholders (1) : Basic Diluted Pro forma net income (loss) per share attributable to Class B and Class C common stockholders (1)(2) : Basic Diluted $ 19,410 10,017 12,160 10,982 8,834 41,993 (22,583) 319 187 (22,077) (38) $121,467 56,707 51,029 42,266 24,243 174,245 (52,778) 177 (209) (52,810) (12) $597,459 176,052 149,519 114,165 32,251 471,987 125,472 1,222 365 127,059 (36,464) 4,590 58,110 $401,700 124,449 98,019 75,885 49,339 347,692 54,008 749 478 55,235 (7,632) $ 47,603 4,590 30,636 $ 12,377 $ $ 0.06 0.05 $ $ $ $828,863 225,908 282,316 121,971 117,723 747,918 80,945 1,223 (273) 81,895 (51,206) $ 30,689 30,689 0 0.00 0.00
$ (22,115) $ (52,822) $ 90,595
$ (22,115) $ (52,822) $ 27,895 $ $ (0.18) $ (0.18) $ (0.31) $ (0.31) $ 0.12 0.11
119,990 119,990
171,751 171,751 $ $
223,881 329,256
214,214 322,357 $ $
264,114 264,114
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Nine Months Ended Year Ended December 31, September 30, 2008 2009 2010 2010 2011 (dollars in thousands, except ABPU data) Other Financial and Operational Data: Bookings(3) Adjusted EBITDA (4) Average DAUs (in millions)(5) Average MAUs (in millions)(6) Average MUUs (in millions)(7) ABPU(8) NA means data is not available. (1) Net income attributable to common stock was not allocated to Class A common shares, as there were no shares authorized or outstanding during the periods presented. See Note 9 of the consolidated financial statements for further details on the calculation of basic and diluted net income (loss) per share attributable to each class of common stock. See Note 9 of consolidated financial statements for a discussion and reconciliation of the weighted-average common shares outstanding for pro forma net income per share calculations. See the section titled Non-GAAP Financial Measures below for how we define and calculate bookings, a reconciliation between bookings and revenue (the most directly comparable GAAP financial measure) and a discussion about the limitations of bookings and adjusted EBITDA. See the section titled Non-GAAP Financial Measures below as to how we define and calculate adjusted EBITDA and for a reconciliation between adjusted EBITDA and net income (loss), the most directly comparable GAAP financial measure and a discussion about the limitations of bookings and adjusted EBITDA. DAUs is the number of individuals who played one of our games during a particular day, as recorded by our internal analytics systems. Average DAUs is the average of the DAUs for each day during the period reported. See the section titled Managements Discussion and Analysis of Financial Condition and Results of OperationsKey MetricsKey Operating MetricsDAUs for more information as to how we define and calculate DAUs. Reflects 2009 data commencing on July 1, 2009. MAUs is the number of individuals who played a particular game during a 30-day period, as recorded by our internal analytics systems. Average MAUs is the average of the MAUs at each month-end during the period reported. See the section titled Managements Discussion and Analysis of Financial Condition and Results of OperationsKey MetricsKey Operating MetricsMAUs for more information as to how we define and calculate MAUs. Reflects 2009 data commencing on July 1, 2009. MUUs is the number of unique individuals who played any of our games on a particular platform during a 30-day period, as recorded by our internal analytics systems. Average MUUs is the average of the MUUs at each month-end during the period reported. See the section titled Managements Discussion and Analysis of Financial Condition and Results of OperationsKey MetricsKey Operating MetricsMUUs for more information as to how we define and calculate MUUs. Reflects 2009 data commencing on July 1, 2009. ABPU is defined as (i) our total bookings in a given period, divided by (ii) the number of days in that period, divided by (iii) the average DAUs during the period. See the section titled Managements Discussion and Analysis of Financial Condition and Results of OperationsKey MetricsKey Operating Metrics ABPU for more information as to how we define and calculate ABPU. Reflects 2009 data commencing on July 1, 2009. $ 35,948 $ 4,549 NA NA NA NA $328,070 $168,187 41 153 86 $ 0.035 $838,896 $392,738 56 217 116 $ 0.041 $595,397 $289,546 59 224 118 $ 0.038 $849,002 $235,473 58 230 150 $ 0.053
(2) (3) (4) (5)
(6)
(7)
(8)
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As of December 31, 2009 2010
As of September 30, 2011 Actual As Adjusted(1)(2) (in thousands)
Consolidated Balance Sheet Data: Cash, cash equivalents and marketable securities Property and equipment, net Working capital Total assets Deferred revenue Total stockholders equity (deficit) (1)
$199,958 34,827 (12,496) 258,848 223,799 (21,478)
$ 738,090 74,959 385,564 1,112,572 465,236 482,215
$ 926,333 221,145 504,487 1,511,652 485,375 787,663
Reflects (i) the use of approximately $ million of the net proceeds to satisfy tax withholding obligations related to the vesting of outstanding ZSUs in connection with this offering and (ii) the sale by us of shares of our Class A common stock offered by this prospectus at an assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share would increase (decrease) the amount of cash, cash equivalents and marketable securities, working capital, total assets and total stockholders equity (deficit) by approximately $ million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions. Similarly, each increase (decrease) of shares in the number of shares of our Class A common stock offered by us would increase (decrease) the amount of cash, cash equivalents and marketable securities, working capital, total assets and total stockholders equity (deficit) by approximately $ million, assuming that the assumed initial public offering price remains the same and after deducting underwriting discounts and commissions. The as adjusted information discussed above is illustrative only and will be adjusted based on the actual public offering price and other terms of this offering determined at pricing.
(2)
Non-GAAP Financial Measures Bookings To provide investors with additional information about our financial results, we disclose within this prospectus bookings, a non-GAAP financial measure. We have provided below a reconciliation between bookings and revenue, the most directly comparable GAAP financial measure. Bookings is a non-GAAP financial measure that we define as the total amount of revenue from the sale of virtual goods in our online games and from advertising that would have been recognized in a period if we recognized all revenue immediately at the time of the sale. We record the sale of virtual goods as deferred revenue and then recognize that revenue over the estimated average life of the purchased virtual goods or as the virtual goods are consumed. Advertising revenue consisting of certain branded virtual goods and sponsorships is also deferred and recognized over the estimated average life of the branded virtual good, similar to online game revenue. Bookings is calculated as revenue recognized in a period plus the change in deferred revenue during the period. For additional discussion of the estimated average life of virtual goods, see the section titled Managements Discussion and Analysis of Financial Condition and Results of OperationsRevenue Recognition. 11
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We use bookings as one factor to evaluate the results of our operations, generate future operating plans and assess the performance of our company. 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 revenue recognized in accordance with GAAP. In addition, other companies, including companies in our industry, may calculate bookings differently or not at all, which reduces its usefulness as a comparative measure. In July 2010, we began migrating to facebook Credits as the primary payment method for our games played through Facebook, and by April 2011, we had completed this migration. Facebook remits to us an amount equal to 70% of the face value of Facebook Credits purchased by our players for use in our games. We record bookings and recognize revenue net of the amounts retained by Facebook. The following table presents a reconciliation of revenue to bookings for each of the periods presented:
Year Ended December 31, 2009 2010 (in thousands) Nine Months Ended September 30, 2010 2011
2008
Reconciliation of Revenue to Bookings: Revenue Change in deferred revenue Bookings Adjusted EBITDA
$19,410 16,538 $35,948
$121,467 206,603 $328,070
$597,459 241,437 $838,896
$401,700 193,697 $595,397
$828,863 20,139 $849,002
To provide investors with additional information about our financial results, we disclose within this prospectus adjusted EBITDA, a non-GAAP financial measure. We have provided below a reconciliation between adjusted EBITDA and net income (loss), the most directly comparable GAAP financial measure. We have included adjusted EBITDA in this prospectus because it is a key measure we use to evaluate our operating performance, generate future operating plans and make strategic decisions for the allocation of capital. Accordingly, we believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors. 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. 12
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The following table presents a reconciliation of net income (loss) to adjusted EBITDA for each of the periods indicated:
Year Ended December 31, 2009 2010 (in thousands) Nine Months Ended September 30, 2010 2011
2008
Reconciliation of Net Income (Loss) to Adjusted EBITDA: Net income (loss) Provision for income taxes Other income (expense), net Interest income Gain (loss) from legal settlements Depreciation and amortization Stock-based compensation Change in deferred revenue Adjusted EBITDA Limitations of Bookings and Adjusted EBITDA Some limitations of bookings and adjusted EBITDA are:
$(22,115) 38 (187) (319) 7,000 2,905 689 16,538 $ 4,549
$ (52,822) 12 209 (177) 10,372 3,990 206,603 $168,187
$ 90,595 36,464 (365) (1,222) (39,346) 39,481 25,694 241,437 $392,738
$ 47,603 7,632 (478) (749) 26,342 15,499 193,697 $289,546
$ 30,689 51,206 273 (1,223) 64,148 70,241 20,139 $235,473
adjusted EBITDA does not include the impact of equity-based compensation; bookings and adjusted EBITDA do not reflect that we defer and recognize revenue over the estimated average life of virtual goods or as virtual goods are consumed; adjusted EBITDA does not reflect income tax payments that may represent a reduction in cash available to us; adjusted EBITDA does not include other income and expense, which includes foreign exchange gains and losses; adjusted EBITDA excludes depreciation and amortization and although these are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future; adjusted EBITDA does not include gains and losses associated with legal settlements; and other companies, including companies in our industry, may calculate bookings and adjusted EBITDA differently or not at all, which reduces their usefulness as a comparative measure. Because of these limitations, you should consider bookings and adjusted EBITDA along with other financial performance measures, including revenue, net income (loss) and our financial results presented in accordance with GAAP. 13
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RISK FACTORS Investing in our Class A 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, including our consolidated financial statements and related notes, before deciding whether to purchase shares of our Class A common stock. If any of the following risks are realized, our business, operating results, financial condition and prospects could be materially and adversely affected. In that event, the price of our Class A common stock could decline, and you could lose part or all of your investment. Risks Related to Our Business and Industry If we are unable to maintain a good relationship with Facebook, our business will suffer. facebook is the primary distribution, marketing, promotion and payment platform for our games. We generate substantially all of our revenue and players through the Facebook platform and expect to continue to do so for the foreseeable future. Any deterioration in our relationship with Facebook would harm our business and adversely affect the value of our Class A common stock. We are subject to facebooks standard terms and conditions for application developers, which govern the promotion, distribution and operation of games and other applications on the Facebook platform. We have entered into an addendum to these terms and conditions pursuant to which we have agreed to use Facebook Credits, Facebooks proprietary payment method, as the primary means of payment within our games played through Facebook. This addendum expires in May 2015. Our business would be harmed if: facebook discontinues or limits access to its platform by us and other game developers; facebook terminates or does not renew our addendum; facebook modifies its terms of service or other policies, including fees charged to, or other restrictions on, us or other application developers, or Facebook changes how the personal information of its users is made available to application developers on the Facebook platform or shared by users; facebook establishes more favorable relationships with one or more of our competitors; or facebook develops its own competitive offerings. We have benefited from facebooks strong brand recognition and large user base. If Facebook loses its market position or otherwise falls out of favor with Internet users, we would need to identify alternative channels for marketing, promoting and distributing our games, which would consume substantial resources and may not be effective. In addition, Facebook has broad discretion to change its terms of service and other policies with respect to us and other developers, and those changes may be unfavorable to us. For example, in 2010 Facebook adopted a policy requiring applications on Facebook accept only its virtual currency, Facebook Credits, as payment from users. As a result of this change, which we completed in April 2011, Facebook receives a greater share of payments made by our players than it did when other payment options were allowed. Facebook may also change its fee structure, add fees associated with access to and use of the Facebook platform, change how the personal information of its users is made available to application developers on the Facebook platform or restrict how Facebook users can share information with friends on their platform. Beginning in early 2010, Facebook changed its policies for application developers regarding use of its communication channels. These changes limited the level of communication among users about applications on the Facebook platform. As a result, the number of our players on Facebook declined. Any such changes in the future could significantly alter how players experience our games or interact within our games, which may harm our business. 14
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We operate in a new and rapidly changing industry, which makes it difficult to evaluate our business and prospects. Social games, from which we derive substantially all of our revenue, is a new and rapidly evolving industry. The growth of the social game industry and the level of demand and market acceptance of our games are subject to a high degree of uncertainty. Our future operating results will depend on numerous factors affecting the social game industry, many of which are beyond our control, including: continued worldwide growth in the adoption and use of facebook and other social networks; changes in consumer demographics and public tastes and preferences; the availability and popularity of other forms of entertainment; the worldwide growth of personal computer, broadband Internet and mobile device users, and the rate of any such growth; and general economic conditions, particularly economic conditions adversely affecting discretionary consumer spending. Our ability to plan for game development, distribution and promotional activities will be significantly affected by our ability to anticipate and adapt to relatively rapid changes in the tastes and preferences of our current and potential players. New and different types of entertainment may increase in popularity at the expense of social games. A decline in the popularity of social games in general, or our games in particular would harm our business and prospects. We have a new business model and a short operating history, which makes it difficult to evaluate our prospects and future financial results and may increase the risk that we will not be successful. We began operations in April 2007, and we have a short operating history and a new business model, which makes it difficult to effectively assess our future prospects. Our business model is based on offering games that are free to play. To date, only a small portion of our players pay for virtual goods. You should consider our business and prospects in light of the challenges we face, including the ones discussed in this section. We rely on a small portion of our total players for nearly all of our revenue. Compared to all players who play our games in any period, only a small portion are paying players. During the nine months ended September 30, 2011, we had approximately 6.7 million unique payers (excluding payers on certain mobile platforms and who use certain smaller web-based payment methods). We lose players in the ordinary course of business. In order to sustain our revenue levels, we must attract, retain and increase the number of players or more effectively monetize our players. To retain players, we must devote significant resources so that the games they play retain their interest and attract them to our other games. If we fail to grow or sustain the number of our players, or if the rates at which we attract and retain players declines or if the average amount our players pay declines, our business may not grow, our financial results will suffer, and our stock price may decline. A small number of games have generated a majority of our revenue, and we must continue to launch and enhance games that attract and retain a significant number of players in order to grow our revenue and sustain our competitive position. Historically we have depended on a small number of games for a majority of our revenue and we expect that this dependency will continue for the foreseeable future. Our growth depends on our ability to consistently launch new games that achieve significant popularity. Each of our games requires significant engineering, marketing and other resources to develop, launch and sustain via regular upgrades and expansions, and such costs on average have increased. Our ability to successfully launch, sustain and expand games and attract and retain players largely depends on our ability to: anticipate and effectively respond to changing game player interests and preferences; 15
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anticipate or respond to changes in the competitive landscape; attract, retain and motivate talented game designers, product managers and engineers; develop, sustain and expand games that are fun, interesting and compelling to play; effectively market new games and enhancements to our existing players and new players; minimize launch delays and cost overruns on new games and game expansions; minimize downtime and other technical difficulties; and acquire high quality assets, personnel and companies. It is difficult to consistently anticipate player demand on a large scale, particularly as we develop new games in new genres or new markets, including international markets and mobile platforms. If we do not successfully launch games that attract and retain a significant number of players and extend the life of our existing games, our market share, reputation and financial results will be harmed. If our top games do not maintain their popularity, our results of operations could be harmed. In addition to creating new games that are attractive to a significant number of players, we must extend the life of our games, in particular our most successful games. For a game to remain popular, we must constantly enhance, expand or upgrade the game with new features that players find attractive. Such constant enhancement requires the investment of significant resources, particularly with older games and such costs on average have increased. We may not be able to successfully enhance, expand or upgrade our current games. Any reduction in the number of players of our most popular games, any decrease in the popularity of our games or social games in general, any breach of game-related security or prolonged server interruption, any loss of rights to any intellectual property underlying such games, or any other adverse developments relating to our most popular games, could harm our results of operations. A significant majority of our game traffic is hosted by a single vendor and any failure or significant interruption in our network could impact our operations and harm our business. Our technology infrastructure is critical to the performance of our games and to player satisfaction. Our games run on a complex distributed system, or what is commonly known as cloud computing. We own, operate and maintain elements of this system, but significant elements of this system are operated by third parties that we do not control and which would require significant time to replace. We expect this dependence on third parties to continue. In particular, a significant majority of our game traffic is hosted by Amazon Web Services, or AWS. In September 2011, AWS hosted approximately one half of our game traffic. AWS provides us with computing and storage capacity pursuant to an agreement that continues until terminated by either party. AWS may terminate the agreement without cause by providing 180 days prior written notice, and may terminate the agreement with 30 days prior written notice for cause, including any material default or breach of the agreement by us that we do not cure within the 30 day period. The agreement requires AWS to provide us their standard computing and storage capacity and related support in exchange for timely payment by us. We have experienced, and may in the future experience, website disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, human or software errors and capacity constraints. For example, the operation of a few of our significant games, including FarmVille and CityVille, was interrupted for several hours in April 2011 due to a network outage. If a particular game is unavailable when players attempt to access it or navigation through a game is slower than they expect, players may stop playing the game and may be less likely to return to the game as often, if at all. A failure or significant interruption in our game service would harm our reputation and operations. We expect to continue to make significant investments to our technology infrastructure to maintain and improve all aspects of player experience and game performance. To the extent that our disaster recovery systems are not adequate, or we do not effectively address capacity constraints, upgrade our systems as needed and continually develop our technology and network architecture to accommodate increasing traffic, our business and operating results may suffer. We do not maintain insurance policies covering losses relating to our systems and we do not have business interruption insurance. 16
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Security breaches, computer viruses and computer hacking attacks could harm our business and results of operations. Security breaches, computer malware and computer hacking attacks have become more prevalent in our industry, have occurred on our systems in the past and may occur on our systems in the future. Any security breach caused by hacking, which involves efforts to gain unauthorized access to information or systems, or to cause intentional malfunctions or loss or corruption of data, software, hardware or other computer equipment, and the inadvertent transmission of computer viruses could harm our business, financial condition and operating results. We have experienced and will continue to experience hacking attacks. Because of our prominence in the social game industry, we believe we are a particularly attractive target for hackers. Though it is difficult to determine what harm may directly result from any specific interruption or breach, any failure to maintain performance, reliability, security and availability of our network infrastructure to the satisfaction of our players may harm our reputation and our ability to retain existing players and attract new players. If we fail to effectively manage our growth, our business and operating results could be harmed. We continue to experience rapid growth in our headcount and operations, which will continue to place significant demands on our management and our operational, financial and technological infrastructure. As of September 30, 2011, approximately 60% of our employees had been with us for less than one year and approximately 88% for less than two years. As we continue to grow, we must expend significant resources to identify, hire, integrate, develop and motivate a large number of qualified employees. If we fail to effectively manage our hiring needs and successfully integrate our new hires, our ability to continue launching new games and enhance existing games could suffer. To effectively manage the growth of our business and operations, we will need to continue spending significant resources to improve our technology infrastructure, our operational, financial and management controls, and our reporting systems and procedures by, among other things: monitoring and updating our technology infrastructure to maintain high performance and minimize down time; enhancing information and communication systems to ensure that our employees and offices around the world are well-coordinated and can effectively communicate with each other; enhancing our internal controls to ensure timely and accurate reporting of all of our operations; and appropriately documenting our information technology systems and our business processes. These enhancements and improvements will require significant capital expenditures and allocation of valuable management and employee resources. If we fail to implement these enhancements and improvements effectively, our ability to manage our expected growth and comply with the rules and regulations that are applicable to public reporting companies will be impaired. In addition, if our operating costs are higher than we expect or if we do not maintain adequate control of our costs and expenses, our operating results will suffer. Our growth prospects will suffer if we are unable to develop successful games for mobile platforms. We have limited experience developing games for mobile platforms. We expect to devote substantial resources to the development of our mobile games, and our limited experience makes it difficult to know whether we will succeed in developing such games that appeal to players or advertisers. The uncertainties we face include: our experience in developing social games for use primarily on facebook may not be relevant for developing games for mobile platforms; we have limited experience working with wireless carriers, mobile platform providers and other partners whose cooperation we may need in order to be successful; 17
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we may encounter difficulty in integrating features on games developed for mobile platforms that a sufficient number of players will pay for; and we will need to move beyond payment methods provided by social networks and successfully allow for a variety of payment methods and systems based on the mobile platform, geographies and other factors. These and other uncertainties make it difficult to know whether we will succeed in developing commercially viable games for mobile. If we do not succeed in doing so, our growth prospects will suffer. Our core values of focusing on our players first and acting for the long term may conflict with the short-term interests of our business. One of our core values is to focus on surprising and delighting our players, which we believe is essential to our success and serves the best, longterm interests of Zynga and our stakeholders. Therefore, we have made, in the past and may make in the future, significant investments or changes in strategy that we think will benefit our players, even if our decision negatively impacts our operating results in the short term. For example, in late 2009 and in 2010 we reduced in-game advertising offers in order to improve player experience. This decrease in in-game offers led to a reduction of advertising revenue in 2010 as compared to 2009. Our decisions may not result in the long-term benefits that we expect, in which case the success of our games, business and operating results could be harmed. If we lose the services of our founder and Chief Executive Officer or other members of our senior management team, we may not be able to execute our business strategy. Our success depends in a large part upon the continued service of our senior management team. In particular, our founder and Chief Executive Officer, Mark Pincus, is critical to our vision, strategic direction, culture, products and technology. We do not maintain key-man insurance for Mr. Pincus or any other member of our senior management team. The loss of our founder and Chief Executive Officer, even temporarily, or any other member of senior management would harm our business. If we are unable to attract and retain highly qualified employees, we may not be able to grow effectively. Our ability to compete and grow depends in large part on the efforts and talents of our employees. Such employees, particularly game designers, product managers and engineers, are in high demand, and we devote significant resources to identifying, hiring, training, successfully integrating and retaining these employees. We have historically hired a number of key personnel through acquisitions, and as competition with several other game companies increases, we may incur significant expenses in continuing this practice. The loss of employees or the inability to hire additional skilled employees as necessary could result in significant disruptions to our business, and the integration of replacement personnel could be time-consuming and expensive and cause additional disruptions to our business. We believe that two critical components of our success and our ability to retain our best people are our culture and our competitive compensation practices. As we continue to grow rapidly, and we develop the infrastructure of a public company, we may find it difficult to maintain our entrepreneurial, execution-focused culture. In addition, many of our employees may be able to receive significant proceeds from sales of our equity in the public markets after our initial public offering, which may reduce their motivation to continue to work for us. Moreover, we expect that this offering will create disparities in wealth among our employees, which may harm our culture and relations among employees. 18
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An increasing number of individuals are utilizing devices other than personal computers to access the Internet, and versions of our games developed for these devices might not gain widespread adoption, or may not function as intended. The number of individuals who access the Internet through devices other than a personal computer, such as smartphones, tablets, televisions and set-top box devices, has increased dramatically, and we believe this trend is likely to continue. The generally lower processing speed, power, functionality and memory associated with these devices make playing our games through such devices more difficult; and the versions of our games developed for these devices may not be compelling to players. In addition, each device manufacturer or platform provider may establish unique or restrictive terms and conditions for developers on such devices or platforms, and our games may not work well or be viewable on these devices as a result. We have limited experience in developing and optimizing versions of our games for players on alternative devices and platforms. To expand our business, we will need to support a number of alternative devices and technologies. Once developed, we may choose to port or convert a game into separate versions for alternative devices with different technological requirements. As new devices and new mobile platforms or updates to platforms are continually being released, we may encounter problems in developing versions of our games for use on these alternative devices and we may need to devote significant resources to the creation, support, and maintenance of such devices and platforms. If we are unable to successfully expand the platforms and devices on which our games are available, or if the versions of our games that we create for alternative platforms and devices are not compelling to our players, our business will suffer. Expansion into international markets is important for our growth, and as we expand internationally, we face additional business, political, regulatory, operational, financial and economic risks, any of which could increase our costs and hinder such growth. Continuing to expand our business to attract players in countries other than the United States is a critical element of our business strategy. An important part of targeting international markets is developing offerings that are localized and customized for the players in those markets. We have limited operating history as a company outside the United States. We expect to continue to devote significant resources to international expansion through acquisitions, the establishment of additional offices and development studios, and increasing our foreign language offerings. Our ability to expand our business and to attract talented employees and players in an increasing number of international markets requires considerable management attention and resources and is subject to the particular challenges of supporting a rapidly growing business in an environment of multiple languages, cultures, customs, legal systems, alternative dispute systems, regulatory systems and commercial infrastructures. We have experienced difficulties in the past and have not been successful in all the countries we have entered. Expanding our international focus may subject us to risks that we have not faced before or increase risks that we currently face, including risks associated with: recruiting and retaining talented and capable management and employees in foreign countries; challenges caused by distance, language and cultural differences; developing and customizing games and other offerings that appeal to the tastes and preferences of players in international markets; competition from local game makers with significant market share in those markets and with a better understanding of player preferences; protecting and enforcing our intellectual property rights; negotiating agreements with local distribution platforms that are sufficiently economically beneficial to us and protective of our rights; the inability to extend proprietary rights in our brand, content or technology into new jurisdictions; implementing alternative payment methods for virtual goods in a manner that complies with local laws and practices and protects us from fraud; 19
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compliance with applicable foreign laws and regulations, including privacy laws and laws relating to content; compliance with anti-bribery laws including without limitation, compliance with the Foreign Corrupt Practices Act; credit risk and higher levels of payment fraud; currency exchange rate fluctuations; protectionist laws and business practices that favor local businesses in some countries; foreign tax consequences; foreign exchange controls or U.S. tax restrictions that might restrict or prevent us from repatriating income earned in countries outside the United States; political, economic and social instability; higher costs associated with doing business internationally; export or import regulations; and trade and tariff restrictions. Entering new international markets will be expensive, our ability to successfully gain market acceptance in any particular market is uncertain, and the distraction of our senior management team could harm our business. Competition within the broader entertainment industry is intense and our existing and potential players may be attracted to competing forms of entertainment such as offline and traditional online games, television, movies and sports, as well as other entertainment options on the Internet. Our players face a vast array of entertainment choices. Other forms of entertainment, such as offline, traditional online, personal computer and console games, television, movies, sports and the Internet, are much larger and more well-established markets and may be perceived by our players to offer greater variety, affordability, interactivity and enjoyment. These other forms of entertainment compete for the discretionary time and income of our players. If we are unable to sustain sufficient interest in our games in comparison to other forms of entertainment, including new forms of entertainment, our business model may no longer be viable. There are low barriers to entry in the social game industry, and competition is intense. The social game industry is highly competitive, with low barriers to entry and we expect more companies to enter the sector and a wider range of social games to be introduced. Our competitors that develop social games for social networks vary in size and include publicly-traded companies such as Electronic Arts Inc. and The Walt Disney Company and privately-held companies such as Crowdstar, Inc., Vostu, Ltd. and wooga GmbH. In addition, online game developers and distributors who are primarily focused on specific international markets, such as Tencent Holdings Limited in Asia, and highprofile companies with significant online presences that to date have not developed social games, such as Amazon.com, facebook, Google Inc., Microsoft Corporation and Yahoo! Inc., may decide to develop social games. Some of these current and potential competitors have significant resources for developing or acquiring additional games, may be able to incorporate their own strong brands and assets into their games, have a more diversified set of revenue sources than we do and may be less 20
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severely affected by changes in consumer preferences, regulations or other developments that may impact the online social game industry. In addition, we have limited experience in developing games for mobile and other platforms and our ability to succeed on those platforms is uncertain. As we continue to devote significant resources to developing games for those platforms, we will face significant competition from established companies that may have far greater experience than us, including Electronic Arts Inc., DeNA Co. Ltd., Gameloft SA, Glu Mobile Inc. and Rovio Mobile Ltd. We expect new mobile-game competitors to enter the market and existing competitors to allocate more resources to develop and market competing games and applications. The value of our virtual goods is highly dependent on how we manage the economies in our games. If we fail to manage our game economies properly, our business may suffer. Paying players purchase virtual goods in our games because of the perceived value of these goods which is dependent on the relative ease of securing an equivalent good via non-paid means within the game. The perceived value of these virtual goods can be impacted by an increase in the availability of free or discounted facebook Credits or by various actions that we take in the games including offering discounts for virtual goods, giving away virtual goods in promotions or providing easier non-paid means to secure these goods. If we fail to manage our virtual economies properly, players may be less likely to purchase virtual goods and our business may suffer. Some of our players may make sales and/or purchases of virtual goods used in our games through unauthorized third-party websites, which may impede our revenue growth. Some of our players may make sales and/or purchases of our virtual goods, such as Zynga Poker virtual poker chips, through unauthorized thirdparty sellers in exchange for real currency. These unauthorized transactions are usually arranged on third-party websites. We do not generate any revenue from these transactions. Accordingly, these unauthorized purchases and sales from third-party sellers could impede our revenue and profit growth by, among other things: decreasing revenue from authorized transactions; downward pressure on the prices we charge players for our virtual currency and virtual goods; lost revenue from paying players who stop playing a particular game; costs we incur to develop technological measures to curtail unauthorized transactions; legal claims relating to the diminution of value of our virtual goods; and increased customer support costs to respond to dissatisfied players. To discourage unauthorized purchases and sales of our virtual goods, we have stated in our terms of service that the buying or selling of virtual currency and virtual goods from unauthorized third-party sellers may result in bans from our games and/or legal action. We have banned players as a result of such activities. We have also developed technological measures to help detect unauthorized transactions. If we decide to implement further restrictions on players ability to transfer virtual goods, we may lose players, which could harm our financial condition and results of operations. The proliferation of cheating programs and scam offers that seek to exploit our games and players affects the game-playing experience and may lead players to stop playing our games. Unrelated third parties have developed, and may continue to develop, cheating programs that enable players to exploit our games, play them in an automated way or obtain unfair advantages over other players who do play fairly. These programs harm the experience of players who play fairly and may disrupt the virtual economy of our games. In addition, unrelated third parties attempt to scam our players with fake offers for virtual 21
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goods. We devote significant resources to discover and disable these programs and activities, and if we are unable to do so quickly our operations may be disrupted, our reputation damaged and players may stop playing our games. This may lead to lost revenue from paying players, increased cost of developing technological measures to combat these programs and activities, legal claims relating to the diminution in value of our virtual currency and goods, and increased customer service costs needed to respond to dissatisfied players. Our quarterly operating results are volatile and difficult to predict, and our stock price may decline if we fail to meet the expectations of securities analysts or investors. Our bookings, revenue, traffic and operating results could vary significantly from quarter-to-quarter and year-to-year and may fail to match our past performance or the expectations of securities analysis or investors because of a variety of factors, some of which are outside of our control. Any of these events could cause the market price of our Class A common stock to fluctuate. Factors that may contribute to the variability of our operating results include the risk factors listed in this section and the factors discussed in the section titled Managements Discussion and Analysis of Financial Condition and Results of Operations Factors Affecting Our Performance. In particular, we recognize revenue from sale of our virtual goods in accordance with GAAP, which is complex and based on our assumptions and historical data with respect to the sale and use of various types of virtual goods. In the event that such assumptions are revised based on new data or there are changes in the historical mix of virtual goods sold due to new game introductions, reduced virtual good sales in existing games or other factors or there are changes in our estimates of average playing periods, the amount of revenue that we recognize in any particular period may fluctuate significantly. For further information regarding our revenue recognition policy, see the section titled Managements Discussion and Analysis of Financial Condition and Results of OperationsCritical Accounting PoliciesRevenue Recognition. Given our short operating history and the rapidly evolving social game industry, our historical operating results may not be useful in predicting our future operating results. In addition, metrics we have developed or those available from third parties regarding our industry and the performance of our games, including DAUs, MAUs, MUUs and ABPU may not be indicative of our financial performance. Failure to protect or enforce our intellectual property rights or the costs involved in such enforcement could harm our business and operating results. We regard the protection of our trade secrets, copyrights, trademarks, trade dress, domain names and other product rights as critical to our success. We strive to protect our intellectual property rights by relying on federal, state and common law rights, as well as contractual restrictions. We enter into confidentiality and invention assignment agreements with our employees and contractors and confidentiality agreements with parties with whom we conduct business in order to limit access to, and disclosure and use of, our proprietary information. However, these contractual arrangements and the other steps we have taken to protect our intellectual property may not prevent the misappropriation of our proprietary information or deter independent development of similar technologies by others. We pursue the registration of our domain names, trademarks, and service marks in the United States and in certain locations outside the United States. We are seeking to protect our trademarks, patents and domain names in an increasing number of jurisdictions, a process that is expensive and time-consuming and may not be successful or which we may not pursue in every location. We may, over time, increase our investment in protecting our innovations through increased patent filings that are expensive and time-consuming and may not result in issued patents that can be effectively enforced. The Leahy-Smith America Invents Act, or the Leahy-Smith Act, was adopted in September 2011. The Leahy-Smith Act includes a number of significant changes to 22
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United States patent law, including provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. The United States Patent and Trademark Office is currently developing regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act will not become effective until up to 18 months after its enactment. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could harm our business. Litigation may be necessary to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of proprietary rights claimed by others. Any litigation of this nature, regardless of outcome or merit, could result in substantial costs, adverse publicity or diversion of management and technical resources, any of which could adversely affect our business and operating results. If we fail to maintain, protect and enhance our intellectual property rights, our business and operating results may be harmed. We are, and may in the future be, subject to intellectual property disputes, which are costly to defend and could require us to pay significant damages and could limit our ability to use certain technologies in the future. From time to time, we have faced, and we expect to face in the future, allegations that we have infringed the trademarks, copyrights, patents and other intellectual property rights of third parties, including from our competitors, non-practicing entities and former employers of our personnel. Patent and other intellectual property litigation may be protracted and expensive, and the results are difficult to predict. As the result of any court judgment or settlement we may be obligated to cancel the launch of a new game, stop offering certain features, pay royalties or significant settlement costs, purchase licenses or modify our games and features while we develop substitutes. In addition, we use open source software in our games and expect to continue to use open source software in the future. From time to time, we may face claims from companies that incorporate open source software into their products, claiming ownership of, or demanding release of, the source code, the open source software and/or derivative works that were developed using such software, or otherwise seeking to enforce the terms of the applicable open source license. These claims could also result in litigation, require us to purchase a costly license or require us to devote additional research and development resources to change our games, any of which would have a negative effect on our business and operating results. Although we do not believe that the final outcome of litigation and claims that we currently face will have a material adverse effect on our business, our expectations may not prove to be correct. Even if these matters do not result in litigation or are resolved in our favor or without significant cash settlements, these matters, and the time and resources necessary to litigate or resolve them, could harm our business, operating results, financial condition, reputation or the market price of our Class A common stock. Programming errors or flaws in our games could harm our reputation or decrease market acceptance of our games, which would harm our operating results. Our games may contain errors, bugs, flaws or corrupted data, and these defects may only become apparent after their launch, particularly as we launch new games and rapidly release new features to existing games under tight time constraints. We believe that if our players have a negative experience with our games, they may be less inclined to continue or resume playing our games or recommend our games to other potential players. Undetected programming errors, game defects and data corruption can disrupt our operations, adversely affect the game experience of our players by allowing players to gain unfair advantage, harm our reputation, cause our players to stop playing our games, divert our resources and delay market acceptance of our games, any of which could result in legal liability to us or harm our operating results. 23
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Evolving regulations concerning data privacy may result in increased regulation and different industry standards, which could prevent us from providing our current games to our players, or require us to modify our games, thereby harming our business. The regulatory framework for privacy issues worldwide is currently in flux and is likely to remain so for the foreseeable future. Practices regarding the collection, use, storage, transmission and security of personal information by companies operating over the Internet and mobile platforms have recently come under increased public scrutiny, and civil claims alleging liability for the breach of data privacy have been asserted against us. The U.S. government, including the Federal Trade Commission and the Department of Commerce, has announced that it is reviewing the need for greater regulation for the collection of information concerning consumer behavior on the Internet, including regulation aimed at restricting certain targeted advertising practices. In addition, the European Union is in the process of proposing reforms to its existing data protection legal framework, which may result in a greater compliance burden for companies with users in Europe. Various government and consumer agencies have also called for new regulation and changes in industry practices. We began operations in 2007 and have grown rapidly. While our administrative systems have developed rapidly, during our earlier history our practices relating to intellectual property, data privacy and security, and legal compliance may not have been as robust as they are now, and there may be unasserted claims arising from this period that we are not able to anticipate. In addition, our business, including our ability to operate and expand internationally, could be adversely affected if laws or regulations are adopted, interpreted, or implemented in a manner that is inconsistent with our current business practices and that require changes to these practices, the design of our website, games, features or our privacy policy. In particular, the success of our business has been, and we expect will continue to be, driven by our ability to responsibly use the data that our players share with us. Therefore, our business could be harmed by any significant change to applicable laws, regulations or industry practices regarding the use or disclosure of data our players choose to share with us, or regarding the manner in which the express or implied consent of consumers for such use and disclosure is obtained. Such changes may require us to modify our games and features, possibly in a material manner, and may limit our ability to develop new games and features that make use of the data that our players voluntarily share with us. We process, store and use personal information and other data, which subjects us to governmental regulation and other legal obligations related to privacy, and our actual or perceived failure to comply with such obligations could harm our business. We receive, store and process personal information and other player data, and we enable our players to share their personal information with each other and with third parties, including on the Internet and mobile platforms. There are numerous federal, state and local laws around the world regarding privacy and the storing, sharing, use, processing, disclosure and protection of personal information and other player data on the Internet and mobile platforms, the scope of which are changing, subject to differing interpretations, and may be inconsistent between countries or conflict with other rules. We generally comply with industry standards and are subject to the terms of our own privacy policies and privacy-related obligations to third parties (including voluntary third-party certification bodies such as TRUSTe). We strive to comply with all applicable laws, policies, legal obligations and certain industry codes of conduct relating to privacy and data protection, to the extent reasonably attainable. However, it is possible that these obligations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. Any failure or perceived failure by us to comply with our privacy policies, our privacy-related obligations to players or other third parties, or our privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of personally identifiable information or other player data, may result in governmental enforcement actions, litigation or public statements against us by consumer advocacy groups or others and could cause our players to lose trust in us, which could have an adverse effect on our business. Additionally, if third parties we work with, such as players, vendors or developers, violate applicable laws or our policies, such violations may also put our players information at risk and could in turn have an adverse effect on our business. 24
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In the area of information security and data protection, many states have passed laws requiring notification to players when there is a security breach for personal data, such as the 2002 amendment to Californias Information Practices Act, or requiring the adoption of minimum information security standards that are often vaguely defined and difficult to practically implement. The costs of compliance with these laws may increase in the future as a result of changes in interpretation. Furthermore, any failure on our part to comply with these laws may subject us to significant liabilities. Our business is subject to a variety of other U.S. and foreign laws, many of which are unsettled and still developing and which could subject us to claims or otherwise harm our business. We are subject to a variety of laws in the United States and abroad, including laws regarding consumer protection, intellectual property, export and national security, that are continuously evolving and developing. The scope and interpretation of the laws that are or may be applicable to us are often uncertain and may be conflicting, particularly laws outside the United States. For example, laws relating to the liability of providers of online services for activities of their users and other third parties are currently being tested by a number of claims, including actions based on invasion of privacy and other torts, unfair competition, copyright and trademark infringement, and other theories based on the nature and content of the materials searched, the ads posted or the content provided by users. It is also likely that as our business grows and evolves and our games are played in a greater number of countries, we will become subject to laws and regulations in additional jurisdictions. We are potentially subject to a number of foreign and domestic laws and regulations that affect the offering of certain types of content, such as that which depicts violence, many of which are ambiguous, still evolving and could be interpreted in ways that could harm our business or expose us to liability. In addition, certain of our games, including Zynga Poker, may become subject to gambling-related rules and regulations and expose us to civil and criminal penalties if we do not comply. It is difficult to predict how existing laws will be applied to our business and the new laws to which we may become subject. See the discussion included in the section titled Business Government Regulation. If we are not able to comply with these laws or regulations or if we become liable under these laws or regulations, we could be directly harmed, and we may be forced to implement new measures to reduce our exposure to this liability. This may require us to expend substantial resources or to modify our games, which would harm our business, financial condition and results of operations. In addition, the increased attention focused upon liability issues as a result of lawsuits and legislative proposals could harm our reputation or otherwise impact the growth of our business. Any costs incurred as a result of this potential liability could harm our business and operating results. It is possible that a number of laws and regulations may be adopted or construed to apply to us in the United States and elsewhere that could restrict the online and mobile industries, including player privacy, advertising, taxation, content suitability, copyright, distribution and antitrust. Furthermore, the growth and development of electronic commerce and virtual goods may prompt calls for more stringent consumer protection laws that may impose additional burdens on companies such as ours conducting business through the Internet and mobile devices. We anticipate that scrutiny and regulation of our industry will increase and we will be required to devote legal and other resources to addressing such regulation. For example, existing laws or new laws regarding the regulation of currency and banking institutions may be interpreted to cover virtual currency or goods. If that were to occur we may be required to seek licenses, authorizations or approvals from relevant regulators, the granting of which may be dependent on us meeting certain capital and other requirements and we may be subject to additional regulation and oversight, all of which could significantly increase our operating costs. Changes in current laws or regulations or the imposition of new laws and regulations in the United States or elsewhere regarding these activities may lessen the growth of social game services and impair our business. 25
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Companies and governmental agencies may restrict access to Facebook, our website or the Internet generally, which could lead to the loss or slower growth of our player base. Our players need to access the Internet and in particular facebook and our website to play our games. Companies and governmental agencies, could block access to Facebook, our website or the Internet generally for a number of reasons such as security or confidentiality concerns or regulatory reasons, or they may adopt policies that prohibit employees from accessing Facebook, our website or other social platforms. For example, the government of the Peoples Republic of China has blocked access to Facebook in China. If companies or governmental entities block or limit access to Facebook or our website or otherwise adopt policies restricting players from playing our games our business could be negatively impacted and could lead to the loss or slower growth of our player base. Our business will suffer if we are unable to successfully integrate acquired companies into our business or otherwise manage the growth associated with multiple acquisitions. We have acquired businesses, personnel and technologies in the past and we intend to continue to pursue acquisitions that are complementary to our existing business and expand our employee base and the breadth of our offerings. Our ability to grow through future acquisitions will depend on the availability of suitable acquisition and investment candidates at an acceptable cost, our ability to compete effectively to attract these candidates and the availability of financing to complete larger acquisitions. Since we expect the social game industry to consolidate in the future, we may face significant competition in executing our growth strategy. Future acquisitions or investments could result in potential dilutive issuances of equity securities, use of significant cash balances or incurrence of debt, contingent liabilities or amortization expenses related to goodwill and other intangible assets, any of which could adversely affect our financial condition and results of operations. The benefits of an acquisition or investment may also take considerable time to develop, and we cannot be certain that any particular acquisition or investment will produce the intended benefits. Integration of a new companys operations, assets and personnel into ours will require significant attention from our management. The diversion of our managements attention away from our business and any difficulties encountered in the integration process could harm our ability to manage our business. Future acquisitions will also expose us to potential risks, including risks associated with any acquired liabilities, the integration of new operations, technologies and personnel, unforeseen or hidden liabilities and unanticipated, information security vulnerabilities, the diversion of resources from our existing businesses, sites and technologies, the inability to generate sufficient revenue to offset the costs and expenses of acquisitions, and potential loss of, or harm to, our relationships with employees, players, and other suppliers as a result of integration of new businesses. Fluctuations in foreign currency exchange rates will affect our financial results, which we report in U.S. dollars. As we continue to expand our international operations, we become more exposed to the effects of fluctuations in currency exchange rates. We incur expenses for employee compensation and other operating expenses at our non-U.S. locations in the local currency, and an increasing percentage of our international revenue is from players who pay us in currencies other than the U.S. dollar. Fluctuations in the exchange rates between the U.S. dollar and those other currencies could result in the dollar equivalent of such expenses being higher and/or the dollar equivalent of such foreigndenominated revenue being lower than would be the case if exchange rates were stable. This could have a negative impact on our reported operating results. To date, we have not engaged in any hedging strategies, and any such strategies, such as forward contracts, options and foreign exchange swaps related to transaction exposures that we may implement to mitigate this risk may not eliminate our exposure to foreign exchange fluctuations. 26
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The enactment of legislation implementing changes in the U.S. taxation of international business activities or the adoption of other tax reform policies could materially impact our financial position and results of operations. The current administration has made public statements indicating that it has made international tax reform a priority, and key members of the U.S. Congress have conducted hearings and proposed new legislation. Recent changes to U.S. tax laws, including limitations on the ability of taxpayers to claim and utilize foreign tax credits and the deferral of certain tax deductions until earnings outside of the United States are repatriated to the United States, as well as changes to U.S. tax laws that may be enacted in the future, could impact the tax treatment of our foreign earnings. Due to the large and expanding scale of our international business activities, any changes in the U.S. taxation of such activities may increase our worldwide effective tax rate and harm our financial position and results of operations. A change in the application of the tax laws of various jurisdictions could result in an increase to our worldwide effective tax rate and a change in how we operate our business. Our corporate structure and intercompany arrangements, including the manner in which we develop and use our intellectual property and the transfer pricing of our intercompany transactions, are intended to provide us worldwide tax efficiencies. The application of the tax laws of various jurisdictions, including the United States, to our international business activities is subject to interpretation and depends on our ability to operate our business in a manner consistent with our corporate structure and intercompany arrangements. The taxing authorities of the jurisdictions in which we operate may challenge our methodologies for valuing developed technology or intercompany arrangements, including our transfer pricing, or determine that the manner in which we operate our business is not consistent with the manner in which we report our income to the jurisdictions, which could increase our worldwide effective tax rate and harm our financial position and results of operations. Our facilities are located near known earthquake fault zones, and the occurrence of an earthquake or other natural disaster could cause damage to our facilities and equipment, which could require us to curtail or cease operations. Our principal offices and a network operations center are located in the San Francisco Bay Area, an area known for earthquakes, and are thus vulnerable to damage. We are also vulnerable to damage from other types of disasters, including power loss, fire, explosions, floods, communications failures, terrorist attacks and similar events. If any disaster were to occur, our ability to operate our business at our facilities could be impaired. We may require additional capital to meet our financial obligations and support business growth, and this capital might not be available on acceptable terms or at all. We intend to continue to make significant investments to support our business growth and may require additional funds to respond to business challenges, including the need to develop new games and features or enhance our existing games, improve our operating infrastructure or acquire complementary businesses, personnel and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through future issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our Class A common stock. Any debt financing we secure 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. We may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly impaired, and our business may be harmed. 27
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Risks Related to This Offering and Ownership of Our Class A Common Stock The three class structure of our common stock has the effect of concentrating voting control with those stockholders who held our stock prior to this offering, including our founder and Chief Executive Officer and our other executive officers, employees and directors and their affiliates; this will limit your ability to influence corporate matters. Our Class C common stock has 70 votes per share, our Class B common stock has seven votes per share and our Class A common stock, which is the stock we are offering in this offering, has one vote per share. The holders of Class B common stock and Class C common stock, including our founder and Chief Executive Officer, Mark Pincus, and our other executive officers, employees and directors and their affiliates, will collectively hold approximately % of the voting power of our outstanding capital stock following this offering. As a result, these holders, along with Mr. Pincus, will have significant influence over the management and affairs of the company and over matters requiring stockholder approval, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets, for the foreseeable future. This concentrated voting control will limit your ability to influence corporate matters and could adversely affect the market price of our Class A common stock. Future sales by holders of Class B common stock or Class C common stock will result in those shares converting to Class A common stock, which will have the effect, over time, of increasing the relative voting power of those stockholders who retain their existing shares of Class B or Class C common stock. In addition, as shares of Class B common stock are sold and converted to Class A common stock, the sole holder of Class C common stock, Mr. Pincus, will have greater relative voting control to the extent he retains his existing shares of Class C common stock. Mr. Pincus is entitled to vote his shares in his own interests and may do so. Certain provisions in our charter documents and under Delaware law could limit attempts by our stockholders to replace or remove our board of directors or current management and limit the market price of our Class A common stock. Provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing changes in our board of directors or management. Our certificate of incorporation and bylaws will include provisions that: establish an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations of persons for election to our board of directors; prohibit cumulative voting in the election of directors; and reflect three classes of common stock, as discussed above. These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any interested stockholder for a period of three years following the date on which the stockholder became an interested stockholder. Our share price may be volatile, and you may be unable to sell your shares at or above the initial public offering price, if at all. The initial public offering price for the shares of our Class A common stock will be determined by negotiations between us and representatives of the underwriters and may not be indicative of prices that will prevail in the trading market. The market price of our Class A common stock could be subject to wide fluctuations in response to many risk factors listed in this section, and others beyond our control, including: changes in projected operational and financial results; 28
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issuance of new or updated research or reports by securities analysts; the use by investors or analysts of third-party data regarding our business that may not reflect our actual performance; fluctuations in the valuation of companies perceived by investors to be comparable to us; fluctuations in the trading volume of our shares, or the size of our public float; and general economic and market conditions. Furthermore, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes or international currency fluctuations, may negatively impact the market price of our Class A common stock. If the market price of our Class A common stock after this offering does not exceed the initial public offering price, you may not realize any return on your investment and may lose some or all of your investment. In the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our managements attention from other business concerns, which could harm our business. Our Class A common stock price may be volatile due to third-party data regarding our games. Third parties, such as AppData, publish daily data about us and other social game companies with respect to DAUs and MAUs and other information concerning social game usage, in particular on facebook. These metrics can be volatile, particularly for specific games, and in many cases do not accurately reflect the actual levels of usage of our games across all platforms and may not correlate to our bookings or revenue from the sale of virtual goods. There is a possibility that third parties could change their methodologies for calculating these metrics in the future. To the extent that securities analysts or investors base their views of our business or prospects on such third-party data, the price of our Class A common stock may be volatile and may not reflect the performance of our business. We may invest or spend the proceeds of this offering in ways with which you may not agree or in ways which may not yield a return. The net proceeds from the sale of shares by us in the offering may be used for general corporate purposes, including working capital. We may also use a portion of the net proceeds to acquire or invest in complementary businesses, technologies or other assets. 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 to us from this offering may be invested with a view towards long-term benefits for our stockholders, and this may not increase our operating results or the market value of our Class A common stock. Until the net proceeds are used, they may be placed in investments that do not produce significant income or that may lose value. If securities or industry analysts do not publish research about our business, or publish negative reports about our business, our share price and trading volume could decline. The trading market for our Class A common stock will, to some extent, depend on the research and reports that securities or industry analysts publish about our business. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade our shares or change their opinion of our shares, our share price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline. 29
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Future sales of our Class A common stock in the public market could cause our share price to decline. Sales of a substantial number of shares of our Class A common stock in the public market after this offering, or the perception that these sales might occur, could depress the market price of our Class A common stock and could impair our ability to raise capital through the sale of additional equity securities. Based on the total number of outstanding shares of our common stock as of September 30, 2011, upon the closing of this offering, we will have shares of Class A common stock, shares of Class B common stock and 20,517,472 shares of Class C common stock outstanding, assuming no exercise of our outstanding options and warrants or vesting of ZSUs, and the sale of shares of our Class A common stock to be sold by the selling stockholders. All of the shares of Class A common stock sold in this offering will be freely tradable without restrictions or further registration under the Securities Act of 1933, as amended, or the Securities Act, except for any shares held by our affiliates as defined in Rule 144 under the Securities Act. The shares of Class B common stock and 20,517,472 shares of Class C common stock outstanding after this offering, based on shares outstanding as of September 30, 2011, will be restricted as a result of securities laws, lock-up agreements or other contractual restrictions that restrict transfers after the date of this prospectus. Please see the discussion in the section titled Shares Eligible For Future Sale. After this offering, the holders of shares of Class B common stock, or % of our total outstanding common stock, and 20,517,472 shares of Class C common stock, or % of our total outstanding common stock, based on shares outstanding as of September 30, 2011 and giving effect to the sale of shares by the selling stockholders, will be entitled to rights with respect to registration of these shares under the Securities Act pursuant to an investors rights agreement. Shares of our Class B and Class C common stock automatically will convert into shares of our Class A common stock upon any sale or transfer, whether or not for value, except for certain transfers described in our amended and restated certificate of incorporation to become effective upon closing of this offering. If these holders of our Class B and Class C common stock, by exercising their registration rights, sell a large number of shares, they could adversely affect the market price for our Class A common stock. If we file a registration statement for the purposes of selling additional shares to raise capital and are required to include shares held by these holders pursuant to the exercise of their registration rights, our ability to raise capital may be impaired. We intend to file a registration statement on Form S-8 under the Securities Act to register up to approximately million shares of our common stock for issuance under our Amended and Restated 2007 Equity Incentive Plan, 2011 Employee Stock Purchase Plan and 2011 Equity Incentive Plan. Once we register these shares, they can be freely sold in the public market upon issuance and once vested, subject to a lock-up period and other restrictions provided under the terms of the applicable plan and/or the agreements entered into with the holders of these shares. No public market for our Class A common stock currently exists, and an active public trading market may not develop or be sustained following this offering. Prior to this offering, there has been no public market for our Class A common stock, and there has been no public market or active private market for our other classes of capital stock. Although we have applied to list our Class A common stock on the NASDAQ Global Select Market, an active trading market may not develop following the completion of this offering or, if developed, may not be sustained. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the market price of your shares of Class A common stock. An inactive market may also impair our ability to raise capital by selling shares and may impair our ability to acquire other companies or technologies by using our shares as consideration. If we are unable to implement and maintain effective internal control over financial reporting in the future, the accuracy and timeliness of our financial reporting may be adversely affected. If we are unable to maintain adequate internal controls for financial reporting in the future, or if our auditors are unable to express an opinion as to the effectiveness of our internal controls as will be required pursuant to the Sarbanes-Oxley Act, investor confidence in the accuracy of our financial reports may be impacted or the market price of our Class A common stock could be negatively impacted. 30
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The requirements of being a public company may strain our resources, divert managements attention and affect our ability to attract and retain qualified board members. As a public company, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of the NASDAQ Global Select Market and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, timeconsuming or costly and increase demand on our systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and operating results. We also expect that being a public company will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers. As a result of disclosure of information in this prospectus and in filings required of a public company, our business and financial condition will become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and operating results could be harmed, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and harm our business and operating results. We do not intend to pay dividends for the foreseeable future, and as a result your ability to achieve a return on your investment will depend on appreciation in the price of our Class A common stock. We have never declared or paid any cash dividends on our common stock and do not intend to pay any cash dividends in the foreseeable future. We anticipate that we will retain all of our future earnings for use in the development of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our board of directors. Accordingly, investors must rely on sales of their Class A common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments. 31
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LETTER FROM OUR FOUNDER Dear potential Zynga shareholders, Im proud and excited to be writing this letter to you today. Zynga is a company with more than 2,500 amazingly talented employees dedicated to engaging, surprising and delighting an audience that has grown to 152 million monthly unique users in 175 countries. And because our users typically play more than one of our games each month, they account for 227 million MAUs (monthly active users). Our players create and store more than 30,000 virtual items every second and spend 2 billion minutes a day with our service. In just over 4 years, weve generated over $1.5 billion in revenue and over $2.0 billion in bookings. We founded Zynga in 2007 with the mission of connecting the world through games. We believed playlike search, share and shopwould become one of the core activities on the internet. Play is one of lifes big macrosits an activity people love to do and do often. Zynga was founded on a deeply held passion for games that family and friends play togetherconnecting, collaborating, gifting, bragging, nurturing, admiring and sometimes just doing silly stuff together. Reality is, we all wish we had more time to play together. To put the play macro in perspective, games have become the second most popular internet activity based on time spent, and have even surpassed email. Weve turned our rapidly growing base of smartphones and tablets into play devices. In fact, games are now the most popular category of apps on smartphones and represent nearly half of the time spent. But, Zynga has a lot of hard work, innovation and growth ahead of us to create a future where social gaming becomes a daily habit for nearly everyone. Our strategy from the beginning has been to build the biggest macro bet on social gaming to provide our players with the most accessible, social and fun games. Despite our rapid growth, we have been careful to build for the long term. Ive always thought of this journey as being a series of sprints that make up a marathon. We raised hundreds of millions of dollars to maximize our ability to make large investments in teams, games and infrastructure. For example, our Chief Technology Officer joined us in the fall of 2008 with a mission of building the greatest data warehouse in the game industry, which now processes 15 terabytes of game data every day. We will continue to make these big investments and big bets in pursuit of our mission. Our operating philosophies have been fundamental to our growth. They include: Games should be accessible to everyone, anywhere, any time. From the beginning, we have strived to lower the barriers to play in peoples lives. We want to build games to play with our parents, our children, our co-workers and our best friends. Games should be social. Every week our teams test new features to make our games more social. Historically, our players have created over 4 billion neighbor connections. And, our 54 million daily active users interact with each other over 450 million times a day. Games should be free. Free games are more social because theyre more accessible to everyone. Weve also found them to be more profitable. We have created a new kind of customer relationship with new economicsfree first, high satisfaction, pay optional. This model aligns shareholder value with delivering the best player experience. Games should be data driven. Our culture combines the creative with the analytical. We develop and operate our games as live services with daily, metrics-based player feedback. This allows us to continually iterate, innovate and invest in the content our players love. Games should do good. We want to help the world while doing our day jobs. Through Zynga.org our players have purchased social goods, raising more than $10 million for those in need from tornado-stricken communities in Alabama to earthquake survivors in Haiti. With programs like our Sweet Seeds for Haiti, our players have touched people around the world. As we look to the future, we believe our core values will be key to our continued growth. Our goal is for everyone at Zynga to be a CEO with accountability and authority to drive important outcomes. It takes inspired 32
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people to make inspiring products. Weve endeavored to create an environment that fosters intelligent risk-taking in order to invent bold beats innovations that really advance the social gaming experience for our players. Our company is diverse, creative and entrepreneurial. I often describe Zynga as a confederation of entrepreneurs. More specifically, our core values that make up these philosophies are: Build games you and your friends love to play. Surprise and delight our players. Zynga is a meritocracy. Be a CEO and own outcomes. Move at Zynga speed. Put Zynga first, decisions for the greater good. Always innovate. And now, by offering our shares to the public we hope to enable Zynga to invest more in play than any company in history. To accomplish this, we will continue to make big investments in servers, data centers and other infrastructure so players farms, cities, islands, airplanes, triple words and empires can be available on all their devices in an instant. We will also continue to fund the best teams around the world to build the most accessible, social and fun games. We believe we will maximize long-term shareholder value by delivering long-term player value. This means we will make decisions and trade-offs that are different from other companies. We will prioritize innovation and long-term growth over quarterly earnings. We will not make short-term decisions that sacrifice our core values or veer from our long-term vision. As we have done with our current investors, we will strive to communicate with transparency to help you understand how we are doing against our mission. You will be able to track our performance every day in publicly available third-party traffic reports. And of course, youll be able to play our games yourself to be able to track our progress against being the most fun and most social. With this offering we are inviting you to join our mission. Invest with us because you believe in the potential for the world to play together. Evaluate us by how many of your friends and family play our games. Before you invest, we hope you will play our games. And, if youre part of the hundreds of millions who have already played our games, thank you. Youre part of the future. At Zynga, we feel a personal connection to our games through our friends and family. I love that my brother in-law, who has five kids and no free time, religiously plays our game Words with Friends. While Im humbled by the size of the audience we enable to play today, were just getting started. Were thinking every day how much more accessible, social and fun our games can get. My kids decided a few months ago that peek-a-boo was their favorite game. While its unlikely we can improve upon this classic, I look forward to playing Zynga games with them very soon. When they enter high school theres no doubt that theyll search on Google, theyll share with their friends on facebook and theyll probably do a lot of shopping on Amazon. And Im planning for Zynga to be there when they want to play. Lets play.
Mark Pincus Founder and CEO November 17, 2011 San Francisco, CA 33
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This prospectus, including the letter from our founder and the sections titled Prospectus Summary, Risk Factors, Market Data and User Metrics, Use of Proceeds, Managements Discussion and Analysis of Financial Condition and Results of Operations, Business and Shares Eligible for Future Sale, contains forward-looking statements. In some cases you can identify these statements by forward-looking words such as believe, may, will, estimate, continue, anticipate, intend, could, would, project, plan, expect or the negative or plural of these words or similar expressions. These forward-looking statements include, but are not limited to, statements concerning the following: our future relationship with facebook; launching new games and enhancements to games that are commercially successful; continued growth in demand for virtual goods and in the social games industry; building and sustaining our franchise games; the ability of our games to generate revenue and bookings for a significant period of time after launch; capital expenditures and investment in our network infrastructure, including data centers; retaining and adding players and increasing the monetization of our player base; maintaining a technology infrastructure that can efficiently and reliably handle increased player usage, fast load times and the deployment of new features and products; attracting and retaining qualified employees and key personnel; designing games for mobile and other non-PC devices, and pursuing mobile initiatives generally; our successful growth internationally; maintaining, protecting and enhancing our intellectual property; protecting our players information and adequately addressing privacy concerns; and successfully acquiring and integrating companies and assets. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in Risk Factors. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, except as required by law, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this prospectus to conform these statements to actual results or to changes in our expectations. You should read this prospectus and the documents that we reference in this prospectus and have filed with the Securities and Exchange Commission as exhibits to the registration statement of which this prospectus is a part with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect. 34
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MARKET DATA AND USER METRICS Market Data Unless otherwise indicated, information contained in this prospectus concerning our industry and the sector in which we operate, including our general expectations and position, opportunity and size estimates, is based on information from various sources, on assumptions that we have made that are based on those and other similar sources and on our knowledge of the audience for our games. This information involves a number of assumptions and limitations, and we caution you not to give undue weight to such estimates. We have not independently verified any third-party information and while we believe the position, opportunity and sector size information included in this prospectus is generally reliable, such information is inherently imprecise. In addition, projections, assumptions and estimates of our future performance and the future performance of the industry in which we operate is necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in Risk Factors and elsewhere in this prospectus. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us. We believe that our games compete for the attention of players with the other forms of entertainment that comprise the global entertainment industry. Collectively, we refer to these markets as the Worldwide Entertainment Market. According to IDC, the worldwide markets for Internet advertising, television advertising, video game software and radio advertising in 2011 are forecasted to be $83 billion, $212 billion, $49 billion and $34 billion, respectively. According to IBISWorld, Inc., a media research and consulting company, the worldwide markets for movies, books, newspapers (including newspaper advertising), magazines (including magazine advertising) and recorded music in 2011 are forecasted to be $122 billion, $95 billion, $169 billion, $116 billion and $30 billion, respectively. According to Screen Digest, Ltd., a market research firm, the worldwide market for television subscriptions in 2011 is forecasted to be $189 billion. Aggregating these sources, we believe that the Worldwide Entertainment Market in 2011 is forecasted to be more than $1.0 trillion. User Metrics In this prospectus, when we refer to DAUs, MAUs, MUUs or ABPU, unless otherwise indicated, we are referring to internally-measured user information. For information concerning these metrics as measured by us, see the section titled Managements Discussion and Analysis of Financial Condition and Results of OperationsKey MetricsKey Operating Metrics. We also refer in this prospectus to DAUs and MAUs as measured and published by AppData, an independent service that publicly reports traffic data for games and other applications on facebook. We rely on AppData information whenever we refer to the ranking of our games on Facebook or compare our games to the games of other developers on Facebook. Each of these references is identified by the phrase according to AppData or a similar phrase. References in this prospectus to AppData mean Inside Networks AppData service, together with other services run by Inside Network. Our DAU and MAU information is based on our own internal analytics systems and may differ from the corresponding information published by AppData. We count a user as an active user of a game only after the user has navigated to the game and the game has been installed or loaded on the users computer or other connected device. AppDatas information includes only users who access our games through Facebook, while our information includes users across all platforms on which our games are played. AppData has changed its methodologies for calculating DAUs and MAUs in the past and may change its methodologies in the future. Prior to October 15, 2011, AppData counted a user of an application as an active user as soon as the user navigated to a web page requesting permission to install the application, irrespective of whether an application was actually installed. For data after October 15, 2011, AppData uses a methodology similar to ours to define an active user. 35
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USE OF PROCEEDS We estimate that the net proceeds from the sale of Class A common stock offered by us will be approximately $ million, based upon an assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters over-allotment option to purchase additional shares in this offering is exercised in full, we estimate that our net proceeds will be approximately $ million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We will not receive any proceeds from the sale of Class A common stock by the selling stockholders. Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share would increase (decrease) the net proceeds to us from this offering by approximately $ million, assuming the number of shares offered by us as set forth on the cover page of this prospectus remains the same and after deducting the underwriting discounts and commissions. Similarly, each increase (decrease) of shares in the number of shares of Class A common stock offered by us would increase (decrease) the net proceeds to us from this offering by approximately $ million, assuming that the assumed initial public offering price remains the same, and after deducting the underwriting discounts and commissions. The principal purposes of this offering are to increase our capitalization and financial flexibility, increase our visibility in the marketplace and create a public market for our Class A common stock. As of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds to us of this offering. However, we currently intend to use the net proceeds to us from this offering primarily for general corporate purposes, including working capital, game development, marketing activities and capital expenditures. We also intend to use approximately $ million of the net proceeds to satisfy tax withholding obligations related to the vesting of ZSUs held by current or former employees and other service providers, which will occur in connection with this offering. We may also use a portion of the net proceeds for the acquisition of, or investment in, complementary businesses, technologies or other assets that complement our business, although we have no present commitments or agreements to enter into any material acquisitions or investments. We intend to contribute a portion of the net proceeds to charitable causes through Zynga.org, our philanthropic initiative. We will have broad discretion over the uses of the net proceeds in this offering. Pending these uses, we intend to invest the net proceeds from this offering in short-term, investment-grade interest-bearing securities such as money market funds, certificates of deposit, commercial paper and guaranteed obligations of the U.S. government. DIVIDEND POLICY We have never declared or paid, and do not anticipate declaring or paying, any cash dividends on our capital stock. Any future determination as to the declaration and payment of dividends, if any, will be at the discretion of our board of directors and will depend on then existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant. 36
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CAPITALIZATION The following table sets forth our cash, cash equivalents and marketable securities and our capitalization as of September 30, 2011: on an actual basis; on a pro forma basis, giving effect to: the automatic conversion of all outstanding shares of preferred stock into 304,887,421 shares of Class B common stock immediately prior to the closing of this offering as if such conversion had occurred on September 30, 2011; the issuance of shares of Class B common stock that will vest and be issued to certain holders of restricted stock units, or ZSUs, in connection with this offering. We intend to issue the shares of Class B common stock on a net basis in order to cover associated tax withholding requirements; and a $393.0 million reduction in retained earnings (deficit) and increase to additional paid in capital associated with stock-based compensation from the issuance and delivery of the shares of Class B common stock to certain ZSU holders, as well as a $ decrease in cash and a reduction to additional paid-in-capital associated with tax withholdings from the net settlement. on a pro forma as adjusted basis to reflect, the sale by us of shares of Class A common stock in this offering at an assumed initial public offering price of $ per share, the midpoint of the price range listed on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, and the conversion of shares of Class B common stock to be sold by the selling stockholders into shares of Class A common stock upon such sale. You should read the information in this table together with our financial statements and accompanying notes and Managements Discussion and Analysis of Financial Condition and Results of Operations appearing elsewhere in this prospectus.
As of September 30, 2011 Pro Forma As Actual Pro Forma Adjusted (1) (in thousands, except per share data)
Cash, cash equivalents and marketable securities Stockholders equity: Preferred stock, $0.00000625 par value, no shares authorized, issued and outstanding, actual; shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted Convertible preferred stock, $0.00000625 par value, 399,822 shares authorized, 304,887 shares issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma and pro forma as adjusted Class A common stock, $0.00000625 par value, 1,100,000 shares authorized, shares issued and outstanding, actual and pro forma; shares authorized, shares issued and outstanding, pro forma as adjusted 37
$926,333
$926,333
914,151
Table of Contents As of September 30, 2011 Pro Forma As Actual Pro Forma Adjusted (1) (in thousands, except per share data)
Class B common stock, $0.00000625 par value, 900,000 shares authorized, 260,044 shares issued and outstanding, actual; shares authorized, shares issued and outstanding, pro forma; shares authorized, shares issued and outstanding, pro forma as adjusted Class C common stock, $0.00000625 par value, 20,517 shares authorized, issued and outstanding, actual, pro forma and pro forma as adjusted Additional paid-in capital Treasury stock Other comprehensive income Retained earnings (deficit) Total stockholders equity Total capitalization (1)
2 114,805 (282,754) 548 40,911 787,663 $1,713,996 $ $ (282,754) 548 (352,089)
Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share would increase (decrease) each of cash and cash equivalents, additional paid-in capital, total stockholders equity and total capitalization by approximately $ million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions. Similarly, each increase (decrease) of shares in the number of shares offered by us would increase (decrease) cash and cash equivalents, additional paid-in capital, total stockholders equity and total capitalization by approximately $ , assuming the assumed initial public offering price remains the same, and after deducting underwriting discounts and commissions. The pro forma as adjusted information discussed above is illustrative only and will adjust based on the actual initial public offering price and other terms of this offering determined at pricing.
The outstanding share information in the table above is based on 564,931,115 shares of our Class B common stock (including preferred stock on an as converted basis) and 20,517,472 shares of our Class C common stock outstanding as of September 30, 2011, and excludes: 109,157,667 shares of Class B common stock issuable upon the exercise of stock options outstanding as of September 30, 2011 under our 2007 Equity Incentive Plan at a weighted-average exercise price of $0.93 per share; 99,994,695 shares of Class B common stock issuable upon vesting of restricted stock units, or ZSUs, outstanding as of September 30, 2011 under our 2007 Equity Incentive Plan; 18,854,848 shares of Class B common stock issuable upon the exercise of warrants outstanding as of September 30, 2011 at a weightedaverage exercise price of $0.02460 per share, which warrants are expected to remain outstanding upon closing of this offering; 4,632,918 additional shares of Class B common stock reserved for future issuance under our 2007 Equity Incentive Plan as of September 30, 2011; provided, however, that immediately upon the signing of the underwriting agreement for this offering, our 2007 Equity Incentive Plan will terminate so that no further awards may be granted under our 2007 Equity Incentive Plan; 42,500,000 additional shares of Class A common stock reserved for future issuance under our 2011 Equity Incentive Plan, which we plan to adopt in connection with this offering; and 8,500,000 additional shares of Class A common stock reserved for future issuance under our 2011 Employee Stock Purchase Plan, which we plan to adopt in connection with this offering. 38
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DILUTION If you invest in our Class A common stock, your interest will be diluted to the extent of the difference between the initial public offering price per share of our Class A common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering. The historical net tangible book value of our common stock as of September 30, 2011 was $656.0 million, or $2.34 per share. Historical net tangible book value per share represents our total tangible assets less our total liabilities, divided by the number of shares of outstanding common stock. After giving effect to (i) the automatic conversion of our outstanding preferred stock into our Class B common stock immediately prior to the closing of this offering, (ii) the issuance of shares of Class B common stock upon the vesting of outstanding ZSUs in connection with this offering, (iii) a $ reduction in cash and cash equivalents as a result of payments made to satisfy tax withholding obligations related to the vesting of outstanding ZSUs in connection with this offering, and (iv) the receipt of the net proceeds from our sale of shares of Class A common stock at an assumed initial public offering price of $ per share, the mid-point of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of September 30, 2011 would have been approximately $ , or $ per share. This represents an immediate increase in pro forma as adjusted net tangible book value of $ per share to our existing stockholders and an immediate dilution of $ per share to investors purchasing Class A common stock in this offering. The following table illustrates this dilution on a per share basis to new investors: Assumed initial public offering price per share Pro forma net tangible book value per share as of September 30, 2011 Increase in pro forma as adjusted net tangible book value per share attributed to new investors purchasing shares from us in this offering Pro forma as adjusted net tangible book value per share after giving effect to this offering Dilution in pro forma net tangible book value per share to new investors in this offering $ $ $
Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share would increase (decrease) the pro forma net tangible book value, as adjusted to give effect to this offering, by $ per share and the dilution to new investors by $ per share, 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 underwriting discounts and commissions. Similarly, each increase (decrease) of shares in the number of Class A common stock offered by us would increase (decrease) the pro forma net tangible book value, as adjusted to give effect to this offering, by approximately $ per share and the dilution to new investors by $ per share, assuming the assumed initial public offering price remains the same and after deducting underwriting discounts and commissions. If the underwriters exercise their over-allotment option in full, the pro forma net tangible book value per share of our Class A, Class B and Class C common stock, as adjusted to give effect to this offering, would be $ per share, and the dilution in pro forma net tangible book value per share to investors in this offering would be $ per share of Class A common stock. 39
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The table below summarizes as of September 30, 2011, on a pro forma as adjusted basis described above, the number of shares of our common stock, the total consideration and the average price per share (i) paid to us by our existing stockholders and (ii) to be paid by new investors purchasing our Class A common stock in this offering at an assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, before deducting underwriting discounts and commissions and estimated offering expenses payable by us.
Shares Purchased Number Total Consideration Average Price Per Share
Percent Amount Percent (in thousands, except per share data)
Existing stockholders New investors Total
594,449
% % 100.0%
$1,033,864
% % 100.0%
$ 1.73
The total number of shares of our Class A, Class B and Class C common stock reflected in the discussion and tables above is based on no shares of our Class A common stock, 564,931,115 shares of our Class B common stock (including preferred stock on an as converted basis) and 20,517,472 shares of our Class C common stock outstanding, as of September 30, 2011, and excludes: 109,157,667 shares of Class B common stock issuable upon the exercise of stock options outstanding as of September 30, 2011 under our 2007 Equity Incentive Plan at a weighted-average exercise price of $0.93 per share; 99,994,695 shares of Class B common stock issuable upon vesting of restricted stock units, or ZSUs, outstanding as of September 30, 2011 under our 2007 Equity Incentive Plan; 18,854,848 shares of Class B common stock issuable upon the exercise of warrants outstanding as of September 30, 2011 at a weightedaverage exercise price of $0.02460 per share, which warrants are expected to remain outstanding upon closing of this offering; 4,632,918 additional shares of Class B common stock reserved for future issuance under our 2007 Equity Incentive Plan as of September 30, 2011; provided, however, that immediately upon the signing of the underwriting agreement for this offering, our 2007 Equity Incentive Plan will terminate so that no further awards may be granted under our 2007 Equity Incentive Plan; 42,500,000 additional shares of Class A common stock reserved for future issuance under our 2011 Equity Incentive Plan, which we plan to adopt in connection with this offering; and 8,500,000 additional shares of Class A common stock reserved for future issuance under our 2011 Employee Stock Purchase Plan, which we plan to adopt in connection with this offering. Sales by the selling stockholders in this offering will cause the number of shares held by existing stockholders to be reduced to shares, or % of the total number of shares of our common stock outstanding after this offering, and will increase the number of shares held by new investors to shares, or % of the total number of shares outstanding after this offering. To the extent that any outstanding options are exercised, new options are issued under our stock-based compensation plans or we issue additional shares of common stock in the future, there will be further dilution to investors participating in this offering. If all outstanding options under our 2007 Equity Incentive Plan as of September 30, 2011 were exercised, then our existing stockholders, including the holders of these options, would own % and our new investors would own % of the total number of shares of our Class A, Class B and Class C common stock outstanding upon the closing of this offering. In such event, the total consideration paid by our existing stockholders, including the holders of these options, would be approximately $ million, or %, the total consideration paid by our new investors would be $ million, or %, the average price per share paid by our existing stockholders would be $ and the average price per share paid by our new investors would be $ . 40
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SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data should be read in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations and our audited consolidated financial statements and related notes, which are included elsewhere in this prospectus. The consolidated statements of operations data for the years ended December 31, 2008, 2009 and 2010 as well as the consolidated balance sheet data as of December 31, 2009 and 2010 are derived from the audited consolidated financial statements that are included elsewhere in this prospectus. The consolidated statements of operations data for the nine months ended September 30, 2010 and 2011, and the consolidated balance sheet data as of September 30, 2011 have been derived from our unaudited consolidated financial statements appearing elsewhere in this prospectus. We have included, in our opinion, all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of the financial information set forth in those statements. The consolidated statement of operations data for the period from inception (April 19, 2007) to December 31, 2007, as well as the consolidated balance sheet data as of December 31, 2007 and 2008, are derived from audited consolidated financial statements that are not included in this prospectus. Our historical results are not necessarily indicative of the results to be expected in the future, and our interim results are not necessarily indicative of the results to be expected for the full fiscal year. 41
Table of Contents Period from Inception (April 19, 2007) to December 31, 2007
Year Ended December 31, 2008
Nine Months Ended September 30, 2011
2009 2010 2010 (in thousands, except per share, users and ABPU data)
Consolidated Statements of Operations Data: Revenue Costs and expenses: Cost of revenue Research and development Sales and marketing General and administrative Total costs and expenses Income (loss) from operations Interest income Other income (expenses), net Income (loss) before income taxes Provision for income taxes Net income (loss) Deemed dividend to a Series B-2 convertible preferred stockholder Net income attributable to participating securities Net income (loss) attributable to Class B and Class C common stockholders (1) Net income (loss) per share attributable to Class B and Class C common stockholders (1)(2) : Basic Diluted Weighted average Class B and Class C common shares used to compute net income (loss) per share attributable to common stockholders (1) : Basic Diluted Pro forma net income per share attributable to Class B and Class C common stockholders (1)(2) : Basic Diluted Pro forma weighted-average shares used to compute pro forma net income (loss) per share attributable to Class B and Class C common stockholders (1)(2) (unaudited): Basic Diluted Other Financial and Operational Data: Bookings(3) Adjusted EBITDA (4) Average DAUs (in millions)(5) Average MAUs (in millions)(6) Average MUUs (in millions)(7) ABPU(8) NA means data is not available.
693 189 869 231 277 1,566 (873) 22 8 (843) (3)
$ 19,410 10,017 12,160 10,982 8,834 41,993 (22,583) 319 187 (22,077) (38) $ (22,115) $ (22,115)
$121,467 56,707 51,029 42,266 24,243 174,245 (52,778) 177 (209) (52,810) (12) $ (52,822) $ (52,822)
$597,459 176,052 149,519 114,165 32,251 471,987 125,472 1,222 365 127,059 (36,464) $ 90,595 4,590 58,110 $ 27,895
$401,700 124,449 98,019 75,885 49,339 347,692 54,008 749 478 55,235 (7,632) $ 47,603 4,590 30,636 $ 12,377
$828,863 225,908 282,316 121,971 117,723 747,918 80,945 1,223 (273) 81,895 (51,206) $ 30,689 30,689 $ 0
(846)
(846)
$ $
(0.06) (0.06)
$ $
(0.18) (0.18)
$ $
(0.31) (0.31)
$ $
0.12 0.11
$ $
0.06 0.05
$ $
0.00 0.00
14,255 14,255
119,990 119,990
171,751 171,751
223,881 329,256
214,214 322,357
264,114 264,114
$ $
$ $
$ $
1,351 (185) NA NA NA NA
$ 35,948 $ 4,549 NA NA NA NA
$328,070 $168,187 41 153 86 $ 0.035
$838,896 $392,738 56 217 116 $ 0.041
$595,397 $289,546 59 224 118 $ 0.038
$849,002 $235,473 58 230 150 $ 0.053
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(1)
Net income attributable to common stock was not allocated to Class A common shares, as there were no shares authorized or outstanding during each of the periods presented. See Note 9 of the consolidated financial statements for further details on the calculation of basic and diluted net income (loss) per share attributable to each class of common stock. See Note 9 of the consolidated financial statements for further discussion and reconciliation of the weighted-average common shares outstanding for basic, diluted and pro forma net income per share calculations. See the section titled Non-GAAP Financial Measures below for how we define and calculate bookings, a reconciliation between bookings and revenue, the most directly comparable GAAP financial measure and a discussion about the limitations of bookings and adjusted EBITDA. See the section titled Non-GAAP Financial Measures below for how we define and calculate adjusted EBITDA, a reconciliation between adjusted EBITDA and net income (loss), the most directly comparable GAAP financial measure and a discussion about the limitations of bookings and adjusted EBITDA. DAUs is the number of individuals who played one of our games during a particular day, as recorded by our internal analytics systems. Average DAUs is the average of the DAUs for each day during the period reported. See the section titled Managements Discussion and Analysis of Financial Condition and Results of OperationsKey MetricsKey Operating MetricsDAUs for more information on how we define and calculate DAUs. Reflects 2009 data commencing on July 1, 2009. MAUs is the number of individuals who played a particular game during a 30-day-period, as recorded by our internal analytics systems. Average MAUs is the average of the MAUs at each month-end during the period reported. See the section titled Managements Discussion and Analysis of Financial Condition and Results of OperationsKey MetricsKey Operating MetricsMAUs for more information on how we define and calculate MAUs. Reflects 2009 data commencing on July 1, 2009. MUUs is the number of unique individuals who played any of our games on a particular platform during a 30-day period, as recorded by our internal analytics systems. Average MUUs is the average of the MUUs at each month-end during the period reported. See the section titled Managements Discussion and Analysis of Financial Condition and Results of OperationsKey MetricsKey Operating MetricsMUUs for more information on how we define and calculate MUUs. Reflects 2009 data commencing on July 1, 2009. ABPU is defined as (i) our total bookings in a given period, divided by (ii) the number of days in that period, divided by (iii) the average DAUs during the period. See the section titled Managements Discussion and Analysis of Financial Condition and Results of OperationsKey MetricsKey Operating MetricsABPU for more information on how we define and calculate ABPU. Reflects 2009 data commencing on July 1, 2009. 43
(2) (3)
(4)
(5)
(6)
(7)
(8)
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Stock-based compensation included in the statements of operations data above was as follows:
Period from Inception (April 19, 2007) to December 31, 2007 Year Ended December 31, Nine Months Ended September 30,
2008
2009 2010 (in thousands)
2010
2011
Cost of revenue Research and development Sales and marketing General and administrative Total stock-based compensation
17 3 20
22 226 381 60 689
443 1,817 518 1,212
$ 2,128 10,242 7,899 5,425 $25,694
$ 1,585 4,991 4,920 4,003 $15,499
$ 1,602 40,693 10,101 17,845 $70,241

As of September 30, 2011
$ 3,990
As of December 31, 2007 2008 2009 (in thousands) 2010
Consolidated Balance Sheet Data: Cash, cash equivalents and marketable securities Property and equipment, net Working capital Total assets Deferred revenue Total stockholders equity (deficit) Non-GAAP Financial Measures Bookings
$5,731 267 4,719 6,016 658 4,756
$35,558 4,052 8,378 45,367 17,196 12,995
$199,958 34,827 (12,496) 258,848 223,799 (21,478)
$ 738,090 74,959 385,564 1,112,572 465,236 482,215
926,333 221,145 504,487 1,511,652 485,375 787,663
To provide investors with additional information about our financial results, we disclose within this prospectus bookings, a non-GAAP financial measure. We have provided below a reconciliation between bookings and revenue, the most directly comparable GAAP financial measure. Bookings is a non-GAAP financial measure that we define as the total amount of revenue from the sale of virtual goods in our online games and advertising that would have been recognized in a period if we recognized all revenue immediately at the time of the sale. We record the sale of virtual goods as deferred revenue and then recognize revenue over the estimated average life of the purchased virtual goods or as the virtual goods are consumed. Advertising revenue consisting of certain branded virtual goods and sponsorships is also deferred and recognized over the estimated average life of the purchased good, similar to online game revenue. Bookings is calculated as revenue recognized in a period plus the change in deferred revenue during the period. For additional discussion of the estimated average life of virtual goods, see the section titled Managements Discussion and Analysis of Financial Condition and Results of OperationsRevenue Recognition. We use bookings to evaluate the results of our operations, generate future operating plans and assess the performance of our company. 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 revenue recognized in accordance with GAAP. In addition, other companies, including companies in our industry, may calculate bookings differently or not at all, which reduces its usefulness as a comparative measure. 44
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The following table presents a reconciliation of revenue to bookings for each of the periods indicated:
2008
2010
2011
Reconciliation of Revenue to Bookings: Revenue Change in deferred revenue Bookings
$ $
693 658 1,351
$19,410 16,538 $35,948
$121,467 206,603 $328,070
$597,459 241,437 $838,896
$401,700 193,697 $595,397
$828,863 20,139 $849,002
In July 2010, we began migrating to facebook Credits as the primary payment method for our games played through Facebook, and by April 2011, we had completed this migration. Facebook remits to us an amount equal to 70% of the face value of Facebook Credits purchased by our players for use in our games. We record bookings and recognize revenue net of amounts retained by Facebook. If we had been subject to Facebook Credits beginning January 1, 2009, we estimate our bookings would have been approximately $90 million, $150 million, $140 million and $20 million lower than actual results in 2009, 2010 and in the nine months ended September 30, 2010 and 2011, respectively, by assuming a 30% reduction in estimated bookings generated from payment methods that were replaced by Facebook Credits. Adjusted EBITDA To provide investors with additional information about our financial results, we disclose within this prospectus adjusted EBITDA, a non-GAAP financial measure. We have provided below a reconciliation between adjusted EBITDA and net income (loss), the most directly comparable GAAP financial measure. We have included adjusted EBITDA in this prospectus because it is a key measure we use to evaluate our operating performance, generate future operating plans, and make strategic decisions for the allocation of capital. Accordingly, we believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors. 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. 45
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The following table presents a reconciliation of net income (loss) to adjusted EBITDA for each of the periods indicated:
2008
2010
2011
Reconciliation of Net Income (Loss) to Adjusted EBITDA: Net income (loss) Provision for income taxes Other income (expense), net Interest income Gain (loss) from legal settlements Depreciation and amortization Stock-based compensation Change in deferred revenue Adjusted EBITDA Limitations of Bookings and Adjusted EBITDA Some limitations of bookings and adjusted EBITDA are:
(846) 3 (8) (22) 10 20 658 (185)
$(22,115) 38 (187) (319) 7,000 2,905 689 16,538 $ 4,549
$ (52,822) 12 209 (177) 10,372 3,990 206,603 $168,187
$ 90,595 36,464 (365) (1,222) (39,346) 39,481 25,694 241,437 $392,738
$ 47,603 7,632 (478) (749) 26,342 15,499 193,697 $289,546
$ 30,689 51,206 273 (1,223) 64,148 70,241 20,139 $235,473
adjusted EBITDA does not include the impact of equity-based compensation; bookings and adjusted EBITDA do not reflect that we defer and recognize revenue over the estimated average life of virtual goods or as virtual goods are consumed; adjusted EBITDA does not reflect income tax payments that may represent a reduction in cash available to us; adjusted EBITDA does not include other income and expense, which includes foreign exchange gains and losses; adjusted EBITDA excludes depreciation and amortization and although these are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future; adjusted EBITDA does not include gains and losses associated with legal settlements; and other companies, including companies in our industry, may calculate bookings and adjusted EBITDA differently or not at all, which reduces their usefulness as a comparative measure. Because of these limitations, you should consider bookings and adjusted EBITDA alongside other financial performance measures, including revenue, net income (loss) and our financial results presented in accordance with GAAP. 46
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion of our financial condition and results of operations in conjunction with the consolidated financial statements and the related notes included elsewhere in this prospectus. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in Risk Factors. Overview We are the worlds leading online social game developer with 227 million average MAUs in 175 countries. We have launched the most successful social games in the industry in each of the last three years and generated over $1.5 billion in cumulative revenue and over $2.0 billion in cumulative bookings since our inception in 2007. Our games are accessible on facebook, other social networks and mobile platforms to players worldwide, wherever and whenever they want. All of our games are free to play, and we generate revenue through the in-game sale of virtual goods and advertising. We are a pioneer and innovator of social games and a leader in making play a core activity on the Internet. We believe our leadership position in social games is the result of our significant investment in our people, content, brand, technology and infrastructure. Highlights in our history include: In April 2007, we began operations and by the end of 2008 had launched several games, including Zynga Poker in July 2007 and Mafia Wars in June 2008 on multiple platforms, including Facebook and Myspace. In addition, in June 2008, we acquired the YoVille game in order to expand our game portfolio. As of December 31, 2008, we had 157 employees. In June 2009, we launched FarmVille, which quickly became the most popular social game on Facebook. In the second half of 2009, we launched several other games, including Caf World in September 2009. In the fourth quarter of 2009, we achieved $144.6 million in bookings. As of December 31, 2009, we had 576 employees. In 2010, we saw continued growth from existing games and new game launches. We launched FrontierVille in June 2010 and CityVille in December 2010. During 2010, in order to enhance our product portfolio and game development capabilities around the world, we acquired several companies, including Newtoy, Inc., the creator of the mobile game Words with Friends. In the fourth quarter of 2010, we achieved $243.5 million in bookings. As of December 31, 2010, we had 1,483 employees. In 2010, we entered into an addendum with facebook that modified Facebooks standard terms and conditions for game developers as they apply to us and that govern the promotion, distribution and operation of our games on Facebook. In July 2010, we began migrating to Facebook Credits, and by April 2011, we had migrated all of our games on Facebook to Facebook Credits. In the first quarter of 2011, we released FarmVille English Countryside, an expansion of FarmVille. We also launched Words with Friends on the Google Android platform in the first quarter. In the second quarter of 2011, we launched Empires & Allies, our first strategy combat game, and Hanging with Friends , a mobile game that was developed in our Zynga with Friends studio. In the third quarter of 2011, we launched Adventure World and released Words with Friends on Facebook and achieved $287.7 million in bookings. As of September 30, 2011, we had 2,789 employees. In 2010, our revenue and bookings were $597.5 million and $838.9 million, respectively, which represented increases from 2009 of $476.0 million and $510.8 million, respectively. Consistent with our free-to-play business 47
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model, compared to all players who play our games in any period, only a small portion are payers. Because the opportunity for social interactions increases as the number of players increases, we believe that maintaining and growing our overall number of players, including the number of players who may not purchase virtual goods, is important to the success of our business. As a result, we believe that the number of players who choose to purchase virtual goods will continue to constitute a small portion of our overall players as our business grows. Our top three games vary over time but historically have contributed the majority of our revenue. Our top three games accounted for 93%, 83%, 78% and 59% of our online game revenue in 2008, 2009, 2010 and for the nine months ended September 30, 2011, respectively. The reduction in percentage of online game revenue related to our top three games occurred throughout these periods as new games were launched and we recognized revenue from these games. Historically, our most popular games have generated revenue and bookings for a significant period of time after their release. During the first nine months of 2011, bookings from our games launched prior to December 31, 2009, or Pre-2010 Games, were 97% of bookings from these games during the same period of 2010. Bookings from Pre-2010 Games were 83% of total bookings during 2010. We are making significant investments in 2011 to drive long-term growth. We continue to invest in game development, creating both new games and new features and content in existing games designed to engage our players. We are also investing in other key areas of our business, including international market development, mobile games and our technology infrastructure. During the fourth quarter of 2011, we expect to make capital expenditures of approximately $50 million to $70 million as we invest in network infrastructure to support our expected growth and to continue to improve the player experience. How We Generate Revenue We operate our games as live services that allow players to play for free. We generate revenue primarily from the in-game sale of virtual goods and advertising. Online Game. We provide our players with the opportunity to purchase virtual goods that enhance their game-playing experience. We believe players choose to pay for virtual goods for the same reasons they are willing to pay for other forms of entertainment. They enjoy the additional playing time or added convenience, the ability to personalize their own game boards, the satisfaction of leveling up and the opportunity for sharing creative expressions. We believe players are more likely to purchase virtual goods when they are connected to and playing with their friends, whether those friends play for free or also purchase virtual goods. In May 2010, we entered into an addendum to facebooks standard terms and conditions requiring us to transition our payment method to Facebook Credits, Facebooks proprietary payment method, as the primary means of payment within our games played through Facebook. We began migrating to Facebook Credits in July 2010, and by April 2011, we had completed this migration. Under this addendum, Facebook remits to us an amount equal to 70% of the face value of Facebook Credits purchased by our players for use in our games. We recognize revenue net of amounts retained by Facebook. Prior to this addendum, we used third-party payment processors and paid these processors service fees ranging from 2% to 10% of the purchase price of our virtual goods which were recorded in cost of revenue. Players can purchase Facebook Credits from Facebook, directly through our games or through game cards purchased from retailers and distributors. On platforms other than facebook, players purchase our virtual goods through various widely accepted payment methods offered in the games, including credit cards, PayPal, Apple iTunes accounts and direct wires. Players can purchase game cards from retailers and distributors for use on these platforms. Advertising. Advertising revenue primarily includes branded virtual goods, sponsorships and engagement ads. We generally report our advertising revenue net of amounts due to advertising agencies and brokers. 48
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Revenue growth will depend largely on our ability to attract and retain players and more effectively monetize our player base through the sale of virtual goods and advertising. We intend to do this through the launch of new games, enhancements to current games and expansion into new markets and distribution platforms. Key Metrics We regularly review a number of metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends in our business, prepare financial projections and make strategic decisions. Key Financial Metrics Bookings. Bookings is a non-GAAP financial measure that we define as the total amount of revenue from the sale of virtual goods in our online games and advertising that would have been recognized in a period if we recognized all revenue immediately at the time of the sale. Bookings, as opposed to revenue, is the fundamental top-line metric we use to manage our business, as it reflects the sales activity in a given period. Over the long term, the factors impacting our bookings and revenue are the same. However, in the short term, there are factors that may cause revenue to exceed or be less than bookings in any period. Trends in bookings and revenue for applicable periods are discussed below. Annual bookings grew by $292.2 million from $35.9 million in 2008 to $328.1 million in 2009, and by $510.8 million to $838.9 million from 2009 to 2010. For a reconciliation of revenue to bookings, see the section titled Quarterly Results of Operations. Adjusted EBITDA. Adjusted EBITDA is a non-GAAP financial measure that we calculate as net income (loss), adjusted for provision for income taxes; other income (expense), net; interest income; gain (loss) from legal settlements; depreciation and amortization; stock-based compensation and change in deferred revenue. We believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors. For a reconciliation of net income (loss) to adjusted EBITDA, see the section titled Quarterly Results of Operations.
Key Operating Metrics We manage our business by tracking several operating metrics: DAUs, which measures daily active users of our games, MAUs, which measures monthly active users of our games, MUUs, which measures monthly unique users of our games, and ABPU, which measures our average daily bookings per average DAU, each of which is recorded by our internal analytics systems. DAUs. We define DAUs as the number of individuals who played one of our games during a particular day. Under this metric, an individual who plays two different games on the same day is counted as two DAUs. Similarly, an 49
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individual who plays the same game on two different platforms (e.g., web and mobile) or on two different social networks on the same day would be counted as two DAUs. Average DAUs for a particular period is the average of the DAUs for each day during that period. We use DAU as a measure of audience engagement. MAUs. We define MAUs as the number of individuals who played a particular game in the 30-day period ending with the measurement date. Under this metric, an individual who plays two different games in the same 30-day period is counted as two MAUs. Similarly, an individual who plays the same game on two different platforms (e.g., web and mobile) or on two different social networks in a 30-day period would be counted as two MAUs. Average MAUs for a particular period is the average of the MAUs at each month-end during that period. We use MAU as a measure of total game audience size. MUUs. We define MUUs as the number of unique individuals who played any of our games on a particular platform in the 30-day period ending with the measurement date. An individual who plays more than one of our games in a given 30-day period would be counted as a single MUU. However, because we cannot distinguish unique individuals playing across multiple platforms, an individual who plays any of our games on two different platforms (e.g., web and mobile) in a given 30-day period would be counted as two MUUs. Because many of our players play more than one game in a given 30day period, MUUs are always lower than MAUs in any given time period. Average MUUs for a particular period is the average of the MUUs at each month-end during that period. We use MUU as a measure of total audience reach across our network of games. Average Bookings per User (ABPU). We define ABPU as (i) our total bookings in a given period, divided by (ii) the number of days in that period, divided by, (iii) the average DAUs during the period. We believe that ABPU provides useful information to investors and others in understanding and evaluating our results in the same manner as our management and board of directors. We use ABPU as a measure of overall monetization across all of our players through the sale of virtual goods and advertising. In the letter from our founder included in this prospectus, the term daily active users means the average of our DAUs for each day during the period January 1, 2011 through September 30, 2011, and the term monthly unique users means the average of our MUUs as of the end of each of the first nine months of 2011. Our business model for social games is designed so that, as there are more players that play our games, social interactions increase and the more valuable the games and our business becomes. All engaged players of our games help drive our bookings and, consequently, both online game revenue and advertising revenue. Virtual goods are purchased by players who are socializing with, competing against or collaborating with other players, most of whom do not buy virtual goods. Accordingly, we primarily focus on bookings, DAU and ABPU, which together we believe best reflect the economic value of all of our players.
Mar 31, 2009 Average DAUs Average MAUs Average MUUs ABPU NA means data is not available. NA NA NA NA Jun 30, 2009 NA NA NA NA Sep 30, 2009 24 99 63 $ 0.044 Dec 31, 2009 58 207 110 $ 0.027 For the Three Months Ended Mar 31, Jun 30, Sep 30, 2010 2010 2010 (users in millions) 67 60 49 236 234 203 124 119 110 $ 0.030 $ 0.036 $ 0.049 Dec 31, 2010 48 195 111 $ 0.055 Mar 31, 2011 62 236 146 $ 0.051 Jun 30, 2011 59 228 151 $ 0.051 Sep 30, 2011 54 227 152 $ 0.058
Our user metrics are impacted by several factors that cause them to fluctuate on a quarterly basis. Beginning in early 2010, facebook changed its policies for application developers regarding use of its communication channels. These changes limited the level of communication among users about applications on the Facebook platform, which we believe contributed to a decline in our number of players throughout 2010. In addition, beginning with the third quarter of 2010, our bookings and revenue growth rates were negatively impacted due to our adoption of Facebook Credits as the primary payment method on Facebook. We account for Facebook 50
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Credits net of amounts retained by facebook. Our DAUs, MAUs and MUUs all increased in the three months ended March 31, 2011, primarily due to the launch of CityVille in December 2010, the addition of new content to existing games and the launch of several mobile initiatives. In the third quarter of 2011, DAUs declined mainly due to a decline in players of our more mature games and a limited number of new game launches in the first nine months of 2011. Future growth in audience and engagement will depend on our ability to retain current players, attract new players, launch new games and expand into new markets and distribution platforms. Our operating metrics may not correlate directly to quarterly bookings or revenue trends in the short term. For instance, revenue has grown every quarter since our inception, including in quarters where DAU, MAU and MUU did not grow. Other Metrics The following tables present certain bookings and estimated unique payer data for 2009, 2010 and each of the nine month periods ended September 30, 2010 and 2011, as well as each quarter:
Year Ended Nine Months Ended Dec 31, Sep 30, 2009 2010 2010 2011 (in thousands, except per unique payer data): $328,070 $838,896 $595,347 $849,002 $273,760 $752,834 $537,941 $735,700 2,888 6,382 5,122 6,673 $ 95 $ 118 $ 105 $ 110 For the Three Months Ended: Dec 31, Mar 31, Jun 30, Sep 30, Dec 31, 2009 2010 2010 2010 2010 (in thousands, except per unique payer data): $144,552 $178,318 $194,696 $222,383 $243,499 $131,324 $164,374 $176,427 $197,140 $214,893 1,903 2,330 2,577 2,754 3,027 $ 69 $ 71 $ 68 $ 72 $ 71
Bookings Unique payer bookings (1) Unique payers (2) Unique payer bookings per unique payer (3)
Mar 31, 2009 Bookings Unique payer bookings (1) Unique payers (2) Unique payer bookings per unique payer (3) (1) $32,523 $20,655 284 $ 73
Jun 30, 2009 $52,548 $40,918 459 $ 89
Sep 30, 2009 $98,447 $80,862 1,041 $ 78
Mar 31, 2011 $286,598 $254,002 3,676 $ 69
Jun 30, 2011 $274,743 $233,898 3,336 $ 70
Sep 30, 2011 $287,661 $247,800 3,407 $ 73
Unique payer bookings represents the amount of bookings that we received through payment methods for which we can quantify the number of unique payers. Amounts included in bookings but excluded from unique payer bookings include bookings from advertising and bookings received through certain mobile payment platforms and certain smaller web-based payment methods for which we cannot quantify the number of unique payers. Unique payers represents the aggregate number of unique players who made a payment at least once during the applicable period through a payment method for which we can quantify the number of unique payers. It does not include payers on certain mobile platforms and payers who use certain smaller web-based payment methods for which we cannot quantify the number of unique payers. If a player made a payment in our games on two separate platforms (e.g. facebook and Google+) in a period, the player would be counted as two unique payers in that period. Unique payer bookings per unique payer is calculated by dividing unique payer bookings by unique payers.
(2)
(3)
Unique payers increased each period from the first quarter of 2009 through the first quarter of 2011 as a result of the introduction of new games, new content in our games and additional payment methods throughout these periods. Unique payers decreased by approximately 340,000 in the second quarter of 2011 compared to the first quarter due to the launch of CityVille just prior to the beginning of the first quarter and no other new game launches from December 2010 through May 2011. Unique payers for the 12 months ended September 30, 2011 were approximately 7.7 million. 51
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Factors Affecting Our Performance Launch of new games and release of enhancements . Our bookings and revenue growth have been driven by the launch of new games and the release of fresh content and new features in existing games. For a summary of key game launch dates and other significant events, see the section titled Overview above. Although the amount of revenue and bookings we generate from a new game or an enhancement to an existing game can vary significantly, we expect our revenue and bookings growth to be correlated to the success of our new games and our success in releasing engaging content and features. Game monetization. We generate most of our bookings and revenue from the sale of virtual goods in our games. The degree to which our players choose to pay for virtual goods in our games is driven by our ability to create content and virtual goods that enhance the game-play experience. Our bookings, revenue and overall financial performance are affected by the number of players and the effectiveness of our monetization of players through the sale of virtual goods and advertising. In addition, international players have historically lagged the monetization that we achieve for U.S. players, and the percentage of paying international players may increase or decrease based on a number of factors, including growth in overall international players, localization of content and the availability of payment options. Changes in Facebook or other platforms. Facebook is the primary distribution, marketing, promotion and payment platform for our social games. We generate substantially all of our bookings, revenue and players through the Facebook platform and expect to continue to do so for the foreseeable future. Facebook and other platforms have broad discretion to change their platforms, terms of service and other policies with respect to us or other developers, and those changes may be unfavorable to us. The table below presents the estimated percentages of our quarterly bookings and revenue generated through the Facebook platform. We have had to estimate this information because certain payment methods used do not allow us to determine the platform used.
Mar 31, 2010 Jun 30, 2010 For the Three Months Ended Sep 30, Dec 31, Mar 31, 2010 2010 2011 Jun 30, 2011 Sep 30, 2011
Bookings Revenue
94% 94%
93% 93%
91% 91%
93% 94%
93% 93%
93% 93%
94% 93%
Investment in game development . In order to develop new games and enhance the content and features in our existing games, we must invest a significant amount of engineering and creative resources. These expenditures generally occur months in advance of the launch of a new game or the release of new content, and the resulting revenue may not equal or exceed our development costs. Hosting costs . To date, we have primarily utilized third-party web hosting services to operate our games. During periods of higher-than-expected player activity, when we exceeded our committed capacity, our costs have increased as we were required to purchase more expensive temporary capacity. We intend to invest in our network infrastructure, with the goal of reducing our reliance on third-party web hosting services and moving towards the use of self-operated data centers. Under this approach, we would host an increasing amount of data and traffic for our games on servers located in the data centers which we lease, build and operate. Investment in our network infrastructure will require capital expenditures for equipment. We believe that over the long term this investment will produce further operating leverage by reducing our game operation costs and will enhance our games and player experience. As we continue to grow, the capital investment necessary to build our infrastructure will be significant. Player acquisition costs. Although we acquire most of our players through unpaid channels, we also utilize advertising and other forms of player acquisition and retention to grow and retain our player audience. These expenditures generally relate to the promotion of new game launches and ongoing performance-based programs to drive new player acquisition and lapsed player reactivation. Over time, these acquisition and retention-related programs may become either less effective or more costly, negatively impacting our operating results. 52
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New market development. We are investing in new distribution channels such as mobile and other platforms, including other social networks and in international markets to expand our reach and grow our business. For example, we have continued to hire additional employees and acquire companies with experience developing mobile applications. We have also invested resources in integrating and operating some of our games on additional platforms, including Google+, mixi, Tencent and Yahoo!. As we expand into new markets and distribution channels, we expect to incur headcount, marketing and other operating costs in advance of the associated bookings and revenue. Our financial performance will be impacted by our investment in these initiatives and their success. Vesting of ZSUs. We have granted restricted stock units, or ZSUs, to our employees that generally vest upon the satisfaction of both a serviceperiod condition of up to four years and a liquidity condition. Because the liquidity condition is not met until the occurrence of a qualifying liquidity event (an initial public offering or change of control), we have not recorded any expense to date relating to our ZSU grants. In connection with the initial public offering, we will begin recording stock compensation expense based on the grant date fair value of the ZSUs using the accelerated attribution method. If the initial public offering had occurred on September 30, 2011, we would have recorded $393.0 million of stock-based compensation expense on that date related to ZSUs and would have had an additional $528.5 million in unamortized stock-based compensation expense related to ZSUs. Cost of Revenue and Operating Expenses Cost of revenue. Our cost of revenue consists primarily of web hosting and data center costs related to operating our games, including: depreciation and amortization; consulting costs primarily related to third-party provisioning of customer support services; payment processing fees; and salaries, benefits and stock-based compensation for our customer support and infrastructure teams. Our infrastructure team includes our network operations and payment platform teams. Credit card processing fees, allocated facilities costs and other supporting overhead costs are also included in cost of revenue. We expect cost of revenue to increase for the foreseeable future as we expand our data center capacity and headcount associated with player support. Research and development. Our research and development expenses consist primarily of salaries, benefits and stock-based compensation for our engineers and developers. In addition, research and development expenses include outside services and consulting, as well as allocated facilities and other supporting overhead costs. We believe continued investment in enhancing existing games and developing new games, and in software development tools and code modification, is important to attaining our strategic objectives. As a result, we expect research and development expenses to increase in absolute dollars for the foreseeable future as we grow our business. Sales and marketing. Our sales and marketing expenses consist primarily of player acquisition costs, which are advertisements designed to drive players into our games, salaries, benefits and stock-based compensation for our sales and marketing employees and fees paid to consultants. In addition, sales and marketing expenses include general marketing, branding, advertising and public relations costs, as well as allocated facilities and other supporting overhead costs. We plan to continue to invest in sales and marketing to grow our player base and continue building brand awareness. As a result, we expect sales and marketing expenses to increase in absolute dollars for the foreseeable future as we grow our business. General and administrative. Our general and administrative expenses consist primarily of salaries, benefits and stock-based compensation for our executive, finance, legal, information technology, human resources and other administrative employees. In addition, general and administrative expenses include outside consulting, legal and accounting services, charitable donations and facilities and other supporting overhead costs not allocated to other departments. General and administrative expenses also include gains and losses associated with legal settlements. We expect that our general and administrative expenses will increase in absolute dollars for the foreseeable future as we continue to grow our business and incur additional expenses associated with being a publicly-traded company, but to remain relatively stable or decline as a percentage of total revenue or bookings. 53
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Results of Operations The following table sets forth our results of operations for the periods presented as a percentage of revenue for those periods.
For The Year Ended December 31, 2009 Nine Months Ended September 30, 2010 2011
2008
2010
Consolidated Statements of Operations Data : Revenue Costs and expenses: Cost of revenue Research and development Sales and marketing General and administrative Total costs and expenses Income (loss) from operations Interest income Other income (expense), net Income (loss) before income taxes Provision for income taxes Net income (loss) Nine Months Ended September 30, 2010 and 2011 Revenue
100% 52 63 57 44 216 (116) 2 (114) (114)%
100% 47 42 35 19 143 (43) (43) (43)%
100% 29 25 19 6 79 21 21 (6) 15%
100% 32 24 19 12 87 13 1 14 (2) 12%
100% 27 34 15 14 90 10 10 (6) 4%
Nine Months Ended September 30, 2010 2011 (dollars in thousands)
% Change
Revenue by type: Online game Advertising Total
$ $
387,151 14,549 401,700
$ $
781,738 47,125 828,863
102% 224% 106%
Total revenue increased $427.2 million from the nine months ended September 30, 2010 to the nine months ended September 30, 2011, as a result of growth in both online game and advertising revenue. Bookings increased by $253.6 million from the nine months ended September 30, 2010 to the nine months ended September 30, 2011. ABPU increased from $0.038 to $0.053, reflecting improved overall monetization of our players, while DAUs decreased from 59 million to 58 million. The adoption of facebook Credits as our primary in-game payment method beginning in the third quarter of 2010 negatively impacted online game revenue in the nine months ended September 30, 2011. Online game revenue increased $394.6 million from the nine months ended September 30, 2010 to the nine months ended September 30, 2011. FarmVille, FrontierVille and CityVille accounted for $100.8 million, $118.9 million and $84.9 million of the increase, respectively. FarmVille was launched in June 2009, and the increase in revenue reflects an increase in bookings from new content, as well as the recognition of revenue derived from bookings recorded over a longer period of time. The increase in revenue from FrontierVille and CityVille was the result of the launch of these games in June 2010 and December 2010, respectively, and, with respect to FrontierVille, a change in the estimated weighted-average life used to recognize revenue from durable virtual goods, which resulted in a $30.7 million increase in revenue from FrontierVille in the 2011 period. All other games accounted for the remaining net increase of $90.0 million . 54
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International revenue as a percentage of total revenue increased from 32% in the nine months ended September 30, 2010 to 35% in the nine months ended September 30, 2011. For the nine months ended September 30, 2010, Mafia Wars, FarmVille and Zynga Poker were our top revenue-generating games and comprised 32%, 29% and 20%, respectively, of online game revenue. For the nine months ended September 30, 2011, FarmVille, FrontierVille, Zynga Poker, Mafia Wars and CityVille were our top revenue-generating games and comprised 27%, 16%, 15%, 14% and 11%, respectively, of our online game revenue. No other game generated more than 10% of online game revenue during either period. Consumable virtual goods accounted for 39% and 29% of online game revenue in the nine months ended September 30, 2010 and 2011, respectively. Revenue from consumable virtual goods accounted for 20% of the increase in online game revenue from the nine months ended September 30, 2010 to the nine months ended September 30, 2011. Durable virtual goods accounted for 61% and 71% of online game revenue in the nine months ended September 30, 2010 and 2011. Revenue from durable virtual goods accounted for 80% of the increase in online game revenue from the nine months ended September 30, 2010 to the nine months ended September 30, 2011. The estimated weighted-average life of durable virtual goods for bookings during the nine months ended September 30, 2010 was 18 months compared to 15 months for the nine months ended September 30, 2011. In addition, in 2011 cumulative changes in our estimated average life of durable virtual goods for various games resulted in a net increase in revenue of $48.5 million in the nine months ended September 30, 2011. Advertising revenue increased $32.6 million from the nine months ended September 30, 2010 to the nine months ended September 30, 2011, due to a $19.6 million increase in revenue from in-game offers, sponsorships and engagement ads, and a $13.0 million increase in revenue from other advertising activity. Revenue from in-game offers, sponsorships and engagement ads increased in part due to a higher level of in-game offers during 2011, reflecting in part the fact that we discontinued certain in-game offers in the fourth quarter of 2009 and resumed and gradually increased in-game offers during the nine months ended September 30, 2010 but did not have in-game offers for the entire period. Cost of revenue
Nine Months Ended September 30, 2010 2011 (dollars in thousands) % Change
Cost of revenue
124,449
225,908
82%
Cost of revenue increased $101.5 million from the nine months ended September 30, 2010 to the nine months ended September 30, 2011. The increase was primarily attributable to an increase in hosting costs of $60.8 million to support additional games and player activity, a $31.9 million increase in depreciation and amortization related to depreciation of new fixed assets and amortization of acquired intangibles, a $14.4 million increase in consulting costs primarily related to third-party customer support necessitated by higher player activity and an $8.7 million increase in headcountrelated expenses for our infrastructure groups to support the growth of our business. These increases in costs of revenue were offset by decreases in sales tax expense and payment processing fees of $10.8 million and $4.7 million, respectively, during the nine months ended September 30, 2011 compared to the nine months ended September 30, 2010. Research and development
Research and development 55
98,019
282,316
188%
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Research and development expenses increased $184.3 million from the nine months ended September 30, 2010 to the nine months ended September 30, 2011. The increase was primarily attributable to a $150.5 million increase in headcount-related expenses and a $17.1 million increase in consulting costs due to the ongoing investment in new game development, in addition to an increase in allocated facilities and other overhead support costs of $12.5 million. Sales and marketing
Sales and marketing
75,885
121,971
61%
Sales and marketing expenses increased $46.1 million from the nine months ended September 30, 2010 to the nine months ended September 30, 2011. The increase was primarily attributable to a $23.9 million increase in player acquisition costs and an increase in headcount-related expenses of $15.9 million. General and administrative
General and administrative
49,339
117,723
139%
General and administrative expenses increased $68.4 million from the nine months ended September 30, 2010 to the nine months ended September 30, 2011. The increase was primarily attributable to a $33.1 million increase in headcount-related expenses, $10.6 million in stock-based compensation expenses related to a common stock warrant issued in June 2011, an $8.1 million increase in information technology costs, a $3.6 million increase in facilities and overhead expenses and a $4.6 million increase in depreciation expense. Interest income
Interest income
749
1,223
63%
Interest income increased $0.5 million from the nine months ended September 30, 2010 to the nine months ended September 30, 2011. The increase was primarily attributable to the increase in our cash and marketable securities balance driven by the increase in cash flows from operations and proceeds from the sale and issuance of Series C preferred stock in February 2011. Other income (expense), net
Other income (expense), net
478
(273)
NM
Other income (expense), net decreased $0.8 million from the nine months ended September 30, 2010 to the nine months ended September 30, 2011. The decrease was primarily attributable to losses due to foreign exchange rate changes. 56
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Provision for income taxes

(7,632)
(51,206)
NM
The provision for income taxes increased $43.6 million from the nine months ended September 30, 2010 to the nine months ended September 30, 2011. This increase was attributable to the increase in pre-tax income of $26.7 million in the nine months ended September 30, 2011 compared to the nine months ended September 30, 2010 and the realization of deferred tax assets from prior periods that offset current tax expense in 2010. In addition, the provision for income taxes at September 30, 2011 was higher as a result of an increase in non-deductible stock-based compensation expense and the initial implementation costs of our international tax structure, offset by tax credits and a favorable change in our jurisdictional mix of income, which provides for income earned in foreign tax jurisdictions to be taxed at lower income tax rates. For the foreseeable future, our effective tax rate will be impacted by significant post-IPO stock-based compensation expense and additional tax expense associated with the implementation of our international tax structure. Following our IPO, we expect stock-based compensation expense to generate significant tax benefits which may be deducted against future income. As these deductions are recognized and the implementation of our international tax structure is completed, we anticipate that our effective tax rate will be lower than the U.S. statutory rate. Years Ended December 31, 2008, 2009 and 2010 Revenue
2008 Year Ended December 31, 2009 (dollars in thousands) 2010 2008 to 2009 % Change 2009 to 2010 % Change
Revenue by type: Online game Advertising Total
5,272 14,138
$ 85,748 35,719 $121,467
$574,632 22,827 $597,459
1,526% 153% 526%
570% (36)% 392%
$ 19,410
2009 Compared to 2010. Total revenue increased $476.0 million from 2009 to 2010, as a result of growth in both online game and advertising revenues. Bookings increased by $510.8 million from 2009 to 2010. ABPU increased from $0.035 to $0.041, reflecting improved overall monetization of our players, while DAUs increased from 41 million to 56 million. ABPU data for 2009 only includes data from July to December as prior months are not available. Online game revenue increased $488.9 million from 2009 to 2010. FarmVille, Mafia Wars and Zynga Poker accounted for $166.9 million, $129.1 million and $85.1 million of the increase, respectively. The increase in revenue from FarmVille was the result of the launch of this game in June 2009. Mafia Wars was launched in June 2008 and Zynga Poker was launched in July 2007, and the increase in revenue from these games reflects an increase in bookings from new content, as well as the recognition of revenue derived from bookings recorded over a longer period of time. All other games accounted for the remaining net increase of $107.8 million. In 2009, Mafia Wars, Zynga Poker and YoVille were our top revenue-generating games and comprised 39%, 32% and 11%, respectively, of online game revenue. In 2010, FarmVille, Mafia Wars and Zynga Poker were our top revenue-generating games and comprised 30%, 28% and 20%, respectively, of online game revenue. No other game comprised 10% or more of online game revenue during 2009 or 2010. 57
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Consumable virtual goods accounted for 15% of online game revenue in 2009 compared to 37% in 2010. The increase in online game revenue from consumable virtual goods in 2010 was largely due to our ability in late 2009 and early 2010 to track separately consumable virtual goods from durable virtual goods, allowing us to recognize consumable virtual goods as they were consumed. Revenue from consumable virtual goods accounted for 41% of the increase in online game revenue from 2009 to 2010. Durable virtual goods accounted for 85% of online game revenue in 2009 compared to 63% in 2010. Revenue from durable virtual goods accounted for 59% of the increase in online game revenue from 2009 to 2010. The estimated weighted-average life of durable virtual goods included in bookings during 2009 was 19 months compared to 18 months during 2010. Advertising revenue decreased $12.9 million as we reduced the volume of in-game offers in order to improve player experience. International revenue as a percentage of total revenue was 14%, 27% and 33% in 2008, 2009 and 2010, respectively. These increases were primarily due to more international payment options, additional localized content and more demand for our games internationally. 2008 Compared to 2009. Total revenue increased $102.1 million from 2008 to 2009. Bookings increased by $292.1 million from 2008 to 2009 and increased in every quarter due to the launch of several new games, as well as new content added to existing games. Online game revenue increased $80.5 million from 2008 to 2009. Mafia Wars, Zynga Poker and YoVille accounted for $32.2 million, $24.1 million and $9.7 million of the increase, respectively. The increase in revenue from Mafia Wars and YoVille was due to the launch and acquisition of these games, respectively, in June 2008. Zynga Poker was launched in July 2007, and the increase in revenue reflects an increase in bookings from new content, as well as the recognition of revenue derived from bookings recorded over a longer period of time. All other games accounted for the remaining net increase of $14.5 million. In 2008, Zynga Poker and Mafia Wars were our top revenue-generating games and comprised 71% and 20%, respectively, of online game revenue. No other game comprised 10% or more of online game revenue during 2008. The estimated weighted-average life of durable virtual goods included in bookings during 2008 was 15 months compared to 19 months during 2009. Advertising revenue increased $21.6 million due to player growth and an increase in in-game offers. Cost of revenue
Cost of revenue
$10,017
$56,707
$176,052
466%
210%
2009 Compared to 2010. Cost of revenue increased $119.3 million from 2009 to 2010. The increase was primarily attributable to an increase of $47.6 million in hosting costs to support additional games and increased player activity, an increase of $23.9 million in depreciation and amortization expense related to depreciation of new fixed assets and amortization of intangibles acquired in business acquisitions, an increase of $18.0 million in consulting costs primarily related to third-party customer support necessitated by higher player activity, and an increase of $13.4 million in headcountrelated costs for our technology and customer support groups to support the growth of our business. In addition, payment processing fees increased by $9.6 million. 58
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2008 Compared to 2009. Cost of revenue increased $46.7 million from 2008 to 2009. The increase was primarily attributable to an increase of $14.3 million in hosting costs to support new games and increased player activity, an increase of $12.8 million in payment processing fees as a result of increased payment transactions, and an increase of $7.4 million in headcount-related costs for our technology and customer support groups in order to support our ongoing investment in game development and enhancements. Research and development
Research and development
$12,160
$51,029
$149,519
320%
193%
2009 Compared to 2010. Research and development expenses increased $98.5 million from 2009 to 2010. The increase was primarily attributable to an increase of $77.9 million in headcount-related expenses and an increase of $8.2 million in third-party design expenses related to game development and an increase of $8.9 million in allocated facilities and overhead support costs. 2008 Compared to 2009. Research and development expenses increased $38.9 million from 2008 to 2009. The increase was primarily attributable to an increase of $29.5 million in headcount-related expenses related to game development. Sales and marketing
Sales and marketing
$10,982
$42,266
$114,165
285%
170%
2009 Compared to 2010. Sales and marketing expenses increased $71.9 million from 2009 to 2010. The increase was primarily attributable to an increase of $44.5 million in player acquisition costs, an increase of $18.7 million in headcount-related costs and an increase of $5.5 million in general marketing expenses related to new marketing and brand programs. 2008 Compared to 2009. Sales and marketing expenses increased $31.3 million from 2008 to 2009. The increase was primarily attributable to an increase of $26.3 million in player acquisition costs and an increase of $3.2 million in headcount-related expenses. General and administrative
2008 Year Ended December 31, 2009 2010 (dollars in thousands) 2008 to 2009 % Change 2009 to 2010 % Change
General and administrative
$8,834
$24,243
$32,251
174%
33%
2009 Compared to 2010. General and administrative expenses increased $8.0 million from 2009 to 2010. The increase was primarily attributable to an increase of $22.8 million in headcount-related expenses, an increase of $14.0 million in professional service costs, a $4.8 million increase in depreciation expense and a $2.5 million increase in information technology costs to support the growth of our business. These increased expenses were offset by a net gain from legal settlements of $39.3 million. 2008 Compared to 2009. General and administrative expenses increased $15.4 million from 2008 to 2009. The increase was primarily attributable to an increase of $13.2 million in professional services associated with ongoing litigation and an increase of $10.3 million in headcountrelated expenses related to the support of the growth of our business. In 2008, we recorded $7.0 million of general and administrative expenses related to a legal settlement. 59
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Interest income
Interest income
$319
$177
$1,222
(45)%
590%
2009 Compared to 2010. Interest income increased $1.0 million from 2009 to 2010 primarily due to the increase in our cash and marketable securities balance driven by the increase in cash flows from operations and cash from financing activities, including proceeds from the sale and issuance of Series B-2 preferred stock in the second quarter of 2010. 2008 Compared to 2009. Interest income decreased $0.1 million primarily due to the decrease in interest rates during 2009. Other income (expense), net
Other income (expense), net
$ 187
$(209)
$ 365
NM
NM
2009 Compared to 2010. Other income (expense), net increased $0.6 million from 2009 to 2010 primarily due to an increase in net transaction gain on foreign exchange rate changes. 2008 Compared to 2009. Other income (expense), net decreased $0.4 million from 2008 to 2009 primarily due to a net transaction loss on foreign exchange rate changes. Provision for income taxes
$(38)
$(12)
$(36,464)
NM
NM
2009 Compared to 2010. Provision for income taxes increased $36.5 million from 2009 to 2010, primarily as a result of the increase in pre-tax income in 2010 from a pre-tax loss in 2009. In 2010, we recorded a provision for income taxes that was principally attributable to U.S. federal taxes, California taxes and foreign taxes. The effective tax rate for 2010 was 28.7%. The increase in our annual effective tax rate for 2010 was driven by the implementation cost of our international tax structure, state income taxes and non-deductible stock compensation expense. These increases were offset by the benefit of releasing the federal valuation allowance in 2010 due to our achievement of profitability, and by the utilization of both federal and California research and development credits. Before we began forming non-U.S. operating companies during 2010, the revenue from non-U.S. users was earned by our U.S. company, resulting in virtually no foreign profit before tax. The new foreign entities, as start-up companies, generated operating losses in 2010. The tax impact of the losses generated in tax jurisdictions with lower statutory rates than the U.S. rate increased tax expense and the effective tax rate. 2008 Compared to 2009. In 2008 and 2009, we recorded income taxes that were principally attributable to the California minimum franchise tax and foreign taxes. 60
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Quarterly Results of Operations Data The following tables set forth our unaudited quarterly consolidated statements of operations data in dollars and as a percentage of revenue for each of the 11 quarters ended September 30, 2011 (certain items may not reconcile due to rounding). We also present other financial and operations data, and a reconciliation of revenue to bookings and net income (loss) to adjusted EBITDA, for the same periods. We have prepared the quarterly consolidated statements of operations data on a basis consistent with the audited consolidated financial statements included in this prospectus. In the opinion of management, the financial information reflects all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of this data. This information should be read in conjunction with the audited consolidated financial statements and related notes included elsewhere in this prospectus. The results of historical periods are not necessarily indicative of the results of operations for a full year or any future period.
Mar 31, 2009 Consolidated Statements of Operations Data: Revenue Costs and expenses: Cost of revenue Research and development Sales and marketing General and administrative Total costs and expenses Income (loss) from operations Net income (loss) Jun 30, 2009 Sep 30, 2009 Dec 31, 2009 For the Three Months Ended Mar 31, Jun 30, Sep 30, 2010 2010 2010 (in thousands) $100,927 32,911 27,851 17,398 16,452 $130,099 41,636 30,386 29,530 15,130 $170,674 49,902 39,782 28,957 17,757 Dec 31, 2010 Mar 31, 2011 Jun 30, 2011 Sep 30, 2011
$15,531 4,467 6,603 4,687 1,636
$18,904 8,943 9,141 6,324 3,654
$ 31,311 16,191 14,302 10,987 6,952
$ 55,721 27,106 20,983 20,268 12,001
$195,759 51,603 51,500 38,280 (17,088) 124,295 $ 71,464 $ 42,992
$242,890 67,662 71,760 40,156 27,110 206,688 $ 36,202 $ 16,758
$279,144 78,076 95,747 38,098 54,218 266,139 $ 13,005 $ 1,391
$306,829 80,170 114,809 43,717 36,395 275,091 $ 31,738 $ 12,540
17,393 28,062 48,432 80,358 94,612 $ (1,862) $ (9,158) $(17,121) $(24,637) $ 6,315 $ (1,761) $ (9,250) $(17,264) $(24,547) $ 6,435
116,682 136,398 $ 13,417 $ 34,276 $ 13,951 $ 27,217
Mar 31, 2009 Consolidated Statements of Operations Data: Revenue Costs and expenses: Cost of revenue Research and development Sales and marketing General and administrative Total costs and expenses Income (loss) from operations Net income (loss)
Jun 30, 2009
Sep 30, 2009
Dec 31, 2009
For the Three Months Ended Mar 31, Jun 30, Sep 30, 2010 2010 2010 (as a percentage of revenue) 100% 33 28 17 16 94 6% 6% 100% 32 23 23 12 90 1 0% 1 1% 100% 29 23 17 11 80 2 0% 1 6%
Dec 31, 2010
Mar 31, 2011
Jun 30, 2011
Sep 30, 2011
100% 29 43 30 10 112 (12)% (11)%
100% 47 48 33 20 148 (48)% (49)%
100% 52 46 35 22 155 (55)% (55)%
100% 49 38 36 21 144 (44)% (44)%
100% 26 26 20 (9) 63 3 7% 2 2%
100% 28 30 17 11 86 1 4% 6%
100% 28 34 14 19 95 5% 0%
100% 26 38 14 12 90 1 0% 4%
61
Table of Contents For the Three Months Ended Mar 31, Jun 30, Sep 30, Dec 31, 2010 2010 2010 2010 (dollars in thousands, except ABPU data)
Mar 31, 2009 Other Financial and Operations Data: Bookings Adjusted EBITDA Average DAU (in millions) Average MAU (in millions) Average MUU (in millions) ABPU Headcount (at period end) NA means data is not available.
Jun 30, 2009
Sep 30, 2009
Dec 31, 2009
Mar 31, 2011
Jun 30, 2011
Sep 30, 2011
$32,523 $16,656 NA NA NA NA 187
$52,548 $26,635 NA NA NA NA 275
$98,447 $53,848 24 99 63 $ 0.044 404
$144,552 $178,318 $ 71,048 $ 93,552 58 67 207 236 110 124 $ 0.027 $ 0.030 576 761
$194,696 $222,383 $243,499 $286,598 $274,743 $ 93,794 $102,200 $103,192 $112,263 $ 65,080 60 49 48 62 59 234 203 195 236 228 119 110 111 146 151 $ 0.036 $ 0.049 $ 0.055 $ 0.051 $ 0.051 961 1,246 1,483 1,858 2,289
$287,661 $ 58,130 54 227 152 $ 0.058 2,789
Mar 31, 2009 Reconciliation of Revenue to Bookings: Revenue Change in deferred revenue Bookings Reconciliation of Net Income (Loss) to Adjusted EBITDA: Net income (loss) Provision for income taxes Other income (expense), net Interest income Gain (loss) on legal settlements Depreciation and amortization Stock-based compensation Change in deferred revenue Adjusted EBITDA
Jun 30, 2009
Sep 30, 2009
Dec 31, 2009
For the Three Months Ended Mar 31, Jun 30, Sep 30, 2010 2010 2010 (in thousands) $100,927 77,391 $178,318 $130,099 64,597 $194,696 $170,674 51,709 $222,383
Dec 31, 2010
Mar 31, 2011
Jun 30, 2011
Sep 30, 2011
$15,531 16,992 $32,523
$18,904 33,644 $52,548
$ 31,311 67,136 $ 98,447
$ 55,721 88,831 $144,552
$195,759 47,740 $243,499
$242,890 43,708 $286,598
$279,144 $306,829 (4,401) (19,168) $274,743 $287,661
$ (1,761) $ (9,250) $(17,264) $ (24,547) $ 6,435 $ 13,951 $ 27,217 $ 42,992 $ 16,758 $ 1,391 $ 12,540 3 3 3 3 391 789 6,452 28,832 19,226 12,257 19,723 (65) 128 182 (36) (430) (1,101) 1,053 113 736 (200) (263) (39) (39) (42) (57) (81) (222) (446) (473) (518) (443) (262) (39,346) 1,284 1,583 2,853 4,652 6,546 8,504 11,292 13,139 17,847 23,365 22,936 242 566 980 2,202 3,300 7,276 4,923 10,195 14,506 33,111 22,624 16,992 33,644 67,136 88,831 77,391 64,597 51,709 47,740 43,708 (4,401) (19,168) $16,656 $26,635 $ 53,848 $ 71,048 $ 93,552 $ 93,794 $102,200 $103,192 $112,263 $ 65,080 $ 58,130
Quarterly Trends Bookings increased sequentially during all periods presented except for a decrease of 4% in the three months ended June 30, 2011 compared to the three months ended March 31, 2011, which was primarily attributable to a decrease in DAUs while ABPU was stable over the quarter. We did not launch any new games in the first half of 2011 in time to materially impact bookings in the first two quarters of 2011. Failure in future periods to launch successful games on a regular basis will have a negative impact on bookings, and ultimately revenue, in future periods. ABPU increased in each sequential quarter in 2010 from $0.030 in the first quarter of 2010 to $0.055 in the fourth quarter of 2010 as a result of better monetization of all of our players through the sale of virtual goods and advertising. ABPU decreased slightly from the fourth quarter of 2010 to the first quarter of 2011, reflecting a 62
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decrease in monetization of a larger player base resulting from a 30% increase in Average DAU. The increase in Average DAU was driven by growth in players on both facebook and mobile platforms. ABPU remained consistent in the second quarter of 2011 as both Average DAU and bookings decreased slightly from the previous quarter. ABPU increased in the third quarter of 2011 due to higher bookings and a decrease in Average DAU. Revenue increased sequentially during every quarter presented due to the launch of new games and the release of enhanced content and features in existing games. In addition, during the three months ended December 31, 2009 data became available to separately account for consumable and durable virtual goods for one of our games, thus allowing us to recognize revenue related to consumable goods upon consumption. In the three months ended March 31, 2010, this data became available for several of our other games. As consumable virtual goods are typically consumed by our players within a month of purchase, this resulted in revenue being recognized over a shorter period of time beginning in the three months ended December 31, 2009 as compared to previous periods. Cumulative 2011 changes in our estimated average life of durable virtual goods for various games resulted in a net increase in revenue of $21.2 million in the three months ended September 30, 2011. Cost of revenue increased in absolute terms during every quarter presented. The increases were primarily due to increased web-hosting costs, depreciation and amortization expense, consulting and headcount costs related to customer support in connection with the growth of our business. Payment processing fees decreased $2.9 million in the three months ended December 31, 2010 compared to the three months ended September 30, 2010 due to the transition to facebook Credits as our primary in-game payment method for games played through Facebook. We do not record any payment processing fees associated with Facebook Credits because we account for revenue related to the redemption of Facebook Credits in our games net of the amounts retained by Facebook. The increase in cost of revenue for the three months ended March 31, 2011 compared to the three months ended December 31, 2010 was primarily due to web-hosting costs associated with higher-than-expected player activity that required us to purchase additional, more expensive temporary capacity. Research and development expenses increased in absolute terms during every quarter presented, primarily due to headcount-related expenses from continued hiring to develop and enhance our games and consulting costs related to game design and content creation. The increase in the three months ended March 31, 2011 reflects increased resources devoted to existing and new game development. This is a key area of investment for us and core to the long-term success of our business. The increase in the three months ended June 30, 2011 includes $4.0 million related to payments to a former employee and $4.8 million of stock compensation expense related to the acceleration of vesting of stock options held by this former employee. For the three months ended September 30, 2011, research and development expenses increased due to an increase in headcount-related expenses, which included $5.4 million in stock-based compensation expense related to the acceleration of vesting of stock held by a former employee. Sales and marketing expenses decreased by $2.9 million from the three months ended December 31, 2009 to the three months ended March 31, 2010 due to a decrease in player acquisition costs. Sales and marketing expenses increased by $12.1 million from the three months ended March 31, 2010 to the three months ended June 30, 2010 due primarily to an increase in player acquisition costs related to the launch of new games and a $3.3 million stock-based compensation charge related to a former employee recorded in the three months ended June 30, 2010. Sales and marketing expenses decreased by $2.1 million from the three months ended March 31, 2011 to the three months ended June 30, 2011 primarily due to a decrease in player acquisition costs partially offset by an increase in headcount-related expenses. Increases in sales and marketing expenses in other quarters were primarily due to increased player acquisition costs, increased headcount-related expenses from continued hiring to support business growth, and increased marketing activities and consulting costs. The timing of these marketing activities and related consulting costs drove fluctuations in expenses during 2010. General and administrative expenses generally increased in absolute terms over the periods presented. This was primarily due to increased headcount-related expenses from continued hiring to support growth, as well as increased costs related to legal professional services. The timing of legal professional service expenses as well as 63
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charitable campaign expenses drove fluctuations in general and administrative expenses in the periods presented. The decrease in general and administrative expenses from the three months ended March 31, 2010 compared to the three months ended June 30, 2010 was due primarily to a decrease in consulting expenses. During the three months ended December 31, 2010, general and administrative expenses were offset by a net gain from legal settlements of $39.3 million. General and administrative expenses increased by $27.1 million from the three months ended March 31, 2011 to the three months ended June 30, 2011 due to $10.6 million in stock-based compensation expense related to a common stock warrant granted in June 2011, a $10 million sign-on bonus in connection with an employment agreement with a new member of senior management and other headcount-related expenses. The decrease in general and administrative expenses from the three months ended September 30, 2011 compared to the three months ended June 30, 2011 was mainly due to having incurred the $10.6 million in stock-based compensation expense related to a common stock warrant and the $10 million employee sign-on bonus in the second quarter of 2011. Liquidity and Capital Resources
2008 Year Ended December 31, 2009 2010 (in thousands) Nine Months Ended September 30, 2010 2011
Consolidated Statements of Cash Flows Data: Acquisition of property and equipment Depreciation and amortization Cash flows provided by operating activities Cash flows used in investing activities Cash flows provided by financing activities
$ (4,596) 2,905 $ 11,482 (21,196) 29,547
$ (38,818) 10,372 $ 190,995 (103,392) 14,169
$ (56,839) 39,481 $ 326,412 (617,438) 351,437
$ $
(45,669) 26,342 268,587 (565,240) 309,151
$ $
(187,736) 64,148 225,213 (10,579) 201,731
As of September 30, 2011, we had cash, cash equivalents and marketable securities of $926.3 million, which consisted of cash, money market funds and U.S. government debt securities. Prior to 2010, we funded our operations and capital expenditures through cash flows from operations and sales of preferred stock. Since 2010, we have been able to fund our operations, including capital expenditures, through cash flow from operating activities. In 2011, our philosophy is to continue to invest for long-term growth. During the fourth quarter of 2011, we expect to make capital expenditures of approximately $50 million to $70 million as we invest in network infrastructure to support our expected growth and to continue to improve the player experience. We believe that our existing cash, cash equivalents and marketable securities, together with cash generated from operations, will be sufficient to fund our operations and capital expenditures for at least the next 12 months. Operating Activities Operating activities provided $225.2 million of cash in the nine months ended September 30, 2011. The cash flow from operating activities primarily resulted from our net income, adjusted for non-cash items, and changes in our operating assets and liabilities. Changes in our operating assets and liabilities provided $57.3 million of cash during the nine months ended September 30, 2011, primarily due to increases in other liabilities, deferred revenue and accounts payable and a decrease in income tax receivable. The favorable components of cash provided by operating activities were partially offset by increases in accounts receivable and other assets. The increase in our deferred revenue and accounts receivable was primarily due to our bookings growth in the nine months ended September 30, 2011, which increased by $188.4 million from the nine months ended December 31, 2010. Additionally, our accounts receivable balance increased as we transitioned our in-game payment method to facebook from other payment processors, who generally remit payments faster than Facebook. The increase in accounts payable and other liabilities was the result of increased spending due to the growth of our business. Our income tax receivable balance decreased as we utilized tax payments made in prior periods to offset tax liabilities incurred during the nine months ended September 30, 2011. Our other assets balance increased primarily due to an advanced deposit to a strategic partner. We had net income in the nine 64
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months ended September 30, 2011 of $30.7 million, including non-cash depreciation and amortization expense of $64.1 million, which continues to grow in correlation with our spending on capital equipment and business acquisitions. Non-cash stock-based compensation expense was $70.2 million, primarily driven by stock awards issued in connection with business acquisitions and to executives. Operating activities provided $326.4 million of cash in 2010. The cash flow from operating activities primarily resulted from an increase in bookings, which resulted in an increase in deferred revenue of $241.4 million from 2009 to 2010. Additionally, the growth of our business resulted in increased spending, causing an increase in accounts payable and accrued liabilities of $102.4 million. We had net income in 2010 of $90.6 million, which included non-cash depreciation and amortization expense of $39.5 million, driven by investments in capital equipment and business acquisitions we made during 2010. Non-cash stock-based compensation expense was $25.7 million, driven primarily by stock awards issued in connection with business acquisitions. The favorable components of cash provided by operating activities were partially offset by an increase in income tax receivable of $25.3 million, due to tax payments made in excess of taxes due; an increase in excess tax benefits from stock-based awards of $39.7 million, due to the realization of tax benefits from stock option activity in 2010; and an increase in accounts receivable of $69.5 million, primarily due to our bookings growth. Additionally, our rate of collection on accounts receivable was impacted in the second half of the year, as we began transitioning our in-game payment method to facebook from other payment processors, who generally remit payments faster than Facebook. Operating activities provided $191.0 million of cash in 2009. The cash flow from operating activities primarily resulted from an increase in bookings, which resulted in an increase in deferred revenue of $206.6 million from 2008 to 2009. The growth of our business also resulted in increased spending, causing an increase in accounts payable and accrued liabilities of $40.5 million. The favorable components of cash provided by operating activities were partially offset by our net loss in 2009 of $52.8 million and increases in income tax receivable and accounts receivable. The increase in income tax receivable was due to tax payments made in excess of taxes due for 2009 and the increase in accounts receivable was due to the increase in bookings. Operating activities provided $11.5 million of cash in 2008. The cash flow from operating activities primarily resulted from an increase in bookings, which resulted in an increase in deferred revenue of $16.5 million from 2007 to 2008. The growth of our business also resulted in increased spending, causing an increase in accounts payable and accrued liabilities of $15.4 million. The favorable components of cash provided by operating activities were partially offset by our net loss in 2008 of $22.1 million. Investing Activities Our primary investing activities have consisted of purchases and sales of marketable securities, purchases of property and equipment, and business acquisitions. Cash used in the purchase of marketable securities was $10.0 million in 2008, $125.1 million in 2009 and $804.5 million in 2010. Cash provided by the sale and maturity of marketable securities was zero in 2008, $62.4 million in 2009 and $324.0 million in 2010. Cash used in the purchase of marketable securities was $713.2 million and $512.6 million for the nine months ended September 30, 2010 and 2011, respectively. Cash provided by the sale and maturity of marketable securities was $226.7 million and $737.9 million for the nine months ended September 30, 2010 and 2011, respectively. Our purchases of property and equipment have primarily resulted from our investment in our data centers. We also continued to invest in technology hardware and software to support our growth. Purchases of property and equipment may vary from period to period due to the timing of the expansion of our operations and game and software development. We expect to continue to invest in property and equipment and development of software associated with online games for the remainder of 2011 and thereafter. We used zero, $0.5 million and $62.3 million, net of cash acquired, in connection with acquisitions in 2008, 2009 and 2010, respectively. We used $18.5 million and $38.0 million, net of cash acquired in connection with 65
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acquisitions for the nine months ended September 30, 2010 and 2011, respectively. In line with our growth strategy, we completed these acquisitions to expand our social game offerings, obtain employee talent and expand into new international markets. Financing Activities Our financing activities have consisted primarily of net proceeds from the issuance of common stock and preferred stock partially offset by the repurchase of common stock and preferred stock. In the nine months ended September 30, 2011, we issued 34.9 million shares of Series C preferred stock for net proceeds of $485.3 million. In addition, we repurchased 27.5 million shares of our outstanding capital stock for a total purchase price of $283.8 million during the nine months ended September 30, 2011. Credit Facility In July 2011, we executed a revolving credit agreement with certain lenders to borrow up to $1.0 billion in revolving loans. Per the terms of the credit agreement, we paid upfront fees of $2.5 million and we are required to pay ongoing commitment fees of up to $625,000 each quarter based on the portion of the credit facility that is not drawn down. The interest rate for the credit facility is determined based on a formula using certain market rates. As of September 30, 2011, we had not drawn down any amounts on the credit facility. OffBalance Sheet Arrangements We did not have any off-balance sheet arrangements in 2008, 2009 or 2010 or in the nine months ended September 30, 2011. Contractual Obligations We have entered into operating leases for facilities space. In 2010, we executed an operating lease agreement for 267,000 square feet of office space for our future headquarters in San Francisco, California. The lease term is seven years from the defined commencement date, with options to renew for two five-year terms. In addition, we have entered into several service contracts for web hosting services. The minimum lease payments and the future minimum purchase commitments as of December 31, 2010 are included in the table below. We do not have any debt or material capital lease obligations, and all of our property, equipment and software has been purchased with cash.
Payments Due by Period Less than 1-3 4-5 1 year years years (in millions) More than 5 years
Total
Operating lease obligations (1) Purchase commitments (2) Total (1)
$101.9 15.5 $117.4
$ $
10.8 12.0 22.8
$30.1 3.5 $33.6
$18.4 $18.4
$ $
42.6 42.6
Future lease obligations increased during the nine months ended September 30, 2011 for costs related to additional leases. During the nine months ended September 30, 2011, we executed amendments increasing the square footage of our headquarters to 407,000 square feet, and entered into leases to host our data centers. Payments associated with lease agreements increased by $155 million, of which $4.5 million are due in less than one year, $33.8 million are due between one and three years, $37.9 million are due between four and five years, and $78.8 million are due after five years. Future minimum purchase commitments increased during the nine months ended September 30, 2011 for costs associated with the hosting of data systems. Payments associated with minimum purchase commitments increased by $39.1 million, of which $32.7 million is due by December 31, 2011, and $6.4 million is due between December 31, 2011 and December 31, 2013. 66
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Critical Accounting Policies and Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in our consolidated financial statements and related notes. Our significant accounting policies are described in Note 1 to our consolidated financial statements included in this prospectus. We have identified below our critical accounting policies and estimates that we believe require the greatest amount of judgment. These estimates and judgments have a significant impact on our consolidated financial statements. Actual results could differ materially from those estimates. Revenue Recognition We derive revenue from the sale of virtual goods and from the sale of advertising within our games. Online game We operate our games as live services that allow players to play for free. Within these games, players can purchase virtual currency to obtain virtual goods to enhance their game-playing experience. Players can primarily pay for our virtual currency using facebook Credits when playing our games through the Facebook platform, and can use other payment methods such as credit cards or PayPal on other platforms. We also sell game cards that are initially recorded as a customer deposit liability which is included in other current liabilities on the consolidated balance sheet, net of fees retained by retailers and distributors. Upon redemption of a game card into one of our games and delivery of virtual currency to the player, these amounts are reclassified to deferred revenue. We recognize revenue when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the service has been provided to the player; (3) the collection of our fees is reasonably assured; and (4) the amount of fees to be paid by the customer is fixed or determinable. For purposes of determining when the service has been provided to the player, we have determined that an implied obligation exists to the paying player to continue displaying the purchased virtual goods within the online game over their estimated life or until they are consumed. The proceeds from the sales of virtual goods are initially recorded in deferred revenue. We categorize our virtual goods as either consumable or durable. Consumable virtual goods, such as energy in CityVille, represent goods that can be consumed by a specific player action. Common characteristics of consumable goods may include virtual goods that are no longer displayed on the players game board after a short period of time, do not provide the player any continuing benefit following consumption or often times enable a player to perform an in-game action immediately. For the sale of consumable virtual goods, we recognize revenue as the goods are consumed. Durable virtual goods, such as tractors in FarmVille, represent virtual goods that are accessible to the player over an extended period of time. We recognize revenue from the sale of durable virtual goods ratably over the estimated average playing period of paying players for the applicable game, which represents our best estimate of the average life of our durable virtual goods. If we do not have the ability to differentiate revenue attributable to durable virtual goods from consumable virtual goods for a specific game, we recognize revenue from the sale of durable and consumable virtual goods for that game ratably over the estimated average period that paying players typically play our games. We determine our estimated average playing period of paying players for each significant game beginning with the time a player first purchases a virtual good. For the nine months ended September 30, 2011, the estimated average playing period of paying players for our games ranged from eight to 25 months. Future paying player usage patterns and behavior may differ from the historical usage patterns and therefore the estimated average playing periods may change in the future. Prior to October 1, 2009, we did not have the data to determine the consumption dates for our consumable virtual goods or to differentiate revenue attributable to durable virtual goods from consumable virtual goods. Beginning in October 2009, we had sufficient data to separately account for consumable and durable virtual goods in one of our games, thus allowing us to recognize revenue related to consumable goods upon consumption. Since January 2010, we have had this data for substantially all of our games, thus allowing us to recognize revenue related to consumable goods upon consumption. Future usage patterns may differ from historical usage patterns and therefore the estimated average playing periods may change in the future. We assess the estimated average playing 67
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period for paying players and the estimated average life of our virtual goods quarterly. We expect that there will be changes in the mix of virtual goods sold due to new game introductions, reduced virtual good sales in existing games or other factors, including changes in estimates in virtual good life or our ability to make such estimates. When such changes occur, and in particular if more of our revenue in any period is derived from goods for which revenue is recognized over the estimated average playing period, or that period increases on average, the amount of revenue that we recognize in a future period may be reduced from prior periods, perhaps significantly. We estimate chargebacks from our third-party payment processors to account for potential future chargebacks based on historical data and record such amounts as a reduction of revenue. We determine our estimated average playing period for paying players by game beginning at the time of a payers first purchase and ending on a date that is calculated based on an attrition rate which factors in historical data. To determine the attrition rate for a given game, we analyze paying players for that game who made their first in-game payment between six and 18 months prior to the beginning of each quarter (each month of first time payers is a cohort) and determine whether each player within the analyzed population is an active or inactive player as of the date of our analysis. To determine which players are inactive, we analyze the dates that each paying player last logged into that game. We determine a paying player to be inactive once they have reached a period of inactivity for which it is probable (defined as at least 80%) that a player will not return to a specific game. For the payers deemed inactive as of our analysis date we analyze the dates they last logged into that game to determine the rate at which inactive players stop playing. Based on these inactivity periods we then project the expected date at which all paying players for each monthly cohort are expected to cease playing our games. We then average the time periods from first purchase date and the date the last player is expected to cease playing the game for each of the monthly cohorts to determine the total playing period for that game. To determine the estimated average playing period we then divide this total playing period by two. The use of this average approach is supported by our observations that paying players become inactive at a relatively consistent rate for each of our games. If future data indicates paying players do not become inactive at a relatively consistent rate, we will modify our calculations accordingly. If a new game is launched and only a limited period of paying player data is available for our analysis, then we also consider other factors, such as the estimated average playing period for other recently launched games with similar characteristics, to determine the estimated average playing period. In May 2010, we entered into an agreement with facebook that required us to accept Facebook Credits as the primary in-game payment method for our games played through the Facebook platform. The agreement required us to begin migrating our games to Facebook Credits in our games beginning in July 2010, and by April 2011 this migration was complete. Facebook Credits is Facebooks proprietary virtual currency that Facebook sells for use on the Facebook platform. Under the terms of our agreement, Facebook sets the price our players pay for Facebook Credits and collects the cash from the sale of Facebook Credits. Facebooks current stated face value of a Facebook Credit is $0.10. For each Facebook Credit purchased by our players and redeemed in our games, Facebook remits to us $0.07, which is the net amount we recognize as revenue. We recognize revenue net of the amounts retained by Facebook because we do not set the pricing of Facebook Credits to the players of our games. Prior to the implementation of Facebook Credits in our games, players could purchase our virtual goods through various widely accepted payment methods offered in the games and we recognized revenue based on the transaction price paid by the player. Advertising We have contractual relationships with agencies and brokers for advertisements within our games. We recognize advertising revenue as advertisements are delivered to customers as long as evidence of the arrangement exists (executed contract), the price is fixed and determinable, and we have assessed collectability as reasonably assured. Certain branded virtual goods and sponsorships are deferred and recognized over the estimated average life of the branded virtual good, similar to online game revenue. We report our advertising revenue net of amounts due to advertising agencies and brokers because we are not the primary obligor in our arrangements, we do not set the pricing, and we do not establish or maintain the relationship with the advertiser. 68
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Income Taxes We account for income taxes using an asset and liability approach, which requires the recognition of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our financial statements or tax returns. The measurement of current and deferred tax assets and liabilities is based on provisions of enacted tax laws; the effects of future changes in tax laws or rates are not anticipated. If necessary, the measurement of deferred tax assets is reduced by the amount of any tax benefits that are not expected to be realized based on available evidence. We account for uncertain tax positions by reporting a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. We recognize interest and penalties, if any, related to unrecognized tax benefits in provision for income taxes. Business Combinations In line with our growth strategy, we have completed acquisitions to expand our social games and mobile offerings, obtain employee talent, and expand into new markets. We account for acquisitions of entities that include inputs and processes and have the ability to create outputs as business combinations. We allocate the purchase price of the acquisition to the tangible assets, liabilities and identifiable intangible assets acquired based on their estimated fair values. The excess of the purchase price over those fair values is recorded as goodwill. Determining the fair value of such items requires judgment, including estimating future cash flows or estimating the cost to recreate an acquired asset. If actual results are lower than estimates, we could be required to record impairment charges in the future. Acquired intangible assets are amortized over their estimated useful lives. Intangible assets with indefinite lives are not amortized but rather tested for impairment annually, or more frequently if circumstances exist which indicate an impairment may exist. Acquisition-related expenses and restructuring costs are expensed as incurred. During the one-year period beginning with the acquisition date, we may record certain purchase accounting adjustments related to the fair value of assets acquired and liabilities assumed against goodwill. After the final determination of the fair value of assets acquired or liabilities assumed, any subsequent adjustments are recorded to our consolidated statements of operations. Software Development Costs We capitalize costs incurred during the application development stage relating to the development of our games and computer software developed or purchased for internal use. The application development stage occurs after management has approved and funded the project and determined it is probable the project will be completed and the resulting product will function as intended. Significant judgment is required in determining whether it is probable that a project will be completed and the resulting product will function as intended. Capitalized costs are amortized on a straight-line basis over the estimated useful life of the software. Costs incurred prior to or after the application development stage are expensed as incurred. Stock-Based Compensation We grant restricted stock units, or ZSUs, to our employees that generally vest upon the satisfaction of both a service-based condition of up to four years and a liquidity condition. The ZSUs have a contractual term of seven years. Because the liquidity condition is not met until the occurrence of a qualifying liquidity event (an initial public offering or change of control), we have not recorded any expense to date relating to our ZSU grants. In connection with the initial public offering, we will begin recording stock compensation expense based on the grant date fair value of the ZSUs using the accelerated attribution method, net of estimated forefeitures. If the initial public offering had occurred on September 30, 2011, we would have recorded $393.0 million of stock-based compensation expense on that date related to ZSUs and would have had an additional $528.5 million in unamortized stock-based compensation expense related to ZSUs. 69
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We have historically issued unvested Series Z preferred stock to employees of certain acquired companies. As these awards are generally subject to post-acquisition employment, we have accounted for them as post-acquisition stock-based compensation expense. We recognize compensation expense equal to the grant date fair value of the Series Z preferred stock on a straight-line basis over the four-year service period, net of estimated forfeitures. We estimate the fair value of stock options using the Black-Scholes option-pricing model. This model requires the use of the following assumptions: (i) expected volatility of our common stock, which is based on our peer group in the industry in which we do business; (ii) expected life of the option award, which we elected to calculate using the simplified method; (iii) expected dividend yield, which is 0%, as we have not paid and do not anticipate paying dividends on our common stock; and (iv) the risk-free interest rate, which is based on the U.S. Treasury yield curve in effect at the time of grant with maturities equal to the grants expected life. Option grants generally vest over four years, with 25% vesting after one year and the remainder vesting monthly thereafter over 36 months. The options have a contractual term of 10 years. If any of the assumptions used in the BlackScholes model changes significantly, stock-based compensation for future awards may differ materially compared with the awards granted previously. The following table summarizes the assumptions relating to our stock options granted in 2009 and 2010:
Year Ended December 31, 2009 2010
Expected term, in years Risk-free interest rates Expected volatility Dividend yield Fair value of common stock
6 1.5 2.4% 70 77% $0.13 $3.81
6 2.7% 73% $6.435
Stock-based compensation expense is recorded net of estimated forfeitures so that expense is recorded for only those stock-based awards that we expect to vest. We estimate forfeitures based on our historical forfeiture of equity awards adjusted to reflect future changes in facts and circumstances, if any. We will revise our estimated forfeiture rate if actual forfeitures differ from our initial estimates. We record stock-based compensation expense for stock options on a straight-line basis over the vesting term. For stock options issued to non-employees, including consultants, we record expense equal to the fair value of the options calculated using the Black-Scholes model over the service performance period. The fair value of options granted to non-employees is remeasured over the vesting period, and the resulting value is recognized as an expense over the period the services are received. Valuation of Our Common Stock and Series Z Preferred Stock The valuations of our common stock were determined in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation . Although we did not obtain separate valuations of our Series Z preferred stock, our board of directors determined that the fair value of our Series Z preferred stock was equivalent to the value of our common stock because the value of the additional rights and preferences of our Series Z preferred stock was not significant. Our board of directors considered numerous objective and subjective factors to determine its best estimate of the fair value of our common stock and Series Z preferred stock as of each grant date, including but not limited to, the following factors: recent issuances of preferred stock, as well as the rights, preferences and privileges of our outstanding preferred stock; contemporaneous third-party valuations of our common stock; 70
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secondary transactions in our common stock and preferred stock; our performance and operating results; the likelihood of achieving a liquidity event, such as an initial public offering or sale of our company, given prevailing market conditions; the market performance of comparable companies selected based on several factors including, but not limited to industry (primarily Internet and game companies), size of the company (based on annual revenue of greater than $500 million, such as Tencent and Baidu), similar rapid growth rates (annual revenue growth of greater than 10%, such as LinkedIn Corporation and Youku.com), and availability of financial information (primarily public companies); and the U.S. global capital market conditions. We have granted or issued the following ZSUs, unvested Series Z preferred stock and stock options since January 1, 2010:
Shares Underlying ZSUs Unvested Series Z Preferred Stock Issuances Shares Underlying Options Grant Date Fair (ZSUs) or Exercise Price (Options)
Grant Date 2010 First Quarter Not applicable Second Quarter April 15, 2010 May 14. 2010 May 24, 2010 Third Quarter August 3, 2010 August 12, 2010 September 17, 2010 September 29, 2010 Fourth Quarter November 12, 2010 November 22, 2010 2011 First Quarter January 12, 2011 January 21, 2011 March 9, 2011 March 30, 2011 Second Quarter April 21, 2011 May 17, 2011 May 18, 2011 June 6, 2011 June 15, 2011 Third Quarter July 8, 2011 August 11, 2011 August 18, 2011
Aggregate Fair Value
16,650,366 9,428,830 4,750,000 11,021,090
704,172 905,410 1,368,734 114,508 984,666 17,026,822
6,750,000
6.435 6.435 6.435 6.435 6.435 6.435 6.435 6.435 6.435
$107,145,105 4,531,347 5,826,313 8,807,803 61,411,380 59,161,613 6,336,326 70,920,714 109,567,600
8,585,452 4,174,980 27,715,460 3,182,665 6,862,590 8,254,761
112,804 443,332 148,201 1,058,512 688,700
1,000,000 80,000
6.435 6.435 13.960 13.960 13.960 13.960 13.960 17.090 17.090 17.090 17.200 17.200
59,099,384 725,894 58,282,721 386,907,822 6,188,915 2,068,886 44,430,003 117,281,663 649,856 18,089,970 11,845,640 141,981,889
Based upon the assumed initial public offering price of $ per share, the aggregate intrinsic value of options outstanding as of December 31, 2010 was $ million, of which $ million related to vested options and $ million related to unvested options. 71
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We obtained third-party contemporaneous valuations of our common stock in April 2010, June 2010 and January 2011. The valuation analyses applied a combination of multi-period discounting method to after-tax cash flow available to invested capital, valuation metrics of comparable private transactions and publicly traded companies as well as recent negotiated arms-length transactions in our common stock and preferred stock, giving greatest consideration to the latter as this was determined to be the best evidence of fair value. We also obtained third-party contemporaneous valuations of our common stock in March 2011, May 2011 and August 2011. These valuation analyses determined the total value available to equity holders by applying a probability-weighted expected return model. The expected returns were based on a multi-period discounting method to after-tax cash flow available to invested capital and potential exit events from a strategic acquirer or initial public offering. During 2010, our board of directors considered several factors in its assessment and approval of our 2010 valuation analyses. The United States economy and the financial markets continued to improve, as evidenced by 12.8% and 16.9% annual gains on the S&P 500 and NASDAQ Composite Index, respectively. We experienced sequential bookings and revenue growth in each consecutive quarter during 2010. However, our user metrics declined due to several factors. Beginning in early 2010, facebook changed its policies for application developers regarding the use of its communication channels, and as a result the number of our players on Facebook declined in the second, third and fourth quarters of 2010. Additionally, we began migrating to Facebook Credits in July 2010 which created uncertainty around our financial outlook and reduced our net proceeds from the sale of virtual goods which negatively impacted our revenue growth and operating margin. Since the fourth quarter of 2009, there has been a significant number of secondary transactions in our common stock and preferred stock. The pricing of these transactions was the primary basis for determining the fair value of our common stock and Series Z preferred stock in 2010 and the first quarter of 2011, as more specifically discussed below. Second Quarter 2010 In April 2010, we issued a total of 2,330,472 shares of our Series B-2 preferred stock for $6.435 per share to two new investors for aggregate proceeds of $15 million. In April 2010, we obtained a third-party valuation that used recent arms length transactions in our stock, including this April transaction, as the primary indication of value. These transactions indicated a valuation of $4.25 billion based on fully diluted shares outstanding. To assess the reasonableness of this value a discounted cash flow analysis was utilized rendering a value of $3.67 billion. This discounted cash flow analysis used a weighted average cost of capital of 35%, which took into consideration the weighted average cost of capital of companies in a similar stage of development. Based on this April 2010 valuation and the factors described above, our board of directors determined that the fair value of our common stock and Series Z preferred stock was $6.435 per share for grants made during the second quarter of 2010. Third and Fourth Quarters 2010 In May 2010, we issued a total of 45,832,608 additional shares of our Series B-2 preferred stock for $6.435 per share to one existing investor and to one new investor for aggregate proceeds of $295 million. In June 2010, we obtained a third-party valuation that used recent arms length transactions in our stock as the primary indication of value. These transactions indicated a valuation of $4.59 billion based on fully diluted shares outstanding. To assess the reasonableness of this value a discounted cash flow analysis was utilized rendering a value of $4.34 billion. This discounted cash flow analysis used a weighted average cost of capital of 30%, which took into consideration the weighted average cost of capital of companies in a similar stage of development. Based on this June 2010 valuation and factors described above, our board of directors determined there was objective information that the fair value of our common stock and Series Z preferred stock remained at the same value as our April 2010 valuation described above, which was $6.435 per share for grants made during the third and fourth quarters of 2010. 72
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In July 2010, two new investors and one existing investor purchased an aggregate of 27,617,818 shares of Series A and Series A-1 preferred stock and Class B common stock from current employees and early investors, including our chief executive officer and certain other members of our senior management team, at a purchase price of $6.435 per share. In addition, several existing and several new investors purchased common stock from employees who tendered an aggregate of 16,059,796 shares of common stock into the offer to these new investors, which closed in October 2010. The price used in this tender offer was also $6.435, and since the participants in this transaction included highly knowledgeable, informed and sophisticated parties as both buyers and sellers, our board of directors determined that the terms of this transaction approximated those that would be obtained in an arms-length transaction. First Quarter 2011 In January 2011, in anticipation of purchasing common stock and preferred stock primarily from our employees and an early investor, we obtained a third-party valuation report that used recent arms length transactions in our stock as the primary indication of value. These transactions indicated a valuation of $4.98 billion based on fully diluted shares outstanding. To assess the reasonableness of this value a discounted cash flow analysis was utilized rendering a value of $4.91 billion. This discounted cash flow analysis used a weighted average cost of capital of 30%, which took into consideration the weighted average cost of capital of companies in a similar stage of development. This valuation concluded that the fair value of our common stock was $6.435 per share. We subsequently purchased an aggregate of 9,219,504 shares of common stock and Series A preferred stock from an early investor, a consultant and certain of our employees at a purchase price of $6.435 per share. In addition, a new investor who became a board member purchased an aggregate of 388,410 shares of common stock from an employee at $6.435 per share. Based on the above, our board of directors determined there was objective information that the fair value of our common stock and Series Z preferred stock remained at the same value as our June 2010 valuation described above, which was $6.435 per share for the grants made in January 2011. Between January and March 2011, the United States economy and the financial markets continued to improve, and the financial markets were receptive to new Internet issuers. In addition, in late February 2011, our comparable companies achieved significant increases in their valuations, including comparable public companies as well as comparative private entities, including facebook, Inc. and Groupon, Inc., based on news media reports of third-party investments in these companies. We experienced bookings and revenue growth throughout the first quarter of 2011 which improved our outlook, and our user metrics increased with average DAU, average MAU and average MUU growing 29%, 21% and 32%, respectively, driven by the recent launch of CityV ille. In February 2011, we issued a total of 34,927,368 shares of our Series C preferred stock for $14.03 per share to five new investors and one existing investor for aggregate proceeds of $490 million. The factors noted above were key factors contributing to the new investors willingness to purchase of our Series C preferred stock at a significantly higher valuation. In March 2011, we obtained a third-party valuation report that used the probability-weighted expected return method, PWERM to value our common stock and Series Z preferred stock. Using PWERM, we estimated the probability of an initial public offering in the future at 80%, of a strategic sale at 5%, and continued operations at 15%. The weighted average cost of capital used in this valuation report was 28%, which took into consideration the weighted average cost of capital of companies at a similar stage of development. We added several comparable Internet companies in this valuation analysis that we believe have experienced similar rapid growth rates, including Baidu, Inc., Tencent Holdings Ltd. and Youku.com Inc. Based on the March 2011 valuation and the factors described above, our board of directors determined there was objective information that the fair value of our common stock and Series Z preferred stock was $13.96 per share for grants made in early March 2011. We believe the $14.03 per share price paid by new Series C investors in February 2011 was the key factor resulting in the increase in value of our common stock in March 2011. As a result, we are not able to accurately quantify the portion of the increase in value attributable to financial performance and improving market conditions. In late March 2011, our board of directors determined that the fair value of our common stock and Series Z preferred stock remained $13.96 per share. Our board of directors considered several factors, including the 73
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proximity in time to the March 2011 valuation and the lack of material changes in our business or in market conditions subsequent to the March 2011 valuation. Our board of directors also considered the March 2011 repurchase of 14,427,924 shares of Series A, Series A-1 and Series B-1 preferred stock and common stock from five early investors and our Chief Executive Officer at $13.96 per share. Second Quarter 2011 In April and May 2011, our board of directors determined that the fair value of our common stock and Series Z preferred stock remained at $13.96 per share. Our board of directors considered several factors, including the proximity in time to the March 2011 valuation and the lack of material changes in our business or in market conditions subsequent to the March 2011 valuation. In late May 2011, we obtained a third-party valuation analysis that used PWERM to determine the fair value of our common stock and Series Z preferred stock. Consistent with the March 2011 valuation, we estimated the probability of an initial public offering at 80%, a strategic sale at 5% and continued operations at 15%. The weighted average cost of capital used in this valuation analysis was 25%. The analysis indicated a valuation for our equity of $13.98 billion based on fully diluted shares outstanding. The increase in valuation was attributable to an increase in valuations achieved by various comparable companies, including the valuations of companies that had recently completed initial public offerings, including LinkedIn Corporation. Based on the late May 2011 valuation and the factors described above, our board of directors determined there was objective information indicating that the fair value of our common stock and Series Z preferred stock was $17.09 per share for grants made in June and early July 2011. Third Quarter 2011 In August 2011, we obtained a third-party valuation analysis that used PWERM to determine the fair value of our common stock and Series Z preferred stock. Due to uncertainty and high volatility in the financial markets during the period leading up to the valuation date, and due to our receipt from the SEC in late June 2011 of a no-action letter with respect to our ZSUs without which we may have been required to initiate a public offering in early 2012, we updated our estimates of various exit events and estimated the probability of an initial public offering at 75%, a strategic sale at 5% and continued operations at 20%. The weighted average cost of capital used in this valuation analysis was 25%, which took into consideration the weighted average cost of capital of companies in a similar stage of development, and the comparable companies included in our analysis remained consistent with those included in the May 2011 analysis. The valuation analysis indicated a valuation for our equity of $14.05 billion based on fully diluted shares outstanding. Based on the August 2011 valuation and the factors described above, our board of directors determined there was objective information indicating that the fair value of our common stock and Series Z preferred stock was $17.20 per share for grants made in August 2011. If the August 2011 valuation analysis had remained consistent with the May 2011 analysis with respect to our estimates of exit events, and we had assigned 80% instead of 75% probability to the initial public offering scenario, the per share valuation would have changed by $0.01 and the impact on stock compensation expense would have been immaterial. Quantitative and Qualitative Disclosure about Market Risk Interest Rate Fluctuation Risk Our cash and cash equivalents and marketable securities consist of cash, money market funds and U.S. government debt securities. We do not have any long-term borrowings. The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk. Because our cash and cash equivalents have a relatively short maturity, our portfolios fair value is relatively insensitive to interest rate changes. We determined that the increase in yield from potentially investing our cash and cash equivalents in longer-term investments did not warrant a change in our investment strategy. In future periods, we will continue to evaluate our investment policy in order to ensure that we continue to meet our overall objectives. 74
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Foreign Currency Exchange Risk Our sales transactions are primarily denominated in U.S. dollars and therefore substantially all of our revenue is not subject to foreign currency risk. However, certain of our operating expenses are incurred outside the U.S. and are denominated in foreign currencies and are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Euro, Chinese Yuan, Japanese Yen and Indian Rupee. The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. Although we have experienced and will continue to experience fluctuations in our net income (loss) as a result of transaction gains (losses) related to revaluing certain cash balances, trade accounts payable, current liabilities and intercompany balances that are denominated in currencies other than the U.S. dollar, we believe such a change would not have a material impact on our results of operations. Inflation Risk We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant 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. Recently Issued and Adopted Accounting Pronouncements Revenue Recognition In September 2009, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update No. 2009-13, Multiple-Deliverable Revenue ArrangementsA Consensus of the FASB Emerging Issues Task Force (ASU 2009-13), which updates the existing multiple-element revenue arrangements guidance currently included under Accounting Standards Codification 605-25. The revised guidance eliminates the need for objective and reliable evidence of the fair value for the undelivered element in order for a delivered item to be treated as a separate unit of accounting, and also eliminates the residual method of allocating the arrangement consideration. In addition, the guidance expands the disclosure requirements for revenue recognition. We adopted ASU 2009-13 on January 1, 2011 using the prospective method. Our adoption of ASU 2009-13 did not have a material impact on revenue for the nine months ended September 30, 2011. 75
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BUSINESS Our Vision for Play We founded Zynga in 2007 with the vision that playlike search, share and shopwould become one of the core activities on the Internet. As a pioneer of online social games, we have made them accessible, social and fun. We are excited that games have grown to become the second most popular online activity in the United States by time spent, even surpassing email. We have a lot of hard work, innovation and growth ahead of us to create a future where social games are a daily habit for nearly everyone.
Our mission is to connect the world through games.
Overview We are the worlds leading social game developer with 227 million average MAUs in 175 countries. We have launched the most successful social games in the industry in each of the last three years and have generated over $1.5 billion in cumulative revenue and over $2.0 billion in cumulative bookings since our inception in 2007. Our games are accessible to players worldwide, on facebook, other social networks and mobile platforms wherever and whenever they want. We operate our games as live services and continually enhance them by adding new content and features. All of our games are free to play, and we generate revenue through the in-game sale of virtual goods and advertising. We are a pioneer and innovator of social games and a leader in making play a core activity on the Internet. We believe our leadership position in social games is the result of our significant investment in our people, content, brand, technology and infrastructure. Our leadership position in social games is defined by the following: Large and Global Community of Players. According to AppData, as of September 30, 2011, we had the largest player audience on Facebook with more MAUs than the next eight social game developers combined. Our players are also more engaged, with our games being played by more than 54 million average DAUs worldwide in the third quarter of 2011. According to AppData, as of September 30, 2011, we had more DAUs than the next 14 social game developers combined. Leading Portfolio of Social Games. We have many of the most popular and successful online social games, including CityVille, FarmVille, Mafia Wars, Words with Friends and Zynga Poker. A Zynga game has been the most popular game on Facebook every month since the beginning of 2009. Currently, we have four of the top five social games on Facebook based on DAUs, as measured by AppData. On mobile platforms, we have several of the most popular games, including Words with Friends and Hanging with Friends , which were the top two games in the word category based on the number of downloads from the Apple App Store for iPhone as of September 30, 2011. Rapid Game Growth. Our games have achieved rapid and widespread adoption. FarmVille grew to 43 million MAUs in its first 100 days and CityVille grew to 61 million MAUs in its first 50 days. One of our newest web-based games, Empires & Allies, grew to be the second most popular game on Facebook, based on MAUs as measured by AppData, less than a month after launch. In June 2011, we launched Hanging with Friends, which became the most downloaded game in the Apple App Store during its first week. Scalable Technology and Data. We process and serve more than a petabyte of content for our players every day, a volume of data that we believe is unmatched in the social game industry. We continually analyze game data to optimize our games. We believe that combining data analytics with creative game design enables us to create a superior player experience. 76
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We leverage our scale to increase player engagement, cross-promote our portfolio of games, continually enhance existing games, launch new games and build the Zynga brand. We believe our scale results in network effects that deliver compelling value to our players, and we are committed to making significant investments that will further grow our community of players, their engagement and our monetization over time. We have achieved significant growth in our business in a short period of time. From 2008 to 2010, our revenue increased from $19.4 million to $597.5 million, our bookings increased from $35.9 million to $838.9 million, we went from a net loss of $22.1 million to net income of $90.6 million, and our adjusted EBITDA increased from $4.5 million to $392.7 million. For the nine months ended September 30, 2011, our revenue was $828.9 million, our bookings were $849.0 million, our net income was $30.7 million and our adjusted EBITDA was $235.5 million. For a discussion of the limitations associated with using bookings and adjusted EBITDA rather than GAAP measures and a reconciliation of these measures to revenue and net income (loss), see the section titled Selected Consolidated Financial DataNon-GAAP Financial Measures. Consistent with our free-to-play business model, a small portion of our players have been payers. During the nine months ended September 30, 2011, we had approximately 6.7 million unique payers. This number excludes payers on certain mobile platforms and payers who use certain smaller web-based payment methods. Because the opportunity for social interactions increases as the number of players increases, we believe that maintaining and growing our overall number of players, including the number of players who may not purchase virtual goods, is important to the success of our business. As a result, we believe that the number of players who choose to purchase goods will continue to constitute a small portion of our overall players as our business grows. Our top three games historically have contributed the majority of our revenue. Our top three games accounted for 93%, 83%, 78% and 59% of our online game revenue in 2008, 2009, 2010 and for the nine months ended September 30, 2011, respectively. Industry Background The way people use, communicate through and socialize on the Internet continues to evolve. A major shift in peoples use of the Internet is the increased popularity of playing games relative to other online activities. According to a Nielsen report in August 2010, the time spent playing online games in the United States surpassed the time spent on email. There are a number of key trends that we believe will continue to drive the growth and popularity of social games, including: Growth of Social Networks . Over the past decade, social networks have emerged as mainstream platforms that enable people to connect with each other online, share information and enjoy experiences with their friends and families. IDC, a market research firm, estimates that there will be approximately 1.1 billion users of social networks globally, including over 800 million active users on Facebook, in 2011. IDC forecasts that the number of users on social networks globally will grow to 1.6 billion by 2014. Emergence of the App Economy. In order to provide users with a wider range of engaging experiences, social networks and mobile operating systems have opened their platforms to developers, transforming the creation, distribution and consumption of digital content. We refer to this as the App Economy. In the App Economy, developers can create applications accessing unique features of the platforms, distribute applications digitally to a broad audience and regularly update existing applications. Social networking sites and mobile application stores have become mass market consumer destinations where content is easy to find, immediately accessible and always available. Growth in the number and quality of applications has driven further increases in social network and mobile usage. Social graph and viral distribution. At the core of social networks is the social graph, a digital mapping of a social network users real-world connections that can be used to promote social 77
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interaction and sharing among the users. By leveraging the social graph, high quality social applications that deliver compelling value for social network users and have mass appeal can achieve significant levels of adoption rapidly via viral growth. Proliferation of mobile . There is significant demand for applications on mobile platforms such as Apple iOS and Google Android. As smart phones, tablets and other increasingly powerful connected devices have proliferated worldwide, application developers have leveraged the much greater distribution opportunity and emerging social connectivity of mobile devices. Games are the most popular category of applications on smartphones, representing approximately half of the time spent on smartphone applications in the United States, according to a May 2011 report by Flurry Analytics, a market data and analytics firm. Rapid Growth of Free-to-Play Games. Most social games are free to play and generate revenue through the in-game sale of virtual goods. According to In-Stat, a market intelligence firm, the worldwide market for the sale of virtual goods was $7.3 billion in 2010 and is expected to more than double by 2014. Compared to pay-to-play business models, the free-to-play approach tends to attract a wider audience of players, thereby increasing the number of players who have the potential to become paying users. By attracting a larger audience, the freeto-play model also enables a higher degree of in-game social interaction, which enhances the game experience for all players. Our Opportunity We believe social games represent a new form of entertainment that will continue to capture an increasing proportion of consumer leisure time. In addition, social games are the most popular applications on facebook and we believe they have been, and will continue to be, a key driver of engagement on social networks, and increasingly on mobile platforms. As consumers gravitate toward more social forms of online entertainment, we believe that social games will capture an increasing portion of the overall $49 billion video game software market, as estimated for 2011 by IDC, as well as the more than $1.0 trillion we estimate for the Worldwide Entertainment Market in 2011. We believe that a player-centric approach is the key to our continued success. We design our games to be: Accessible by Everyone, Anywhere, Any Time. Our games are easy to learn, playable in short sessions and accessible on multiple platforms. We operate our games as live services that can be played anytime and anywhere. The broad appeal of our games has attracted a community of players that is geographically and demographically diverse. Social. We believe games are most engaging and fun when they are social. We have devoted significant efforts to providing our community of players with simple ways to find their friends online and connect, play and share with them. In addition to leveraging the viral and social features provided by social networks, we design and innovate social mechanics into our games. For example, our games enable players to engage in in-game social interactions with other players, such as visiting a friends virtual city, farm or island, joining a fire or police department to help a friends city, helping neighbors and creating teams and alliances to form empires or complete mafia jobs. Currently, our 54 million DAUs interact with each other over 450 million times a day. Free. Our free-to-play approach attracts a larger audience than a traditional pay-to-play approach. This enables a higher degree of social interaction and improves the game experience for all players. Our players can choose to purchase virtual goods to enhance their game experience. Fun. We keep our games fun and engaging by regularly delivering new content, features, quests, challenges and virtual goods that enhance the experience for our players. As a result, our games are a perpetual source of play, evolving with our community of players over time. Players express their personalities by designing and customizing the appearances of their characters and building and decorating their own virtual city, farm, homestead or restaurant. In CityVille, players can personalize the names of their store franchises: for example, friends can shop for virtual shoes at City Soles. 78
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Friends can also visit and admire each others creations. We have a vast and growing library of virtual assets that enable our players to express themselves through our games. Our players create more than 30,000 virtual items per second on average. Supportive of Social Good. Our players are able to enjoy fun social games while also contributing to charitable causes that they support through the purchase of special virtual goods. For example, our players were able to buy Sweet Seeds in FarmVille, the proceeds of which were used to build a school for children in Haiti. We have raised more than $10 million for donations to non-profit organizations from payments made by our players for the purchase of these virtual goods since we launched Zynga.org in October 2009. Our Core Strengths We believe the following strengths provide us with competitive advantages: Deep Base of Talent. Our unique company culture serves as the foundation of our success and helps us attract, grow and retain world class talent. We provide our game designers, product managers and engineers the tools and infrastructure to innovate, as well as opportunities to immediately impact and engage with a large community of players. We believe our culture and success to date have made us an employer of choice amongst innovators in our industry. Large and Global Community of Players. We have 227 million average MAUs in 175 countries. According to AppData, as of September 30, 2011, we had more MAUs on Facebook than the next eight social game developers combined. The number of our players continues to grow as a result of the viral and sharing features provided by social networks, the social innovations in our games and the network effects of our business. This large and active global community of players enables us to engage and retain our existing players, attract new ones, successfully launch and cross-promote new games and deliver greater value to our distribution partners. Leading Portfolio of High Quality Social Games. Our portfolio of games includes many of the most popular and successful social games on social networks and mobile platforms, including CityVille, FarmVille, Mafia Wars, Words with Friends and Zynga Poker. According to AppData, as of September 30, 2011, we had the four of the top five games on Facebook based on DAUs, and have had the number one game every month since the beginning of 2009. On mobile platforms, we have several of the most popular games, including Words with Friends and Hanging with Friends , which were the top two games in the word category based on the number of downloads from the Apple App Store for iPhone as of September 30, 2011. Sophisticated Data Analytics. The extensive engagement of our players provides over 15 terabytes of game data per day that we use to enhance our games by designing, testing and releasing new features on an ongoing basis. We believe that combining data analytics with creative game design enables us to create a superior player experience. Our proprietary analytics and expertise in high volume data processing have enabled us to create leading franchises, frequently update and enhance our games, increase engagement by our players and generate greater sales of virtual goods. Scalable Technology Infrastructure and Game Engines. We have invested extensively in developing proprietary technology to support the growth of our business. We have created a scalable cloud-based server and network infrastructure that enables us to deliver games to millions of players simultaneously with high levels of performance and reliability. We have developed a flexible game engine that we leverage for the development and launch of new games. With each release, we add features and functionality to improve our core code base for future game development. Powerful Network Effects. Because of our large community, our players are more likely to find and connect with others to play and build relationships. Our games are more social and fun as more people play them, creating an incentive for existing players to encourage their friends and family to play. Our players and our business benefit from these powerful network effects. 79
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Our Key Metrics We measure our business by using several key financial metrics, which include bookings, adjusted EBITDA and ABPU, and operating metrics, which include DAUs, MAUs and MUUs. Our operating metrics help us to understand and measure the engagement levels of our players, the size of our audience and our reach. For a description of how we calculate each of our key metrics and factors that have caused fluctuations in these metrics, see the section titled Managements Discussion and Analysis of Financial Condition and Results of OperationsKey Metrics. In July 2010, we began migrating to facebook Credits as the primary payment method for our games played through Facebook, and by April 2011, we had completed this migration. Facebook remits to us an amount equal to 70% of the face value of Facebook Credits purchased by our players for use in our games played through Facebook. We record bookings and recognize revenue net of the amounts retained by Facebook. The charts and the table below show the metrics for the ten quarters indicated:
Mar 31, 2009 Average DAUs Average MAUs Average MUUs ABPU NA means data is not available. NA NA NA NA
Jun 30, 2009 NA NA NA NA
Sep 30, 2009 24 99 63 $ 0.044
Dec 31, 2009 58 207 110 $ 0.027
For the Three Months Ended Mar 31, Jun 30, Sep 30, 2010 2010 2010 (users in millions) 67 60 49 236 234 203 124 119 110 $ 0.030 $ 0.036 $ 0.049
Dec 31, 2010 48 195 111 $ 0.055
Mar 31, 2011 62 236 146 $ 0.051
Jun 30, 2011 59 228 151 $ 0.051
Sep. 30, 2011 54 227 152 $ 0.058
Our Strategy Our mission is to connect the world through games. In pursuit of our mission, we encourage entrepreneurship and intelligent risk taking to produce breakthrough innovations, which we call bold beats. The key elements of our strategy are: Make Games Accessible and Fun. We operate our games as live services that are available anytime and anywhere. We design our social games to provide players with easy access to shared experiences that delight, amuse and entertain, and we will continue to update our games on an ongoing basis with fresh content and new features to make them more social and fun for our players. Enhance Existing Franchises. We will continue to enhance our market-leading franchises including CityVille, FarmVille, FrontierVille, Words with Friends and Zynga Poker. We regularly update our games after launch to encourage social interactions, add new content and features and improve monetization. For 80
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example, we established a weekly cadence of new content releases for our FarmVille franchise after its launch in 2009. FarmVille achieved record revenue in the quarter ended March 31, 2011. Further, during the first two days of our FarmVille English Countryside expansion in March 2011, we saw a large increase in bookings. Other notable features in our franchises that we developed post launch include the spice rack in Caf World where players can use their spices to accelerate cooking a dish, robbing in Mafia Wars that augments a players fighting, and a hand strength meter in Zynga Poker to help players calculate the effectiveness of their poker hands. Launch New Games. We will continue to invest in building new games to expand the genres of games that we offer, further engage with our existing players and attract new players. For example, in June 2011 we launched Empires & Allies, a strategy combat game. Within its first month, Empires & Allies became one of the most played game on Facebook based on MAUs as measured by AppData. Continue Mobile Growth. Words with Friends is one of the leading social game franchises on mobile platforms. We believe there is a large opportunity to extend our brand and games to mobile platforms such as Apple iOS and Google Android. We will continue to make our games accessible on a large number of mobile and other Internet-connected devices and invest in developing and acquiring mobile development talent, technologies and content. As of September 30, 2011, we had a total of 11 games available on mobile platforms. We have recently extended franchise games, such as Zynga Poker, to mobile platforms and we have developed games, such as Hanging with Friends , for initial launch on mobile platforms. Our DAUs on mobile platforms grew more than ten-fold from November 1, 2010 to September 30, 2011 and reached 9.9 million during the third quarter of 2011 and 11.1 million in October 2011. Continue International Growth. We have seen significant growth in the number of our players in international markets. Our games are available in up to 17 languages. In December 2010, CityVille was our first game to launch in multiple languages and, in June 2011, Empires & Allies launched in 12 languages. We intend to expand our international audience by making more of our games available in multiple languages, creating more localized game content and partnering with leading international social networking sites and mobile partners. We believe we have a significant opportunity to better monetize our games in international markets as we offer more targeted virtual goods and additional payment options. Extend our Technology Leadership Position. Our proprietary technology stack and data analytics are competitive advantages that enhance our ability to create the worlds best social games. We will continue to innovate and optimize our network infrastructure to cost-effectively ensure high performance and high availability for our social games. We believe continued investments in infrastructure and systems will allow us to extend our technology leadership. Increase Monetization of Our Games. We plan to offer increased selection, better merchandising and more payment options to increase the sales of our virtual goods. Our players purchase these virtual goods to extend their play sessions, personalize their game environments, accelerate their progress or send unique gifts to their friends. We will also continue to pursue additional revenue opportunities from advertising, including branded virtual goods and sponsorships. Starting in March 2010, we began selling pre-paid game cards at retail stores and currently sell these game cards at more than 45,000 stores, including 7-Eleven, Best Buy, GameStop and Target. These Zynga game cards allow our players to purchase virtual goods in our games, such as batteries in CityVille and food in FrontierVille. Our Social Games We design our social games to provide players with shared experiences that surprise and delight them. Our social games leverage the global connectivity and distribution on facebook, other social networks and mobile platforms, such as Apple iOS and Google Android. In addition to third party platforms, we recently announced Project Z, our own platform that will allow people to find games through friends and friends through games. Project Z is currently under development and will be available through Zynga.com. Our games are free to play, span a number of genres and attract a community of players that is demographically and geographically diverse. 81
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We operate our games as live services and update them with fresh content and new features to make them more social, enhance player engagement and improve monetization. We analyze the data generated by our players game play and social interactions to guide the creation of new content and features. We use this ongoing feedback loop to keep our games compelling and enhance the player experience. Play, invest and express are player actions that we believe are central to our social games. Players generally start with a standard game board, such as a virtual island in Empires & Allies, which they then customize and personalize through their game play. We design our games to inspire and enable our players to express their personalities by customizing the appearances of their characters and building and decorating their own virtual city, farm, homestead or restaurant. Players invest time in our games in a variety of ways, such as by tending virtual crops or developing specialized skills like winemaking or baking. Through activities such as these, players advance in the game, which we refer to as leveling up. Players can choose to advance in the game by investing additional time, requesting help from their friends or purchasing virtual goods. Descriptions of some of our leading games are provided below (including average MAU data for the third quarter of 2011): CityVille is the largest game on Facebook by MAUs, according to AppData. In CityVille, our players build the city of their dreams. Players can build homes, businesses, famous landmarks and public buildings to grow their city. In addition, players can socialize within cities with their family and friends by asking them to help by working in community buildings, such as police departments, or by building franchises, such as toy stores. CityVille surpassed 61 million MAUs within the first 50 days after launch. CityVille was our first game launched in multiple languages (English, French, German, Italian and Spanish). In June 2011, we launched CityVille Hometown, a mobile application available on Apple iOS platforms. CityVille Hometown enables players to build small towns and villages and connect with their Facebook friends .
Genre: Virtual World Platforms: Facebook, iOS, Google+ Launched: December 2010 MAUs: 60 million Zynga Poker was our first social game and is the largest free-to-play online poker game in the world. Players have the option to play at any table, meet new people from around the world or join friends for a game, choosing from casual Hold Em tables, tournament play or VIP tables. A leader board shows players how they compare in chip ranking to their friends and through the gift shop players can personalize and decorate their seat at the table. Players interact with other players by chatting, completing challenges and sending and receiving gifts, including poker chips. According to AppData, it is the fourth most popular game on Facebook, four years after its launch. Also available on Google Android and Apple iOS, Zynga Poker was a top three grossing game in the Apple App Store for iPhone as of September 30, 2011.
Genre: Card Platforms: Facebook, Myspace, Yahoo!, Android, iOS, Google+ Launched: July 2007 MAUs: 34 million 82
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FarmVille lets players cultivate their farms by plowing, planting and harvesting crops and trees. Players also care for their farm animals: milking their cows and collecting eggs from their chickens. According to AppData, FarmVille was the top game by DAUs on Facebook between August 2009 and December 2010, when CityVille claimed the top spot. We continue to enhance the social aspects of the game, including in-game gifting to friends, cooperative crafting jobs and trading goods in the farmers market. In March 2011, we released FarmVille English Countryside, which provides players the opportunity to create a second farm styled after an English country farm. In our first retail tie-in in May 2010, we partnered with 7-Eleven to offer FarmVille-branded game cards and items on many of the convenience retailers products, including Slurpee and Big Gulp drinks in nearly 7,000 stores. We partnered with Lady Gaga in May 2011 by creating GagaVille a Lady Gaga-inspired farm where players could visit and listen to songs from her album Born This Way. In September 2011, we launched Lighthouse Cove, a second expansion where players help restore a seaside area reminiscent of Marthas Vineyard to its former glory. Genre: Virtual World Platforms: Facebook, iOS Launched: June 2009 MAUs: 32 million Empires & Allies launched in June 2011 in 12 languages and lets players build up their island empires, create virtual armies of tanks, planes and ships, and battle their enemies while defending their allies. Players decide whether to help and trade with each other or attack each others military defenses while pillaging resources. The game also features a single-player story-based campaign with a cast of more than 20 heroes and villains. Empires & Allies is our first strategy combat game. Empires & Allies reached 27 million MAUs for the first month after launch.
Genre: Strategy Platform: Facebook Launched: June 2011 MAUs: 29 million FrontierVille lets players tame the wilderness and explore the Wild West. Players begin with a covered wagon and a plot of land to establish and grow a homestead with friends and family. We believe that FrontierVille was innovative in the industry with a strong, evolving storyline about life on the frontier. It was our first social game to enable the ability to control multiple avatars on a single screen, raise a virtual family and interact with other players game boards. In November 2010, FrontierVille released a set of five limited-time Thanksgiving missions which increased engagement and bookings. Players planted seasonal fall crops, helped friends with their wish lists, built a feast table and prepared a Thanksgiving meal for their friends. In August 2011, we released Pioneer Trail, where players journey with other players through an adventure in search of wild turkeys and Fort Courage.
Genre: Role-Playing Platform: Facebook Launched: June 2010 MAUs: 11 million 83
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Mafia Wars allows players to build their virtual criminal empires by collaborating with their friends to complete crime jobs, fight and rob other Mafia crews, run underground businesses and purchase criminal must-haves like weapons and getaway cars. Set in New York City at launch, the game has added a number of locales for players to expand their criminal empires: Cuba in June 2009, Moscow in September 2009, Bangkok in January 2010, Las Vegas in June 2010, Italy in October 2010 and Brazil in March 2011. These new locales included enhanced features and extended the popularity of Mafia Wars. Mafia Wars is available in eight languages. In October 2011, we launched Mafia Wars 2, our first sequel to an existing franchise. Mafia Wars 2 challenges players to maneuver a thuggish avatar through the game to battle other players and conquer seven different worlds.
Genre: Role-Playing Platforms: Facebook, feature phones, iOS Launched: June 2008 MAUs: 6 million Words with Friends is a leading social mobile game challenging players to create the highest-scoring words while playing against family and friends. Players can be engaged in up to 20 games at once and are able to chat with each other in game. In Apples App Store for iPhone, Words with Friends has regularly been the leading game in the word category since 2010 until Hanging with Friends became the leading game in June 2011. In August 2011, we released Words with Friends on Facebook, our first adaptation of one of our mobile games for Facebook. Words with Friends was acquired through our purchase of Newtoy, Inc. By leveraging our scale, technology infrastructure and deep knowledge of social game mechanics, we were able to double the DAUs for Words with Friends within approximately 120 days after the acquisition.
Genre: Word Platforms: Android, iOS, Facebook Launched: June 2009 Acquired: November 2010 In the fourth quarter of 2011, we launched two new games, CastleVille and Mafia Wars Shakedown, and announced our intention to launch several additional games, including Dream Zoo, Hidden Chronicles and Zynga Bingo. Social Experience in Our Games The social design of our games is at the core of how our players experience our games. Our games encourage players to quickly connect to their friends when they start a game and to build and enhance these relationships throughout the game experience. Examples of social game play on Empires & Allies and Hanging with Friends are detailed below. 84
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Social Game Play: Empires & Allies
Mobile Social Game Play: Hanging with Friends
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Virtual Goods Our games are free to play. In most of our games, players can earn virtual goods through game play, receive them as gifts or purchase them. Virtual goods are digital representations of real world goods, such as Big Ben in CityVille, poker chips in Zynga Poker or an aircraft carrier in Empires & Allies. Our players created nearly three billion virtual goods per day on average during 2011. Through virtual goods players are able to extend their play sessions, enhance or personalize their game environments, accelerate their progress in our games and share and trade with friends. We believe our players acquisition, gifting and purchase of virtual goods creates social interaction that increases players engagement with our games and with each other. Our primary revenue source is the sale of virtual currency that players use to buy in-game virtual goods. Some forms of virtual currency are earned through game play, while other forms can only be acquired for cash or, in some cases, by accepting promotional offers from our advertising partners. Some virtual goods, such as a virtual horse in FrontierVille, can be purchased with either form of virtual currency, while others, such as a sports car dealership in CityVille, may be purchased only with virtual currency purchased for cash. The following summary provides examples of the benefits received by players from the purchase of virtual goods: Play Longer. Many of our games are designed to have short, convenient playing sessions, the duration of which is limited by the replenishable energy and coins available for each session. In many of our games, virtual energy boost goods such as batteries in CityVille and food in FrontierVille, are available to players who purchase them so they can play longer sessions. A player may either ask friends for more energy or purchase additional energy. Invest and Express. Many of our games offer players the opportunity to purchase decorative and functional items to personalize their game environment and express their individual taste or style. For example, players in FarmVille English Countryside can purchase Irish-themed flags, barns, castles, animals and stone walls. Players in Caf World can accent their restaurant with an 80s theme by spending Caf Cash on virtual goods such as an Amazing 80s Chair, and a Neon Diner Door. Accelerate Game Progress. As players choose to invest significant time to build out their game board and progress in a game, they may choose to accelerate their progress and more effectively compete with friends by paying for power ups to increase their capabilities. For example, in Zynga Poker, players can buy poker chips to play with better players at higher stakes tables, and in our newest web-based game, Empires & Allies, our players can buy power-ups that help them defeat opponents and advance in the game. Gift. Our games offer players the opportunity to purchase gifts for their friends. In FarmVille, players can buy and gift various trees, barns, seeds, animals and other limited items. For Valentines Day, FrontierVille hosted a Hearts and Flowers holiday event during which players had a time-limited opportunity to purchase, craft and send virtual cards, clothing and roses as gifts. Other features tie offline events to online social interactions and virtual goods purchases. Contribute to Social Causes . We enable our players to contribute to charitable causes that they believe in by purchasing specially created virtual goods in our games. For example, in May 2010 FarmVille players were able to buy Sweet Seeds, the proceeds of which were used to build a school for children in Haiti. In March 2011, following the catastrophe that hit northern Japan, we raised over $1.0 million through the sale of virtual goods for Save The Childrens Japan Earthquake Tsunami Children Emergency Fund. 86
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Play Longer: CityVille The example below illustrates when a player runs out of energy and must either wait for energy to replenish or obtain more energy. The player may ask friends for more energy or purchase additional energy using virtual currency. For example, for nine City Cash (approximately $1), a player can purchase 12 energy units instead of waiting 60 minutes for the same amount of energy.
Gift: FarmVille The example below illustrates how a player in FarmVille can gift a friend multiple virtual goods: an unwithering ring which unwithers crops, as well as birthday items and crops celebrating the second anniversary of FarmVilles launch.
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Advertising Our advertising services offer creative ways for marketers and advertisers to reach and engage with our players. The goal of engagement-based advertising is to enhance the player experience while delivering real value to advertisers. Our advertising offerings include: Branded Virtual Goods and Sponsorships. We offer branded virtual goods in our games that integrate advertising within game play that is both relevant and valuable to our players experience. Some examples of our branded virtual goods include: In May 2010, we partnered with 7-Eleven, Inc. to create a cross-promotional campaign to offer FarmVille, Mafia Wars and YoVille branded items on many of the convenience stores products as well as related virtual goods in our games. This six-week campaign resulted in more than three million codes distributed through 7-Eleven stores that were redeemed in game. In October 2010, Farmers Insurance Group offered FarmVille players a free in-game Zeppelin airship that provided wither protection for players crops for 10 days. Players chose to insure their crops with the free branded Zeppelin, providing our players with a voluntary, enhanced in-game experience. Farmers Insurance offered a similar one day campaign in 2011. During the 24 hours of this campaign, over two million new fans joined Farmers Insurances Facebook fan page. In May 2011, CityVille released its first in-game integration with an ad sponsor, DreamWorks Kung Fu Panda 2 . Users collectively added more than 15 million Kung Fu Panda 2 themed drive-in movie theaters in their cities. Engagement Ads. In some of our games, we provide sponsored engagement ads in which players can answer certain questions to receive virtual currency in our games. For example, players can answer a few questions about their American Express card to earn free Horseshoes virtual currency in FrontierVille. Similarly, we have also run an ad campaign with Celebrity Cruises Inc. in which a player can earn free City Cash in CityVille. Mobile Ads. In some of our mobile games, we provide both ad-supported free versions and ad-free paid download versions. Our free versions of Words with Friends and Hanging with Friends are supported with bottom screen banner ads and interstitials between player turns. Some of these ads cross-promote our other mobile games. Advertisers in our mobile games have included Amazon.com, Inc., eBay Inc. and HBO. Other advertisers utilizing campaigns such as these have included Discover Financial Services, General Mills Inc., Kraft Foods Inc., McDonalds Corporation, Target Corporation and Wal-Mart Stores, Inc. Our Network Features In addition to our portfolio of social games, we also offer our players network features, which provide our players real-time updates during game play on what is happening in our games and with their friends who are playing our games. These products enable our players to discover new games, connect with their friends by sending and receiving messages, collaborate with their friends by giving and receiving help to advance in a game, navigate among our games, claim rewards to level up and earn virtual currency across our portfolio of games. We believe these features better enable us to retain and increase the number of our players, cross-promote titles through viral referrals and friend invitations and increase the amount of engagement and fun for our players. 88
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These network features include the following: zBar. The zBar is a navigational tool displayed above the game screen in all of our web-based games that enables our players to navigate to and discover our other games. The zBar is shown below.
RewardVille. RewardVille is an affinity program that enables our players to earn and redeem virtual currency for virtual goods. RewardVille provides rewards for players goals in each game that provide incentives to drive engagement and enables players to send gifts to their friends in our other games. Players can earn more rewards for trying other games they have not played. Zynga Message Center. The Zynga Message Center is an in-game communication and navigation channel that the majority of our active players use to receive and accept gifts, chat with other players, receive crew invitations and neighbor friends. This allows our players to communicate efficiently without leaving the game environment. The Zynga Message Center is shown below.
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Our Technology Stack We have invested extensively in developing our proprietary technology stack to support the growth of our business. Our proprietary technology stack includes datacenter and cloud computing management, a shared code base, network and cross-promotional features, proprietary data analytics, monetization and internationalization. We believe that our technology stack is a competitive advantage and we will continue to innovate and optimize our stack to extend our technology leadership. Our technology stack has the ability to handle sudden bursts of activity for millions of players over a short period of time with high levels of performance and reliability. Key elements of our technology stack are described below. Scalable Infrastructure and Cloud Computing Innovation Our physical network infrastructure utilizes a mixture of our own datacenters and public cloud datacenters linked with high-speed networking. We utilize commodity hardware, and our architecture is designed for high availability and fault tolerance while accommodating the demands of social game play. We have developed our architecture to work effectively in a flexible cloud environment that has a high degree of elasticity. For example, our automatic provisioning tools have enabled us to add up to 1,000 servers in a 24-hour period in response to game demand. We operate at a scale that routinely delivers more than one petabyte of content per day. We intend to invest in and use more of our own infrastructure going forward, which we believe will provide us with an even better cost profile and position us to further drive operating leverage. Shared Studio Infrastructure and Game Services Key to leveraging our scalable infrastructure is a comprehensive set of common technology services and systems available to all of our studios and game production engineers, game designers and product managers. These shared services include: Shared Code Base. We have developed a flexible proprietary game engine which we leverage for the creation and launch of new games. With each subsequent release we add features and functionality that can be incorporated into our core code base. Analytics. Because game play data is key to how we develop and improve our products, we have invested heavily in our analytics infrastructure. Our data analytics are key to delivering great player experiences. Our game studios use cohort dynamics and A/B testing to create new and improved content and features. Player Research. We have made a significant investment in, and developed analytical processes around, player research. We regularly conduct quantitative and qualitative research about social interactions that helps us produce better social experiences. We have developed survey and experimentation systems that allow us to collect direct feedback from our players, and we use that feedback to improve our games. Virtual Goods Management. We have invested in content management systems that help create, test, deploy, price and monitor our virtual goods. Through our analytics groups, we have developed sophisticated models to predict demand and understand how our players value virtual goods and to optimize virtual good merchandising effectiveness. The ability to track the buying, trading and gifting of virtual goods enables us to understand how they are consumed and what impact they have on player experiences. Central Technology Operations. Our centralized operations free our development teams to focus on the creative process and on adding fun to our games. The elements of our centralized operations include common hardware and software infrastructure, monitoring and ongoing management. 90
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Payments. Our common payments infrastructure provides the flexibility to support multiple internal and external payment systems, in addition to Facebook Credits. This also allows us to centralize control of purchases and support multiple external redemption mechanisms to obtain virtual goods. Our payments system uses proprietary algorithms to detect and prevent fraud and has allowed our games to deliver a trusted payer experience as well as the opportunity to pursue new payment mechanisms such as game cards. Internationalization. Our shared technology stack enables us to support players worldwide. Enabled by our shared technology stack, games can leverage translation services for multiple languages with little additional development. Multiple Social Network Support and Cross Promotion. Our game studios can deploy content on multiple social networks without significant changes to game code. Our technology also provides the ability to expose a new game or feature to some or all of our players. With these initiatives, we are able to optimize game experiences and features across a variety of social networks. Customer Support. We have created proprietary internal software tools to address the unique challenges of delivering excellent customer support for our players. This customer relationship management software allows us to provide 24/7 support through multiple communications channels and across multiple languages and geographies in a cost effective manner. We believe this investment in our customer support capabilities has improved player experience. Our Philanthropic Initiative: Zynga.org Through our philanthropic initiative, Zynga.org, we enable our players to contribute to charitable causes by purchasing specially created virtual goods in our games. We have raised more than $10 million for donations to non-profit organizations from payments made by our players for the purchase of these virtual goods since we launched Zynga.org in October 2009. These contributions have benefitted earthquake victims, families in need of clean water and school children in Haiti; victims of the earthquake and tsunami in Japan; and tornado-stricken communities in Alabama. Players have donated through many of our games, including Caf World, CityVille, FarmVille, FishVille, FrontierVille, Mafia Wars and Zynga Poker. Our Core Values and Team We were founded on a deeply held passion for games and family and friends playing together. Our passion for play is at the core of our mission: to connect the world through games. Our mission and our core values drive everything that we do: design social games that everyone wants to play, assemble and retain talented teams, prioritize our opportunities and make investment decisions. 91
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Our core values have enabled us to scale our organization as we continue to grow rapidly and innovate a new way to play. We encourage innovation, the creation of compelling game experiences and acting quickly. These factors are critical to extending our leadership position as we seek to continue building successful franchises. We embrace ownership, meritocracy, career growth and focus on the long-term to motivate our employees and attract and retain world class game design, product management, engineering and operational talent. We remain steadfast in our commitment to surprise and delight our players. We believe our unique company culture serves as the foundation of our success. Our core values are:
As of September 30, 2011, we had 2,789 full-time employees. Marketing We acquire most of our players through unpaid channels. We have been able to build a large community of players through the viral and sharing features provided by social networks, the social innovations in our games and the network effects of our business. We are committed to connecting with our players. We have fan pages, generally on facebook, for each of our games to connect with our players; and we leverage various other forms of social media, including Twitter, to communicate with them. We periodically host live and online player events. We also use traditional advertising activities, primarily online advertising spending on Facebook. 92
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Addendum with Facebook To date, we have derived substantially all of our revenue and acquired substantially all of our players through facebook. We expect to continue to derive a substantial portion of our revenue and to acquire a substantial portion of our players from the Facebook platform for the foreseeable future. We have an addendum with Facebook that modifies Facebooks standard terms and conditions for game developers as they apply to us and that governs the promotion, distribution and operation of our games through the Facebook platform. This addendum requires the use by us of Facebook Credits as the primary payment method for our games on the Facebook platform and requires Facebook to remit to us an amount equal to 70% of the face value of Facebook Credits purchased by our players for use in our games. This addendum with Facebook expires in 2015. Intellectual Property Our business is significantly based on the creation, acquisition, use and protection of intellectual property. Some of this intellectual property is in the form of software code, patented technology and trade secrets that we use to develop our games and to enable them to run properly on multiple platforms. Other intellectual property we create includes audio-visual elements, including graphics, music, story lines and interface design. While most of the intellectual property we use is created by us, we have acquired rights to proprietary intellectual property. We have also obtained rights to use intellectual property through licenses and service agreements with third parties. These licenses typically limit our use of intellectual property to specific uses and for specific time periods. We protect our intellectual property rights by relying on federal, state and common law rights, as well as contractual restrictions. We control access to our proprietary technology by entering into confidentiality and invention assignment agreements with our employees and contractors, and confidentiality agreements with third parties. We also actively engage in monitoring and enforcement activities with respect to infringing uses of our intellectual property by third parties. In addition to these contractual arrangements, we also rely on a combination of trade secret, copyright, trademark, trade dress, domain name and patents to protect our games and other intellectual property. We typically own the copyright to the software code to our content, as well as the brand or title name trademark under which our games are marketed. We pursue the registration of our domain names, trademarks, and service marks in the United States and in locations outside the United States. Our registered trademarks in the United States include Zynga, the names of our games and company taglines, among others. We actively seek patent protection covering inventions originating from the company and acquire patents we believe may be useful or relevant to our business. We currently own one issued U.S. patent which expires in 2021 and, as of November 1, 2011, had 254 patent applications pending worldwide. Circumstances outside our control could pose a threat to our intellectual property rights. For example, effective intellectual property protection may not be available in the United States or other countries in which our games are distributed. Also, the efforts we have taken to protect our proprietary rights may not be sufficient or effective. Any significant impairment of our intellectual property rights could harm our business or our ability to compete. Also, protecting our intellectual property rights is costly and time-consuming. Any unauthorized disclosure or use of our intellectual property could make it more expensive to do business, thereby harming our operating results. Companies in the Internet, games, social media, technology and other industries may own large numbers of patents, copyrights and trademarks and may frequently request license agreements, threaten litigation or file suit against us based on allegations of infringement or other violations of intellectual property rights. From time to time, we have faced, and we expect to face in the future, allegations by third parties, including our competitors and non-practicing entities, that we have infringed their trademarks, copyrights, patents and other intellectual property rights. As we face increasing competition and as our business grows, we will likely face more claims of infringement. 93
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Competition The social game sector is intensely competitive and is rapidly evolving. We face significant competition in all aspects of our business. Specifically, we compete for the leisure time, attention and discretionary spending of our players with other social game developers on the basis of a number of factors, including quality of player experience, brand awareness and reputation and access to distribution channels. We believe we compete favorably on these factors. However, our industry is evolving rapidly and is becoming increasingly competitive. Other developers of social games could develop more compelling content that competes with our social games and adversely affects our ability to attract and retain players and their entertainment time. These competitors, including companies of which we may not be currently aware, may take advantage of social networks, access to a large user base and their network effects to grow rapidly and virally. Our competitors include: Game Developers for Facebook and Other Social Networks: We face competition from a number of competitors who develop social games for use on Facebook and other social networks. These competitors, some of which have significant financial, technical and other resources, greater name recognition and have longer operating histories, may create similar games to reach our players. Some of these competitors include Crowdstar, Inc., Electronic Arts Inc., The Walt Disney Company, Vostu, Ltd. and wooga GmbH. Because our games are free to play, we compete primarily on the basis of player experience rather than price. We could face additional competition if large companies with significant online presences, such as Amazon.com, Inc., Facebook, Inc., Google Inc., Microsoft Corporation, Tencent Holdings Limited and Yahoo! Inc., choose to enter or expand in the social games space or develop competing social games. Game Developers for Mobile: The mobile game sector is characterized by frequent product introductions, rapidly emerging mobile platforms, new technologies and new mobile application storefronts. Some of our competitors in the mobile game market include Electronic Arts, DeNA Co. Ltd., Gameloft, Glu Mobile, Rovio Mobile Ltd and Storm8, Inc. We expect new mobile-game competitors to enter the market and existing competitors to allocate more resources to develop and market competing games and applications. Other Game Developers: Our players also play other games on PC and consoles, some of which include social features that compete with our social games and have community functions where game developers can engage with their players. Some of these competitors include Activision Blizzard, Inc., Big Fish Games, Inc., Electronic Arts, SEGA of America, Inc., THQ Inc. and The Walt Disney Company. Other Forms of Media and Entertainment: We compete more broadly for the leisure time and attention of our players with providers of other forms of Internet and mobile entertainment, including social networking, online casual entertainment and music. To the extent existing or potential players choose to read, watch or listen to online content or streaming video or radio, play interactive video games at home or on their computer or mobile devices rather than play social games, these content services pose a competitive threat. Government Regulation We are subject to a number of foreign and domestic laws and regulations that affect companies conducting business on the Internet, many of which are still evolving and could be interpreted in ways that could harm our business. In the United States and internationally, laws relating to the liability of providers of online services for activities of their users and other third parties are currently being tested by a number of claims, including actions based on invasion of privacy and other torts, unfair competition, copyright and trademark infringement, and other theories based on the nature and content of the materials searched, the ads posted, or the content provided by users. Any court ruling or other governmental action that imposes liability on providers of online services for the 94
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activities of their users and other third parties could harm our business. We are potentially subject to a number of foreign and domestic laws and regulations that affect the offering of certain types of content, such as that which depicts violence, many of which are ill defined, still evolving and could be interpreted in ways that could harm our business or expose us to liability. In addition, rising concern about the use of social networking technologies for illegal conduct, such as the unauthorized dissemination of national security information, money laundering or supporting terrorist activities may in the future produce legislation or other governmental action that could require changes to our games, restrict or impose additional costs upon the conduct of our business. Some of our games are based upon traditional casino games, such as poker. We have structured and operate our poker game, Zynga Poker, with the gambling laws in mind and believe that playing Zynga Poker does not constitute gambling. We also sometimes offer our players various types of sweepstakes, giveaways and promotion opportunities. We are subject to laws in a number of jurisdictions concerning the operation and offering of such activities and games, many of which are still evolving and could be interpreted in ways that could harm our business. Any court ruling or other governmental action that imposes liability on providers of online services could result in criminal or civil liability and could harm our business. In the area of information security and data protection, many states have passed laws requiring notification to users when there is a security breach for personal data, such as the 2002 amendment to Californias Information Practices Act, or requiring the adoption of minimum information security standards that are often vaguely defined and difficult to implement. The costs of compliance with these laws may increase in the future as a result of changes in interpretation. Furthermore, any failure on our part to comply with these laws may subject us to significant liabilities. We are also subject to federal, state and foreign laws regarding privacy and protection of player data. We post our Privacy Policy and Terms of Service online, which we describe our practices concerning the use, transmission and disclosure of player data. Any failure by us to comply with our posted privacy policy or privacy related laws and regulations could result in proceedings against us by governmental authorities or others, which could harm our business. In addition, the interpretation of data protection laws, and their application to the Internet is unclear and in a state of flux. There is a risk that these laws may be interpreted and applied in conflicting ways from state to state, country to country, or region to region, and in a manner that is not consistent with our current data protection practices. Complying with these varying international requirements could cause us to incur additional costs and change our business practices. Further, any failure by us to adequately protect our players privacy and data could result in a loss of player confidence in our services and ultimately in a loss of players, which could adversely affect our business. In addition, because our services are accessible worldwide, certain foreign jurisdictions have claimed and others may claim that we are required to comply with their laws, including in jurisdictions where we have no local entity, employees, or infrastructure. Facilities We lease approximately 407,000 square feet of office space for our corporate headquarters in San Francisco, California under a lease that expires in 2018. This facility currently accommodates our principal executive, development, engineering, marketing, business development, human resources, finance, legal, information technology and administrative activities. We lease additional domestic office space in Austin, Texas; Cambridge, Massachusetts; Carlsbad, California; Dallas, Texas; Los Angeles, California; Los Gatos, California; McKinney, Texas; Mountain View, California; New York, New York; Portland, Oregon; San Francisco, California; Seattle, Washington; Sunnyvale, California; Syracuse, New York; and Timonium, Maryland, and we lease offices for our foreign operations in 95
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Bangalore, India; Beijing, China; Bielefeld, Germany; Dublin, Ireland; Farnham, United Kingdom; Frankfurt, Germany; Luxembourg City, Luxembourg; Tokyo, Japan; and Toronto, Canada. These additional domestic and international facilities total approximately 469,000 square feet of general office space. We also operate several data centers in the United States pursuant to various lease agreements. We believe that our existing facilities are sufficient for our current needs. We intend to add new facilities and expand our existing facilities as we add employees and expand our markets, and we believe that suitable additional or substitute space will be available as needed to accommodate any such expansion of our operations. Legal Proceedings From time to time, we are a party to litigation and subject to claims incident to the ordinary course of business. Although the results of litigation and claims cannot be predicted with certainty, we currently believe that the final outcome of these matters will not have a material adverse effect on our business. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. 96
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MANAGEMENT Executive Officers and Directors Our executive officers and directors and their respective ages and positions as of the date hereof were as follows:
Name Age Position
Mark Pincus (1) Reginald D. Davis Jeff Karp Cadir Lee John Schappert (1) David M. Wehner William Bing Gordon (2) (3) Reid Hoffman(4) Jeffrey Sunil Katzenberg (2)(3) Stanley J. Meresman (4) Paul (2)(4) Owen Van Natta(1) (1) (2) (3) (4)
45 49 46 40 41 42 61 44 60 65 47 41
Chief Executive Officer, Chief Product Officer and Chairman Senior Vice President, General Counsel and Secretary Chief Marketing and Revenue Officer Executive Vice President and Chief Technology Officer Chief Operating Officer and Director Chief Financial Officer Director Director Director Director Director Director
Member of the mergers and acquisitions committee Member of the compensation committee Member of the nominating and corporate governance committee Member of the audit committee
Executive Officers Mark Pincus founded Zynga and has served as our Chief Executive Officer, Chief Product Officer and Chairman since April 2007. From 2003 to 2007, Mr. Pincus served as Chief Executive Officer and Chairman of tribe.net, a company he co-founded and one of the first social networks in the industry. From 1997 to 2000, Mr. Pincus served as Chairman of Support.com, Inc., a remote technology services company he co-founded, and he served as Chief Executive Officer and President from December 1997 to July 1999. From 1996 to 1997, Mr. Pincus served as Chief Executive Officer of FreeLoader, Inc., a web-based news company he co-founded. Mr. Pincus holds an M.B.A. from Harvard Business School and a B.S. in Economics from the University of Pennsylvanias Wharton School of Business. Mr. Pincus was selected to serve on our board of directors due to the perspective and experience he brings as our Chief Executive Officer and his extensive experience in the social media and Internet industry. Reginald D. Davis has served as our Senior Vice President and General Counsel since May 2009 and our Secretary since August 2009. From January 2000 to May 2009, Mr. Davis was employed at Yahoo! Inc., an Internet search company, where he served as Vice President, Network Quality and Search Operations from November 2007 to April 2009 and Associate General Counsel from January 2000 to November 2007. Prior to joining Yahoo!, Mr. Davis spent 10 years as a partner at Hancock Rothert & Bunshoft LLP (now part of Duane Morris LLP). Mr. Davis holds a J.D. from Tulane University Law School and a B.A. in European History from Harvard University. Jeff Karp has served as our Chief Marketing and Revenue Officer since August 2011. Prior to joining us, Mr. Karp served as Executive Vice President, EA Play Label at Electronic Arts Inc., an interactive entertainment software company, from April 2011 to August 2011 and as Senior Vice President, Chief Revenue Officer, EA 97
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Games Label at Electronic Arts from May 2009 to March 2011. From October 2008 to May 2009, Mr. Karp served as Chief Executive Officer of Mevio, Inc., a digital media entertainment company. Prior to Mevio, from 2000 to 2008, Mr. Karp served in a number of roles at Electronic Arts, including as Senior Vice President of Marketing Worldwide from March 2006 to October 2008. Mr. Karp holds a B.S. in Business from Arizona State University. Cadir Lee has served as our Executive Vice President and Chief Technology Officer since November 2008. From December 1997 to November 2008, Mr. Lee served as Chief Technology Officer of Support.com, Inc., a remote technology services company he co-founded. Mr. Lee holds a B.A. in Music and a B.S. in Biological Sciences from Stanford University. John Schappert has served as our Chief Operating Officer since May 2011 and as a member of our board of directors since July 2011. From July 2009 until April 2011, Mr. Schappert served as Chief Operating Officer of Electronic Arts. From August 2007 until July 2009, he served as Corporate Vice President of Microsofts Interactive Entertainment Business, the technology entertainment division of Microsoft Corporation. From joining Electronic Arts in 1998 until July 2007, Mr. Schappert served in various executive positions ranging from Vice President through Executive Vice President. Mr. Schappert was selected to serve on our board of directors due to his extensive experience in the technology entertainment industry. David M. Wehner has served as our Chief Financial Officer since August 2010. From February 2001 to July 2010, Mr. Wehner was employed at Allen & Company, an investment bank focused on media and technology where he served as a Managing Director from November 2006 to July 2010, and a director from December 2005 to November 2006. Mr. Wehner holds an M.S. in Applied Physics from Stanford University and a B.S. in Chemistry from Georgetown University. Board of Directors William Bing Gordon has served on our board of directors since July 2008. Mr. Gordon has been a partner at Kleiner Perkins Caufield & Byers, a venture capital firm, since June 2008. Mr. Gordon is a co-founder of Electronic Arts Inc. and served as its Executive Vice President and Chief Creative Officer from March 1998 to May 2008. Mr. Gordon serves on the boards of Lockerz, Inc., a web-based social commerce company; Klout, Inc., a social media company; Amazon.com, Inc., a multinational e-commerce company; Zazzle Inc., a web-based custom products company; and Mevio, Inc. He was also a founding director at ngmoco, LLC (acquired by DeNA Co. Ltd. in 2010) and Audible, Inc. (acquired by Amazon.com, Inc. in 2008). Mr. Gordon was awarded the Academy of Interactive Arts & Sciences Lifetime Achievement Award in 2011 and held the game industrys first endowed chair in game design at USC School of Cinematic Arts. He earned an M.B.A. from Stanford University and a B.A. from Yale University, where he serves on the Presidents Council. Mr. Gordons individual qualifications and skills as a director include his leadership and entrepreneurial experience as a senior executive and co-founder of Electronic Arts, through which he gained experience with emerging technologies and consumer-focused product development and marketing issues, as well as his experience as a venture capitalist investing in technology companies. Reid Hoffman has served on our board of directors since January 2008. Mr. Hoffman has been a Partner at Greylock Partners, a venture capital firm, since November 2009. From March 2003 to February 2007 and from December 2008 to June 2009, he served as Chief Executive Officer of LinkedIn Corporation, an online professional networking company. From February 2007 to December 2008, Mr. Hoffman also served as President, Products of LinkedIn Corporation, and he served as its Executive Chair from June 2009 to November 2009. From January 2000 to October 2002, Mr. Hoffman was Executive Vice President of PayPal, Inc., an online payment company. Mr. Hoffman serves on the board of directors for SixApart Ltd., a blogging and social media company; Kiva.org, a microfinance company; Mozilla Corporation, a software company; and LinkedIn Corporation. Mr. Hoffman holds an M.A. in Philosophy from Oxford University and a B.S. in Symbolic Systems from Stanford University. Mr. Hoffman was selected to serve on our board of directors due to his extensive experience with social media and technology companies. 98
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Jeffrey Katzenberg has served on our board of directors since February 2011. Mr. Katzenberg currently serves as Chief Executive Officer and a member of the board of directors of DreamWorks Animation SKG Inc., a computer-generated animation studio and entertainment company. He has held both of these roles since October 2004. Mr. Katzenberg co-founded and was a principal member of DreamWorks L.L.C. ( DreamWorks Studios) from its founding in October 1994 until January 2006. Prior to founding DreamWorks Studios, Mr. Katzenberg served as a chairman of the board of The Walt Disney Studios from 1984 to 1994. Prior to joining The Walt Disney Studios, Mr. Katzenberg served as the President of Paramount Studios. Mr. Katzenberg is the Chairman of the Board for the Motion Picture & Television Fund Foundation. He serves on the boards of AIDS Project Los Angeles, American Museum of the Moving Image, Cedars-Sinai Medical Center, California Institute of the Arts, Geffen Playhouse, Michael J. Fox Foundation for Parkinsons Research and the Simon Wiesenthal Center. Mr. Katzenberg was selected to serve on our board of directors due to his extensive experience in the entertainment industry. Stanley J. Meresman has served on our board of directors since June 2011. During the last five years, Mr. Meresman has been serving on the boards of directors of various public and private companies, including service as chair of the audit committee for some of these companies. He currently serves as a director of LinkedIn Corporation, Meru Networks, Inc. and Riverbed Technology, Inc. and previously served as a director of Polycom Inc. from January 1995 to March 2007, each of which is a public company. From January 2004 through December 2004, Mr. Meresman was a Venture Partner with Technology Crossover Ventures, a private equity firm, and was General Partner and Chief Operating Officer of Technology Crossover Ventures from November 2001 to December 2003. During the four years prior to joining Technology Crossover Ventures, Mr. Meresman was a private investor and board member and advisor to several technology companies. He served as the Senior Vice President and Chief Financial Officer of Silicon Graphics, Inc. from May 1989 to May 1997. Mr. Meresman holds an M.B.A. from the Stanford Graduate School of Business and a B.S. in Industrial Engineering and Operations Research from the University of California, Berkeley. Mr. Meresman was selected to serve on our board of directors due to his background as chair of the audit committee of other public companies and his financial and accounting expertise from his prior extensive experience as chief financial officer of two publicly traded corporations. Mr. Meresman qualifies as an audit committee financial expert under Securities and Exchange Commission guidelines. In addition, his current service on other public company boards of directors provides us with important perspectives on corporate governance matters. Sunil Paul has served on our board of directors since November 2011. Mr. Paul has been a Partner at Spring Ventures since founding the firm in January 2007. From May 2004 to January 2007, he was an independent investor during that time. From February 1998 to May 2004 Mr. Paul served as Founding Chief Executive Officer and Chairman of Brightmail, Inc., a software company he co-founded. From November 1995 to May 1996, Mr. Paul served as Chief Executive Officer of FreeLoader, a company he co-founded. Mr. Paul holds a B.E. in Electrical Engineering from Vanderbilt University. Mr. Paul was selected to serve on our board of directors due to his extensive experience with Internet companies. Owen Van Natta has served as a member of our board of directors since August 2010. Mr. Van Natta served as our Executive Vice President and Chief Business Officer from August 2010 to November 2011. From April 2010 to August 2010, Mr. Van Natta served as a consultant to us in his role as a General Partner of Luminor Group LLC, a consulting company. From April 2009 until February 2010, Mr. Van Natta served as the Chief Executive Officer of Myspace, Inc., an online social media company. From November 2008 until April 2009, he served as Chief Executive Officer of Project Playlist, Inc., an online music sharing company. From May 2007 to February 2008, he was the Chief Revenue Officer at Facebook. From September 2005 until May 2007, Mr. Van Natta was the Chief Operating Officer at Facebook, Inc., an online social media company. Mr. Van Natta holds a B.A. in English from the University of California, Santa Cruz. Mr. Van Natta was selected to serve on our board of directors due to his extensive experience in the social media and Internet entertainment industry. 99
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Director Independence Under the listing requirements and rules of the NASDAQ Stock Market LLC, or NASDAQ, independent directors must comprise a majority of a listed companys board of directors within one year of the closing of this offering. Our board of directors has undertaken a review of its composition, the composition of its committees and the independence of each director. Based upon information requested from and provided by each director concerning his background, employment and affiliations, including family relationships, our board of directors has determined that Messrs. Hoffman, Katzenberg, Meresman and Paul do not have any relationships 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 Securities and Exchange Commission, or SEC, and the listing requirements and rules of NASDAQ. In making this determination, 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. Board Committees Our board of directors has established an audit committee, a compensation committee, a nominating and corporate governance committee and a mergers and acquisitions committee. Our board of directors may establish other committees to facilitate the management of our business. The composition and functions of each committee are described below. Members serve on these committees until their resignation or until otherwise determined by our board of directors. Audit Committee Our audit committee currently consists of Messrs. Hoffman, Meresman and Paul, each of whom, our board of directors has determined, satisfies the independence requirements under the NASDAQ listing standards and Rule 10A-3(b)(1) of the Exchange Act. The chair of our audit committee is Mr. Meresman, whom our board of directors has determined is an audit committee financial expert within the meaning of the SEC regulations. Each member of our audit committee can read and understand fundamental financial statements in accordance with applicable requirements. In arriving at these determinations, the board has examined each audit committee members scope of experience and the nature of their employment in the corporate finance sector. The functions of this committee include: reviewing and pre-approving the engagement of our independent registered public accounting firm to perform audit services and any permissible non-audit services; evaluating the performance of our independent registered public accounting firm and deciding whether to retain their services; monitoring the rotation of partners of our independent registered public accounting firm on our engagement team as required by law; reviewing our annual and quarterly financial statements and reports and discussing the statements and reports with our independent registered public accounting firm and management, including a review of disclosures under Managements Discussion and Analysis of Financial Condition and Results of Operations; considering and approving or disapproving of all related party transactions; reviewing, with our independent registered public accounting firm and management, significant issues that may arise regarding accounting principles and financial statement presentation, as well as matters concerning the scope, adequacy and effectiveness of our financial controls; establishing procedures for the receipt, retention and treatment of any complaints received by us regarding financial controls, accounting or auditing matters; and 100
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conducting an annual assessment of the performance of the audit committee and its members and the adequacy of its charter. Compensation Committee Our compensation committee consists of Messrs. Gordon, Katzenberg and Paul. Our board of directors has determined that each of Messrs. Katzenberg and Paul is independent under the NASDAQ listing standards, is a non-employee director as defined in Rule 16b-3 promulgated under the Exchange Act and is an outside director as that term is defined in Section 162(m) of the Internal Revenue Code of 1986, as amended, or Section 162(m). The chair of our compensation committee is Mr. Katzenberg. The functions of this committee include: determining the compensation and other terms of employment of our chief executive officer and our other executive officers, and reviewing and approving corporate performance goals and objectives relevant to such compensation; reviewing and recommending to the full board of directors the compensation of our directors; evaluating, adopting and administering equity incentive plans, compensation plans and similar programs, as well as modification or termination of plans and programs; establishing policies with respect to equity compensation arrangements; reviewing with management our disclosures under the caption Compensation Discussion and Analysis and recommending to the full board its inclusion in our periodic reports to be filed with the SEC; and reviewing and assessing, at least annually, the performance of the compensation committee and the adequacy of its charter. Nominating and Corporate Governance Committee Our nominating and corporate governance committee consists of Messrs. Gordon and Katzenberg. Our board of directors has determined that Mr. Katzenberg is independent under the NASDAQ listing standards. The chair of our nominating and corporate governance committee is Mr. Gordon. The functions of this committee include: reviewing periodically and evaluating director performance of our board of directors and its applicable committees, and recommending to our board of directors and management areas for improvement; interviewing, evaluating, nominating and recommending individuals for membership on our board of directors; reviewing and recommending to our board of directors any amendments to our corporate governance policies; and reviewing and assessing, at least annually, the performance of the nominating and corporate governance committee and the adequacy of its charter. Mergers and Acquisitions Committee Our mergers and acquisitions committee consists of Messrs. Pincus, Schappert and Van Natta. The chair of our mergers and acquisitions committee is Mr. Pincus. The functions of this committee include: reviewing, recommending to the full board of directors and approving, subject to certain limitations, potential opportunities for strategic business combinations, acquisitions, mergers, dispositions, divestitures and similar strategic transactions; and approving strategic transactions that involve the payment of total consideration of less than $50 million. 101
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Code of Business Conduct and Ethics We have adopted a Code of Business Conduct and Ethics that applies to all of our employees, officers (including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions), agents and representatives, including directors and consultants. The full text of our Code of Business Conduct and Ethics will be posted on our website at www.zynga.com. We intend to disclose future amendments to certain provisions of our Code of Business Conduct and Ethics, or waivers of such provisions applicable to any principal executive officer, principal financial officer, principal accounting officer and controller, or persons performing similar functions, and our directors, on our website identified above. Compensation Committee Interlocks and Insider Participation None of the members of the compensation committee is currently or has been at any time one of our employees. None of our executive officers currently serves, or has served during the last year, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our board of directors or compensation committee. Non-Employee Director Compensation We do not currently provide any cash compensation to our non-employee directors. As compensation for their services, each of our nonemployee directors has been granted options or restricted stock units, or ZSUs, to purchase shares of our Class B common stock under our equity incentive plans. The following table sets forth information regarding compensation earned by or paid to our non-employee directors during 2010.
Fees Earned or Paid in Cash ($) Stock Awards ($)(1) Total ($)
Name
Brad Feld (2) William Bing Gordon (3) Reid Hoffman Jeffrey Katzenberg (5) Stanley J. Meresman (6) (1)
(4)
(2) (3)
Represents the grant date fair value of ZSUs issued to the director. These awards are subject to both time-based vesting and a liquidity event-based vesting component, as described in detail in Executive CompensationGrants of Plan-Based Awards2010 Restricted Stock Unit Grants. As of the grant date and December 31, 2010, the liquidity events were considered not probable of occurring. As a result, the grant date fair value of the ZSUs, for purposes of this table, is $0. Assuming that both of the vesting conditions to the award were met, based on a value of the common stock of $6.435 per share as of the date of grant, the value of the award to Mr. Hoffman as of the grant date would be $9,487,970. For a discussion of the valuation of the Class B common stock as of the grant date of the ZSU, see Managements Discussion and Analysis of Financial Condition and Results of OperationsStock-Based Compensation. Mr. Feld resigned from the board of directors in November 2011. In June 2011, we issued a warrant to purchase 1,000,000 shares of Class B common stock to Kleiner Perkins Caufield & Byers, LLC, which warrant is subject to quarterly vesting over two years based on consulting services to be provided by representatives of Kleiner Perkins Caufield & Byers, LLC, which vesting period commenced in April 2010. The warrant was exercised in June 2011 and the shares transferred to KPCB XIII, LLC. Mr. Gordon is a partner at Kleiner Perkins Caufield & Byers and has a pecuniary interest in the shares of Class B common stock held by KPCB XIII, LLC. Mr. Hoffman was granted a ZSU for 1,474,432 shares of Class B common stock as compensation for his services as a non-employee director and in recognition of the fact that, unlike Messrs. Feld and Gordon, Mr. Hoffman is not affiliated with any of our significant venture capital investors. Mr. Katzenberg joined the board of directors in February 2011. Mr. Meresman joined the board of directors in June 2011. 102
(4)
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EXECUTIVE COMPENSATION Compensation Discussion and Analysis The compensation provided to our named executive officers for 2010 is set forth in detail in the 2010 Summary Compensation Table and other tables and the accompanying footnotes and narrative that follow this section. This section explains our executive compensation philosophy, objectives and design, our compensation-setting process, our executive compensation program components and the decisions made for compensation in respect of 2010 for each of our named executive officers. Our named executive officers for 2010 who appear in the 2010 Summary Compensation Table are: Mark Pincus, our Chief Executive Officer, Chief Product Officer and Chairman of the board of directors Owen Van Natta, a member of the board of directors and our former Executive Vice President and Chief Business Officer David M. Wehner, our Chief Financial Officer Steven Chiang, our Executive Vice President, Games Reginald D. Davis, our Senior Vice President, General Counsel and Secretary Mark Vranesh, our Chief Accounting Officer and former Chief Financial Officer Executive Compensation Philosophy, Objectives and Design Philosophy. We operate in a new and rapidly evolving industry sector. To succeed in this environment, we must continually refine our strategy, foster the growth of our player base, increase the level of engagement of our players with our games, develop and update games, and expand our international operations. To achieve these objectives, we need to attract and retain a highly talented team of game design, engineering, marketing, business development and administrative professionals. We also expect our team to possess and demonstrate strong leadership and management capabilities. Objectives. We believe in providing a total compensation package to our executive team through a combination of base salary, discretionary bonuses, grants under our long-term equity incentive compensation plan, and severance and change of control benefits. Our executive compensation programs are designed to achieve the following objectives: attract and retain talented and experienced executive officers, whose knowledge, skills and performance are critical to our success; motivate these executive officers to achieve our business objectives; promote teamwork while also recognizing the role each executive plays in our success; and align the interests of our executive officers and stockholders. Design. As a privately-held company, our executive compensation program has been heavily weighted towards equity, including stock options and restricted stock units, with cash compensation that generally fell below the 25 th percentile of comparable companies. We believe that relying primarily on equity compensation has focused our executive officers on driving the achievement of our strategic and financial goals while conserving cash during our early years. We continue to believe that making equity awards a key component of executive compensation aligns the executive team with the long-term interests of our stockholders. As our company has grown, so has our need to secure executive talent from larger public companies. To do so, we have determined that it is increasingly necessary to offer significant cash compensation as well as equity 103
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compensation. We do not affirmatively set out in any given year, or with respect to any given new hire package, to apportion compensation in any specific ratio between cash and equity, or between long-term and short-term compensation. Rather, total compensation may skew more heavily toward either cash or equity, or short-term or long-term compensation, as a result of factors described below. As we transition from being a privately-held company to a publicly-traded company, we will continue to evaluate our philosophy, objectives and design as circumstances require. At a minimum, we expect to review executive compensation annually. Compensation-Setting Process Role of Our Board . During 2010, our board of directors was responsible for overseeing our executive compensation program, with Mr. Feld, a former director, taking the lead role in working directly with our Chief Executive Officer and our Chief People Officer. Messrs. Pincus and Van Natta, as members of the board, attended meetings of our board and actively participated in determining our executive compensation philosophy, design and amounts, but abstained from final decisions with respect to their own performance and compensation. Unless otherwise stated, the discussion and analysis below is based on decisions by the board of directors. During 2010, our board of directors considered one or more of the following factors when setting executive compensation, as further explained in the discussions of each compensation element below: the experiences and individual knowledge of the members of our board of directors regarding executive compensation, as we believe this approach helps us to compete in hiring and retaining the best possible talent while at the same time maintaining a reasonable and responsible cost structure; individual negotiations with executive officers, particularly in connection with their initial compensation package, as these executive officers have generally been leaving meaningful compensation opportunities at their prior employers in order to work for us; the recommendations of our Chief Executive Officer; corporate and/or individual performance, as we believe this encourages our executive officers to focus on achieving our business objectives; the executives existing equity award and stock holdings; internal pay equity of the compensation paid to one executive officer as compared to anotherthat is, that the compensation paid to each executive should reflect the importance of his or her role to the company as compared to the roles of the other executive officers, while at the same time providing a certain amount of parity to promote teamwork; the potential dilutive effect of new equity awards on our stockholders; and a Compensia survey covering officer compensation that we commissioned in April 2009, or the 2009 Compensia Report, and, to a lesser extent, the 2010 Radford Global Technology Survey and the PayScale database. We formed our compensation committee in April 2011, and it held its first meeting in April 2011. Starting in April 2011, our compensation committee will be responsible, together with our board of directors, for executive compensation decisions, including establishing our executive compensation philosophy and programs, and determining specific executive compensation, including cash and equity. Because our compensation committee was so recently formed, and with our transition to public company status, our compensation program following this offering may, over time, vary significantly from our historical practices. For example, we expect that following this offering, in setting executive compensation, the compensation committee may review and consider, in addition to the items above, factors such as the achievement of predefined milestones, tax deductibility of compensation, the total compensation that may become payable to executive officers in various hypothetical scenarios, the performance of our common stock and compensation levels at public peer companies. 104
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Role of Management . In setting compensation for 2010, our Chief Executive Officer and our Chief People Officer worked closely with members of our board, particularly Messrs. Feld and Gordon, in managing our executive compensation program, including reviewing existing compensation for adjustment (as needed), determining bonus payments and establishing new hire packages. Our finance department works with our Chief Executive Officer and our Chief People Officer to gather financial and operational data that the Chief Executive Officer reviews in making his recommendations. From time to time, our Chief Financial Officer and our General Counsel attend meetings (or portions of meetings) of the board to present information and answer questions. No executive officer participated directly in the final determinations regarding the amount of any component of his or her own compensation package. Role of Compensation Consultant . Prior to this offering, neither our board nor our compensation committee had retained its own independent compensation consultant. In early 2009, we retained Compensia, a national compensation consulting firm, to assist management in reviewing human resources and compensation matters. Specifically, Compensia prepared an executive compensation assessment that analyzed the then-current cash and equity compensation of our senior management team. Compensia did not provide any services in 2010. In 2011, in preparation for this offering, Compensia was engaged to provide the following services: proposing a peer company group composed of public and private companies with comparable revenues; providing cash and equity compensation data for Compensias proposed peer group, as well as a peer group proposed by management; reviewing our executive compensation policies and practices, including our long-term compensation and severance program design; reviewing our director compensation program; and assisting management in preparing a compensation risk assessment of our broad-based employee compensation practices. Compensia has been paid by us and management has had the ability to direct Compensias work. Compensia has not been present at the deliberations of the board or the compensation committee. The total cost of these services did not exceed $50,000 in any given year. Following this offering, the board and/or the compensation committee will consider retaining its own independent compensation consultant. Use of Market Compensation Data; Creation of Peer Group . Prior to 2011, we did not utilize a peer group of companies in setting compensation or benchmark our compensation to a specific level. In reviewing compensation levels for our named executive officers for 2009 and early 2010, management and members of the board referenced, as a touchstone and without specifically benchmarking to a given level, the 2009 Compensia Report. The 2009 Compensia Report analyzed the cash and equity compensation of our employees holding positions at the vice president and general manager levels and above against compensation data of other privately-held companies. In preparing this analysis, Compensia used the Advanced HR Option Impact Pre-IPO Compensation Database (information technology companies with revenues of $50 million to $100 million) for equity compensation information and Compensias own proprietary pre-IPO executive compensation database (information technology companies with revenues of $50 million to $200 million) for cash compensation. The 2009 Compensia Report determined that, in 2009, the cash compensation of our senior management team, including our executive officers, was generally below the 10 th percentile of the market data, and equity compensation was, on average, at the 75 th percentile. Although neither management nor our board had targeted these percentiles, the conclusions of this analysis were consistent with the general design philosophy of 2009 and early 2010 that equity compensation should be the predominant component of our compensation program, with limited cash compensation. In 2010, as our business rapidly progressed and as we determined that we needed to hire executive officers with experience stemming from their work for much larger, mature public companies, management and our 105
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board members did not rely on the 2009 Compensia Report. Instead, we relied heavily on the reasonable business judgment of our board members and officers (which includes their knowledge and experience with the hiring of hundreds of employees by Zynga in the last two years), and negotiations with the new hire candidates, in determining compensation levels that would allow us to compete in hiring and retaining the best possible talent. Management consulted the data provided in the 2010 Radford Global Technology Survey and the PayScale database as reference points, without benchmarking to any given percentile. We expect that our compensation practices and design will change as we transition to being a public company. As part of this transition, our Chief Executive Officer and Chief People Officer have been working with Compensia and our board to develop a set of peer group companies for use following this offering. Compensia has proposed a set of peer group companies, listed below, based on the software and internet industry, with revenue of between $500 million and $1.5 billion, and that are either late-stage private companies or comparable public companies. Compensia will be providing compensation data to management for these companies. While this proposed list includes peers, as determined in accordance with market standards for determining peer companies, this list does not reflect the entire set of companies that we have regularly had to compete with, and expect to continue to compete with, for hiring and retaining executive talent. Therefore, we have requested that Compensia also provide data for a second set of peer companies, listed below. We expect that management and the board will review the peer company data for these two lists as relevant data points, without necessarily benchmarking to any given level of compensation.
Company Name Compensia Peer List Company Requested Peer List
Activision Blizzard, Inc. Adobe Systems Incorporated Akamai Technologies Inc. Amazon.com, Inc. AOL, Inc. Apple Inc. Autodesk, Inc. Citrix Systems, Inc. Compuware Corporation DreamWorks Animation SKG, Inc. Electronic Arts Inc. facebook, Inc. Google Inc. IAC/InterActiveCorp LinkedIn Corporation Lucasfilm Ltd. Microsoft Corporation Monster Worldwide Inc. NetApp, Inc. Netflix, Inc. Nintendo of America Inc. Pixar Animation Studios Red Hat, Inc. Rovi Corporation salesforce.com, inc. Sony Computer Entertainment America LLC Take-Two Interactive Software, Inc. THQ Inc. Tibco Software, Inc. VeriSign Inc. Yahoo! Inc. 106
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Executive Compensation Program Components Base Salary. We provide base salary as a fixed source of compensation for our executive officers, allowing them a degree of certainty in the face of working for a privately-held company and having a meaningful portion of their compensation at risk in the form of equity awards covering the shares of a private company. The board of directors recognizes the importance of base salaries as an element of compensation that helps to attract highly qualified executive talent. Base salaries for our executive officers were established primarily based on individual negotiations with the executive officers when they joined us and reflect the scope of their anticipated responsibilities, the individual experience they bring, the board members experiences and knowledge in compensating similarly situated individuals at other companies, our then-current cash constraints, and a general sense of internal pay equity among our executive officers. The board does not apply specific formulas in determining base salary increases. In determining base salaries for 2010 for our continuing named executive officers, no adjustments were made to the base salaries of any of our named executive officers, as the board or compensation committee determined, in their independent judgment and without reliance on any survey data, that existing base salaries, taken together with other elements of compensation, provided sufficient fixed compensation for retention purposes. For Messrs. Wehner, Van Natta and Chiang, each of whom was hired in 2010, the board established initial base salaries (and, in the case of Mr. Van Natta, his original consulting fee rate), using reasonable business judgment and without reference to survey data, based on the results of individual negotiations, the compensation packages that Messrs. Wehner and Chiang were forgoing at their then-current employers, and taking into consideration, in a general sense, the base salaries of the other executive officers and the value of the other elements of each candidates negotiated new-hire compensation package (including signing bonuses and equity awards).
Name 2010 Salary
Mark Pincus Owen Van Natta David M. Wehner Steven Chiang Reginald D. Davis Mark Vranesh (1)
$ 300,000 200,000(1) 225,000 300,000 200,000 200,000
Mr. Van Natta served as a consultant from April 2010 to August 2010, and his monthly consulting fee was set at $25,000 per month (or $300,000 on an annualized basis) based on the factors described above. His base salary as an employee was set at a lower rate based on negotiations and taking into consideration, in a subjective fashion, the value of the equity awards he would receive as an employee.
Cash Bonuses. Prior to this offering, our employees, including our executive officers, have been eligible to earn discretionary performance bonuses based on individual and company performance. The amount of the bonus earned, and the evaluations of individual and corporate performance, were determined in a subjective manner, without specific weightings or a formula. The overall performance of the company, as evaluated by our Chief Executive Officer and the board without reference to specific pre-established corporate goals, was the critical factor for determining payouts. Historically, we have not set target bonus amounts, expressed as a percentage of base salary or otherwise, for our executive officers, either at the time of hire or at the start of a given performance period. Each executive officer could earn an annual bonus of up to 100% of his earned base salary in a given year, which our board felt was an appropriate percentage given the relatively low base salaries of our executive officers. In connection with the recent hiring of Mr. Chiang, and consistent with the bonus opportunity provided to the other executive 107
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officers, the board approved an annual cash bonus target of 100% of base salary but with a guaranteed minimum payout of $400,000 (that is, 133% of base salary) for each of the first two full years of his employment. The decision to provide a guaranteed payment was made based on individual negotiations with Mr. Chiang, which reflected, in large part, the bonus and equity compensation opportunities that he was forgoing with his prior employer, the Chief Executive Officers recommendation and the boards determination of the essential need to attract and retain Mr. Chiang. For our 2010 bonus program, our Chief Executive Officer established, in consultation with the board, objectives and key results, or OKRs, for senior management. The OKRs for our Chief Executive Officer were based on overall corporate performance, and the OKRs of the other named executive officers were based on company performance within their functional unit. No amount of bonus was allocated to a specific OKR. Rather, at the end of each quarter, the Chief Executive Officer reviewed our overall performance and strategic and competitive positioning, as well as each executive officers performance, taking into account the OKRs. The Chief Executive Officer then made recommendations to Mr. Feld for the amount that should be awarded as a bonus for that quarter for each of the named executive officers, including him. For 2010, Mr. Feld concurred with the Chief Executive Officers bonus recommendations, and these recommendations were approved by the board. In addition to the specific individual factors for each executive as discussed below, in determining bonuses for 2010, the board took into account, in the first quarter and each following quarter, strong increases in bookings, in the second quarter, the successful launch of FrontierVille, in the second and third quarters, the impact on our business of changes in certain aspects of the Facebook platform and, in the fourth quarter, the successful launch of CityVille. 2010 payout levels and critical achievements and considerations for each executive were: Mark Pincus. Mr. Pincuss quarterly bonuses were $22,500, $0, $75,000 and $37,500, and reflected our success in increasing the number of players across our various games, increasing bookings each quarter and leading relationships with commercial partners. Owen Van Natta. Mr. Van Natta was not eligible for a bonus payment until he transitioned to employment status in August 2010. His bonuses of $23,077 and $25,000 for the third and fourth quarters reflected his role in providing strategic advice, identifying acquisitions and developing and enhancing relationships with commercial partners. David M. Wehner. Mr. Wehners bonuses of $34,615 and $28,125 for the third and fourth quarters reflected his success related to instituting financial planning systems, maintaining and developing relationship with investors and overseeing the acquisition and integration of companies, including Newtoy. Steven Chiang. Mr. Chiang received his guaranteed payout of $100,000 per quarter (pro-rated based on his start date for the second quarter). Reginald D. Davis. Mr. Daviss quarterly bonuses were $15,000, $25,000, $50,000 and $25,000, and reflected his role in providing corporate legal support for all acquisitions and other transactions in 2010, protecting our intellectual property in pending litigation, including the settlement discussed below and working to expand our intellectual property portfolio. Mark Vranesh. Mr. Vraneshs quarterly bonuses were $15,000, $10,000, $15,000 and $15,000, and reflected his timely completion of the 2008 and 2009 audits, his role in launching our updated tax, accounting and payment systems and his contributions toward preparing our financial operations for this offering. From time to time, the Chief Executive Officer has recommended, and the board has approved, special discretionary bonuses for significant achievements to reward superior performance. In 2010, the board approved a one-time $500,000 special bonus to Mr. Davis in recognition of his critical role in securing a company-favorable settlement of material litigation. 108
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In addition, from time to time, the Chief Executive Officer has recommended, and the board has approved, special signing bonuses in order to attract key talent. The board approved these signing bonuses based on individual negotiations which reflect, in large part, bonus and equity compensation opportunities that these executive officers were foregoing from their prior employers, the CEOs recommendations, and the boards determination of the essential need to attract and retain these executive officers. Specifically, the board approved cash signing bonuses of $1.25 million for Mr. Wehner and $2.0 million for Mr. Chiang in light of the significant compensation opportunities that each was forgoing by leaving his prior employer to join Zynga. Equity Compensation. As a privately-held company, we have historically used restricted stock units and, to a lesser extent, options as the principal component of our executive compensation program. Consistent with our compensation objectives, we believe this approach has allowed us to attract and retain key talent in our industry and aligned our executive teams contributions with the long-term interests of the company and our stockholders. We grant stock options with an exercise price not less than the fair market value of our common stock on the date of grant, so these options will have value to our executive officers only if the fair market value of our common stock increases after the date of grant and the date of vesting. Typically, stock options granted to our executive officers vest over four years. Our ZSUs have historically generally included both a multi-year (generally over four years) time-based vesting condition and a liquidity event vesting condition (that is, the effectiveness of either a change in control transaction or an initial public offering), allowing them to serve as an effective retention tool while also motivating these executive officers to work toward corporate objectives that provide a meaningful return to our stockholders. In addition, our board has approved certain executive grants of options and restricted stock units containing accelerated vesting provisions upon an involuntary termination (both termination without cause and resignation for good reason) as well as upon certain material change in control transactions. Our board believes these accelerated vesting provisions reflect current market practices, based on the collective knowledge and experiences of our board members (and without reference to specific peer group data), and allow us to attract and retain highly qualified executive officers. In addition, we believe these accelerated vesting provisions will allow our executive officers to focus on closing a transaction that may be in the best interest of our stockholders even though the transaction may otherwise result in a termination of their employment and, absent such accelerated vesting, a forfeiture of their unvested equity awards. Additional information regarding accelerated vesting prior to, upon or following a change in control is discussed below under Potential Payments Upon Termination and Upon Termination and Change in Control. From time to time, we have granted to our employees generally, including our executive officers, options with an early exercise feature that allows the holder of the option to exercise and receive unvested shares of our stock, so that the executive may exercise and have a greater opportunity for gains on the shares to be taxed at long-term capital gain rates rather than ordinary income rates. Several of our executive officers hold unvested shares as a result of early exercising their option grants. Our board believes this early exercise feature reflects current market practices for private companies, based on the collective knowledge and experiences of our board members (and without reference to specific peer group data), and allows us to attract and retain highly qualified employees. In determining the form, size and material terms of executive equity awards, our board customarily considered, among other things, individual negotiations with the executive officers at their time of hire (particularly the equity opportunities they were leaving behind at their prior employers), the executive officers total compensation opportunity, the need to create a meaningful opportunity for reward predicated on the creation of long-term stockholder value, the CEOs recommendations, internal pay equity as among our executive officers, notable performance accomplishments, adjustments to duties and the retention implications of existing grants. In 2010, our board of directors made the grants to our executive officers set forth below. Due to the complexity of valuing our common stock for purposes of the Internal Revenue Code of 1986 Section 409A, our 109
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board generally granted ZSUs instead of options. In determining the size of the equity grants in 2010, our board generally considered the CEOs recommendations, the executive officers existing equity award holdings (including the unvested portion of such awards), internal pay equity, our retention and incentive goals, and, as applicable, negotiations with the executive at the time of his hiring. In particular, the board considered the following: Mark Pincus . Consistent with Mr. Pincuss recommendation, the board determined that Mr. Pincuss existing unvested stock options (including his 2009 option grant covering 6,400,000 shares) and vested stock holdings provided the necessary motivation and retention incentive and therefore did not award any equity grants to him in 2010. Owen Van Natta. The board granted Mr. Van Natta 6,750,000 options and 2,250,000 ZSUs, including 1,000,000 ZSUs granted to him in his role as a director. The board determined that this size of the award was necessary given the other employment opportunities available to Mr. Van Natta at the time of his negotiations with the company. David M. Wehner. The board granted Mr. Wehner 2,500,000 ZSUs. The board determined that this size of award was necessary given the significant compensation opportunities Mr. Wehner was forgoing at his prior employer. Steven Chiang . The board granted Mr. Chiang 4,000,000 ZSUs. The board determined that this size of award was necessary given the significant equity compensation opportunities Mr. Chiang was forgoing at his prior employer. Reginald D. Davis. The board granted Mr. Davis two ZSU awards. The first award consisted of 573,334 ZSUs, reflecting the boards decision to provide Mr. Davis with additional awards to have his total equity rights reach 2.6 million shares, which the board determined was the appropriate level at that time for internal pay equity. The second grant consisted of 40,000 ZSUs, reflecting the boards recognition of his significant contributions toward the company-favorable settlement of material litigation in 2010. Mark Vranesh. The board granted Mr. Vranesh 200,000 ZSUs, for retention purposes, in light of his substantially vested prior awards, and reflecting his new role in 2010 as Chief Accounting Officer. Post-Employment Compensation In hiring our executive officers, we recognized that many of our desired candidates were leaving the security of employment with more mature companies where they had existing severance and change of control compensation rights. Accordingly, we sought to develop compensation packages that could attract qualified candidates to fill our most critical positions. At the same time, we were sensitive to the need to integrate new executive officers into our existing executive compensation structure. To achieve this balance, in 2008 and 2009, our board granted equity awards to our more senior executive officers with limited single and double trigger vesting protections (generally 25% of the award will vest on a change of control, and another 25% will vest on a subsequent termination). We believe these equity acceleration provisions will help our executive officers maintain continued focus and dedication to their responsibilities to help maximize stockholder value if there is a potential transaction that could involve a change in control of our company and a potential for the termination of their employment. In September 2011, our compensation committee approved our Change in Control Severance Benefit Plan, or our Change in Control Plan. Each of our employees at the level of vice president or above, including our executive officers, is eligible to participate in the Change in Control Plan. Upon a change in control (as defined in our 2011 Equity Incentive Plan), each then-current participant (including a participant who, within 30 days before a change in control, suffers an involuntary termination without cause or a resignation for good reason) will receive, in exchange for a release of claims, accelerated vesting of 25% of the total number of shares subject to 110
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each equity award held by such participant. Additionally, for participants who are at the level of senior vice president or above, including our executive officers, if such participant suffers an involuntary termination without cause or a resignation for good reason within 30 days before or 18 months following a change in control, he or she will receive, in exchange for a release of claims, accelerated vesting of an additional 25% of the total number of shares subject to each equity award held by such participant. The Change in Control Plan is designed to provide an internally consistent and equitable standard of accelerated vesting benefits, triggers and conditions for our more senior level employees. We believe that a pre-existing plan will allow our executive officers to focus on continuing normal business operations and the success of a potential business combination that may not be in their personal best interests, and to maintain a balanced perspective in making overall business decisions during a potentially uncertain period. We believe the size and terms of the benefits provide an appropriate balance between the costs and benefits to stockholders. We also believe these benefits are consistent with the benefits offered by companies with whom we compete for talent, and so allow us to recruit and retain key executive talent. In addition, as part of our negotiations with Messrs. Wehner, Van Natta and Chiang at the time they were hired, the board approved additional cash and equity acceleration protections in the event of their involuntary terminations of employment, including but not limited to terminations following a change in control. The amount and terms of these benefits reflect the negotiations of each of the executive officers with the company, as well as a desire to reflect internal pay equity among our executive officers with respect to the acceleration rights held by our existing officers. We believe that these protections were necessary to induce these individuals to forego other opportunities or leave their current employment for the uncertainty of a demanding position in a new and unfamiliar organization. These benefits also encourage these executive officers to maintain continued focus and dedication to their responsibility to help maximize stockholder value in the face of decisions that are in the best interests of our stockholders but not necessarily in the executive officers own personal best interests. The terms and conditions of employment for each of our named executive officers are set forth in written letter agreements. For a summary of the material terms and conditions of these letters, see Offer Letter Agreements below. For a summary of the material terms and conditions of the severance and change in control arrangements in effect as of December 31, 2010, see Potential Payments Upon Termination and Change in Control. Employee Benefits We provide standard health, dental, vision, life and disability insurance benefits to our executive officers, on the same terms and conditions as provided to all other eligible employees. Our executive officers may also participate in our broad-based 401(k) plan, which currently does not include a company match or discretionary contribution. We believe these benefits are consistent with the broad based employee benefits provided at the companies with whom we compete for talent and therefore are important to attracting and retaining qualified employees. We also provide certain perquisites to our named executive officers. In considering potential perquisites, we consider the cost to us as compared to the value of providing such perquisites. In 2010, we provided supplemental relocation compensation to both Messrs. Wehner and Chiang, recognizing that such costs were critical to our ability to attract these individuals to join us. We also covered the costs of parking at our offices for all named executive officers as well as other executives and we have leased a car for Mr. Pincus, as we believe that these benefits are consistent with the benefits offered to similarly situated executives at other companies. In 2010, we paid for certain security services for Mr. Pincus. We believe these expenses are reasonable and appropriate, consistent with expenses covered by other companies for their chief executives and in the best interest of the company and its stockholders. We provided Mr. Davis a bonus in the form of a paid two-night trip to see a concert out of town, in recognition of his dedication and long hours worked in 2009 and 2010. We have provided de minimis stipends, and related tax gross-ups, to our officers for expenses incurred in connection with certain offsite business trips, in lieu of addressing those expenses through a formal expense reimbursement process. Our board believes that these perquisites are important for attracting and retaining key talent. 111
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Equity Granting Policies We encourage our named executive officers to hold a significant equity interest in our company, but have not set specific ownership guidelines. While our board of directors has delegated authority to our compensation committee to grant equity awards to executive officers, all equity awards previously granted to our executive officers have been granted by our full board of directors. Prior to this offering, we did not have any program, plan or obligation that required us to grant equity compensation on specified dates and, because we have not been a public company, we have not made equity grants in connection with the release or withholding of material nonpublic information. In the absence of a public trading market for our common stock, our board of directors has historically determined the fair market value of our common stock in good faith based upon consideration of a number of relevant factors including our financial condition, the likelihood of a liquidity event, the liquidation preference of our participating preferred stock, the price at which our preferred stock was sold, the enterprise values of comparable companies, our cash needs, operating losses, progress in the development of our games, market conditions, material risks to our business and valuation reports obtained from independent valuation firms. Tax and Accounting Considerations Deductibility of Executive Compensation. Section 162(m) of the Code limits the amount that a public company may deduct from federal income taxes for remuneration paid to executive officers (other than the chief financial officer) to one million dollars per executive officer per year, unless certain requirements are met. Section 162(m) provides an exception from this deduction limitation for certain forms of performance-based compensation, as well as for the gain recognized by executive officers upon the exercise of qualifying compensatory stock options. While our board is mindful of the benefit to us of the full deductibility of compensation, our board believes that it should not be constrained by the requirements of Section 162(m) where those requirements would impair flexibility in compensating our executive officers in a manner that can best promote our corporate objectives. We have not adopted a policy that requires that all compensation be deductible. We intend to continue to compensate our executive officers in a manner consistent with the best interests of the company and our stockholders. Taxation of Parachute Payments and Deferred Compensation. Sections 280G and 4999 of the Code provide that executive officers and directors who hold significant equity interests and certain other service providers may be subject to an excise tax if they receive payments or benefits in connection with a change in control that exceeds certain prescribed limits, and that the company, or a successor, may forfeit a deduction on the amounts subject to this additional tax. Section 409A of the Code also imposes additional significant taxes on the individual in the event that an executive officer, director or other service provider receives deferred compensation that does not meet the requirements of Section 409A of the Code. We did not provide any executive officer, including any named executive officer, with a gross-up or other reimbursement payment for any tax liability that he or she might owe as a result of the application of Sections 280G, 4999, or 409A of the Code during 2010, and we have not agreed and are not otherwise obligated to provide any named executive officers with such a gross-up or other reimbursement. Accounting Treatment. The accounting impact of our compensation programs is one of many factors that are considered in determining the size and structure of our programs, so that we can ensure that our compensation programs are reasonable and in the best interests of our stockholders. Authoritative accounting guidance on stock compensation requires companies to measure the compensation expense for all share-based payment awards made to employees and directors, including stock options, based on the grant date fair value of these awards. This calculation is performed for accounting purposes and reported in the compensation tables below, even though our executive officers may never realize any value from their awards. Authoritative accounting guidance 112
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also requires companies to recognize the compensation cost of their stock-based compensation awards in their income statements over the period that an executive officer is required to render service in exchange for the option or other award. Compensation Recovery Policies The compensation committee has not determined whether it would attempt to recover bonuses from our executive officers if the performance objectives that led to the bonus determination were to be restated, or found not to have been met to the extent originally believed by the compensation committee. However, as a public company subject to the provisions of Section 304 of the Sarbanes-Oxley Act of 2002, if we are required as a result of misconduct to restate our financial results due to our material noncompliance with any financial reporting requirements under the federal securities laws, our chief executive officer and chief financial officer may be legally required to reimburse us for any bonus or other incentive-based or equity-based compensation they receive. In addition, we will comply with the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act and will adopt a compensation recovery policy once final regulations on the subject have been adopted. Compensation Risk Assessment In connection with this offering, our board of directors engaged Compensia to assist the board in evaluating the potential risks associated with the structure and design of our various compensation plans, including a comprehensive review of the material compensation plans and programs for all employees. Our material plans and programs operate within our larger corporate governance and review structure that serves and supports risk mitigation. 2010 Summary Compensation Table The following table summarizes information regarding the compensation awarded to, earned by or paid to our Chief Executive Officer, our Chief Financial Officer, our former Chief Financial Officer (who is now our Chief Accounting Officer) and our other three most highly compensated executive officers during 2010 (including our former Executive Vice President and Chief Business Officer). We refer to these individuals in this prospectus as our named executive officers.
Stock Awards ($)(1) Option Awards ($)(2) All Other Compensation ($)(3)
Name and Principal Position
Year
Salary ($)
Bonus ($)
Total ($)
Mark Pincus Chief Executive Officer, Chief Product Officer and Chairman Owen Van Natta(5) Former Executive Vice President and Chief Business Officer David M. Wehner(7) Chief Financial Officer Steven Chiang (9) Executive Vice President, Games Reginald D. Davis Senior Vice President, General Counsel and Secretary Mark Vranesh Chief Accounting Officer
2010
$301,154
$ 135,000
84,085(4)
520,239
2010
76,923
48,077
$28,595,363
100,625(6)
28,820,988
2010 2010 2010
95,192 242,308 200,769
1,812,740 (8) 2,876,921 (10) 615,000
625 42,458(11) 9,555(12)
1,908,557 3,161,687 825,324
2010
200,769
55,000
2,171(13)
257,940
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In accordance with SEC rules, this column reflects the grant date fair value of ZSUs calculated in accordance with ASC Topic 718 for stock-based compensation transactions. Our ZSUs are subject to both time-based vesting and a liquidity event-based vesting component, as described in detail in Grants of Plan-Based Awards Table2010 Restricted Stock Unit Grants below. As of the grant date and December 31, 2010, the liquidity events were considered not probable of occurring. As a result, the grant date fair value of the ZSUs, for purposes of this table, is $0. Assuming that both of the vesting conditions to the awards were met, based on a value of the common stock of $6.435 per share as of the date of grant, the value of the awards as of the grant date would be $14,478,750 for Mr. Van Natta, $16,087,500 for Mr. Wehner, $25,740,000 for Mr. Chiang, $3,946,804 for Mr. Davis and $1,287,000 for Mr. Vranesh. Mr. Pincus did not receive a stock award in 2010. For a discussion of the valuation of the Class B common stock as of the grant date of the ZSUs, see Managements Discussion and Analysis of Financial Condition and Results of OperationsStock-Based Compensation. This amount does not reflect the actual economic value realized by the named executive officer. In accordance with SEC rules, this column represents the grant date fair value of stock options, calculated in accordance with ASC Topic 718 for stock-based compensation transactions. For additional information on the valuation assumptions, see Notes to Consolidated Financial Statements at Note 8, Stockholders EquityStock-Based Compensation. The dollar amounts in this column include payments for parking expenses for each named executive officer. Includes payments in the aggregate amount of $12,998 for vehicle leasing expenses and $69,587 for security provided to Mr. Pincus. Mr. Van Natta joined us on August 16, 2010 and resigned on November 16, 2011. Includes the payout of $100,000 to Luminor Group LLC, of which Mr. Van Natta is a general partner, in connection with certain business strategy consulting services. Mr. Wehner joined us on August 2, 2010. Includes a relocation bonus in the amount of $500,000. Mr. Chiang joined us on March 15, 2010. Includes a relocation bonus in the amount of $601,921. Includes the payment of $41,208 for Mr. Chiangs documented relocation expenses to assist with moving costs and temporary accommodations expenses. Includes a bonus payable to attend a concert and stay in a hotel for two nights, plus a gross-up for taxes, and a cash stipend paid in connection with a legal department trip, plus a gross-up for taxes. Includes a cash stipend paid in connection with a finance department trip, plus a gross-up for taxes. 114
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(3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13)
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Grants of Plan-Based Awards Table The following table shows all plan-based awards granted to the named executive officers during the year ended December 31, 2010. These amounts have been adjusted to reflect a two-for-one stock split completed in April 2011. The equity awards granted during the year ended December 31, 2010 identified in the table below are also reported in Outstanding Equity Awards as of December 31, 2010. For additional information regarding incentive plan awards, please refer to the Executive CompensationEmployee Benefits and Stock Plans.
Estimated Future Payouts Under Equity Incentive Plan Awards Name Grant Date Target (#) All Other Option Awards: Number of Securities Underlying Options (#)
Exercise Price or Base Price of Option Awards ($/sh)
Grant Date Fair Value of Stock and Option Awards ($)
9/17/2010 9/17/2010 9/17/2010 4/15/2010 4/15/2010 4/15/2010
2,250,000 2,500,000 4,000,000 613,334 200,000
6,750,000
6.435
$ 28,595,363 (1) 14,478,750 (2) 16,087,500 (2) 25,740,000 (2) 3,946,804 (2) 1,287,000 (2)
This amount does not reflect the actual economic value realized by the named executive officer. In accordance with SEC rules, this amount represents the grant date fair value of this equity award, in accordance with ASC Topic 718 for stock-based compensation. For additional information on the valuation assumptions, see the Notes to Consolidated Financial Statements at Note 8, Stockholders EquityStock-Based Compensation. Amounts reflect the fair value of ZSUs issued to the named executive officer on the date of grant, calculated in accordance with ASC Topic 718 for stock-based compensation transactions. The fair value of our Class B common stock was $6.435 per share as of the grant date. These awards are subject to time-based vesting and a liquidity event-based vesting component, as described in detail in 2010 Restricted Stock Unit Grants below. The amounts in the table assume that both of the vesting conditions to the awards are met. For a discussion of the valuation of the Class B common stock as of the grant date of the ZSUs, see Managements Discussion and Analysis of Financial Condition and Results of OperationsStock-Based Compensation.
(2)
2010 Restricted Stock Unit Grants During 2010, our board of directors issued ZSUs to certain of our named executive officers. These ZSUs, which have a term of seven years and are settled in shares of our Class B common stock, vest only upon the satisfaction of both a service-based vesting condition and a liquidity event-based vesting condition. The liquidity event-based vesting condition can only be satisfied upon the earlier of (a) the signing of an underwriting agreement in connection with an underwritten public offering by us of our securities that are registered under the Securities Act of 1933, as amended, or the Securities Act, or (b) a change of control (as defined in our 2007 Equity Incentive Plan). The service-based vesting condition can be satisfied in installments as follows: (1) the condition will be satisfied as to 1/4 of the total shares underlying the ZSU on the one year anniversary of the vesting commencement date, and (2) on each subsequent three month anniversary of the vesting commencement date (continuing for three years from the one year anniversary of the vesting commencement date) an additional 1/16th of the total shares underlying the ZSU will vest. The values included in the Stock Awards column of the 2010 Summary Compensation Table above represent the fair value of these awards based on the assumed occurrence of the vesting conditions of the awards on the date of grant. 115
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Outstanding Equity Awards as of December 31, 2010 The following table presents information regarding outstanding equity awards held by our named executive officers as of December 31, 2010.
Option Awards Number of Securities Underlying Unexercised Options Exercisable (#) Number of Securities Underlying Unexercised Options Unexercisable (#) Stock Awards Equity Incentive Equity Incentive Plan Awards: Plan Awards: Number of Market or Payout Unearned Shares, Value of Unearned Units or Other Shares, Units or Rights That Have Other Rights That Not Vested (#) Have Not Vested ($)(1)
Name
Option Exercise Price ($)
Option Expiration Date
Mark Pincus Owen Van Natta David M. Wehner Steven Chiang Reginald D. Davis
800,000(2) 6,400,000 (3) 1,378,436 (9) 480,000(13)
6,750,000 (4)
$0.12815 0.17065 6.435
11/19/2018 4/30/2019 9/17/2020
2,250,000 (5) 2,500,000 (6) 3,200,000 (7) 800,000(8) $
14,478,750 16,087,500 20,592,000 5,148,000 171,596 257,400 3,689,404 1,287,000
0.17065 0.17065
5/13/2019
26,666(10) 40,000(11) 573,334(12) 200,000(14)
Mark Vranesh (1) (2)
4/8/2019
Represents the market value of the shares underlying the ZSUs as of December 31, 2010, based on an assumed fair market value of our Class B common stock of $6.435 per share on December 31, 2010. 1/48th of the total shares subject to this option grant vest monthly starting November 19, 2008, subject to continued service to us through each vesting date. Of the shares underlying this option, 416,667 shares were vested as of December 31, 2010. This option is early exercisable and to the extent any of such shares are unvested as of a given date, such shares will remain subject to a right of repurchase by us. 1/48th of the total shares subject to this option grant vest monthly starting April 30, 2009, subject to continued service to us through each vesting date. Of the shares underlying this option, 2,666,667 shares were vested as of December 31, 2010. This option is early exercisable and to the extent any of such shares are unvested as of a given date, such shares will remain subject to a right of repurchase by us. 1/4th of the total shares subject to this option grant vested on August 16, 2011. The remaining shares subject to the option vest at a rate of 1/48th of the total number of shares subject to this option each month thereafter. Of the shares underlying this option, no shares were vested as of December 31, 2010. The service-based vesting condition was satisfied as to 1/4th of the total shares underlying the ZSU on August 16, 2011 and, as to the remaining shares, in equal quarterly installments thereafter, subject to continued service to us through each vesting date. The service-based vesting condition was satisfied as to 1/4th of the total shares underlying the ZSU on August 2, 2011 and, as to the remaining shares, in equal quarterly installments thereafter, subject to continued service to us through each vesting date. 116
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(7) (8) (9)
The service-based vesting condition was satisfied as to 1/4th of the total shares underlying the ZSU on March 15, 2011. The remaining shares vest in equal quarterly installments thereafter, subject to continued service to us through each vesting date. The service-based vesting condition will be satisfied as to all of the total shares underlying the ZSU on March 15, 2015, subject to continued service to us through each vesting date. 1/4th of the total number of shares subject to the option became vested on May 11, 2010 and the remaining shares subject to the option vest at a rate of 1/48th of the total number of shares subject to the option each month thereafter, subject to continued service to us through each vesting date. Of the shares underlying this option, 170,102 shares were vested as of December 31, 2010. This option is early exercisable and to the extent any of such shares are unvested as of a given date, such shares will remain subject to a right of repurchase by us. The service-based vesting condition was satisfied as to 1/4th of the total shares underlying the ZSU on October 1, 2010. The remaining shares vest, in equal quarterly installments thereafter, subject to continued service to us through each vesting date. The service-based vesting condition was satisfied as to 1/4th of the total shares underlying the ZSU on January 15, 2011. The remaining shares vest, in equal quarterly installments thereafter, subject to continued service to us through each vesting date. The service-based vesting condition was satisfied as to 1/4th of the total shares underlying the ZSU on April 15, 2011. The remaining shares vest, in equal quarterly installments thereafter, subject to continued service to us through each vesting date. 1/4th of the total number of shares subject to the option became vested on April 8, 2010. The remaining shares subject to the option vest at a rate of 1/48th of the total number of shares subject to the option each month thereafter, subject to continued service to us through each vesting date. Of the shares underlying this option, 200,000 shares were vested as of December 31, 2010. This option is early exercisable and to the extent any of such shares are unvested as of a given date, such shares will remain subject to a right of repurchase by us. The service-based vesting condition was satisfied as to 1/4th of the total shares underlying the ZSU on April 15, 2011. The remaining shares vest, in equal quarterly installments thereafter, subject to continued service to us through each vesting date.
(10) (11) (12) (13)
(14)
Stock Option Exercises and Stock Vested During 2010 The following table shows information regarding options that were exercised by our named executive officers during the year ended December 31, 2010.
Option Awards Number of Shares Acquired Value Realized on Exercise (#) on Exercise ($) (1)
Name
155,364 466,200
973,254 2,920,440
The aggregate dollar amount realized upon the exercise of the options represents the amount by which (x) the aggregate market price of the shares of our Class B common stock on the date of exercise, as calculated by using a per share value of $6.435, which is an assumed fair value as of the date of exercise, exceeds (y) the aggregate exercise price of the option, as calculated using a per share exercise price of $0.17065. 117
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Pension Benefits We do not have any defined benefit pension plans. Nonqualified Deferred Compensation We do not offer any nonqualified deferred compensation plans. Potential Payments upon Termination or Change in Control The section below describes the payments that we would have made to our named executive officers in connection with certain terminations of employment and/or certain corporate transactions like a change in control, if such events had occurred on December 31, 2010. Mark Pincus Under the founder restricted stock purchase agreement, dated as of November 2, 2007, as amended, Mr. Pincus is entitled to acceleration of all unvested shares of restricted stock granted thereunder upon a change of control. In addition, under the stock option agreement for the option to purchase 6,400,000 shares of Class B common stock granted on April 30, 2009, Mr. Pincus is entitled to (i) acceleration of vesting of the lesser of 25% of the total number of shares subject to the stock option or all of the remaining unvested shares upon a change in control and (ii) upon termination without cause or by the employee for good reason within 12 months after a change in control, additional acceleration of vesting of the lesser of 25% of the total number of shares subject to the stock option or all of the remaining unvested shares. The following table sets forth quantitative estimates of the benefits that Mr. Pincus would receive in the event of his termination and/or upon a change in control, assuming the event took place on December 31, 2010, the last business day of our most recently completed fiscal year.
Salary Continuation ($) Bonus Continuation ($) Continued Benefits ($) Equity Acceleration ($)(1)
Termination or Change in Control Event
Total ($)
Involuntary termination Change in control and involuntary termination Change in control and employment continues (1)
$114,927,208(2) 104,904,248 (3)
$114,927,208 104,904,248
Amounts included in the table for stock option acceleration are calculated as the difference between an assumed fair market value of $6.435 per share of Class B common stock as of December 31, 2010 and the exercise price of the option, multiplied by the number of accelerated shares. Amounts included in the table for restricted stock acceleration are based on the number of shares of restricted stock that would accelerate multiplied by the assumed fair market value of $6.435 per share of Class B common stock as of December 31, 2010. Represents (i) the value of full acceleration on all unvested shares pursuant to a founders stock purchase agreement in the event of a change in control in the amount of $94,881,288 and (ii) the value of acceleration of vesting of 25% of the total shares underlying an option grant dated April 30, 2009 triggered by change in control and acceleration of an additional 25% of the total shares underlying the same option in the event of termination following change in control. Represents (i) the value of full acceleration on all unvested shares pursuant to a founders stock purchase agreement in the event of a change in control in the amount of $94,881,288 and (ii) the value of acceleration of vesting of 25% of the total shares underlying an option grant dated April 30, 2009 in the event of a change in control. 118
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Owen Van Natta In November 2011, we entered into a transition letter agreement with Owen Van Natta in connection with his resignation from employment as Executive Vice President and Chief Business Officer. For more information, see the section titled Offer Letter Agreements. However, under the prior offer letter agreement and his option and ZSU agreement as in effect on December 31, 2010, upon a termination of Mr. Van Nattas employment without cause, Mr. Van Natta would have received the following severance benefits: (i) continuation of base salary calculated at a rate in effect as of December 31, 2010 for six months, (ii) acceleration of vesting of 25% of the unvested shares underlying his option, (iii) acceleration of the time-based vesting component equal to 25% of the unvested shares underlying his ZSU award, and (iv) paid premiums for continued healthcare benefits for up to the first six months following termination of employment. In addition, under his option and restricted stock award agreements granted on September 17, 2010, in the event that Mr. Van Natta was terminated without cause or resigned for good reason within 90 days prior to the signing of an agreement that results in a change in control, assuming such events occurred on December 31, 2010, or any time following, a change in control, all of his unvested ZSUs and options would have vested in full. The following table sets forth quantitative estimates of the benefits that Mr. Van Natta would have received in the event of his termination and/or upon a change in control, assuming the event took place on December 31, 2010, the last business day of our most recently completed fiscal year.
Total ($)
Involuntary termination not followed by a liquidity event Involuntary termination followed by a liquidity event Change in control and involuntary termination Change in control and employment continues (1)
$ 100,000(2) 100,000(2) 100,000(2)
$ 7,736(3) 7,736(3) 7,736(3)
(4) 3,619,688 (4) 14,478,750 (5)
107,736 3,727,424 14,586,486
Amounts included in the table for stock option acceleration are calculated as the difference between an assumed fair market value of $6.435 per share of Class B common stock as of December 31, 2010 and the exercise price of the option, multiplied by the number of shares. Amounts included in the table for accelerated ZSUs are based on the number of accelerated shares underlying the ZSU times the assumed fair market value of $6.435 per share of Class B common stock as of December 31, 2010. Represents six months base salary calculated at a rate in effect as of December 31, 2010. Represents the value of six months of continued healthcare benefits at an estimated value consistent with the value of benefits provided to our executives in December 31, 2010. Represents the value of acceleration of vesting of the time-based vesting component equal to 25% of the unvested ZSUs as of December 31, 2010, based on an assumed fair market value of $6.435 as of December 31, 2010. In connection with Mr. Van Nattas commencement of employment, he received a stock option to purchase up to 6,750,000 shares of our Class B common stock. Upon termination for any reason other than cause, the vesting of the shares underlying this option would accelerate as to 25% of the total number of shares underlying this option. The value of accelerated options is zero because there was no difference between the exercise price of his option and the assumed fair market value of $6.435 per share of Class B common stock as of December 31, 2010. Assuming the fair market value per share was $ , which is the midpoint of the range reflected on the cover page of this prospectus, the value of accelerated options would be $ . Represents the value of acceleration of 100% of the time-based vesting component of all ZSUs based on an assumed fair market value of $6.435 per share as of December 31, 2010. In connection with Mr. Van Nattas commencement of employment, he received a stock option to purchase up to 6,750,000 shares of our Class B common stock. In the event that Mr. Van Natta was terminated 119
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without cause or resigned for good reason within 90 days prior to the signing of an agreement that results in a change in control, or any time following a change in control, the vesting of the shares underlying this option would accelerate as to all of the shares underlying this option. The value of accelerated options is zero because there was no difference between the exercise price of his option and the assumed fair market value of $6.435 per share of Class B common stock as of December 31, 2010. Assuming the fair market value per share was $ , which is the midpoint of the range reflected on the cover page of this prospectus, the value of accelerated equity awards would be $ . David M. Wehner Under the offer letter agreement and his ZSU agreement in effect on December 31, 2010, upon a termination of Mr. Wehners employment without cause, Mr. Wehner would have received the following severance benefits: (i) continuation of base salary calculated at a rate in effect as of December 31, 2010 for six months, (ii) acceleration of vesting of 25% the unvested ZSU award, and (iii) paid premiums for continued healthcare benefits for up to the first six months following termination of employment. In addition, under his ZSU agreement in the event that Mr. Wehner is terminated without cause or resigns for good reason within 90 days prior to the signing of an agreement that results in a change in control, or any time following a change in control, the unvested ZSUs shall vest in full. The following table sets forth quantitative estimates of the benefits that Mr. Wehner would receive in the event of his termination and/or upon a change in control, assuming the event took place on December 31, 2010, the last business day of our most recently completed fiscal year.
Total ($)
Involuntary termination not followed by a liquidity event Involuntary termination followed by a liquidity event Change in control and involuntary termination Change in control and employment continues (1) (2) (3) (4) (5)
$ 112,500(2) 112,500(2) 112,500(2)
$ 7,688(3) 7,688(3) 7,688(3)
4,021,875 (4) 16,087,500 (5)
120,188 4,142,063 16,207,688
Amounts included in the table for accelerated ZSUs are based on the number of accelerated shares underlying the ZSU times an assumed fair market value of $6.435 per share of our Class B common stock as of December 31, 2010. Represents six months base salary calculated at a rate in effect as of December 31, 2010. Represents the value of six months of continued healthcare benefits at an estimated value consistent with the value of benefits provided to our executives in December 31, 2010. Represents value of acceleration of vesting of 25% of the time-based vesting component of the unvested ZSUs as of December 31, 2010, based on an assumed fair market value of $6.435 per share as of December 31, 2010. Represents value of acceleration of vesting of 100% of the time-based vesting component of all ZSUs as of December 31, 2010, based on an assumed fair market value of $6.435 per share as of December 31, 2010.
Steven Chiang Under the offer letter agreement in effect on December 31, 2010, upon a termination of Mr. Chiangs employment without cause, Mr. Chiang would have received the following severance benefits: (i) continuation of 120
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base salary calculated at a rate in effect as of December 31, 2010 for 12 months, (ii) a lump sum payment equal to his guaranteed bonus for the year of termination, (iii) acceleration of the time-based vesting of unvested shares underlying his ZSU award equal to the number of shares that would have vested six months following termination and (iv) paid premiums for continued healthcare benefits for up to 12 months following termination. The following table sets forth quantitative estimates of the benefits that Mr. Chiang would receive in the event of his termination and/or upon a change in control, assuming the event took place on December 31, 2010, the last business day of our most recently completed fiscal year.
Total ($)
Involuntary termination not followed by a liquidity event Involuntary termination followed by a liquidity event Change in control and involuntary termination Change in control and employment continues (1) (2) (3)
$ 300,000(2) 300,000(2) 300,000(2)
$ 400,000(3) 400,000(3) 400,000(3)
$ 15,473(4) 15,473(4) 15,473(4)
6,435,000 (5) 6,435,000 (5)
$ 715,473 7,150,473 7,150,473
Because there is no exercise price for ZSUs, the value received is calculated as the number of accelerated shares underlying the ZSU times an assumed fair market value of $6.435 per share of our Class B common stock as of December 31, 2010. Represents twelve months base salary calculated at a rate in effect as of December 31, 2010. The offer letter with Mr. Chiang provides that in the event of his termination for any reason other than cause, we will continue his guaranteed bonus for 12 months following termination. For the first two years of employment beginning February 10, 2010, Mr. Chiang is guaranteed a bonus of $400,000. If Mr. Chiangs service terminated as of December 31, 2010, we would have been obligated to pay the bonus amount in addition to continuation of his salary for 12 months. Represents the value of 12 months of continued healthcare benefits at an estimated value consistent with the value of benefits provided to our executives in December 31, 2010. Represents value of acceleration of the number of ZSUs that would have vested in the six months following termination based on an assumed fair market value of $6.435 per share as of December 31, 2010.
(4) (5)
Reginald D. Davis Under the stock option agreement for the option to purchase 2,000,000 shares of Class B common stock granted on May 13, 2009, Mr. Davis is entitled to acceleration of vesting of the lesser of 25% of the total shares underlying his option or all of the remaining unvested shares upon a change in control. In addition, if Mr. Davis is terminated without cause or resigns for good reason within 12 months after a change in control, Mr. Davis is entitled to acceleration of vesting of the lesser of an additional 25% of the total shares underlying his option or all of the remaining unvested shares on the date of such termination. 121
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The following table sets forth quantitative estimates of the benefits that Mr. Davis would receive in the event of his termination and/or upon a change in control, assuming the event took place on December 31, 2010, the last business day of our most recently completed fiscal year.
Total ($)
Involuntary termination Change in control and involuntary termination Change in control and employment continues (1) (2)
$6,264,350 (2) 3,132,175 (3)
$6,264,350 3,132,175
Amounts indicated in the table are calculated as the difference between an assumed fair market value of $6.435 per share of Class B common stock as of December 31, 2010 and the exercise price of the option, multiplied by the number of accelerated shares. Represents value of (i) acceleration of vesting of 25% of the total number of shares underlying the options in connection with a change in control and (ii) acceleration of vesting 25% of the total number of shares underlying options in the event of termination following a change in control, each based on an assumed fair market value of $6.435 per share less an exercise price of $0.17065 as of December 31, 2010. Represents value of acceleration of vesting of 25% of the total number of shares underlying an option as of December 31, 2010, based on an assumed fair market value of $6.435 per share less an exercise price of $0.17065 as of December 31, 2010.
(3)
Mark Vranesh Under the stock option agreement for the option to purchase 2,080,000 shares of Class B common stock granted on June 3, 2008, Mr. Vranesh is entitled to acceleration of vesting of the lesser of 25% of the total shares underlying his option or all of the remaining unvested shares upon a change in control. In addition, if Mr. Vranesh is terminated without cause or resigns for good reason within 12 months after a change in control, Mr. Vranesh is entitled to acceleration of vesting of the lesser of an additional 25% of the total shares underlying his option or all of the remaining unvested shares on the date of such termination. The following table sets forth quantitative estimates of the benefits that Mr. Vranesh would receive in the event of his termination and/or upon a change in control, assuming the event took place on December 31, 2010, the last business day of our most recently completed fiscal year.
Total ($)
Involuntary termination Change in control and involuntary termination Change in control and employment continues (1) (2)
$4,726,640 (2) 3,336,450 (3)
$4,726,640 3,336,450
Amounts indicated in the table are calculated as the difference between an assumed fair market value of $6.435 per share of Class B common stock on December 31, 2010 and the exercise price of the option, multiplied by the number of accelerated shares. Represents the value of (i) acceleration of vesting of 25% of the total number of shares underlying the option in connection with a change in control and (ii) acceleration of vesting 25% of the total number of shares underlying options in the event of termination following a change in control, each 122
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based on an assumed fair market value of $6.435 per share less an exercise price of $0.01875 as of December 31, 2010. (3) Represents the value of acceleration of vesting of 25% of the total number of shares underlying the option as of December 31, 2010, based on an assumed fair market value of $6.435 per as of December 31, 2010.
Offer Letter Agreements Mark Pincus We entered into an amended and restated offer letter agreement with Mark Pincus, our Chief Executive Officer, Chief Product Officer and Chairman, dated November 16, 2011. The offer letter has no specific term and constitutes at-will employment. Mr. Pincus current annual base salary is $300,000. Mr. Pincus has no rights to severance other than as an eligible participant in our Change in Control Severance Benefit Plan and limited accelerated vesting in the event of an involuntary termination following a change in control under his April 2009 option grant. Owen Van Natta We entered into a transition letter agreement with Owen Van Natta in connection with his resignation from employment as our Executive Vice President and Chief Business Officer on November 16, 2011. In connection with his employment, he was granted an option covering 6,750,000 shares of our Class B common stock at an exercise price of $6.435 per share. In addition, in connection with Mr. Van Nattas commencement of employment and his service on our board of directors, he was granted 2,250,000 ZSUs. In connection with his resignation as an employee and his continued service as a member of our board of directors, Mr. Van Natta will cease to be eligible to vest in 796,875 of these ZSUs and remains eligible to continue vesting in 750,000 of these ZSUs. Mr. Van Natta is eligible for accelerated vesting of these 750,000 ZSUs as to the time-based vesting component upon a change in control while he is serving on the board or his failure to be re-nominated or re-elected to the board. As of his resignation date, Mr. Van Natta had vested in 2,109,375 shares subject to the option, and he has no further rights to vest in that option award. As part of the transition agreement, Mr. Van Natta may exercise his vested option for up to three years following his resignation date. David Wehner We entered into an amended and restated offer letter agreement with David Wehner, our Chief Financial Officer, dated November 16, 2011. The offer letter has no specific term and constitutes at-will employment. Mr. Wehners current annual base salary is $225,000. In connection with Mr. Wehners commencement of employment, he was initially granted 2,500,000 ZSUs. The offer letter provides that, in the event Mr. Wehner is terminated without cause (and other than a result of death or disability), we will continue his base salary for six months, pay the premiums for continued health benefits for up to six months and accelerate the time-based vesting on 25% of his then-unvested equity awards, subject to signing a release of claims. Mr. Wehner is also an eligible participant in our Change in Control Severance Benefit Plan. Steven Chiang We entered into an amended and restated offer letter agreement with Steven Chiang, our Executive Vice President, Games, on October 26, 2011. The offer letter has no specific term and constitutes at-will employment. Mr. Chiangs current annual base salary is $300,000, and he is entitled to a guaranteed bonus of $400,000 per year for his first two years of employment (ending on March 31, 2012). Thereafter, Mr. Chiang is eligible to earn a discretionary bonus compensation of up to 100% of his base salary. In connection with Mr. Chiangs commencement of employment, he was initially granted 3,200,000 ZSUs. The offer letter provides that, in the event 123
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Mr. Chiang is terminated without cause (and other than as a result of death or disability), we will continue his base salary for 12 months, pay any remaining guaranteed bonus, pay the premiums for continued health benefits for up to 12 months and accelerate the time-based vesting on any equity awards that would have become vested or exercisable as of the end of the six-month period immediately following termination, subject to signing a release of claims. Mr. Chiang is also an eligible participant in our Change in Control Severance Benefit Plan. Reginald D. Davis We entered into an amended and restated offer letter agreement with Reginald D. Davis, our Senior Vice President, General Counsel and Secretary, on October 26, 2011. The offer letter has no specific term and constitutes at-will employment. Mr. Daviss current annual base salary is $225,000. In connection with Mr. Daviss commencement of employment, he was initially granted an option to purchase up to 2,000,000 shares of our Class B common stock at an exercise price of $0.17065 per share. Mr. Davis is an eligible participant in our Change in Control Severance Benefit Plan and is eligible for limited accelerated vesting of his May 2009 option grant in connection with a change of control or an involuntary termination of employment within a year thereafter. Mark Vranesh We entered into an amended and restated offer letter agreement with Mark Vranesh, our Chief Accounting Officer, on October 25, 2011. The offer letter has no specific term and constitutes at-will employment. Mr. Vraneshs current annual base salary is $200,000. In connection with Mr. Vraneshs commencement of employment, he was initially granted an option to purchase up to 2,080,000 shares of our Class B common stock at an exercise price of $0.01875 per share. Mr. Vranesh is an eligible participant in our Change in Control Severance Benefit Plan and is eligible for limited accelerated vesting of his June 2009 option grant in connection with a change of control or an involuntary termination of employment within a year thereafter. Employee Benefit and Stock Plans 2011 Equity Incentive Plan Our board approved our 2011 Equity Incentive Plan, or our 2011 Plan, in October 2011 and we expect our stockholders will approve our 2011 Plan prior to the closing of this offering. We may not make grants under our 2011 Plan until the effective date of this offering. Our 2011 Plan provides for the grant of incentive stock options, or ISOs, within the meaning of Section 422 of the Code, to our employees and any of our subsidiary corporations employees, and for the grant of nonstatutory stock options, or NSOs, stock appreciation rights, restricted stock awards, restricted stock unit awards, or ZSUs, performance-based stock awards, and other forms of equity compensation to our employees, directors and consultants. Additionally, our 2011 Plan provides for the grant of performance cash awards to our employees, directors and consultants. Authorized Shares. The maximum number of shares of our Class A common stock that may be issued under our 2011 Plan is 42,500,000 shares, plus, subject to certain limitations, (i) the number of shares available under our 2007 Plan as of the effective date of this offering and (ii) any shares subject to stock options, ZSUs or other stock awards granted under our 2007 Plan that expire or otherwise terminate without having been exercised in full and shares issued or issuable pursuant to stock awards granted under our 2007 Plan that are forfeited to, tendered to pay taxes or the exercise price, or repurchased by us from and after the effective date of this offering. Additionally, the number of shares of our Class A common stock reserved for issuance under our 2011 Plan will automatically increase on January 1 of each year, beginning on January 1, 2012 and continuing through and including January 1, 2021, by 4% of the total number of shares of our capital stock outstanding on December 31 of the preceding calendar year, or such lesser number of shares as determined by our board of directors. Shares may be authorized but unissued or reacquired shares of our Class A common stock. Shares subject to stock awards granted under our 2011 Plan that expire or terminate without being exercised in full, or that are paid out in cash rather than in shares, will not reduce the number of shares available for issuance under our 2011 Plan. Additionally, shares issued pursuant to stock awards under our 2011 Plan that we repurchase or that are forfeited, 124
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as well as shares used to pay the exercise price of a stock award or to satisfy the tax withholding obligations related to a stock award, will become available for future grant under our 2011 Plan. Plan Administration. Our board of directors, or a duly authorized committee thereof, will administer our 2011 Plan. Our board of directors has delegated its authority to administer our 2011 Plan to our compensation committee under the terms of the compensation committees charter. Our board of directors may also delegate to one or more of our officers the authority to (i) designate employees (other than officers) to receive certain stock awards, and (ii) determine the number of shares of our Class A common stock to be subject to such stock awards. Our board of directors has delegated such authority to our Chief Executive Officer. Subject to the terms of our 2011 Plan, the administrator has the authority to determine the terms of awards, including recipients, the exercise price, if any, the number of shares subject to each stock award, the fair market value of a share of our Class A common stock, the vesting schedule applicable to the awards, together with any vesting acceleration, and the form of consideration, if any, payable upon exercise of the award and the terms of the award agreement for use under our 2011 Plan. Corporate Transactions. Our 2011 Plan provides that in the event of certain specified significant corporate transactions, as defined under our 2011 Plan, each outstanding award will be treated as the administrator determines. The administrator may (i) arrange for the assumption, continuation or substitution of a stock award by a successor corporation; (ii) arrange for the assignment of any reacquisition or repurchase rights held by us to a successor corporation; (iii) accelerate the vesting of the stock award and provide for its termination prior to the transaction and arrange for the lapse of any reacquisition or repurchase rights held by us; or (iv) cancel the stock award prior to the transaction in exchange for a cash payment, if any, determined by the board. The plan administrator is not obligated to treat all stock awards or portions of stock awards, even those that are of the same type, in the same manner. Change in Control. The plan administrator may provide, in an individual award agreement or in any other written agreement between a participant and us, that the stock award will be subject to additional acceleration of vesting and exercisability in the event of a change in control. In the absence of such a provision, no such acceleration of the stock award will occur. Plan Amendment or Termination. Our board of directors has the authority to amend, suspend, or terminate our 2011 Plan, provided that such action does not impair the existing rights of any participant. 2011 Employee Stock Purchase Plan Our board approved our 2011 Employee Stock Purchase Plan, or our 2011 ESPP in September 2011. We expect our stockholders will approve our 2011 ESPP prior to this offering. We may not make grants under our 2011 ESPP until the effective date of this offering. The maximum number of shares of our Class A common stock that may be issued under our 2011 ESPP is 8,500,000 shares. Additionally, the number of shares of our Class A common stock reserved for issuance under our 2011 ESPP will automatically increase on January 1 of each year, beginning on January 1, 2012 and continuing through and including January 1, 2021, by the lesser of (i) 2% of the total number of shares of our capital stock outstanding on December 31 of the preceding calendar year, (ii) 25,000,000 shares of our Class A common stock, or (iii) such lesser number of shares of Class A common stock as determined by our board of directors. Shares subject to purchase rights granted under our 2011 ESPP that terminate without having been exercised in full will not reduce the number of shares available for issuance under our 2011 ESPP. Our board of directors, or a duly authorized committee thereof, will administer our 2011 ESPP. Our board of directors has delegated its authority to administer our 2011 ESPP to our compensation committee under the terms of the compensation committees charter. 125
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Employees, including executive officers, of ours or any of our designated affiliates may have to satisfy one or more of the following service requirements before participating in our 2011 ESPP, as determined by the administrator: (i) customary employment with us or one of our affiliates for more than 20 hours per week and more than five months per calendar year, or (ii) continuous employment with us or one of our affiliates for a minimum period of time, of less than two years, prior to the first date of an offering. An employee may not be granted rights to purchase stock under our 2011 ESPP if such employee (i) immediately after the grant would own stock possessing 5% or more of the total combined voting power or value of all classes of our common stock, or (ii) holds rights to purchase stock under our 2011 ESPP that would accrue at a rate that exceeds $25,000 worth of our stock for each calendar year that the rights remain outstanding. Our 2011 ESPP is intended to qualify as an employee stock purchase plan under Section 423 of the Code. The administrator may specify offerings with a duration of not more than 27 months, and may specify one or more shorter purchase periods within each offering. Each offering will have one or more purchase dates on which shares of our Class A common stock will be purchased for the employees who are participating in the offering. The administrator, in its discretion, will determine the terms of offerings under our 2011 ESPP. Our 2011 ESPP permits participants to purchase shares of our Class A common stock through payroll deductions up to 15% of their earnings. Unless otherwise determined by the administrator, the purchase price of the shares will be 85% of the lower of the fair market value of our Class A common stock on the first day of an offering or on the date of purchase. Participants may end their participation at any time during an offering and will be paid their accrued contributions that have not yet been used to purchase shares. Participation ends automatically upon termination of employment with us. A participant may not transfer purchase rights under our 2011 ESPP other than by will, the laws of descent and distribution or as otherwise provided under our 2011 ESPP. In the event of certain specified significant corporate transactions, such as our merger or change in control, a successor corporation may assume, continue or substitute each outstanding purchase right. If the successor corporation does not assume, continue or substitute for the outstanding purchase rights, the offering in progress will be shortened and a new exercise date will be set. The participants purchase rights will be exercised on the new exercise date and such purchase rights will terminate immediately thereafter. Our board of directors has the authority to amend, suspend or terminate our 2011 ESPP, at any time and for any reason. Our 2011 ESPP will remain in effect until terminated by our board of directors in accordance with the terms of the 2011 ESPP. Executive Change in Control Severance Benefit Plan Our compensation committee approved our Change in Control Severance Benefit Plan, or our Change in Control Plan. Each of our employees at the level of vice president or above, including our executive officers, is eligible to participate in the Change in Control Plan. Upon a change in control (as defined in our 2011 Equity Incentive Plan), each then-current participant (including a participant who, within 30 days before a change in control, suffers an involuntary termination without cause or a resignation for good reason) will receive, in exchange for a release of claims, accelerated vesting of 25% of the total number of shares subject to each equity award held by such participant. Additionally, for participants who are at the level of senior vice president or above, including our executive officers, if such participant suffers an involuntary termination without cause or a resignation for good reason within 30 days before or 18 months following a change in control, he or she will receive, in exchange for a release of claims, accelerated vesting of an additional 25% of the total number of shares subject to each equity award held by such participant. These benefits are subject to a best after tax provision in the case the benefits would trigger excise tax penalties and loss of deductibility under IRS Code Sections 280G and 4999. If a participant has other accelerated vesting benefits in another agreement with the company, he or she will not receive double benefits. 126
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2007 Equity Incentive Plan, as amended Our board of directors adopted, and our stockholders approved, our 2007 Equity Incentive Plan, or our 2007 Plan, in November 2007. Our 2007 Plan was amended most recently in March 2011. There are 352,200,000 shares of our Class B common stock reserved for issuance under our 2007 Plan. Our 2007 Plan allows for the grant of ISOs to our employees and any of our subsidiary corporations employees, and for the grant of NSOs, restricted stock awards and ZSUs to our employees, officers, directors and consultants. As of September 30, 2011, 151,173,391 shares of Class B common stock have been issued upon the exercise of options or pursuant to stock awards granted under our 2007 Plan, options to purchase 109,157,667 shares of Class B common stock were outstanding at a weighted-average exercise price $0.93 per share, restricted stock units covering 99,994,695 shares of Class B common stock were outstanding at a weighted-average grant date fair value of $10.40 per share, and 4,632,918 shares remained available for future grant under our 2007 Plan. Our board of directors, or a committee thereof appointed by our board of directors, administers our 2007 Plan and the awards granted under it. Our board of directors has delegated its authority to administer our 2007 Plan to our compensation committee under the terms of the compensation committees charter. Following this offering, no further stock awards will be granted under our 2007 Plan and all outstanding stock awards will continue to be governed by their existing terms. The administrator has the authority to modify outstanding stock awards under our 2007 Plan. In the event that there is a significant corporate transaction, such as a dissolution or liquidation of our company, or a merger or a change in control, the successor corporation may assume, convert, replace or substitute equivalent stock awards for the outstanding stock awards granted under our 2007 Plan and may issue substantially similar shares or other property in place of shares of our Class B common stock outstanding under our 2007 Plan, subject to repurchase rights and provisions no less favorable to the participant than those that applied to the shares immediately prior to the transaction. If the successor elects not to assume, convert, replace or substitute stock awards in connection with a corporate transaction, the stock awards will expire upon consummation of the corporate transaction on the conditions determined by the administrator. We intend to file with the SEC a registration statement on Form S-8 covering the shares of our common stock issuable under our 2011 Plan, 2011 ESPP and 2007 Plan. 127
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CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS Other than compensation arrangements, the following is a description of transactions since January 1, 2008 to which we were a participant or will be a participant to, in which: the amounts involved exceeded or will exceed $120,000; and any of our directors, executive officers or holders of more than 5% of our capital stock, or any member of the immediate family of the foregoing persons, had or will have a direct or indirect material interest. Compensation arrangements for our directors and named executive officers are described elsewhere in this prospectus. Sales of Securities The following table summarizes purchases of shares of our preferred stock by our executive officers, directors and holders of more than 5% of our capital stock from us since January 1, 2008.
Name of Stockholder Series A Series A-1 Series B Series B-1 Series C
Reid Hoffman Entities affiliated with Kleiner Perkins Caufield & Byers (1) Institutional Venture Partners XII, L.P. Entities affiliated with Union Square Ventures(2) Foundry Venture Capital 2007, L.P.(3) Avalon Ventures VIII, LP Original Price per Share Dates of Issuance (1)
2,939,488 $ 0.0564375 January 2008
5,061,232 5,061,232 28,644,848 $ 0.125 February 2008
24,706,768 27,557,536 2,375,664 2,375,664 2,375,664 $ 0.4209375 July 2008
210,700 $ 4.746075 November 2009
1,782,010 $ 14.029115 February 2011
Shares are held for convenience in the name of KPCB Holdings, Inc. as nominee. Includes (i) the purchase of 23,041,432 shares of Series B preferred stock by KPCB XIII, LLC and the purchase of 1,665,236 shares of Series B preferred stock by individuals and entities, each of whom exercise their own voting and dispositive control over such shares, in July 2008 and (ii) the purchase of 1,678,119 shares of Series C preferred stock by KPCB Digital Growth Fund and the purchase of 103,891 shares of Series C preferred stock by KPCB Digital Growth Founders Fund in February 2011. William Bing Gordon, a partner at Kleiner Perkins Caufield & Byers, is a member of our board of directors. Affiliates of Union Square Ventures holding our securities whose shares are aggregated for purposes of reporting share ownership information include Union Square Ventures 2004, L.P. and Union Square Principals 2004, LLC. Brad Feld, a managing director at Foundry Group, was a member of our board of directors from November 2007 to November 2011.
(2) (3)
Issuance of Common Stock Warrants In July 2008, we issued a warrant to purchase 18,160,000 shares of our Class B common stock at an exercise price of $0.00625 per share to KPCB Holdings, Inc., an affiliate of Kleiner Perkins Caufield & Byers. The allocation of shares under the warrant is 16,936,016 shares to KPCB XIII, LLC and 1,223,984 shares beneficially owned by individuals and entities affiliated with KPCB XIII, LLC and held for convenience in the name of KPCB Holdings, Inc. as nominee, for the accounts of such individuals and entities each of whom exercise their own voting and dispositive control over such shares. In December 2010, our board of directors approved the issuance of a warrant to purchase 1,000,000 shares of our Class B common stock at an exercise price of $0.05 per share to KPCB LLC, in connection with consulting services to be provided by representatives 128
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of KPCB Holdings, Inc. The warrant was issued and exercised and the shares transferred to KPCB XIII, LLC in June 2011. Mr. Gordon has a pecuniary interest in the shares of Class B common stock held by KPCB XIII, LLC. In July 2009, we issued a warrant to purchase 694,848 shares of our Class B common stock at an exercise price of $0.50375 per share to Allen & Company LLC, one of the underwriters in this offering. David M. Wehner, formerly a managing director at Allen & Company LLC, is our Chief Financial Officer, and has a pecuniary interest in the warrant equal to 15% of the value of the warrant. Repurchases of Securities The following table summarizes shares of our capital stock we repurchased from our current and former executive officers and holders of more than 5% of our capital stock since January 1, 2008.
Shares Repurchased Total Purchase Price Date of Repurchase
Executive Officers: Mark Pincus Michael Verdu Cadir Lee 5% Stockholders: Entities affiliated with Kleiner Perkins Caufield & Byers Institutional Venture Partners XII, L.P. Entities Affiliated with Union Square Ventures (1) Foundry Venture Capital 2007, L.P.(2) Avalon Ventures VIII, LP (1) (2)
7,840,836 Class B Common 466,094 Class B Common 466,094 Class B Common 427,682 Class B Common 210,700 Series B-1 Preferred 1,395,784 Class B Common 4,000,000 Series A Preferred 1,438,602 Series A Preferred 1,617,434 Series A Preferred 1,496,886 Series A-1 Preferred
$ 109,458,070 2,999,997 2,999,997 5,970,440 2,941,372 19,485,145 25,745,860 20,082,883 22,579,378 20,896,528
March 2011 January 2011 January 2011 March 2011 March 2011 March 2011 January 2011 March 2011 March 2011 March 2011
Affiliates of Union Square Ventures holding our securities whose shares are aggregated for purposes of reporting share ownership information include Union Square Ventures 2004, L.P. and Union Square Principals 2004, LLC. Brad Feld, a managing director at Foundry Group, was a member of our board of directors from November 2007 to November 2011.
Sales of Securities by our Executive Officers and Employees From our inception in October 2007 to date, Mr. Pincus, our Chief Executive Officer, Chief Product Officer and the Chairman of our Board of Directors, has purchased an aggregate of 149,197,328 shares of our common stock. To date, Mr. Pincus has sold an aggregate of 43,629,310 shares of our common stock at prices ranging from $0.42 to $13.96. In addition to sales by Mr. Pincus, our other current and former executive officers and employees have sold an aggregate of 51,192,501 shares of our capital stock at prices ranging from $0.25 to $17.09 per share, including, 6,717,161 shares we repurchased from our other executive officers and employees. These sales include two tender offers in 2010 by third parties in which 383 employees were eligible to participate and 298 employees decided to participate and sell shares. Investors Rights Agreement On February 18, 2011, we entered into a Fifth Amended and Restated Investors Rights Agreement with Mr. Pincus and the holders of our outstanding preferred stock, including entities with which certain of our directors are affiliated. As of September 30, 2011, the holders of 363,241,145 shares of our common stock, including the common stock issuable upon the conversion of our preferred stock, are entitled to rights with respect to the registration of their shares following this offering under the Securities Act. For a more detailed description of these registration rights, see the section titled Description of Capital StockRegistration Rights. 129
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Voting Agreement We are party to a voting agreement under which holders of our preferred stock, including entities with which certain of our directors are affiliated, have agreed to vote in a certain way on certain matters, including with respect to the election of directors. Pursuant to the voting agreement, the holders of a majority of our Class B common stock, voting as a separate class, have designated Reid Hoffman for election to our board of directors. Mark Pincus, the sole holder of our Class C common stock, has designated Owen Van Natta, John Schappert and himself for election to our board of directors. KPCB Holdings, Inc., the holder of a significant portion of our Series B preferred stock, has designated William Bing Gordon for election to our board of directors. Upon the closing of this offering, the board election voting provisions contained in the voting agreement will terminate and none of our stockholders will have any special rights regarding the election or designation of members of our board of directors. Offer Letter Agreements We have entered into offer letter agreements with our executive officers. For more information regarding these agreements, see the section titled Executive CompensationCompensation Discussion and AnalysisOffer Letter Agreements. Loan to Officer In April 2010, we loaned $800,000 to Michael Verdu, as an employee retention incentive, pursuant to a promissory note, dated April 16, 2010, as amended and restated on December 20, 2010. This promissory note bears interest at the rate of 3.61% per annum, and the note has a maturity date of April 15, 2014. As of December 31, 2010, the aggregate outstanding principal amount of the loan was $800,000, which was the largest aggregate amount of principal outstanding during the term of the loan. The principal amount of the loan (plus interest) is scheduled to be forgiven in four equal installments of $200,000 over four years beginning in April 2011, so long as Mr. Verdu continues to provide services through such forgiveness date. In April 2011, we forgave $200,000 in principal and $7,220 in interest. No payments of principal or interest have been made to date. As of August 31, 2011, the principal amount outstanding on this promissory note was $600,000. Michael Verdu was previously our Co-President of Games and served as an executive officer during the year ended December 31, 2010 and until the hiring of Mr. Schappert in May 2011. At such time, Mr. Verdu ceased to be an executive officer but remains a member of our management team. In June 2011, Mr. Verdu was appointed our Chief Creative Officer and reports to Mr. Schappert in such role. Other Transactions We have granted stock options and ZSUs to our executive officers and certain of our directors. For a description of these options, see the section titled Executive CompensationGrants of Plan-Based Awards Table and ManagementNon-Employee Director Compensation. We have entered into change of control arrangements with certain of our executive officers that, among other things, provide for certain severance and change of control benefits. For a description of these agreements, see the section titled Executive CompensationChange of Control Arrangements. In October 2010, we made a capital subscription in the amount of $500,000 to KPCB sFund, LLC, a Delaware limited liability company, whose focus is on venture-backed investments in social networking companies. Certain of our executive officers also made capital subscriptions to KPCB funds, including funds holding our shares of common stock. The managing member of KPCB sFund, LLC is KPCB sFund Associates, LLC, an affiliate of Kleiner Perkins Caufield & Byers. William Bing Gordon, a partner of Kleiner Perkins Caufield & Byers, is a member of our board of directors. 130
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We entered into a Consulting Services Agreement with Luminor Group LLC dated April 12, 2010, pursuant to which we paid a total of $100,000 for certain business strategy consulting services. Owen Van Natta, a general partner of Luminor Group LLC, is a member of our board of directors and former Chief Business Officer. In connection with the consulting services, we also issued 233,376 ZSUs to Mr. Van Natta. We have entered into a Consulting Services Agreement, dated May 10, 2010, with Laura Pincus Hartman, the sister of Mark Pincus, our Chief Executive Officer, Chief Product Officer and Chairman, whereby we have agreed to pay $5,000 per month to Professor Hartman for consulting services provided to Zynga.org. Prof. Hartman is the Vincent de Paul Professor of Business Ethics at DePaul University (Chicago) and Special Assistant to its President for Haiti Initiatives. Her leadership role with Zynga.org has included the identification and facilitation of our relationships with external Zynga.org partners, due diligence and audit efforts with regard to our social contributions, as well as the coordination of Zynga.org launches and ongoing campaigns, in collaboration with our game studios and our public relations department. Prof. Hartman has also worked with us in furthering the development of the strategy and mission of Zynga.org and in engaging in the ongoing search for a new director. With her assistance, Zynga.org has generated more than $10 million from player contributions, both through in-game and across-platform promotions, through more than two dozen campaigns serving both global and domestic recipient organizations. We lease office space owned by Mark Pincus, our Chief Executive Officer, Chief Product Officer and Chairman. We paid Mr. Pincus approximately $500,000 and approximately $400,000 during 2009 and 2010, respectively, in connection with this lease. The current rent under the lease is $28,000 per month. Additionally, we reimbursed Mr. Pincus for aggregate fees of approximately $25,000 and approximately $120,000 in 2009 and 2010, respectively, in connection with an aircraft owned by Mr. Pincus that was used for business travel. We have entered into indemnification agreements with each of our directors and executive officers. These indemnification agreements and our amended and restated certificate of incorporation and bylaws provide for indemnification of each of our directors and executive officers to the fullest extent permitted by Delaware law. See Executive CompensationLimitation of Liability and Indemnification. Other than as described above under this section Certain Relationships and Related Person Transactions, since January 1, 2008, 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 arms length dealings with unrelated third parties. We have adopted a policy regarding related person transactions between us and our executive officers, directors, nominees for election as a director, beneficial owners of more than 5% of any class of our common stock and any members of the immediate family of any of the foregoing persons. Any request for us to enter into a transaction with an executive officer, director, nominee for election as a director, beneficial owner of more than 5% of any class of our common stock or any member of the immediate family of any of the foregoing persons, in which the amount involved exceeds $100,000 and such person would have a direct or indirect interest must first be presented to our audit committee for review, consideration and approval, to the extent required by SEC regulations. 131
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PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth, as of October 31, 2011, information regarding beneficial ownership of our capital stock by: each person, or group of affiliated persons, known by us to beneficially own more than 5% of our Class A common stock, Class B common stock or Class C common stock; each of our named executive officers; each of our directors; all of our current executive officers and directors as a group; and each of the selling stockholders. Beneficial ownership is determined according to the rules of the SEC and generally means that a person has beneficial ownership of a security if he, she or it possesses sole or shared voting or investment power of that security, including options that are currently exercisable or exercisable within 60 days of October 31, 2011. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons named in the table below have sole voting and investment power with respect to all shares of Class A common stock, Class B common stock and Class C common stock shown that they beneficially own, subject to community property laws where applicable. Unless otherwise indicated, based on the information supplied to us by or on behalf of the selling stockholders, no selling stockholder is a broker-dealer or an affiliate of a broker-dealer. Our calculation of the percentage of beneficial ownership prior to this offering is based on no shares of our Class A common stock, 565,044,530 shares of our Class B common stock (including preferred stock on an as converted basis) and 20,517,472 shares of our Class C common stock outstanding as of October 31, 2011. We have based our calculation of the percentage of beneficial ownership after this offering on shares of our Class A common stock, 565,044,530 shares of our Class B common stock and 20,517,472 shares of our Class C common stock outstanding immediately after the closing of this offering (assuming no exercise of the underwriters over-allotment option, the issuance of shares of Class B common stock upon the vesting of ZSUs in connection with this offering and the sale of shares of our Class A common stock by the selling stockholders). Common stock subject to stock options currently exercisable or exercisable within 60 days of October 31, 2011, are deemed to be outstanding for computing the percentage ownership of the person holding these options and the percentage ownership of any group of which the holder is a member but are not deemed outstanding for computing the percentage of any other person. 132
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Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o Zynga Inc., 699 Eighth Street, San Francisco, CA 94103.
Shares Beneficially Owned Prior to this Offering (1) Class B Class C Name of Beneficial Owner 5% Stockholders: Mark Pincus and related entities (2) KPCB Holdings, Inc., as Nominee (3) Institutional Venture Partners XII, L.P.(4) Entities affiliated with Union Square Ventures(5) Foundry Venture Capital 2007, L.P.(6) Avalon Ventures VIII, LP(7) Named Executive Officers and Directors: Mark Pincus (2) David M. Wehner(8) Mark Vranesh(9) Steven Chiang (10) Reginald D. Davis (11) William Bing Gordon (12) Reid Hoffman(13) Jeffrey Katzenberg(14) Stanley J. Meresman (15) Sunil Paul(16) John Schappert Owen Van Natta(17) All executive officers and directors as a group (13 persons) (18) : Certain Other Selling Stockholders: * (1) (2) Represents beneficial ownership of less than one percent (1%) of the applicable class of outstanding common stock. There are currently no shares of Class A common stock outstanding. Consists of (i) 20,517,472 shares of Class C common stock; (ii) 53,652,912 shares of founders stock, of which 0 will be subject to repurchase by us at the original issue price within 60 days of October 31, 2011; (iii) 7,200,000 shares of Class B common stock issuable pursuant to stock options exercisable within 60 days of October 31, 2011, 2,450,000 shares of which will be unvested; (iv) 2,767,300 held by or jointly with Alison Pincus; and (v) 27,765,634 shares of Class B common stock held by Ogden Enterprises LLC for which Mark Pincus holds shared voting and dispositive power. Includes 18,160,000 shares of Class B common stock issuable upon exercise of outstanding warrants to purchase shares of Class B common stock within 60 days of September 30, 2011, consisting of (i) a warrant to purchase 16,936,016 shares of Total Voting % 38.1 8.3 4.5 4.0 4.5 4.5 Number of Shares Being Offered Shares Beneficially Owned After this Offering Class A Class B Class C Total Voting %
Shares 91,385,846 65,159,896 34,326,072 30,738,892 34,560,060 34,680,608
% 16.0 11.2 6.1 5.4 6.1 6.1
Shares 20,517,472
% 100.0
Shares
Shares
Shares
91,385,846 507,813 2,222,858 910,000 1,538,229 62,241,020 4,028,193 388,410 70,000 2,718,075 173,821,734
16.0 * * * * 10.7 * * * * 28.7%
20,517,472 20,517,472
100.0 100.0
38.1 * * * * 7.9 * * * * 48.7
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Table of Contents Class B common stock held by KPCB XIII, LLC and (ii) warrants to purchase 1,223,984 shares of Class B common stock beneficially owned by individuals and entities affiliated with KPCB XIII, LLC and held for convenience in the name of KPCB Holdings, Inc. as nominee, for the accounts of such individuals and entities, each of whom exercise their own voting and dispositive control over such shares. Additionally, the outstanding shares include (i) 41,387,892 shares held by Kleiner Perkins Caufield & Byers XIII, LLC; (ii) 1,678,119 shares held by KPCB Digital Growth Fund, LLC; (iii) 103,891 shares held by KPCB Digital Growth Founders Fund, LLC; (iv) 911,118 shares held directly by Mr. Gordon; and (v) 2,918,876 shares in the aggregate beneficially owned by individuals and entities affiliated with Kleiner, Perkins Caufield Byers XIII, LLC and held for convenience in the name of KPCB, Holdings Inc. as nominee, for the accounts of such individuals and entities each of whom exercise their own voting and dispositive control over such shares. The managing member of Kleiner Perkins Caufield & Byers XIII, LLC is KPCB XIII Associates, LLC. The managing member for KPCB Digital Growth Fund, LLC and KPCB Digital Growth Founders Fund, LLC is KPCB DGF Associates, LLC. Brook Byers, L. John Doerr, Raymond Lane, Theodore Schlein, William Joy and Mr. Gordon, the managing directors of KPCB DGF Associates, LLC, exercise shared voting and dispositive control over the shares directly held by KPCB Digital Growth Fund, LLC. Brook H. Byers, L. John Doerr, Joseph Lacob, Raymond J. Lane and Theodore E. Schlein, the managing directors of KPCB XIII Associates, LLC, and Mr. Gordon, a member of KPCB XIII Associates, LLC, exercise shared voting and dispositive control over the shares directly held by KPCB XIII LLC. Mr. Gordon, a member of our board of directors, is a member of KPCB XIII Associates and KPCB DGF Associates and may be deemed to share voting and dispositive power with respect to shares held by KPCB XIII, LLC, KPCB Digital Growth Fund, LLC, and KPCB Digital Growth Founders Fund, LLC. The address for KPCB Holdings, Inc., as Nominee, is 2750 Sand Hill Road, Menlo Park, CA 94025. (4) Institutional Venture Management XII, LLC (IVM XII) serves as the sole General Partner of Institutional Venture Partners XII, L.P. (IVP XII), and has sole voting and investment control over the respective shares owned by IVP XII, and may be deemed to own beneficially the shares held by IVP XII. Todd C. Chaffee, Norman A. Fogelsong, Stephen J. Harrick, J. Sanford Miller and Dennis B. Phelps are Managing Directors of IVM XII and share voting and dispositive power over the shares held by IVP XII. The address for Institutional Venture Partners XII, L.P. is c/o Institutional Venture Partners, 3000 Sand Hill Road, Bldg. 2, Suite 250, Menlo Park, CA 94025. Consists of (i) 30,138,528 shares held of record by Union Square Ventures 2004, LP and (ii) 600,364 shares held of record by Union Square Principals 2004, LLC. Union Square GP 2004, LLC serves as the General Partner of Union Square Ventures 2004, LP and Union Square Principals 2004, LLC, and has sole voting and investment control over the respective shares, and may be deemed to own beneficially the shares. Brad Burnham, Fred Wilson, Albert Wenger and John Buttrick are Partners at Union Square Ventures and share voting and dispositive power over the shares held by Union Square Ventures 2004, LP and Union Square Principals 2004, LLC. The address for Union Square Ventures 2004, LP is c/o Union Square Ventures, 915 Broadway 19th Floor, New York, NY 10010. Seth Levine, Ryan McIntyre, Jason Mendelson and Brad Feld, a former member of our board of directors, are Managing Members of Foundry Group, an affiliate of Foundry Venture Capital 2007, L.P., and share voting and dispositive power over the shares. The address for Foundry Venture Capital 2007, L.P. is c/o Foundry Group, 1050 Walnut St # 210, Boulder, CO 80302. Mr. Feld was a member of our board of directors from November 2007 through November 2011. Kevin Kinsella, Stephen Tomlin, Richard Levandov, Brady Bohrmann, Doug Downs and Jay Lichter are Managing Directors of Avalon Ventures VIII, LP. and share voting and dispositive power over the shares held by it. The address for Avalon Ventures VIII, LP is c/o Avalon Ventures, 1134 Kline Street, La Jolla, CA. 92037. Mr. Wehner holds 3,000,000 ZSUs, of which 781,250 are subject to vesting conditions expected to occur within 60 days of October 31, 2011 and 2,218,750 are subject to vesting conditions not expected to occur within 60 days of October 31, 2011. The table above reflects 507,813 shares of Class B common stock, which represents the total number of vested ZSUs we expect to be converted into Class B common stock upon the effectiveness of the offering on a net basis after covering associated tax withholding requirements, assuming a 35% tax rate. Consists of (i) 1,694,108 shares of our Class B common stock, and (ii) 480,000 shares issuable pursuant to stock options exercisable within 60 days of October 31, 2011, 160,000 shares of which will be unvested as of the date 60 days after October 31, 2011. 256,667 shares of our Class B common stock will be subject to a right of repurchase held by the company as of the date 60 days after October 31, 2011. Mr. Vranesh also holds 200,000 ZSUs, of which 75,000 are subject to vesting conditions expected to occur within 60 days of October 31, 2011 and 125,000 are subject to vesting conditions not expected to occur within 60 days of October 31, 2011. The table above reflects 48,750 shares of Class B common stock, which represents the total number of vested ZSUs we expect to be converted into Class B common stock upon the effectiveness of the offering on a net basis upon the effectiveness of the offering after covering associated tax withholding requirements, assuming a 35% tax rate. Mr. Chiang holds 4,000,000 ZSUs, of which 1,400,000 are subject to vesting conditions expected to occur within 60 days of October 31, 2011 and 2,600,000 are subject to vesting conditions not expected to occur within 60 days of October 31, 2011. The table above reflects 910,000 shares of Class B common stock, which represents the total number of vested ZSUs we expect to be converted into Class B common stock upon the effectiveness of the offering on a net basis after covering associated tax withholding requirements, assuming a 35% tax rate. Includes 1,378,436 shares issuable pursuant to stock options exercisable within 60 days of October 31, 2011, 708,334 shares of which will be unvested as of the date 60 days after October 31, 2011. Mr. Davis also holds 840,000 ZSUs, of which
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Table of Contents 245,835 are subject to vesting conditions expected to occur within 60 days of October 31, 2011 and 594,165 are subject to vesting conditions not expected to occur within 60 days of October 31, 2011. The table above reflects 159,793 shares of Class B common stock, which represents the total number of vested ZSUs we expect to be converted into Class B common stock upon the effectiveness of the offering on a net basis after covering associated tax withholding requirements, assuming a 35% tax rate. (12) Consists of shares listed in footnote (3) above, including 41,387,892 shares held by Kleiner Perkins Caulfield & Byers XIII, LLC; 1,678,119 shares held by KPCB Digital Growth Fund, LLC; 103,891 shares held by KPCB Digital Growth Founders Fund, LLC, and 911,118 shares held directly by William Bing Gordon. However, the shares do not include 2,918,876 shares in the aggregate beneficially owned by individuals and entities affiliated with Kleiner Perkins Caufield & Byers XIII, LLC and held for convenience in the name of KPCB Holdings, Inc. as nominee, for the accounts of such individuals and entities each of whom exercise their own voting and dispositive control over such shares. The managing member of Kleiner Perkins Caufield & Byers XIII, LLC is KPCB XIII Associates, LLC. The managing member for KPCB Digital Growth Fund, LLC and KPCB Digital Growth Founders Fund, LLC is KPCB DGF Associates, LLC. The voting and dispositive control over these shares is shared by individual managing directors of KPCB XIII Associates, LLC and KPCB DGF Associates, LLC, respectively none of whom has veto power. William Bing Gordon, a member of our board of directors, is a member of KPCB XIII Associates, LLC and KPCB DGF Associates, LLC and may be deemed to share voting and dispositive control of these shares. Mr. Gordon disclaims beneficial ownership of the shares, except to the extent of his pecuniary interest therein. Mr. Hoffman holds 1,474,432 ZSUs, of which 1,412,998 are subject to vesting conditions expected to occur within 60 days of October 31, 2011 and 61,434 are subject to vesting conditions not expected to occur within 60 days of October 31, 2011. The table above reflects 918,449 shares of Class B common stock, which represents the total number of vested ZSUs we expect to be converted into Class B common stock upon the effectiveness of the offering on a net basis after covering associated tax withholding requirements, assuming a 35% tax rate. Consists of 388,410 shares held by TLA Investments LLC. Jeffrey Katzenberg, one of our directors, is the President of M&JK Dream Corp., which is the manager of TLA Investments LLC and has indirect voting and dispositive power over the shares. The address for TLA Investments LLC is 11400 W. Olympic Boulevard, #550, Los Angeles, CA 90064. All of these shares of Class B common stock are subject to repurchase within 60 days of October 31, 2011. Mr. Paul joined our board of directors in November 2011. Consists of 2,109,375 shares of our Class B common stock issuable pursuant to stock options exercisable within 60 days of October 31, 2011 and 1,686,461 ZSUs, of which 936,461 are subject to vesting conditions expected to occur within 60 days of October 31, 2011 and 750,000 are subject to vesting conditions not expected to occur within 60 days of October 31, 2011. The table above reflects 608,700 shares of Class B common stock, which represents the total number of vested ZSUs we expect to be converted into Class B common stock upon the effectiveness of the offering on a net basis after covering associated tax withholding requirements, assuming a 35% tax rate. In addition to the individuals listed above, includes 7,807,010 shares of Class B common stock beneficially owned by Cadir Lee, including (i) 80,000 outstanding shares of Class B common stock; (ii) 7,727,010 shares issuable pursuant to outstanding stock options exercisable within 60 days of October 31, 2011, 2,223,335 shares of which will be unvested and (iii) 7,185 ZSUs, of which 6,587 are subject to vesting conditions expected to occur within 60 days of October 31, 2011 and 598 are subject to vesting conditions not expected to occur within 60 days of October 31, 2011. The table above reflects 4,282 shares of Class B common stock, which represents the total number of vested ZSUs we expect to be converted into Class B common stock upon the effectiveness of the offering on a net basis after covering associated tax withholding requirements, assuming a 35% tax rate.
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DESCRIPTION OF CAPITAL STOCK General The following description of our capital stock and certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws are summaries and are qualified by reference to the amended and restated certificate of incorporation and the amended and restated bylaws that will be in effect upon the closing of this offering. Copies of these documents will be filed with the SEC as exhibits to our registration statement, of which this prospectus forms a part. The descriptions of the common stock and preferred stock reflect changes to our capital structure that will be in effect upon the closing of this offering. Upon the closing of this offering, our amended and restated certificate of incorporation will provide for three classes of common stock: Class A common stock, Class B common stock and Class C common stock. In addition, our amended and restated certificate of incorporation will authorize shares of undesignated preferred stock, the rights, preferences and privileges of which may be designated from time to time by our board of directors. Upon the closing of this offering, our authorized capital stock will consist of 2,022,517,472 shares, all with a par value of $0.00000625 per share, of which: 1,100,000,000 shares are designated Class A common stock; 900,000,000 shares are designated Class B common stock; 20,517,472 shares are designated Class C common stock; and 2,000,000 shares are designated preferred stock. As of September 30, 2011, we had outstanding 564,931,115 shares of Class B common stock, which assumes the conversion of 304,887,421 outstanding shares of preferred stock into shares of Class B common stock immediately prior to the closing of this offering. As of September 30, 2011, we had outstanding 20,517,472 shares of Class C common stock. Our outstanding capital stock was held by approximately 200 stockholders of record as of September 30, 2011. As of September 30, 2011 we had outstanding warrants to purchase 18,854,848 shares of Class B common stock and having a weighted-average exercise price of $0.0246 per share. As of September 30, 2011, we also had outstanding options to acquire 109,157,667 shares of Class B common stock held by employees, directors and consultants pursuant to our 2007 Equity Incentive Plan, having a weighted-average exercise price of $0.93 per share. Class A Common Stock, Class B Common Stock and Class C Common Stock Voting Rights Holders of our Class A common stock, Class B common stock and Class C common stock have identical voting rights, provided that, except as otherwise expressly provided in our amended and restated certificate of incorporation or required by applicable law, on any matter that is submitted to a vote of our stockholders, holders of Class A common stock are entitled to one vote per share, holders of Class B common stock are entitled to seven votes per share and holders of Class C common stock are entitled to 70 votes per share. Holders of shares of Class A common stock, Class B common stock and Class C common stock will vote together as a single class on all matters (including the election of directors) submitted to a vote of stockholders. In addition, our Class B common stock and Class C common stock will vote together as a separate class in the following circumstances: if we propose to alter or change the powers, preferences or other special rights (including voting) of the Class B common stock or Class C common stock; if we propose to reclassify any outstanding shares of our capital stock into shares having rights, preferences or privileges as to dividend rights, liquidation preferences or voting preferences senior to or on parity with the Class B common stock or Class C common stock; 136
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if we propose to affect a transaction pursuant to which the Class B common stock or Class C common stock is not treated equally on a per share basis with respect to any consideration; or if we propose to increase or decrease the total number of authorized shares of Class B common stock or Class C common stock other than in connection with a redemption or a proportionate subdivision or combination of all shares of common stock and preferred stock. We have not provided for cumulative voting for the election of directors in our amended and restated certificate of incorporation. Economic Rights Except as otherwise expressly provided in our amended and restated certificate of incorporation or required by applicable law, all shares of Class A common stock, Class B common stock and Class C common stock will have the same rights and privileges and rank equally, share ratably and be identical in all respects as to all matters, including, without limitation those described below. Dividends and Distributions. Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of Class A common stock, Class B common stock and Class C common stock will be entitled to share equally, identically and ratably, on a per share basis, with respect to any dividend or distribution of cash or property paid or distributed by the Company, unless different treatment of the shares of the affected class is approved by the affirmative vote of the holders of a majority of the outstanding shares of such affected class, voting separately as a class. Liquidation Rights. Upon our liquidation, dissolution or winding-up, the holders of Class A common stock, Class B common stock and Class C common stock will be entitled to share equally, identically and ratably in all assets remaining after the payment of any liabilities and the liquidation preferences and any accrued or declared but unpaid dividends, if any, with respect to any outstanding preferred stock, unless different treatment of the shares of the affected class is approved by the affirmative vote of the holders of a majority of the outstanding shares of such affected class, voting separately as a class. Change of Control Transactions. Upon (a) the closing of the sale, transfer or other disposition of all or substantially all of our assets, (b) the consummation of a merger, reorganization, consolidation or share transfer which results in our voting securities outstanding immediately prior to the transaction (or the voting securities issued with respect to our voting securities outstanding immediately prior to the transaction) representing less than a majority of the combined voting power of the voting securities of the company or the surviving or acquiring entity, or (c) the closing of the transfer (whether by merger, consolidation or otherwise), in one transaction or a series of related transactions, to a person or group of affiliated persons of securities of the company if, after closing, the transferee person or group would hold 50% or more of the outstanding voting power of the company (or the surviving or acquiring entity), the holders of Class A common stock, Class B common stock and Class C common stock will be treated equally and identically with respect to shares of Class A common Stock, Class B common stock or Class C common stock owned by them, unless different treatment of the shares of each class is approved by the affirmative vote of the holders of a majority of the outstanding shares of the class treated differently, voting separately as a class. Subdivisions and Combinations. If we subdivide or combine in any manner outstanding shares of Class A common stock, Class B common stock or Class C common stock, the outstanding shares of the other classes need not be subdivided or combined in the same manner. Conversion Each share of Class B common stock and Class C common stock is convertible at any time at the option of the holder into one share of Class A common stock. In addition, after the closing of this offering, upon any transfer of shares of either Class B common stock or Class C common stock, whether or not for value, each such 137
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transferred share shall automatically convert into one share of Class A common stock, except for certain transfers described in our amended and restated certificate of incorporation, including, without limitation, transfers for tax and estate planning purposes, so long as the transferring holder continues to hold sole voting and dispositive power with respect to the shares transferred. Our Class B common stock and Class C common stock will convert automatically into Class A common stock on the date on which the number of outstanding shares of Class B common stock and Class C common stock together represent less than 10% of the aggregate combined voting power of our capital stock. Once transferred and converted into Class A common stock, the Class B common stock and the Class C common stock may not be reissued. Preferred Stock As of September 30, 2011, there were 304,887,421 shares of our preferred stock outstanding. Immediately prior to the closing of this offering, each outstanding share of our preferred stock will convert into one share of our Class B common stock. Upon the closing of this offering, our board of directors may, without further action by our stockholders, fix the rights, preferences, privileges and restrictions of up to an aggregate of 2,000,000 shares of preferred stock in one or more series and authorize their issuance. These rights, preferences and privileges could include dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences and the number of shares constituting any series or the designation of such series, any or all of which may be greater than the rights of our Class A common stock, Class B common stock or Class C common stock. Any issuance of our preferred stock could adversely affect the voting power of holders of our Class A common stock, Class B common stock or Class C common stock and the likelihood that such holders would receive dividend payments and payments upon liquidation. In addition, the issuance of preferred stock could have the effect of delaying, deferring or preventing a change of control or other corporate action. Upon the closing of this offering, no shares of preferred stock will be outstanding, and we have no present plan to issue any shares of preferred stock. Registration Rights Stockholder Registration Rights We are party to an investors rights agreement which provides that holders of our preferred stock, including certain holders of 5% of our capital stock and entities affiliated with certain of our directors, have certain registration rights, as set forth below. This investors rights agreement was entered into in November 2007 and has been amended and restated from time to time in connection with our preferred stock financings. The registration of shares of our common stock pursuant to the exercise of registration rights described below would enable the holders to sell these shares without restriction under the Securities Act when the applicable registration statement was declared effective. We will pay the registration expenses, other than underwriting discounts and commissions, of the shares registered pursuant to the demand, piggyback and Form S-3 registrations described below. Generally, 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. The demand, piggyback and Form S-3 registration rights described below will expire two years after the effective date of the registration statement, of which this prospectus is a part, or with respect to any particular stockholder, the earlier of (a) 18 months after the effective date of the registration statement and (b) such time that, in the opinion of counsel, that stockholder can sell all of its shares under Rule 144 of the Securities Act during any three-month period. 138
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Demand Registration Rights The holders of an aggregate of 363,241,145 shares of our Class B common stock (including shares issuable upon conversion of outstanding preferred stock) and without giving effect to the sale of shares in this offering by the selling stockholders, will be entitled to certain demand registration rights. At any time beginning 180 days after the closing of this offering, the holders of at least 50% of these shares may, on not more than one occasion, request that we register all or a portion of their shares. Such request for registration must cover 25% of such shares then outstanding. Piggyback Registration Rights In connection with this offering, the holders of an aggregate of 363,241,145 shares of our Class B common stock (including shares issuable upon conversion of outstanding preferred stock), were entitled to, and the necessary percentage of holders waived, their rights to notice of this offering and to include their shares of registrable securities in this offering. In the event that we propose to register any of our securities under the Securities Act, either for our own account or for the account of other security holders, the holders of these shares will be entitled to certain piggyback registration rights allowing the holder to include their shares in such registration, subject to certain marketing and other limitations. As a result, whenever we propose to file a registration statement under the Securities Act, other than with respect to a demand registration or a registration statement on Forms S-4 or S-8, the holders of these shares are entitled to notice of the registration and have the right, subject to limitations that the underwriters may impose on the number of shares included in the offering, to include their shares in the registration. Form S-3 Registration Rights The holders of an aggregate of 363,241,145 shares of Class B common stock (including shares issuable upon conversion of our outstanding preferred stock), and without giving effect to the sale of shares in this offering by the selling stockholders, will be entitled to certain Form S-3 registration rights. The holders of these shares can make a request that we register their shares on Form S-3 if we are qualified to file a registration statement on Form S-3 and if the reasonably anticipated aggregate gross proceeds of the shares offered would equal or exceed $6,000,000. We will not be required to effect more than one registration on Form S-3 within any 12-month period. Anti-Takeover Provisions Certificate of Incorporation and Bylaws to be in Effect Upon the Closing of this Offering Because our stockholders do not have cumulative voting rights, stockholders holding a majority of the voting power of our shares of common stock will be able to elect all of our directors. Our amended and restated certificate of incorporation and amended and restated bylaws to be effective upon the closing of this offering will provide that all stockholder actions must be effected at a duly called meeting of stockholders. A special meeting of stockholders may be called by holders of a majority of our Class A common stock, Class B common stock and Class C common stock, voting together as a single class, or by the majority of our whole board of directors, chair of the board of directors or by our chief executive officer. Our amended and restated bylaws will establish an advance notice procedure for stockholder approvals to be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to our board of directors. As described above in Class A Common Stock, Class B Common Stock and Class C Common StockVoting Rights, our amended and restated certificate of incorporation will further provide for a three-class common stock structure, which provides Mr. Pincus, our Chief Executive Officer and other stockholders who held our stock prior to this offering, including our other executive officers, directors and affiliates, with significant influence over all matters requiring stockholder approval, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets. 139
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The foregoing provisions will make it more difficult for our existing stockholders to replace our board of directors as well as for another party to obtain control of us by replacing our board of directors. Since our board of directors has the power to retain and discharge our officers, these provisions could also make it more difficult for existing stockholders or another party to effect a change in management. In addition, the authorization of undesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change our control. These provisions, including the three-class structure of our common stock, are intended to enhance the likelihood of continued stability in the composition of our board of directors and its policies and to discourage certain types of transactions that may involve an actual or threatened acquisition of us. These provisions are also designed to reduce our vulnerability to an unsolicited acquisition proposal and to discourage certain tactics that may be used in proxy fights. However, such provisions could have the effect of discouraging others from making tender offers for our shares and may have the effect of deterring hostile takeovers or delaying changes in our control or management. As a consequence, these provisions also may inhibit fluctuations in the market price of our stock that could result from actual or rumored takeover attempts. Section 203 of the Delaware General Corporation Law We are subject to Section 203 of the Delaware General Corporation Law, which prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years after the date that such stockholder became an interested stockholder, with the following exceptions: before such date, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; upon closing of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction began, excluding for purposes of determining the voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder) those shares owned (i) by persons who are directors and also officers and (ii) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or on or after such date, the business combination is approved by the board of directors and authorized at an annual or special meeting of the stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock that is not owned by the interested stockholder. In general, Section 203 defines business combination to include the following: any merger or consolidation involving the corporation and the interested stockholder; any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder; subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation. In general, Section 203 defines an interested stockholder as an entity or person who, together with the persons affiliates and associates, beneficially owns, or within three years prior to the time of determination of interested stockholder status did own, 15% or more of the outstanding voting stock of the corporation. 140
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Choice of Forum Our amended and restated certificate of incorporation will provide that the Court of Chancery of the State of Delaware will be the exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, any action regarding our amended and restated certificate of incorporation or our amended and restated bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine. Limitations of Liability and Indemnification See the section titled Executive CompensationLimitation on Liability and Indemnification. Exchange Listing We have applied to have our common stock approved for listing on the NASDAQ Global Select Market under the symbol ZNGA. Transfer Agent and Registrar Upon the closing of this offering, the transfer agent and registrar for our Class A common stock, Class B common stock and Class C common stock will be American Stock Transfer & Trust Company, LLC. 141
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SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has been no public market for our capital stock. Future sales of our Class A 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 Class A 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. Based on the number of shares outstanding as of September 30, 2011, upon the closing of this offering, shares of Class A common stock, Class B common stock and 20,517,472 shares of Class C common stock will be outstanding, assuming no exercise of the underwriters over-allotment option, no exercise of outstanding options or warrants, the issuance of shares of Class B common stock upon the vesting of ZSUs in connection with this offering and the conversion of the shares sold by the selling stockholders in this offering into shares of Class A common stock. Of the outstanding shares, all of the shares sold in this offering will be freely tradable, except that any shares held by our affiliates, as that term is defined in Rule 144 under the Securities Act, may only be sold in compliance with the limitations described below. The remaining shares of our Class B common stock outstanding after this offering are restricted securities as such term is defined in Rule 144 under the Securities Act and/or are subject to lock-up agreements with us as described below. Following the expiration of the lock-up period, restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration under Rule 144 or 701 promulgated under the Securities Act, described in greater detail below. Rule 144 In general, a person who has beneficially owned restricted shares of our common stock for at least six months would be entitled to sell their securities provided that (i) such person is not deemed to have been one of our affiliates at the time of, or at any time during the 90 days preceding, a sale and (ii) we have been subject to the Securities Exchange Act of 1934, as amended, periodic reporting requirements for at least 90 days before the sale. Persons who have beneficially owned restricted shares of our common stock for at least six months but who are our affiliates at the time of, or any time during the 90 days preceding, a sale, would be subject to additional restrictions, by which such person would be entitled to sell within any threemonth period only a number of securities that does not exceed the greater of either of the following: 1% of the number of shares of our common stock then outstanding, which will equal approximately shares immediately after this offering assuming no exercise of the underwriters over-allotment option, based on the number of shares of common stock outstanding as of September 30, 2011; or the average weekly trading volume of our common stock on the NASDAQ Global Select Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale. Provided, in each case, that we have been subject to the Exchange Act periodic reporting requirements for at least 90 days before the sale. Such sales both by affiliates and by non-affiliates must also comply with the manner of sale, current public information and notice provisions of Rule 144. Rule 701 Rule 701 under the Securities Act, as in effect on the date of this prospectus, permits resales of shares in reliance upon Rule 144 but without compliance with certain restrictions of Rule 144, including the holding period requirement. Most of our employees, executive officers, directors or consultants who purchased shares under a written compensatory plan or contract may be entitled to rely on the resale provisions of Rule 701, but all holders 142
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of Rule 701 shares are required to wait until 90 days after the date of this prospectus before selling their shares. However, substantially all Rule 701 shares are subject to lock-up agreements as described below and under Underwriting and will become eligible for sale at the expiration of those agreements. Lock-Up Arrangements We have agreed with the underwriters that for a period of 180 days following the date of this prospectus, we will not offer, sell, assign, transfer, pledge, contract to sell or otherwise dispose of or hedge any shares of our common stock or any securities convertible into or exchangeable for shares of our common stock, subject to specified exceptions. Morgan Stanley & Co. LLC and Goldman, Sachs & Co. may, in their sole discretion, at any time, release all or any portion of the shares from the restrictions in such agreement. The restricted period described in the preceding paragraph will be extended if: during the last 17 days of the 180-day restricted period we issue a release regarding earnings or regarding material news or events relating to us; or prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day period, in which case the restrictions described in the preceding paragraph will continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event. All of our officers and directors and the holders of substantially all of our capital stock have entered into lock-up agreements with us which provide that they will not offer, sell or transfer any shares of our common stock beneficially owned by them for days, subject in certain cases to extension under certain circumstances, following the date of this prospectus. We have agreed with Morgan Stanley & Co. LLC and Goldman, Sachs & Co. not to waive these lock-up restrictions without their prior consent. After the offering, our employees, including Mark Pincus, our founder and Chief Executive Officer, and other executive officers, may enter into written trading plans that are intended to comply with Rule 10b5-1 under the Exchange Act to diversify their assets and investments. Sales under these trading plans would not be permitted until the expiration of the lock-up agreements relating to the offering described above. Employees can only sell vested shares. Employees who do not hold vested shares, including shares subject to options, upon expiration of these selling restrictions will not be able to sell shares until they vest. Registration Rights On the date beginning days after the date of this prospectus, the holders of approximately shares of our Class B common stock, or their transferees, will be entitled to certain rights with respect to the registration of those shares under the Securities Act. For a description of these registration rights, please see Description of Capital StockRegistration Rights. If these shares are registered, they will be freely tradable without restriction under the Securities Act. Equity Incentive Plans Immediately following the effectiveness of the registration statement of which this prospectus forms a part, we intend to file a Form S-8 registration statement under the Securities Act to register shares of our common stock issued or reserved for issuance under our equity compensation plans and agreements. This registration statement will become effective immediately upon filing, and shares covered by this registration statement will thereupon be eligible for sale in the public markets, subject to vesting restrictions, the lock-up agreements described above and Rule 144 limitations applicable to affiliates. For a more complete discussion of our equity compensation plans, see the section titled Executive CompensationEmployee Benefit and Stock Plans. 143
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS OF OUR CLASS A COMMON STOCK The following is a summary of the material United States federal income tax consequences to non-U.S. holders (as defined below) of the acquisition, ownership and disposition of our Class A common stock issued pursuant to this offering. This discussion is not a complete analysis of all potential U.S. federal income tax consequences relating thereto, nor does it address any estate and gift tax consequences or any tax consequences arising under any state, local or foreign tax laws, or any other United States federal tax laws. This discussion is based on the Internal Revenue Code of 1986, as amended, or the Code, Treasury Regulations promulgated thereunder, judicial decisions, and published rulings and administrative pronouncements of the Internal Revenue Service, or IRS, all as in effect as of the date of this offering. These authorities may change, possibly retroactively, resulting in U.S. federal income tax consequences different from those discussed below. No ruling has been or will be sought from the IRS with respect to the matters discussed below, and there can be no assurance that the IRS will not take a contrary position regarding the tax consequences of the acquisition, ownership or disposition of our Class A common stock, or that any such contrary position would not be sustained by a court. This discussion is limited to non-U.S. holders who purchase our Class A common stock issued pursuant to this offering and who hold our Class A common stock as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all of the U.S. federal income tax consequences that may be relevant to a particular holder in light of such holders particular circumstances. This discussion also does not consider any specific facts or circumstances that may be relevant to holders subject to special rules under the U.S. federal income tax laws, including, without limitation, certain former citizens or long-term residents of the United States, partnerships or other pass-through entities, real estate investment trusts, regulated investment companies, controlled foreign corporations, passive foreign investment companies, corporations that accumulate earnings to avoid U.S. federal income tax, banks, financial institutions, investment funds, insurance companies, brokers, dealers or traders in securities, commodities or currencies, tax-exempt organizations, tax-qualified retirement plans, persons subject to the alternative minimum tax, persons that own, or have owned, actually or constructively, more than 5% of our common stock and persons holding our common stock as part of a hedging or conversion transaction or straddle, or a constructive sale, or other risk reduction strategy. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE PARTICULAR U.S. FEDERAL INCOME TAX CONSEQUENCES TO THEM OF ACQUIRING, OWNING AND DISPOSING OF OUR CLASS A COMMON STOCK, AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER ANY STATE, LOCAL OR FOREIGN TAX LAWS AND ANY OTHER U.S. FEDERAL TAX LAWS. Definition of Non-U.S. Holder For purposes of this discussion, a non-U.S. holder is any beneficial owner of our Class A common stock that is not a U.S. person or a partnership (including any entity or arrangement treated as a partnership) for U.S. federal income tax purposes. A U.S. person is any of the following: an individual citizen or resident of the United States; a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized 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 tax regardless of its source; or a trust (1) whose administration is subject to the primary supervision of a U.S. court and which has one or more U.S. persons who have the authority to control all substantial decisions of the trust, or (2) that has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person. 144
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Distributions on Our Class A Common Stock If we make cash or other property distributions on our Class A common stock, such distributions will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Amounts not treated as dividends for U.S. federal income tax purposes will constitute a return of capital and will first be applied against and reduce a holders tax basis in the Class A common stock, but not below zero. Any excess will be treated as gain realized on the sale or other disposition of the Class A common stock and will be treated as described under Gain on Disposition of Our Class A Common Stock below. Dividends paid to a non-U.S. holder of our Class A common stock generally will be subject to U.S. federal withholding tax at a rate of 30% of the gross amount of the dividends, or such lower rate specified by an applicable income tax treaty. To receive the benefit of a reduced treaty rate, a nonU.S. holder must furnish to us or our paying agent a valid IRS Form W-8BEN (or applicable successor form) including a U.S. taxpayer identification number and certifying such holders qualification for the reduced rate. Treasury Regulations or the applicable treaty will provide rates to determine whether dividends paid to an entity should be treated as paid to the entity or the entitys owners. This certification must be provided to us or our paying agent prior to the payment of dividends and must be updated periodically. If the non-U.S. holder holds the stock through a financial institution or other agent acting on the non-U.S. holders behalf, the non-U.S. holder will be required to provide appropriate documentation to the agent, which then will be required to provide certification to us or our paying agent, either directly or through other intermediaries. Non-U.S. holders that do not timely provide us or our paying agent with the required certification, but that qualify for a reduced treaty rate, may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS. If a non-U.S. holder holds our Class A common stock in connection with the conduct of a trade or business in the United States, and dividends paid on the Class A common stock are effectively connected with such holders U.S. trade or business, the non-U.S. holder will be exempt from U.S. federal withholding tax. To claim the exemption, the non-U.S. holder must generally furnish to us or our paying agent a properly executed IRS Form W8ECI (or applicable successor form). Any dividends paid on our Class A common stock that are effectively connected with a non-U.S. holders United States trade or business (and if an income tax treaty applies, are attributable to a permanent establishment maintained by the non-U.S. holder in the United States) generally will be subject to United States federal income tax on a net income basis at the regular graduated U.S. federal income tax rates in much the same manner as if such holder were a resident of the United States. A non-U.S. holder that is a foreign corporation also may be subject to an additional branch profits tax equal to 30% (or such lower rate specified by an applicable income tax treaty) of its effectively connected earnings and profits for the taxable year, as adjusted for certain items. Non-U.S. holders should consult any applicable income tax treaties that may provide for different rules. Gain on Disposition of Our Class A Common Stock Subject to the discussion below regarding backup withholding and certain recently enacted legislation, a non-U.S. holder generally will not be subject to U.S. federal income tax on any gain realized upon the sale or other disposition of our Class A common stock, unless: the gain is effectively connected with the non-U.S. holders conduct of a trade or business in the United States, and if an income tax treaty applies, is attributable to a permanent establishment maintained by the non-U.S. holder in the United States; the non-U.S. holder is a nonresident alien individual present in the United States for 183 days or more during the taxable year of the disposition, and certain other requirements are met; or our Class A common stock constitutes a United States real property interest in the event we are a United States real property holding corporation, or USRPHC, for United States federal income tax purposes at any time within the shorter of the five-year period preceding the disposition or the non-U.S. 145
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holders holding period for our Class A common stock and our Class A common stock has ceased to be regularly traded on an established securities market prior to the beginning of the calendar year in which the sale or other disposition occurs. The determination of whether we are a USRPHC depends on the fair market value of our United States real property interests relative to the fair market value of our other trade or business assets and our foreign real property interests. We believe we are not currently and do not anticipate becoming a USRPHC for United States federal income tax purposes. Gain described in the first bullet point above will be subject to U.S. federal income tax on a net income basis at the regular graduated U.S. federal income tax rates in the same manner as if such holder were a resident of the United States. A non-U.S. holder that is a foreign corporation also may be subject to an additional branch profits tax equal to 30% (or such lower rate specified by an applicable income tax treaty) of its effectively connected earnings and profits for the taxable year, as adjusted for certain items. Non-U.S. holders should consult any applicable income tax treaties that may provide for different rules. Gain described in the second bullet point above will be subject to U.S. federal income tax at a flat 30% rate (or such lower rate specified by an applicable income tax treaty), but may be offset by U.S. source capital losses (even though the individual 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. Information Reporting and Backup Withholding We must report annually to the IRS and to each non-U.S. holder the amount of dividends on our Class A common stock paid to such holder and the amount of any tax withheld with respect to those dividends. These information reporting requirements apply even if no withholding was required because the dividends were effectively connected with the holders conduct of a U.S. 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. Backup withholding, currently at a 28% rate, however, generally will apply to payments to a nonU.S. holder of dividends on or the gross proceeds or a disposition of our Class A common stock 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. If any amount is withheld under the backup withholding rules, the non-U.S. holder should consult with a U.S. tax advisor regarding the possibility of and procedure for obtaining a refund or a credit against the non-U.S. holders U.S. federal income tax liability, if any. Recently Enacted Legislation Affecting Taxation of Our Class A Common Stock Held by or through Foreign Entities Recently enacted legislation generally will impose a U.S. federal withholding tax of 30% on dividends and the gross proceeds of a disposition of our common stock paid after December 31, 2012 to a foreign financial institution (as specially defined under these rules) unless such institution enters into an agreement with the U.S. government to withhold on certain payments and to collect and provide to the U.S. tax authorities substantial information regarding U.S. account holders of such institution (which includes certain equity and debt holders of such institution, as well as certain account holders that are foreign entities with U.S. owners). The legislation also generally will impose a U.S. federal withholding tax of 30% on dividends and the gross proceeds of a disposition of our common stock paid after December 31, 2012 to a non-financial foreign entity unless such entity provides the withholding agent with a certification identifying the direct and indirect U.S. owners of the entity. Under certain circumstances, a non-U.S. holder might be eligible for refunds or credits of such taxes. Prospective investors are encouraged to consult with their own tax advisors regarding the possible implications of this legislation on their investment in our common stock. 146
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UNDERWRITING 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 and the selling stockholders have agreed to sell to them, severally, the number of shares indicated below:
Name Number of Shares
Morgan Stanley & Co. LLC Goldman, Sachs & Co. Merrill Lynch, Pierce, Fenner & Smith Incorporated Barclays Capital Inc. J.P. Morgan Securities LLC Allen & Company LLC Total The underwriters are offering the shares of Class A common stock subject to their acceptance of the shares from us and the selling stockholders and subject to prior sale. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the shares of Class A 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 Class A common stock offered by this prospectus if any such shares are taken. The offering of the shares by the underwriters is subject to receipt and acceptance and subject to the underwriters right to reject any order in whole or in part. In addition, the underwriters are not required to take or pay for the shares covered by the underwriters over-allotment option described below. The underwriters initially propose to offer part of the shares of Class A common stock directly to the public at the public offering price listed on the cover page of this prospectus and part to certain dealers. After the initial offering of the shares of Class A 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 Class A common stock at the public offering price listed on the cover page of this prospectus, less underwriting discounts and commissions. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with the offering of the shares of Class A common stock offered by this prospectus. To the extent the option is exercised, each underwriter will become obligated, subject to certain conditions, to purchase approximately the same percentage of the additional shares of Class A common stock as the number of shares listed next to the underwriters name in the preceding table bears to the total number of shares of Class A common stock listed next to the names of all underwriters in the preceding table. 147
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The following table shows the per share and total public offering price, underwriting discounts and commissions, and proceeds before expenses to us and the selling stockholders. These amounts are shown assuming both no exercise and full exercise of the underwriters option to purchase up to an additional shares of Class A common stock.
Total No Exercise Full Exercise
Per Share
Public offering price Underwriting discounts and commissions to be paid by: Us The selling stockholders Proceeds, before expenses, to us Proceeds, before expenses, to selling stockholders
$ $ $ $ $ $
$ $ $ $ $ $ .
$ $ $ $ $ $
The estimated offering expenses payable by us, exclusive of the underwriting discounts and commissions, are approximately $
The underwriters have informed us that they do not intend sales to discretionary accounts to exceed 5% of the total number of shares of Class A common stock offered by them. We have applied to list our Class A common stock on the NASDAQ Global Select Market under the trading symbol ZNGA. We have agreed that, without the prior written consent of Morgan Stanley & Co. LLC and Goldman, Sachs & Co. on behalf of the underwriters, we will not, during the period ending 180 days after the date of this prospectus, subject to certain exceptions: 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 SEC 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. The 180-day restricted period described in the preceding paragraph will be extended if: during the last 17 days of the 180-day restricted period we issue an earnings release or material news event relating to us occurs; or prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16 day period beginning on the last day of the 180-day period; in which case the restrictions described in the preceding paragraph will continue to apply until the expiration of the 18 day period beginning on the issuance of the earnings release or the occurrence of the material news or material event. 148
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All of our officers and directors and the holders of substantially all of our capital stock have entered into lock-up agreements with us which provide that they will not offer, sell or transfer any shares of our common stock beneficially owned by them for days, subject in certain cases to extension under certain circumstances, following the date of this prospectus. We have agreed with Morgan Stanley & Co. LLC and Goldman, Sachs & Co. not to waive these lock-up restrictions without their prior consent. After the offering, our employees, including Mark Pincus, our founder and Chief Executive Officer, and other executive officers, may enter into written trading plans that are intended to comply with Rule 10b5-1 under the Exchange Act to diversify their assets and investments. Sales under these trading plans would not be permitted until the expiration of the lock-up agreements relating to the offering described above. In order to facilitate the offering of the Class A common stock, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the Class A 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 over-allotment option. The underwriters can close out a covered short sale by exercising the over-allotment 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 over-allotment option. The underwriters may also sell shares in excess of the over-allotment 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 Class A 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 Class A common stock in the open market to stabilize the price of the Class A common stock. These activities may raise or maintain the market price of the Class A common stock above independent market levels or prevent or retard a decline in the market price of the Class A common stock. The underwriters are not required to engage in these activities and may end any of these activities at any time. The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions. We, the selling stockholders and the underwriters have agreed to severally 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 representatives may agree to allocate a number of shares of Class A common stock to underwriters for sale to their online brokerage account holders. Internet distributions will be allocated by the representatives to underwriters that may make Internet distributions on the same basis as other allocations. The estimated initial public offering price range set forth on the cover page of this preliminary prospectus is subject to change as a result of market conditions and other factors. We cannot assure you that the prices at which the shares will sell in the public market after this offering will not be lower than the initial public offering price or that an active trading market in our Class A common stock will develop and continue after this offering. 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, investment research, 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 the issuer, for which they received or will receive customary fees and expenses. Certain of the underwriters or their affiliates are lenders under our credit facility. 149
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In February 2011, eleven mutual funds affiliated with Morgan Stanley & Co. LLC, one of the lead bookrunning managers, purchased 5,346,026 shares of our Series C preferred stock for an aggregate purchase price of $75,000,014. As part of the transaction, the funds entered into the Fifth Amended and Restated Investors Rights Agreement. The shares of Series C preferred stock that the funds own will convert upon the closing of this offering into 5,346,026 shares of Class B common stock. Pursuant to Rule 5110(g)(1) of the Financial Industry Regulatory Authority, the abovereferenced securities may not be sold, transferred, assigned or otherwise be transferred or disposed of for value during the period ending 180 days after the date of this prospectus. Allen & Company LLC, one of the underwriters in the offering, has provided financial advisory services to us in the past for which it has received customary fees, including most recently a $4.65 million placement agency fee in connection with our Series C preferred stock financing in February 2011. 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 such investment and securities activities may involve securities and/or instruments of the issuer. 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 the shares of Class A common stock. The initial public offering price will be determined by negotiations between us and the representatives. Among the factors to be considered in determining the initial public offering price will be 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 priceearnings ratios, price-sales ratios, market prices of securities, and certain financial and operating information of companies engaged in activities similar to ours. European Economic Area In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive, each underwriter has represented and agreed that with effect from and including the date on which the Prospectus Directive is implemented in that Member State it has not made and will not make an offer of securities to the public in that Member State, except that it may, with effect from and including such date, make an offer of securities to the public in that Member State: (a) at any time to legal entities which are authorised or regulated to operate in the financial markets or, if not so authorised or regulated, whose corporate purpose is solely to invest in securities; (b) at any time to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than 43,000,000 and (3) an annual net turnover of more than 50,000,000, as shown in its last annual or consolidated accounts; or (c) at any time in any other circumstances which do not require the publication by us of a prospectus pursuant to Article 3 of the Prospectus Directive. For the purposes of the above, the expression an offer of securities to the public in relation to any securities in any Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the securities to be offered so as to enable an investor to decide to purchase or subscribe for the securities, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State, and the expression Prospectus Directive means Directive 2003/71/EC and includes any relevant implementing measure in that Member State. 150
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United Kingdom This prospectus and any other material in relation to the shares described herein is only being distributed to, and is only directed at, persons in the United Kingdom that are qualified investors within the meaning of Article 2(1)(e) of the Prospective Directive (qualified investors) that also (i) have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended, or the Order, (ii) who fall within Article 49(2)(a) to (d) of the Order or (iii) to whom it may otherwise lawfully be communicated (all such persons together being referred to as relevant persons). The shares are only available to, and any invitation, offer or agreement to purchase or otherwise acquire such shares will be engaged in only with, relevant persons. This prospectus and its contents are confidential and should not be distributed, published or reproduced (in whole or in part) or disclosed by recipients to any other person in the United Kingdom. Any person in the United Kingdom that is not a relevant person should not act or rely on this prospectus or any of its contents. Hong Kong The shares 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 the shares 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 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. 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 the shares may not be circulated or distributed, nor may the shares 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. Where the shares 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 six months after that corporation or that trust has acquired the shares 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. 151
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Japan The securities 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 securities, 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. Notice to Prospective Investors in Switzerland The shares may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (SIX) or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering or marketing material relating to the shares or the offering may be publicly distributed or otherwise made publicly available in Switzerland. Neither this document nor any other offering or marketing material relating to the offering, the Company, or the shares have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of shares will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA (FINMA), and the offer of shares has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes (CISA). The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of the shares. Notice to Prospective Investors in the Dubai International Financial Centre This prospectus relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority (DFSA). This prospectus is intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this prospectus nor taken steps to verify the information set forth herein and has no responsibility for the prospectus. The shares to which this prospectus relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the shares offered should conduct their own due diligence on the shares. If you do not understand the contents of this prospectus you should consult an authorized financial advisor. 152
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LEGAL MATTERS Cooley LLP, San Francisco, California, will pass upon the validity of the shares of Class A common stock offered hereby. The underwriters are being represented by Ropes & Gray LLP, San Francisco, California, in connection with the offering. EXPERTS The consolidated financial statements of Zynga Inc. at December 31, 2010 and 2009, and for each of the three years in the period ended December 31, 2010, appearing in this prospectus and registration statement have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing. WHERE YOU CAN FIND MORE INFORMATION We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to this offering of our Class A common stock. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement, some items of which are 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 Class A common stock, we refer you to the registration statement, including the exhibits and the consolidated financial statements and notes 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 such contract or document elsewhere. Each statement in this prospectus relating to a contract or document filed as an exhibit is qualified in all respects 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 Exchange Act 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 SECs public reference facilities and the website of the SEC referred to above. We also maintain a website at http://www.zynga.com. After the closing of this offering, you may access our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act with the SEC free of charge at our website as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. The information contained in, or that can be accessed through, our website is not part of this prospectus. 153
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Zynga Inc. Consolidated Financial Statements Years Ended December 31, 2008, 2009 and 2010 Contents Report of Independent Registered Public Accounting Firm Consolidated Financial Statements Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Stockholders Equity (Deficit) Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements F-1 F-3 F-4 F-5 F-9 F-11 F-2
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Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders Zynga Inc. We have audited the accompanying consolidated balance sheets of Zynga Inc. as of December 31, 2009 and 2010, and the related consolidated statements of operations, stockholders equity (deficit), and cash flows for each of the three years in the period ended December 31, 2010. Our audits also included the financial statement schedule listed in Part II, Item 16.(b). These financial statements and schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits 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 consolidated financial statements are free of material misstatement. We were not engaged to perform an audit of the Companys internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Zynga Inc. at December 31, 2009 and 2010, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2010 in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP San Francisco, California July 1, 2011, except for the retrospective application of the change in capital structure as described in Note 1 to the consolidated financial statements, as to which the date is September 16, 2011 F-2
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Zynga Inc. Consolidated Balance Sheets (In Thousands, Except Per Share Data)
December 31, 2009 Assets Current assets: Cash and cash equivalents Marketable securities Accounts receivable, net of allowance of $356, $325, and $161 at December 31, 2009 and 2010, and September 30, 2011, respectively Income tax receivable Deferred tax assets Restricted cash Other current assets Total current assets Long-term marketable securities Goodwill Other intangible assets, net Property and equipment, net Restricted cash Other long-term assets Total assets Liabilities and stockholders equity (deficit) Current liabilities: Accounts payable Other current liabilities Deferred revenue Total current liabilities Deferred revenue Deferred tax liabilities Other non-current liabilities Total liabilities Commitments and contingencies (Note 10) Stockholders equity (deficit): Convertible preferred stock, $.00000625 par value: Authorized, 202,199, 351,199 and 399,822 shares at December 31, 2009 and 2010 and September 30, 2011 Issued and outstanding, 202,199, 276,702, and 304,887 shares issued and outstanding at December 31, 2009 and 2010 and September 30, 2011, respectively (aggregate liquidation preference of $360,954 and $849,380 at December 31, 2010 and September 30, 2011, respectively) Common stock, $.00000625 par value: Authorized, 685,317 (Class A 0, Class B 664,800, Class C 20,517), 965,632 (Class A 0, Class B 945,115, Class C 20,517), and 2,020,517 (Class A 1,100,000, Class B 900,000, Class C 20,517) shares at December 31, 2009 and 2010 and September 30, 2011, respectively Issued and Outstanding, 277,698 (Class A 0, Class B 257,181, Class C 20,517), 291,524 (Class A 0, Class B 271,007, Class C 20,517), and 280,561 (Class A 0, Class B 260,044, Class C 20,517) shares at December 31, 2009 and 2010 and September 30, 2011, respectively; shares issued and outstanding proforma Additional paid-in capital Treasury Stock Other comprehensive income Retained earnings (deficit) Total stockholders equity (deficit) Total liabilities and stockholders equity (deficit) See accompanying notes. 2010 September 30, 2011 (Unaudited) Pro Forma September 30, 2011 (Unaudited)
$127,336 72,622 7,157 11,290 653 3,082 222,140 1,045 34,827 836 $258,848
$ 187,831 550,259 79,974 36,577 24,399 2,821 24,353 906,214 60,217 44,001 74,959 14,301 12,880 $1,112,572
604,215 321,412 119,477 3,957 24,505 4,139 36,158 1,113,863 706 94,706 36,926 221,145 20,667 23,639
1,511,652
$ 21,503 35,024 178,109 234,636 45,690 280,326
33,431 78,749 408,470 520,650 56,766 14,123 38,818 630,357
52,486 101,199 455,691 609,376 29,684 14,741 70,188 723,989
47,672
394,026
914,151
2 6,610 21 (75,783) (21,478) $258,848
2 79,335 (1,484) 114 10,222 482,215 $1,112,572 $
2 114,805 (282,754) 548 40,911 787,663 1,511,652 $
(282,754) 548 (352,089)
F-3
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Zynga Inc. Consolidated Statements of Operations (In Thousands, Except Per Share Data)
Year Ended December 31, 2009 Nine Months Ended September 30, 2010 2011 (Unaudited) (Unaudited)
2008
2010
Revenue Costs and expenses: Cost of revenue Research and development Sales and marketing General and administrative Total costs and expenses Income (loss) from operations Interest income Other income (expense), net Income (loss) before income tax expense Provision for income taxes Net income (loss) Deemed dividend to a Series B-2 convertible preferred stockholder Net income attributable to participating securities Net income (loss) attributable to Class B and Class C common stockholders (1) Net income (loss) per share attributable to Class B and Class C common stockholders (1) : Basic Diluted Weighted-average shares used to compute net income (loss) per share attributable to Class B and Class C common stockholders (1) : Basic Diluted Pro forma net income per share attributable to Class A, Class B and Class C common stockholders (unaudited) (1) : Basic Diluted (1)
$ 19,410 10,017 12,160 10,982 8,834 41,993 (22,583) 319 187 (22,077) (38) $ (22,115) $ (22,115)
$121,467 56,707 51,029 42,266 24,243 174,245 (52,778) 177 (209) (52,810) (12) $ (52,822) $ (52,822)
$597,459 176,052 149,519 114,165 32,251 471,987 125,472 1,222 365 127,059 (36,464) $ 90,595 4,590 58,110 $ 27,895
$ 401,700 124,449 98,019 75,885 49,339 347,692 54,008 749 478 55,235 (7,632) $ 47,603 4,590 30,636 $ 12,377
$ 828,863 225,908 282,316 121,971 117,723 747,918 80,945 1,223 (273) 81,895 (51,206) $ 30,689 30,689 $
$ $
(0.18) (0.18)
$ $
(0.31) (0.31)
$ $
0.12 0.11
$ $
0.06 0.05
$ $
0.00 0.00
119,990 119,990
171,751 171,751
223,881 329,256
214,214 322,357
264,114 264,114
$ $
$ $
Net income attributable to common stock was not allocated to Class A common shares, as there were no shares outstanding for each of the periods presented. See Note 9 of the consolidated financial statements for further details on the calculation of basic and diluted net income (loss) per share attributable to each class of common stock. See accompanying notes. F-4
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Zynga Inc. Consolidated Statements of Stockholders Equity (Deficit) (In Thousands)

Convertible Preferred Stock Shares 96,019 3,382 40,207 59,391 198,999 Amount $ 5,357 173 5,007 24,367 (1,398) $ 33,506 Total Stockholders Common Stock Shares 149,197 13,440 95,822 25,583 (7,997) 276,045 $ Amount $ 1 1 2 $ Additional Paid-In Capital $ 244 18 13 1,398 81 689 2,443 $ Receivable from Stockholders $ (64) 64 $ Other Comprehensive Income $ 5 5 Retained Earnings (Deficit) $ (846) (22,115) $ (22,961) $ Equity (Deficit) $ 4,756 173 19 (51) 5,007 24,367 81 64 689 (22,115) 5 (22,110) 12,995
Balance at December 31, 2007 Issuance of restricted stock in connection with purchased technology Issuance of Series A convertible preferred stock, net of issuance costs Exercise of stock options for cash Exercise of stock options for full recourse note Repurchase of common stock Issuance of Series A-1 convertible preferred stock, net of issuance costs Issuance of Series B convertible preferred stock, net of issuance costs Issuance of common stock warrants in connection with Series B financing Vesting of restricted stock following the early exercise of options Note receivable from stockholder paid with cash Stock-based compensation Comprehensive income (loss): Net income (loss) Unrealized gain (loss) on marketable securities Total comprehensive income (loss) Balance at December 31, 2008
F-5
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Zynga Inc. Consolidated Statements of Stockholders Equity (Deficit) (continued) (In Thousands)
Convertible Preferred Stock Common Stock Additional Paid-In Capital $ 2,443 30 3 144 253 3,737 $ 6,610 $ Other Comprehensive Income $ 5 (1) 17 21 Retained Earnings (Deficit) $ (22,961) (52,822) $ (75,783) $ Total Stockholders Equity (Deficit) $ 12,995 30 3 14,166 144 253 3,737 (52,822) (1) 17 (52,806) 202,199 $ 47,672 277,698 $ 2 (21,478)
Balance at December 31, 2008 Issuance of restricted stock in connection with business acquisition Exercise of stock options Repurchase of unvested early exercised stock options Issuance of Series B-1 convertible preferred stock, net of issuance costs Vesting of restricted stock following the early exercise of options Issuance of common stock warrants in connection with services Stock-based compensation Comprehensive income (loss): Net income (loss) Unrealized gain (loss) on marketable securities Foreign currency translation adjustment Total comprehensive income (loss) Balance at December 31, 2009
Shares 198,999 3,200
Amount $ 33,506 14,166
Shares 276,045 2,526 6,319 (7,192)
Amount $ 2
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Convertible Preferred Stock Common Stock Additional Paid-In Capital $ 6,610 3,358 Treasury Stock Other Comprehensive Income $ 21 Retained Earnings (Deficit) $ (75,783) Total Stockholders Equity (Deficit) $ (21,478) 3,358 305,231
Balance at December 31, 2009 Exercise of stock options Repurchase of unvested early exercised stock options Issuance of Series B-2 convertible preferred stock, net of issuance costs Issuance of Series Z convertible preferred stock in connection with business acquisitions Vesting of restricted stock following the early exercise of options Issuance of common stock warrants in connection with services Issuance of contingent warrant Stock-based compensation Repurchase of common stock Tax benefit from stock-based compensation Deemed dividend to a Series B-2 convertible preferred stockholder Comprehensive income (loss): Net income (loss) Unrealized gain on marketable securities Foreign currency translation adjustment Total comprehensive income (loss) Balance at December 31, 2010
Shares 202,199 48,163
Amount $ 47,672 305,231
Shares 277,698 18,313 (4,200)
Amount $ 2
26,340 276,702
35,269 5,854 $394,026
(287) 291,524 $
2 $
605 1,912 4,590 17,928 39,742 4,590 79,335
(1,484) $ (1,484) $
114 (21) 114
(4,590) 90,595 $ 10,222 $
35,269 605 1,912 4,590 23,782 (1,484) 39,742 90,595 114 (21) 90,688 482,215
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Convertible Preferred Stock Common Stock Additional Paid-In Amount Capital $ 2 $ 79,335 2,206 25 Total Stockholders Other Retained Treasury Comprehensive Earnings Equity Stock Income (Deficit) (Deficit) $ (1,484) $ 1 1 4 $ 10,222 $ 482,215 2,206 25 485,300
Shares Amount Shares

Balance at December 31, 2010 Exercise of stock options (unaudited) Exercise of stock warrants (unaudited) Issuance of Series C convertible preferred stock, net of issuance costs (unaudited) Issuance of Series Z convertible preferred stock in connection with business acquisitions (unaudited) Vesting of restricted stock following the early exercise of options (unaudited) Issuance of common stock warrants in connection with services (unaudited) Stock-based compensation (unaudited) Repurchase of preferred and common stock (unaudited) Tax cost from stock-based compensation (unaudited) Comprehensive income (loss) (unaudited): Net income (loss) (unaudited) Unrealized gain (loss) on marketable securities (unaudited) Foreign currency translation adjustment (unaudited) Total comprehensive income(loss) (unaudited) Balance at September 30, 2011 (unaudited) 304,887 $ 914,151 280,561 276,702 $ 394,026 291,524 6,753 1,000
34,927
485,300
2,022 (8,764)
2,157 32,668
(18,716)
196 15,573 22,000 (2,500) (2,030)
(281,270)
2,157 196 15,573 54,668 (283,770) (2,030)
(75) 509 548
30,689 $ 40,911 $
30,689 (75) 509 31,123 787,663
2 $ 114,805 $(282,754) $
See accompanying notes. F-8
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Zynga Inc. Consolidated Statements of Cash Flows (In Thousands)

2008
2010
Operating activities Net income (loss) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization Stock-based compensation expense Impairment of purchased technology Loss on equity method investment Gains from sales of investments, assets and other, net Common stock warrants issued in connection with services Accretion and amortization on marketable securities Excess tax benefits from stock-based awards Benefit from deferred income taxes Changes in operating assets and liabilities: Accounts receivable, net Income tax receivable Other assets Accounts payable Deferred revenue Other liabilities Net cash provided by operating activities Investing activities Purchase of marketable securities Sales of marketable securities Maturities of marketable securities Acquisition of property and equipment Acquisition of purchased technology and other intangible assets Business acquisitions, net of acquired cash Restricted cash Repayment of employee note receivable Proceeds from sale of investment Other investing activities, net Net cash used in investing activities
$(22,115)
$ (52,822)
$ 90,595
$ 47,603
$ 30,689
2,905 689 1,900 (8) (2,781) (780) (269) 4,884 16,538 10,519 11,482 (9,981) (4,596) (6,033) (150) 64 (500) (21,196) F-9
10,372 3,737 142 253 112 (4,376) (10,510) (3,056) 16,216 206,603 24,324 190,995 (125,139) 62,399 (38,818) (583) (548) (503) (200) (103,392)
39,481 23,782 558 1,912 1,746 (39,742) (8,469) (69,518) (25,287) (32,495) 10,626 241,437 91,786 326,412 (804,542) 4,222 319,820 (56,839) (1,078) (62,277) (16,469) (275) (617,438)
26,342 14,120 366 1,379 895 (1,108) (45,318) 512 (31,047) 8,804 193,697 52,342 268,587 (713,211) 4,222 222,452 (45,669) (1,018) (18,537) (13,279) (200) (565,240)
64,148 54,668 (1,380) 15,573 2,227 2,030 (39,276) 32,620 (22,114) 18,839 20,139 47,050 225,213 (512,564) 12,620 725,315 (187,736) (3,712) (37,951) (7,684) 2,049 (916) (10,579)
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Zynga Inc. Consolidated Statements of Cash Flows (continued) (In Thousands)

Year Ended December 31, 2009 2010 Nine Months Ended September 30, 2010 2011 (Unaudited) (Unaudited)
2008
Financing activities Repurchases of common stock Exercise of stock options Excess tax benefits from stock-based awards Net proceeds from issuance of preferred stock Exercise of warrants Net proceeds from issuance of contingent warrant Net cash provided by financing activities Effect of exchange rate changes on cash and cash equivalents Net increase in cash and cash equivalents Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period Non-cash investing and financing activities Issuance of restricted stock in connection with business acquisitions Issuance of Series Z convertible preferred stock in connection with business acquisitions Reclassification of liability to additional paid-in capital related to early exercise of common stock options Issuance of employee note receivable for option exercise Supplemental cash flow information Cash paid for income taxes See accompanying notes. F-10
(19) 19 29,547 29,547 19,833 5,731
3 14,166 14,169 101,772 25,564
$ (1,484) 3,358 39,742 305,231 4,590 351,437 84 60,495 127,336 $187,831 $
(1,293) 623 309,821 309,151 41 12,539 127,336
$(283,770) 2,206 (2,030) 485,300 25 201,731 19 416,384 187,831 $ 604,215 $ $ $ $ $ 2,157 196 3,036
$25,564 $ $ $ $ 81 64
$127,336 $ $ $ $ $ 30 144 9,988
$ 139,875 $
$ 35,269 $ $ 605
$ 26,338 $ $ $ 269 109
$ 1,005
$ 28,623
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Zynga Inc. Notes to Consolidated Financial Statements 1. Organization and Summary of Significant Accounting Policies Organization and Description of Business Zynga Inc. (Zynga or we or the Company) was originally organized as a California limited liability company under the name Presidio Media, LLC on April 19, 2007. On October 26, 2007, Presidio Media, LLC converted from a California LLC into a Delaware corporation and became Presidio Media, Inc. On February 11, 2008, we changed our name from Presidio Media, Inc. to Zynga Game Network Inc. On November 17, 2010, we changed our name from Zynga Game Network Inc. to Zynga Inc. We develop, market, and operate online social games as live services played over the Internet and on social networking sites and mobile platforms. We generate revenue primarily through the in-game sale of virtual goods. Our operations are headquartered in San Francisco, California, and we have several operating locations in the U.S. as well as various international office locations in Asia and Europe. Basis of Presentation and Consolidation The accompanying consolidated financial statements are presented in accordance with U.S. GAAP. The consolidated financial statements include the operations of Zynga and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. In April 2011, we effected a two-for-one stock split of our common and convertible stock. All share, per share and related information presented in these financial statements and accompanying footnotes have been retroactively adjusted to reflect the impact of the stock split. In September 2011, we adopted a three class common stock structure in which we retitled and redesignated the existing classes of Class A and Class B common stock as Class B and Class C common stock, respectively, and authorized 1.1 billion shares of a new class of common stock titled Class A common stock. The Class A common stock is designated for issuance as part of the Companys initial public offering. All share, per share and related information presented in these financial statements and accompanying footnotes have been retroactively adjusted to reflect the impact of the three class common stock structure. Unaudited Interim Financial Information The accompanying interim balance sheet as of September 30, 2011, and the statements of operations, stockholders equity (deficit), and cash flows for the nine months ended September 30, 2010 and 2011 and the related footnote disclosures are unaudited. These unaudited interim financial statements have been prepared in accordance with United States generally accepted accounting principles (U.S. GAAP). In managements opinion, the unaudited interim financial statements have been prepared on the same basis as the audited financial statements and include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Companys statement of financial position as of September 30, 2011 and its results of operations and its cash flows for the nine months ended September 30, 2010 and 2011. The results for the nine months ended September 30, 2011 are not necessarily indicative of the results expected for the full fiscal year. Unaudited Pro Forma Balance Sheet Upon the completion of the Companys initial public offering, all outstanding convertible preferred stock will automatically convert into shares of the Companys common stock. The unaudited pro forma balance sheet gives effect to the conversion of the convertible preferred stock as of September 30, 2011. Additionally, we grant F-11
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Zynga Inc. Notes to Consolidated Financial Statements (continued) Zynga restricted stock units (ZSUs) that generally vest upon the satisfaction of a service period criteria and the occurrence of a qualifying liquidity event. This initial public offering will satisfy the liquidity event criteria. As a result, the unaudited pro forma balance sheet gives effect to the stockbased compensation associated with the ZSUs that would have been recorded had the initial public offering occurred on September 30, 2011. This pro forma adjustment was recorded as a reduction to retained earnings (deficit) and an increase to additional paid-in capital. We intend to net settle the ZSUs that vest in connection with the initial public offering in order to satisfy the related tax withholding obligations. The number of ZSUs to be withheld to satisfy tax withholding obligations is based on the applicable withholding rates, and an assumed initial public offering price of $ per share. In the pro forma balance sheet, the pro forma shares issued and outstanding include the net shares to be issued from the settlement of the ZSUs that vest in connection with the initial public offering. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and notes thereto. Significant estimates and assumptions reflected in the financial statements include, but are not limited to, the estimated lives and playing periods that we use for revenue recognition, the chargeback reserve for our third-party payment processors, the allowance for doubtful accounts, useful lives of property and equipment and intangible assets, accrued liabilities, income taxes, fair value of stock awards issued, accounting for business combinations, and evaluating goodwill and long-lived assets for impairment. Actual results could differ materially from those estimates. Segments We have one operating segment with one business activity, developing and monetizing social games. Our Chief Operating Decision Maker (CODM), our Chief Executive Officer, manages our operations on a consolidated basis for purposes of allocating resources. When evaluating performance and allocating resources, the CODM reviews financial information presented on a consolidated basis, accompanied by disaggregated bookings information for our online games. Revenue Recognition We derive revenue from the sale of virtual goods associated with our online games and the sale of advertising within our games. Online Game We operate our games as live services that allow players to play for free. Within these games, players can purchase virtual currency to obtain virtual goods to enhance their game-playing experience. Players can pay for our virtual currency using facebook Credits when playing our games through the Facebook platform, and can use other payment methods such as credit cards or PayPal on other platforms. We also sell game cards that are initially recorded as a customer deposit liability which is included in other current liabilities on the consolidated balance sheet, net of fees retained by retailers and distributors. Upon redemption of a game card in one of our games and delivery of the purchased virtual currency to the player, these amounts are reclassified to deferred revenue. We recognize revenue when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the service has been provided to the player; (3) the collection of our fees is reasonably F-12
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Zynga Inc. Notes to Consolidated Financial Statements (continued) assured; and (4) the amount of fees to be paid by the player is fixed or determinable. For purposes of determining when the service has been provided to the player, we have determined that an implied obligation exists to the paying player to continue displaying the purchased virtual goods within the online game over their estimated life or until they are consumed. The proceeds from the sale of virtual goods are initially recorded in deferred revenue. We categorize our virtual goods as either consumable or durable. Consumable virtual goods represent goods that can be consumed by a specific player action. For the sale of consumable virtual goods, we recognize revenue as the goods are consumed, which approximates one month. Durable virtual goods represent virtual goods that are accessible to the player over an extended period of time. We recognize revenue from the sale of durable virtual goods ratably over the estimated average playing period of paying players for the applicable game, which represents our best estimate of the estimated average life of durable virtual goods. If we do not have the ability to differentiate revenue attributable to durable virtual goods from consumable virtual goods for a specific game we recognize revenue on the sale of durable and consumable virtual goods for that game ratably over the estimated average period that paying players typically play that game. Prior to October 1, 2009, we did not have the data to determine the consumption dates for our consumable virtual goods or to differentiate revenue attributable to durable virtual goods from consumable virtual goods. Beginning in October 2009, we had sufficient data to separately account for consumable and durable virtual goods in one of our games, thus allowing us to recognize revenue related to consumable goods upon consumption. Since January 2010, we have had this data for substantially all of our games thus allowing us to recognize revenue related to consumable goods upon consumption. Future usage patterns may differ from historical usage patterns and therefore the estimated average playing periods may change in the future. We assess the estimated average playing period for paying players and the estimated average life of our virtual goods quarterly. We estimate chargebacks from our third-party payment processors to account for potential future chargebacks based on historical data and record such amounts as a reduction of revenue. In May 2010, we entered into an agreement with facebook that required us to accept Facebook Credits as the primary in-game payment method for our games played through the Facebook platform. The agreement required us to begin migrating our games to Facebook Credits in our games beginning in July 2010, and by April 2011 this migration was complete. Facebook Credits is Facebooks proprietary virtual currency that Facebook sells for use on the Facebook platform. Under the terms of our agreement, Facebook sets the price our players pay for Facebook Credits and collects the cash from the sale of Facebook Credits. Facebooks current stated face value of a Facebook Credit is $0.10. For each Facebook Credit purchased by our players and redeemed in our games, Facebook remits to us $0.07, which is the amount we recognize as revenue. We recognize revenue net of the amounts retained by Facebook because we do not set the pricing of Facebook Credits sold to our players. Prior to the implementation of Facebook Credits in our games, players could purchase our virtual goods through various widely accepted payment methods offered in the games and we recognized revenue based on the transaction price paid by the player. Advertising We have contractual relationships with agencies, advertising brokers and certain advertisers for advertisements within our games. We recognize advertising revenue for branded virtual goods and sponsorships, engagement advertisements and offers, mobile advertisements and other advertisements as advertisements are delivered to customers as long as evidence of the arrangement exists (executed contract), the price is fixed or determinable, and we have assessed collectability as reasonably assured. Certain branded in-game sponsorships that involve virtual goods are deferred and recognized over the estimated life of the branded virtual good, similar to online game revenue. Price is determined to be fixed or determinable when there is a fixed price in the applicable evidence of the arrangement, which may include a master contract, insertion order, or a third party statement of activity. For branded virtual goods and sponsorships, we determine the delivery criteria has been met based on delivery F-13
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Zynga Inc. Notes to Consolidated Financial Statements (continued) information from our internal systems. For engagement advertisements and offers, mobile advertisements, and other advertisements, delivery occurs when the advertisement has been displayed or the offer has been completed by the customer, as evidenced by third party verification reports supporting the number of advertisements displayed or offers completed. We report our advertising revenue net of amounts due to advertising agencies and brokers because we are not the primary obligor in our arrangements, we do not set the pricing, and we do not establish or maintain the relationship with the advertiser. Multiple-element Arrangements We offer certain promotions to customers from time to time that include the sale of in-game virtual currency via the sale of a game card and also other deliverables such as a limited edition in-game virtual good. In addition, we may enter into arrangements with customers to sell in-game branded advertising services that include one specified fee that covers various campaign dates across various games. For the years ended December 31, 2008, 2009 and 2010, and for the nine months ended September 30, 2011, such arrangements were not material. Beginning on January 1, 2011, we adopted new authoritative guidance on multiple-element arrangements, using the prospective method for all arrangements entered into or materially modified from the date of adoption. Under this new guidance, we allocate arrangement consideration in multiple-deliverable revenue arrangements at the inception of an arrangement to all deliverables based on the relative selling price method, generally based on our best estimate of selling price. There was no material impact on our financial statements as a result of implementing this newly adopted authoritative guidance in the nine months ended September 30, 2011. Revenue by type The following table presents the components of revenue (in thousands):
2008 Year Ended December 31, 2009 2010 Nine Months Ended September 30, 2010 2011 (Unaudited) (Unaudited)
Online game Advertising Total revenue Cost of Revenue
$ 5,272 14,138 $19,410
$ 85,748 35,719 $121,467
$574,632 22,827 $597,459
$ $
387,151 14,549 401,700
$ $
781,738 47,125 828,863
Amounts recorded as cost of revenue relate to direct expenses incurred in order to generate online game revenue. Such costs are recorded as incurred. Our cost of revenue consists primarily of hosting and data center costs related to operating our games, including depreciation; consulting costs primarily related to third-party provisioning of customer support services; payment processing fees; and salaries, benefits and stock-based compensation for our customer support and infrastructure teams. Cost of revenue also includes amortization expense related to purchased technology of $2.1 million, $2.3 million and $8.8 million for the years ended December 31, 2008, 2009 and 2010, respectively, and $4.4 million (unaudited) and $19.3 million (unaudited) for the nine months ended September 30, 2010 and 2011, respectively. During the year ended December 31, 2008, we recorded an impairment charge totaling $1.9 million related to purchased technology that was no longer utilized in our operations. F-14
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Zynga Inc. Notes to Consolidated Financial Statements (continued) Cash and Cash Equivalents Cash equivalents consist of cash on hand, money market funds, and U.S. government-issued obligations with maturities of 90 days or less from the date of purchase. Marketable Securities Marketable securities consist entirely of U.S. government-issued obligations maturing within one year of the purchase date. The fair value of marketable securities is determined as the exit price in the principal market in which we would transact. Based on our intentions regarding our marketable securities, all marketable securities are classified as available-for-sale and are carried at fair value with unrealized gains and losses recorded as a separate component of other comprehensive income, net of income taxes. Realized gains and losses are determined using the specific-identification method and are reflected in the consolidated statements of operations when they are realized. When we determine that a decline in fair value is other than temporary, the cost basis of the individual security is written down to the fair value as a new cost basis and the amount of the write-down is accounted for as a realized loss in other income (expense). The new cost basis will not be adjusted for subsequent recoveries in fair value. Determination of whether declines in fair value are other than temporary requires judgment regarding the amount and timing of recovery. No such impairments of marketable securities have been recorded to date. Restricted Cash Restricted cash consists of collateral for facility operating lease agreements and funds held in escrow in accordance with the terms of certain of our business acquisition agreements. Accounts Receivable and Allowance for Doubtful Accounts Accounts receivable are recorded and carried at the original invoiced amount less an allowance for any potential uncollectible amounts. We review accounts receivable regularly and make estimates for the allowance for doubtful accounts when there is doubt as to our ability to collect individual balances. In evaluating our ability to collect outstanding receivable balances, we consider many factors, including the age of the balance, the customers payment history and current creditworthiness, and current economic trends. Bad debts are written off after all collection efforts have ceased. We do not require collateral from our customers. Property and Equipment Property and equipment are stated at cost less accumulated depreciation. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets, generally 24 to 36 months. Leasehold improvements are amortized over the shorter of the estimated useful lives of the improvements or the lease term. Business Combinations We account for acquisitions of entities that include inputs and processes and have the ability to create outputs as business combinations. We allocate the purchase price of the acquisition to the tangible assets, liabilities, and identifiable intangible assets acquired based on their estimated fair values. The excess of the purchase price over those fair values is recorded as goodwill. Acquisition-related expenses and restructuring costs are expensed as incurred. F-15
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Zynga Inc. Notes to Consolidated Financial Statements (continued) Goodwill and Indefinite-Lived Intangible Assets Goodwill and indefinite-lived intangible assets are carried at cost and are evaluated annually for impairment, or more frequently if circumstances exist which indicate that an impairment may exist. No impairment charges have been recorded to date. Other Intangible Assets Other intangible assets are carried at cost less accumulated amortization. Amortization is recorded over the estimated useful lives of the assets, generally 12 to 24 months. Impairment of Long-Lived Assets Long-lived assets, including other intangible assets (excluding indefinite-lived intangible assets), are reviewed for impairment whenever events or changes in circumstances indicate an assets carrying value may not be recoverable. If such circumstances are present, we assess the recoverability of the long-lived assets by comparing the carrying amount to the estimated fair value calculated based on the undiscounted cash flow associated with the related assets. If the future net undiscounted cash flows are less than the carrying amount of the assets, the assets are considered impaired and an expense, equal to the amount required to reduce the carrying amount of the assets to the estimated fair value, is recorded in the consolidated statements of operations. Software Development Costs We capitalize costs incurred during the application development stage relating to the development of our websites, online games, and computer software developed or purchased for internal use. Costs related to preliminary project activities and post-implementation activities are expensed as incurred. We capitalized $0, $0 and $1.4 million in software development costs for the years ended December 31, 2008, 2009 and 2010, respectively. Once placed into service, we anticipate amortizing these costs over a period of three years. Prior to 2010, costs incurred during the application development stage were not material and were expensed as incurred. Stock-Based Compensation We grant ZSUs to our employees that generally vest upon the satisfaction of service period criteria of up to four years and a performance condition. The ZSUs have a contractual term of seven years. Because the performance condition is not met until the occurrence of a qualifying liquidity event (initial public offering or change of control), no expense has been recorded to date relating to our ZSU grants. At the time of a qualifying liquidity event, we will record stock-based compensation expense based on the grant date fair value of the awards using the accelerated attribution method, net of estimated forfeitures. In 2010, we issued unvested Series Z preferred stock to employees of certain acquired companies. As the equity awards are subject to postacquisition employment, we have accounted for them as post-acquisition stock-based compensation expense. We recognize compensation expense equal to the grant date fair value of the Series Z preferred stock on a straight-line basis over the four-year service period, net of estimated forfeitures. We estimate the fair value of stock options using the Black-Scholes option-pricing model. This model requires the use of the following assumptions: (i) expected volatility of our common stock, which is based on our peer group in the industry in which we do business; (ii) expected life of the option award, which we elected to calculate using the simplified method; (iii) expected dividend yield, which is 0%, as we have not paid and do not anticipate paying dividends on our common stock; and (iv) the risk-free interest rate, which is based on the U.S. F-16
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Zynga Inc. Notes to Consolidated Financial Statements (continued) Treasury yield curve in effect at the time of grant with maturities equal to the grants expected life. Option grants generally vest over four years, with 25% vesting after one year and the remainder vesting monthly thereafter over 36 months. The options have a contractual term of 10 years. Stock-based compensation expense is recorded net of estimated forfeitures so that expense is recorded for only those stock-based awards that we expect to vest. We estimate forfeitures based on our historical forfeiture of equity awards adjusted to reflect future changes in facts and circumstances, if any. We will revise our estimated forfeiture rate if actual forfeitures differ from our initial estimates. We record stock-based compensation expense for stock options on a straight-line basis over the vesting term. For stock options issued to non-employees, including consultants, we record expense related to stock options equal to the fair value of the options calculated using the Black-Scholes model over the service performance period. The fair value of options granted to non-employees is remeasured over the vesting period and recognized as an expense over the period the services are received. Income Taxes We account for income taxes using an asset and liability approach, which requires the recognition of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our financial statements or tax returns. The measurement of current and deferred tax assets and liabilities is based on provisions of enacted tax laws; the effects of future changes in tax laws or rates are not anticipated. If necessary, the measurement of deferred tax assets is reduced by the amount of any tax benefits that are not expected to be realized based on available evidence. We account for uncertain tax positions by reporting a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. We recognize interest and penalties, if any, related to unrecognized tax benefits in income tax expense. Foreign Currency Transactions Generally, the functional currency of our international subsidiaries is the U.S. dollar. For these subsidiaries, foreign currency denominated monetary assets and liabilities are remeasured into U.S. dollars at current exchange rates and foreign currency denominated nonmonetary assets and liabilities are remeasured into U.S. dollars at historical exchange rates. Foreign currency denominated revenues and expenses are remeasured at historical exchange rates. Gains or losses from foreign currency remeasurement are included in other income (expense), net in the consolidated statements of operations. For foreign subsidiaries where the functional currency is the local currency, we use current period-end exchange rates to translate assets and liabilities, and average exchange rates to translate revenues and expenses into U.S. dollars. We record translation gains and losses in accumulated other comprehensive income (loss) as a component of stockholders equity. Concentration of Credit Risk and Significant Customers Financial instruments, which potentially expose us to concentrations of credit risk, consist primarily of cash and cash equivalents, short-term marketable securities, and accounts receivable. Substantially all of our cash, cash equivalents, and short-term marketable securities are maintained with four financial institutions with high credit standings. We perform periodic evaluations of the relative credit standing of these institutions, and all of our short-term marketable securities are held in U.S. government debt instruments. F-17
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Zynga Inc. Notes to Consolidated Financial Statements (continued) Accounts receivable are unsecured and represent amounts due to us based on contractual obligations where a signed and executed contract or clickthrough agreement exists. We perform ongoing credit evaluations of our customers to assess the probability of accounts receivable collection. In cases where we are aware of circumstances that may impair a specific customers ability to meet its financial obligations, we record a specific allowance as a reduction to the accounts receivable balance to reduce it to its net realizable value. An advertising customer represented 28% of gross accounts receivable at December 31, 2009, and 15% of revenue for the year ended December 31, 2009. A substantial majority of our 2008, 2009 and 2010 revenue was generated from players who accessed our games through facebook. As of December 31, 2010 and September 30, 2011, 69% and 81% (unaudited) of our accounts receivable were amounts owed to us by Facebook, respectively. Advertising Expense Costs for advertising are expensed as incurred. Advertising costs, which are included in sales and marketing expense, primarily consisting of player acquisition costs, totaled $9.2 million, $35.6 million and $83.4 million for the years ended December 31, 2008, 2009 and 2010, respectively. 2. Cash, Cash Equivalents and Marketable Securities Cash, cash equivalents and marketable securities consist of the following (in thousands):
December 31, 2009 2010 September 30, 2011 (Unaudited)
Cash and cash equivalents: Cash Money market funds U.S. government debt securities Total cash and cash equivalents Marketable securities: U.S. government debt securities F-18
$ 58,260 69,076 $127,336 $ 72,622
$169,057 18,468 306 $187,831 $550,259
$ 182,492 421,723 $ 604,215 $ 322,118
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Zynga Inc. Notes to Consolidated Financial Statements (continued) The following table summarizes unrealized gains and losses related to our available-for-sale investments in marketable securities as of December 31, 2009 and 2010 and September 30, 2011 (in thousands):
December 31, 2009 Gross Gross Unrealized Unrealized Gains Losses
Amortized Cost
U.S. government debt securities
$ 72,621
$ 72,622
Amortized Cost
December 31, 2010 Gross Gross Unrealized Unrealized Gains Losses
U.S. government debt securities
$550,390
175
$550,565
Amortized Cost
September 30, 2011 (unaudited) Gross Gross Unrealized Unrealized Gains Losses
U.S. government debt securities 3. Fair Value Measurements
$322,015
124
(21)
$322,118
Our financial instruments consist of cash equivalents, short-term marketable securities, and accounts receivable. Accounts receivable, net, are stated at their carrying value, which approximates fair value due to the short time to expected receipt of cash. Cash equivalents and short-term marketable securities, consisting of money market funds and U.S. government debt securities, are carried at fair value, which is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between knowledgeable and willing market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that knowledgeable and willing market participants would use in pricing an asset or liability. We use a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as follows: Level 1 Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 Includes other inputs that are directly or indirectly observable in the marketplace. Level 3 Unobservable inputs that are supported by little or no market activity. F-19
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Zynga Inc. Notes to Consolidated Financial Statements (continued) The composition of our securities among the three levels of the fair value hierarchy is as follows at December 31, 2009 and 2010 and September 30, 2011 (unaudited), respectively (in thousands):
Level 1 December 31, 2009 Level 2 Level 3 Total
Assets: Money market funds U.S. government debt securities Total
$ 69,076 $ 69,076
72,622
$ $
$ 69,076 72,622 $141,698
$ 72,622
Level 1
December 31, 2010 Level 2 Level 3
Total
Assets: Money market funds U.S. government debt securities Total
$ 18,468 $ 18,468
550,565
$ $
$ 18,468 550,565 $569,033
$550,565
Level 1
September 30, 2011 (unaudited) Level 2 Level 3
Total
Assets: Money market funds U.S. government debt securities Total 4. Property and Equipment Property and equipment consist of the following (in thousands):
$421,723 $421,723
322,118
$ $
$421,723 322,118 $743,841
$322,118
December 31, 2009 2010
September 30, 2011 (Unaudited)
Computer equipment Software Furniture and fixtures Leasehold improvements Less accumulated depreciation Total property and equipment, net
$38,223 3,473 773 1,222 43,691 8,864 $34,827
$ 84,269 10,118 2,446 17,638 114,471 39,512 $ 74,959
$ 214,016 16,710 60,063 9,154 299,943 78,798 $ 221,145
Depreciation expense relating to property and equipment for the years ended December 31, 2008, 2009 and 2010 was $0.8 million, $8.0 million, and $30.6 million, respectively. F-20
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Zynga Inc. Notes to Consolidated Financial Statements (continued) 5. Acquisitions In line with our growth strategy, we completed seven acquisitions in 2010. The purpose of these acquisitions was to expand our social games offerings, obtain employee talent, and expand into new international markets. The results of operations for each of these acquisitions have been included in our consolidated statement of operations since the date of acquisition. Goodwill for each of the acquisitions represents the excess of the purchase price over the net tangible and intangible assets acquired and is not deductible for tax purposes. Goodwill recorded in connection with the acquisitions is primarily attributable to the assembled workforces of the acquired businesses and the synergies expected to arise after our acquisition of those businesses. 2010 Acquisitions In November 2010, we completed our acquisition of Newtoy, Inc., a provider of online mobile gaming services. The purchase price was $53.3 million, consisting of the issuance of 1.4 million fully vested shares of Series Z convertible preferred stock with a fair value of $8.9 million and $44.3 million in cash. During 2010, we acquired six additional companies and these acquisitions were not individually significant. In the aggregate, the total purchase price for these acquisitions was $48.4 million, which consisted of the issuance of 4.1 million shares of Series Z convertible preferred stock with a fair value of $26.3 million, and $22.1 million in cash. In connection with our 2010 acquisitions, we incurred transaction costs of $2.1 million that we expensed as incurred. To retain the services of certain former acquired company employees, we offered equity awards and cash bonuses that are earned over time. As these equity awards and payments are subject to post-acquisition employment, we have accounted for them as post-acquisition compensation expense. During 2010, we issued 21.1 million shares of non-vested Series Z convertible preferred stock with a total fair value of $135.8 million and 6.3 million ZSUs with a total fair value of $39.7 million. We paid retention and incentive cash bonuses totaling $6.7 million. The following table summarizes our unaudited pro forma revenue and net income (loss) of the combined company for the years ended December 31, 2009 and 2010 if we had made all of our 2010 acquisitions on January 1, 2009 and January 1, 2010, respectively (in thousands):
Year Ended December 31, 2009 2010 (Unaudited) (Unaudited)
Pro forma revenue Pro forma net income (loss) 2011 Acquisitions (unaudited)
$ 126,838 $ (87,741)
$ 607,827 $ 77,135
For the nine months ended September 30, 2011 we acquired 13 companies to expand our online social game and mobile offerings and our software development and engineering teams. These acquisitions were not individually significant and had an aggregate purchase price of $40.6 million. As a result of the acquisitions, we recorded $8.4 million of developed technology, $3.1 million of net liabilities assumed, and $35.3 million of goodwill, which represents the excess of the purchase price over the net tangible and intangible assets acquired. In connection with acquisitions closed in the nine months ended September 30, 2011, we incurred transaction costs of approximately $2.3 million. Goodwill recorded in connection with the acquisitions is primarily attributable to the assembled workforces of the acquired businesses and the synergies expected to arise after our F-21
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Zynga Inc. Notes to Consolidated Financial Statements (continued) acquisition of those businesses. The weighted average useful life of the identified acquired intangible assets is 2.0 years. Pro forma results of operations related to our 2011 acquisitions have not been presented because they are not material to our consolidated statements of operations, either individually or in the aggregate. The following table summarizes the fair values of net tangible and intangible assets acquired for all business acquisitions for the year ended December 31, 2010 and for the nine months ended September 30, 2011 (in thousands):
Newtoy Other 2010 Acquisitions 2010 Total Q1-Q3 2011 Acquisitions (Unaudited)
Developed technology Trademarks Net assets acquired Goodwill Total
$ 18,440 6,100 (12,668) 41,382 $ 53,254
25,674 2,542 20,143 48,359
$ 44,114 6,100 (8,818) 60,217 $101,613
8,366 (3,145) 35,348 40,569
Included in net assets acquired in the table above relating to 2010 acquisitions are $11.2 million of net deferred tax liabilities. Developed technologies associated with acquisitions are being amortized over periods ranging from 12 to 24 months. The weighted-average useful life for our developed technology was approximately 1.9 years. The fair values for our acquisitions during the nine months ended September 30, 2011 were based upon a preliminary valuation estimate. These amounts may change as we finalize the estimates and assumptions associated with these valuations. Trademarks acquired through the Newtoy acquisition are estimated to have an indefinite useful life and will be evaluated annually for impairment, or more frequently, if circumstances indicate an impairment may exist. 6. Goodwill and Other Intangible Assets From inception to 2009, there were no additions to goodwill. Changes in the carrying value of goodwill for 2010 and the nine months ended September 30, 2011 are as follows:
(in thousands)
Goodwill December 31, 2009 Additions for the twelve months ended December 31, 2010 Goodwill December 31, 2010 Additions for the nine months ended September 30, 2011 (unaudited) Foreign currency translation adjustments (unaudited) Purchase accounting adjustments (unaudited) Goodwill September 30, 2011 (unaudited) F-22
0 60,217 60,217 35,348 160 (1,019)
94,706
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Zynga Inc. Notes to Consolidated Financial Statements (continued) The details of our acquisition-related intangible assets are as follows (in thousands):
Gross Carrying Value December 31, 2009 Accumulated Amortization
Net Book Value
Developed technology Trademarks and domain names
$ $
4,724 113 4,837
$ $
3,775 17 3,792
$ $
949 96 1,045
Gross Carrying Value
December 31, 2010 Accumulated Amortization
Net Book Value
$ $
52,384 6,775 59,159
$ $
14,907 251 15,158
$ $
37,477 6,524 44,001
Gross Carrying Value
September 30, 2011 (unaudited) Accumulated Amortization
Net Book Value
$ $
61,446 10,534 71,980
$ $
33,815 1,239 35,054
$ $
27,631 9,295 36,926
Amortization expense associated with other intangible assets for the years ended December 31, 2008, 2009 and 2010 was $2.1 million, $2.3 million, $8.8 million, respectively, and is included in cost of revenue on the accompanying consolidated statements of operations. As of December 31, 2010, future amortization expense related to the intangible assets of $23.3 million and $14.6 million is expected to be recognized in 2011 and 2012, respectively. As of September 30, 2011 future amortization expense related to the intangible assets of $7.2 million (unaudited), $20.2 million (unaudited), and $3.4 million (unaudited) is expected to be recognized in 2011, 2012, and 2013 respectively. 7. Income Taxes Income (loss) before income tax expense consists of the following for the periods shown below (in thousands):
2008 Year Ended December 31, 2009 2010
United States International
$(22,166) 89 $(22,077) F-23
$(52,831) 21 $(52,810)
$141,401 (14,342) $127,059
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Zynga Inc. Notes to Consolidated Financial Statements (continued) Income tax expense consists of the following for the periods shown below (in thousands):
Current: Federal State Foreign Total current tax expense Deferred: Federal State Foreign Total deferred tax expense/(benefit) Total provision for income taxes
1 37 38
1 11 12
$34,092 10,537 304 44,933 (9,264) 2,209 (1,414) (8,469) $36,464
38
12
The reconciliation of federal statutory income tax provision to our effective income tax provision is as follows (in thousands):
Expected provision at U.S. federal statutory rate State income taxes - net of federal benefit Income taxed at foreign rates Stock options Tax credits Tax reserve for uncertain tax positions Change in valuation allowance Impact of change in tax rates Other
$(7,506) 1 7 (221) 7,636 121 $ 38
$(17,790) (5,859) 4 659 (888) 23,780 106 $ 12
$ 44,452 7,841 3,894 5,447 (14,231) 12,846 (28,647) 5,211 (349) $ 36,464
Before Zynga began forming non-U.S. operating companies during 2010, the revenue from non-U.S. users was earned by our U.S. Company, resulting in virtually no foreign profit before tax. The new foreign entities, as start-up companies, generated operating losses in 2010. The tax impact of the losses generated in tax jurisdictions with lower statutory rates than the U.S. rate increased tax expense and the effective tax rate. F-24
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Zynga Inc. Notes to Consolidated Financial Statements (continued) Deferred tax assets and liabilities consist of the following (in thousands):
December 31, 2009 2010
Deferred tax assets: Deferred revenue Net operating loss carryforwards Accrued compensation Tax credit carryforwards Acquired intangible assets State taxes Other Valuation allowance Net deferred tax assets Deferred tax liabilities: Acquired intangible assets Depreciation Prepaid expenses Net deferred tax liabilities Net deferred taxes
$ 2,211 30,516 743 3,111 1,969 751 (34,002) 5,299 (5,020) (279) (5,299) $
$ 16,545 12,582 11,132 249 1,148 189 (5,698) 36,147 (13,838) (11,820) (330) (25,988) $ 10,159
December 31, 2009 2010
Recorded as: Current deferred tax assets Other current liabilities Non-current deferred tax liabilities Net deferred tax assets
$ 24,399 (117) (14,123) $ 10,159
The net change in valuation allowance was an increase of $23.8 million and a decrease of $28.3 million during 2009 and 2010, respectively. Included in the decrease of $28.3 million is approximately $0.3 million of valuation allowance that was recorded against goodwill. Realization of the deferred tax assets is dependent upon future taxable income. After considering both positive and negative evidence, we determined that it was more likely than not that all of our deferred tax assets with the exception of California deferred tax assets would be realized based on our cumulative earnings history and our projected future taxable income. We recognized an income tax benefit of $28.3 million in 2010 as a result of the release of a portion of our valuation allowance. Net operating loss and tax credit carryforwards as of December 31, 2010, are as follows (in thousands):
Amount Expiration years
Net operating losses, federal Net operating losses, state Tax credit, federal Tax credits, state Net operating losses, foreign F-25
$16,882 59,464 50 94 5,945
2027-2030 2017-2026 2017-2020 N/A 2013-2016
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Zynga Inc. Notes to Consolidated Financial Statements (continued) Approximately $1.0 million of the state net operating loss carryforwards and related valuation allowance relates to the exercise of stock options, the benefit of which will be credited to additional paid-in capital when realized. The federal net operating loss carryforwards are subject to various annual limitations under Section 382 of the Internal Revenue Code. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands): December 31, 2008 Additions based on tax positions related to 2009 December 31, 2009 Additions based on tax positions related to 2010 Reductions for tax positions of prior years December 31, 2010 $ 270 1,258 1,528 13,782 (127) $15,183
As of December 31, 2010, approximately $14.1 million represents the amount of unrecognized tax benefits that would, if recognized, impact our effective income tax rate. Our total unrecognized tax benefits at September 30, 2011 were $32.3 million (unaudited). We file income tax returns in the United States, and various state, local, and foreign jurisdictions. We are subject to examination by U.S. federal, state, or foreign tax authorities for all years since inception. 8. Stockholders Equity Convertible Preferred Stock The aggregate liquidation preference of our preferred stock consists of the following as of December 31, 2010 (in thousands):
December 31, 2010
Series A, 99,400 shares authorized, issued and outstanding Series A-1, 40,207 shares authorized, issued and outstanding Series B, 59,391 shares authorized, issued and outstanding Series B-1, 3,200 shares authorized, issued and outstanding Series B-2, 49,000 shares authorized, 48,163 shares issued and outstanding Series Z, 100,000 shares authorized, 26,340 shares issued and outstanding
5,610 5,026 25,000 15,187 310,000 131
360,954
In February 2011, our board of directors authorized the issuance of 53.5 million shares of Series C Preferred Stock (Series C). Series C has similar rights to our existing preferred stock, except for the following: the dividend rate for Series C, if and when dividends are declared by our board of directors, is 8% of the original issue price (OIP) of $14.029115 per share. The holders of Series C have a liquidation preference that allows them to be paid their OIP upon liquidation prior to any other series. In connection with this authorization, we issued 34.9 million shares of Series C convertible preferred stock for $14.029115 per share, or $490 million in gross proceeds. F-26
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Zynga Inc. Notes to Consolidated Financial Statements (continued) The following are the rights and preferences of our respective series of convertible preferred stock: Dividends. For each of the periods presented, the holders of our convertible preferred stock are entitled to receive, when and if declared by our board of directors, non-cumulative dividends equal to the amounts in the table below, subject to adjustments, respectively. We have not declared any dividends to date.
Shares issued and outstanding (in thousands) As of December 31 As of September 30 2008 2009 2010 2010 (Unaudited) 2011 (Unaudited)
Dividend per share per annum
Series A Series A-1 Series B Series B-1 Series B-2 Series C Series Z Total
99,400 40,207 59,391 198,998
99,400 40,207 59,391 3,200 202,198
99,400 40,207 59,391 3,200 48,163 26,340 276,701
99,400 40,207 59,391 3,200 48,163 8,170 258,531
92,344 38,711 59,391 2,989 48,163 34,927 28,362 304,887
$0.004515 $0.010000 $0.033675 $0.379686 $0.514915 $1.122000 $0.000400
Voting Rights. All series of convertible preferred stock vote in their respective separate series, along with common stock, on an as-if-converted basis on most matters including to elect the board of directors. Holders of Series A and A-1 are entitled to vote together as one class to elect one director. Holders of Series B are entitled to vote as a separate class to elect one director. The holders of Series Z convertible preferred stock and Class B common stock are entitled to vote together as one class to elect one director. The holders of Class C common stock are entitled to vote as a separate class to elect one director. In the event that more than five directors are authorized, all holders of convertible preferred stock and common stock would vote as a single class to elect the remaining directors. Liquidation. If Zynga is dissolved, liquidated, or its business wound up, or if Zynga is acquired, all proceeds available for distribution to stockholders must be paid to the holders of convertible preferred stock up to the amount of their respective liquidation preferences before any distributions may be made to the holders of common stock. The liquidation preference of each series of convertible preferred stock equals the respective series OIP per share plus the amount of declared but unpaid dividends on each series of convertible preferred stock upon the date of distribution. The OIP per share of each series of convertible preferred stock is $0.0564375, $0.125, $0.4209375, $4.746075, $6.436465, $14.029115 and $0.005 for Series A, Series A-1, Series B, Series B-1, Series B-2, Series C and Series Z, respectively. If the assets available for distribution are insufficient to make the full distribution to the holders of convertible preferred stock, the remaining assets will be distributed among the holders of the respective series in the following order: Series C; Series B, Series B-1, and Series B-2 as a group; and if any funds remain, they would be distributed to the holders of Series A and Series A-1 as a group. If any further funds remain, such funds would be distributed to the holders of Series Z. Redemption and Conversion. The shares of Series A, Series A-1, Series B, Series B-1, Series B-2, Series C, and Series Z convertible preferred stock are not redeemable and are convertible at the option of the holder at any time, subject to a majority vote by the class of stock, with the exception of Series Z, which is convertible upon a majority vote by all holders of preferred shares. In addition, an investor that holds 23.3 million Series B-2 shares has a contingent redemption feature that, at our discretion, would redeem the Series B-2 shares for cash equal to the OIP of $150 million under certain conditions. This right expired in May 2011. F-27
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Zynga Inc. Notes to Consolidated Financial Statements (continued) Automatic conversion occurs for all preferred stock upon the completion of a public offering through which gross proceeds, before any underwriting discounts and commissions and fees, of at least $75 million are raised. All shares are convertible exclusively into Class B common stock pursuant to terms as described below. Each share of convertible preferred stock is convertible into one share of Class B common stock. The conversion price for each Series A, Series A-1, Series B, Series B-1, Series B-2, Series C and Series Z convertible preferred stock is adjusted on a weighted-average basis if we issue shares at a price below the OIP for that series of convertible preferred stock, subject to certain exceptions in our Certificate of Incorporation. This conversion price is subject to proportional antidilution adjustments in the case of stock splits, dividends, reverse splits, and other adjustments in our stock. Common Stock Our three classes of common stock are Class A common stock, Class B common stock and Class C common stock. The following are the rights and privileges of our classes of common stock: Dividends. Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of outstanding shares of our Class A, Class B and Class C common stock are entitled to receive dividends out of funds legally available at the times and in the amounts that our board of directors may determine. Voting Rights. Holders of our Class A common stock are entitled to one vote per share, holders of our Class B common stock are entitled to seven votes per share and holders of our Class C common stock are entitled to 70 votes per share. In general, holders of our Class A common stock, Class B common stock and Class C common stock will vote together as a single class on all matters submitted to a vote of stockholders, unless otherwise required by law; except that the holders of our Class B common stock are entitled to vote together with our Series Z Preferred Stock as a single class to elect one director and the holders of our Class C common stock are entitled to vote as a separate class to elect one director. Delaware law could require either our Class A common stock, Class B common stock or our Class C common stock to vote separately as a single class in the following circumstances: If we were to seek to amend our Certificate of Incorporation to increase the authorized number of shares of a class of stock, or to increase or decrease the par value of a class of stock, then that class would be required to vote separately to approve the proposed amendment; and If we were to seek to amend our Certificate of Incorporation in a manner that altered or changed the powers, preferences or special rights of a class of stock in a manner that affected its holders adversely, then that class would be required to vote separately to approve the proposed amendment.
Liquidation. Upon our liquidation, dissolution or winding-up, the assets legally available for distribution to our stockholders would be distributable ratably among the holders of our Class A, Class B and Class C common stock after payment of liquidation preferences, if any, on any outstanding shares of our preferred stock. Preemptive or Similar Rights. None of our Class A, Class B or Class C common stock is entitled to preemptive rights, and neither is subject to redemption. Conversion. Our Class A common stock is not convertible into any other shares of our capital stock. Each share of our Class B common stock and Class C common stock is convertible at any time at the option of the holder into one share of our Class A common stock. In addition, after the closing of an initial public offering, upon sale or transfer of shares of either Class B common stock or Class C common stock, whether or not for F-28
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Zynga Inc. Notes to Consolidated Financial Statements (continued) value, each such transferred share shall automatically convert into one share of Class A common stock, except for certain transfers described in our amended and restated certificate of incorporation, including, without limitation, transfers for tax and estate planning purposes, so long as the transferring holder continues to hold sole voting and dispositive power with respect to the shares transferred. Our Class B common stock and Class C common stock will convert automatically into Class A common stock on the date on which the number of outstanding shares of Class B common stock and Class C common stock together represent less than 10% of the aggregate combined voting power of our capital stock. Once transferred and converted into Class A common stock, the Class B common stock and Class C common stock may not be reissued. No class of our common stock may be subdivided or combined unless the other class of our common stock concurrently is subdivided or combined in the same proportion and in the same manner. ZSUs We grant ZSUs to our employees that generally vest upon the satisfaction of service period criteria of up to four years and the occurrence of a qualifying liquidity event (initial public offering or change of control). Upon the satisfaction of both the qualifying liquidity event and the service period criteria, employees vested ZSUs will automatically be converted into Class B common stock, and these shares will retain the same rights and privileges of all Class B common stock, as outlined above. Founders Shares On November 2, 2007, our founder purchased 128.7 million shares of Class B common stock (the Class B Shares) and 20.5 million shares of Class C common stock (the Class C Shares) for an aggregate purchase price of $0.4 million. At the date of grant, all of the Class C common shares and 50% of the Class B common shares were fully vested. The remaining 50% of the Class B Shares vest ratably over a vesting period of 48 months and are subject to Zyngas repurchase right at the original purchase price. We recognize compensation expense related to the vesting Class B Shares over the vesting period. For the years ended December 31, 2008, 2009 and 2010, we recorded compensation expense of $40 thousand annually in connection with these shares. As of December 31, 2010, 13.4 million shares of unvested Class B Shares are subject to repurchase. Each share of Class C common stock is entitled to 70 votes per share. Shares of Class C common stock may be converted at any time at the option of the stockholder and automatically convert upon sale or transfer to Class A common. Warrants In July 2009, in connection with a third-party service arrangement, we issued a warrant to purchase 0.7 million shares of our Class B Shares at an exercise price of $0.50375 per share to a service provider. This warrant vests ratably over a period of two years, expires in July 2019, and is exercisable upon issuance. We determined the fair value of the warrant using the Black-Scholes option-pricing model. We will revalue this warrant each period as services are performed and expense the portion of the warrant that vests each period. During 2010, we recorded $1.9 million of expense related to this warrant. As of December 31, 2010, these warrants remained outstanding and exercisable. In July 2008, in connection with the issuance of Series B Shares, we issued warrants to purchase 18.2 million shares of our Class B Shares at an exercise price of $0.00625 per share to an investor. These warrants expire in 2018 and are exercisable upon issuance. We determined the relative fair value of the warrants and Series B Shares using the Black-Scholes option-pricing model. The warrants were allocated a value of $1.4 million, which reduced the proceeds of the Series B Shares and increased paid-in capital. As of December 31, 2010, these warrants remained outstanding and exercisable. F-29
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Zynga Inc. Notes to Consolidated Financial Statements (continued) During 2010, concurrent with the issuance of 23.3 million shares of Series B-2 convertible preferred stock, we granted an investor a contingent right to a warrant to purchase 7.8 million shares of Class B common stock at an exercise price of $0.005 per share. We allocated $150 million of proceeds from the investor between the Series B-2 preferred stock and the contingent right to a warrant based on their relative fair values. The amount allocated to the contingent right to a warrant of $4.6 million was recorded to additional paid-in capital on the date the right was granted. The allocation of a portion of the proceeds received for the contingent right also resulted in a beneficial conversion feature related to the Series B-2 shares issued of approximately $4.6 million. Because the Series B-2 shares have no stated redemption date, the discount was immediately charged to retained earnings as a deemed dividend. In April 2011, a distribution agreement was executed and the investors right to receive the warrant was extinguished. In June 2011, in connection with a service arrangement with a related party, we issued a warrant to purchase 1.0 million shares of our Class B common stock at an exercise price of $0.05 per share to a service provider. The warrant vests ratably over a 24 month service term beginning in April 2010 and the warrant expires in April 2012. We determined the fair value of the warrant using the Black-Scholes option-pricing model. We will revalue this warrant each period as services are performed and expense the portion of the warrant that vests each period. During the nine months ended September 30, 2011, we recorded $12.8 million of expense related to this warrant, which related to services that were performed from April 2010 through the current period. In June 2011, the service provider fully exercised the warrant, of which 0.6 million shares were vested and 0.4 million shares were unvested and subject to repurchase. Stock-Based Compensation As of December 31, 2010, Zynga maintained the 2007 Equity Incentive Plan (the 2007 Plan) for the purpose of granting stock options and ZSUs to employees, directors, and non-employees. As of December 31, 2010 and September 30, 2011, a maximum of 319.2 million shares and 352.2 million shares (unaudited), respectively, may be granted under the 2007 Plan. The 2007 Plan allowed for the early exercise of options, with unvested shares subject to repurchase at the original exercise price by us in the event of termination of employment with Zynga or termination of service to Zynga in the case of options granted to non-employees. Repurchased shares are returned to the 2007 Plan. The ability to early exercise was eliminated for grants approved after August 31, 2009. 50.6 million and 18.8 million early exercised shares were subject to repurchase as of December 31, 2009 and December 31, 2010, respectively. In addition, in November 2009, two third-party investors obtained a joint right of first refusal relating to the transfer of Class A common stock awarded under the 2007 Plan by certain employees. This right terminates upon a sale or initial public offering of our shares. In the event the third-party investors waive this right, we hold the next right of refusal relating to such share transfers. Early exercise proceeds were $0.1 million and $0.2 million in 2009 and 2010, respectively, and were recorded as a liability. In 2010, employees early exercised 0.6 million stock options. As the shares vest, the related liability is reclassified into equity. We recorded a liability of $0.4 million, $0.2 million, and $0.2 million for the years ended December 31, 2008, 2009 and 2010, respectively, related to these early exercised options. As of December 31, 2010, 19.9 million shares of Series Z convertible preferred stock were unvested, and had a weighted-average grant date fair value of $6.44 per share. F-30
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Zynga Inc. Notes to Consolidated Financial Statements (continued) The following table presents the weighted-average assumptions used to estimate the fair values of the stock options granted in our consolidated financial statements:
Year Ended December 31, 2009 Nine Months Ended September 30, 2010 (Unaudited) Nine Months Ended September 30, 2011 (Unaudited)
2008
2010
Expected term (in years) Risk-free interest rate(s) Expected volatility Dividend yield Fair value of common stock
6 2.4%-3.6% 70%-75% $0.02$0.13
6 1.5%-2.4% 70%-77% $0.13$3.81
6 2.7% 73% $6.44
6 2.7% 73% 6.44
6 2.0%-3.0% 46%-65% 6.44-$17.09
For the years ended December 31, 2008, 2009 and 2010, the weighted-average grant date fair value of options granted was $0.06, $0.33, and $4.24, respectively. We recorded stock-based compensation expense related to grants of employee and consultant stock options, restricted stock, and vesting Series Z convertible preferred stock in our consolidated statements of operations as follows (in thousands):
2008
2010
Stock-based compensation expense: Cost of revenue Research and development Sales and marketing General and administrative Total stock-based compensation
22 226 381 60 689
443 1,817 518 1,212
$ 2,128 10,242 7,899 5,425 $25,694
1,585 4,991 4,920 4,003
1,602 40,693 10,101 17,845
$ 3,990
$ 15,499
$ 70,241
As of December 31, 2010, total unrecognized stock-based compensation expense of $43.3 million and $128.7 million related to unvested stock options and unvested shares of Series Z convertible preferred stock, respectively, is expected to be recognized during the period from 2011 to 2014. Unamortized deferred stock compensation relating to ZSUs amounted to $247.7 million and $921.5 million (unaudited) as of December 31, 2010 and September 30, 2011, respectively. All ZSUs are subject to two vesting conditions: (1) a service condition and (2) a qualifying liquidity event (IPO or change in control). The qualifying liquidity events are considered performance conditions. As of December 31, 2010 and September 30, 2011, all compensation expense related to our ZSUs remained unrecognized because as of those dates we did not believe either of the liquidity events were probable of occurring. If the vesting condition related to the qualifying liquidity event had occurred on December 31, 2010, we would have recorded $81.8 million of stock compensation expense on that date related to ZSUs. If the vesting condition related to the qualifying liquidity event had occurred on September 30, 2011, we would have recorded $393.0 million (unaudited) of stock compensation expense on that date related to ZSUs. F-31
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Zynga Inc. Notes to Consolidated Financial Statements (continued) The following table shows stock option and ZSU activity for 2009, 2010, and for the nine months ended September 30, 2011 (in millions, except share count, which is in thousands, and weighted average exercise price):
Outstanding Options WeightedAverage Exercise Shares Price Aggregate Intrinsic Value of Stock Options Outstanding
Available for Grant
Outstanding ZSUs (number of shares)
Balance as of December 31, 2008 Additional shares authorized ZSU grants Stock option grants Stock option forfeitures Stock option exercises Repurchases of unvested early exercised stock options Balance as of December 31, 2009 Additional shares authorized ZSU grants Stock option grants Stock option forfeitures ZSU forfeitures and cancellations Stock option exercises Repurchases of unvested early exercised stock options Balance as of December 31, 2010 Additional shares authorized (unaudited) ZSU grants (unaudited) Stock option grants (unaudited) Stock option forfeitures (unaudited) ZSU forfeitures and cancellations (unaudited) Stock option exercises (unaudited) Repurchases of unvested early exercised stock options (unaudited) Balance as of September 30, 2011 (unaudited)
13,751 100,493 (8,631) (126,631) 14,566 7,192 740 51,200 (41,850) (6,750) 4,765 6,302 3,808 18,215 33,000 (58,777) (1,080) 8,019 2,961 2,295 4,633
33,430 126,631 (14,566) (6,319) 139,176 6,750 (4,765) (18,313) 122,848 1,080 (8,019) (6,751) 109,158
0.11 0.51 0.18 0.07 0.43 6.44 1.18 0.21 0.80 7.22 0.36 0.49
0.7
8,631
465.9
8,631 41,850 (6,302)
689.5
44,179 58,777 (2,961)
$ 1,776.2 99,995
0.93
The aggregate intrinsic value of options exercised during the years ended December 31, 2008, 2009, and 2010 was $0.3 million, $0.01 million, and $110.6 million. The total grant date fair value of options that vested during the years ended December 31, 2008, 2009, and 2010 was $0.1 million, $1.0 million and $12.9 million, respectively. In December 2010, we cancelled an aggregate of 4.2 million unvested ZSUs held by certain of our employees in order to maintain compliance with certain laws. The ZSUs were cancelled with no consideration given. In March 2011, our board of directors approved a grant of 1.1 million ZSUs to the then current employees impacted by this cancellation, which are subject only to a liquidity condition (IPO or change of control) in order to vest. Our board of directors also approved a grant of 3.1 million ZSUs to these employees that have a 32 F-32
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Zynga Inc. Notes to Consolidated Financial Statements (continued) month service period condition that is fulfilled monthly and are also subject to the liquidity condition (IPO or change of control) in order to vest. These ZSUs had a grant date fair value of $6.44 per share. We also paid this group of employees retention cash bonus payments totaling $3.6 million. Additionally, in 2010 we repurchased 0.4 million restricted shares from a terminated employee that had been granted in connection with an acquisition. These shares are included in the repurchases of common stock on the consolidated statement of stockholders equity. Options outstanding that have vested and are expected to vest as of December 31, 2010 are as follows:
Weighted-Average Exercise Price Per Share Weighted-Average Remaining Contractual Term (in years)
Number of Shares (in thousands)
Vested and expected to vest Exercisable options
116,561 99,498
$ $
0.76 0.30
8.31 8.38
The aggregate intrinsic value of exercisable options as of December 31, 2010 was $610.9 million. As of December 31, 2010, there were 1.6 million unvested restricted common shares granted in connection with business acquisitions, which had a weighted average grant date fair value per share of $0.12. Note Receivable from Stockholders In July 2009, we received a full recourse note receivable from an employee as consideration for the early exercise of 5.6 million stock options. The note receivable had a face value of $1.0 million and bore a fixed interest rate of 2.8%. This transaction has been accounted for as a substantive grant of equity share options. Accordingly, we have not recorded the note in our financial statements as of December 31, 2010 and 2009. During 2010, pursuant to a mutual agreement between the employee and Zynga, 1.6 million of the early exercised shares were cancelled and the note balance was reduced by $0.3 million. In January 2011, the remaining note balance of $0.7 million, including accrued interest, was paid to us in full. Common Stock Reserved for Future Issuance For the period ended shown below, we had reserved shares of common stock for future issuance as follows (in thousands):
December 31, 2010
Convertible preferred stock Common stock warrants Stock options outstanding ZSUs outstanding Stock options and ZSUs reserved for future issuance
351,199 26,623 122,848 44,179 18,215 563,064 F-33
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Zynga Inc. Notes to Consolidated Financial Statements (continued) Accumulated Other Comprehensive Income The components of accumulated other comprehensive income, net of taxes, were as follows (in thousands):
December 31, 2009 2010 September 30, 2011 (Unaudited)
Unrealized gains on available-for-sale securities Foreign currency translation Accumulated other comprehensive income 9. Net Income (Loss) Per Share of Common Stock
$ $
3 18 21
$ $
117 (3) 114
$ $
42 506 548
We compute net income (loss) per share of common stock using the two-class method required for participating securities. We consider all series of our convertible preferred stock to be participating securities. Additionally, we consider shares issued upon the early exercise of options subject to repurchase and unvested restricted shares to be participating securities, because holders of such shares have non-forfeitable dividend rights in the event of our declaration of a dividend for common shares. In accordance with the two-class method, earnings allocated to these participating securities, which include participation rights in undistributed earnings (see Note 8 for a description), are subtracted from net income to determine total undistributed earnings to be allocated to common stockholders. Basic net income (loss) per common share is computed by dividing total undistributed earnings attributable to common stockholders by the weighted-average number of common shares outstanding during the period. All participating securities are excluded from basic weighted-average common shares outstanding. In computing diluted net income (loss) attributable to common stockholders, undistributed earnings are re-allocated to reflect the potential impact of dilutive securities, including stock options and warrants. The computation of the diluted net income (loss) per share of Class B common stock assumes the conversion from Class C common stock, while the diluted net income (loss) per share of Class C common stock does not assume the conversion of those shares. Diluted net income (loss) per share attributable to common stockholders is computed by dividing net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding, including potential dilutive common shares assuming the dilutive effect of both outstanding stock options and warrants. F-34
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Zynga Inc. Notes to Consolidated Financial Statements (continued) The following table sets forth the computation of basic and diluted net income (loss) per share of common stock (in thousands, except per share data):
2008 Class A BASIC: Net income (loss) Deemed dividend to a Series B-2 convertible preferred stockholder Net income attributable to participating securities $ Class B Class C Year Ended December 31, 2009 Class A Class B Class C Class A 2010 Class B Class C Nine Months Ended September 30, 2010 2011 (Unaudited) (Unaudited) Class Class Class Class Class Class A B C A B C $ $ 43,044 $ 4,559 $ $ 28,305 $ 2,384
$ (18,334) $ (3,781) $
$ (46,512) $ (6,310) $
$ 82,293 $ 8,302
4,169 52,785
421 5,325 $
4,150 27,701
440 2,935 $
$ $ $
(28,305) 243,597 0.00 $ $
(2,384) 20,517 0.00
Net income (loss) attributable to common stockholders $ Weighted average common shares outstanding Basic net income per share $
$ (18,334) $ (3,781) $ $ 99,473 20,517
$ (46,512) $ (6,310) $ $ 151,234 20,517
$ 25,339 $ 2,556 $ 203,364 0.12 $ 20,517 0.12
$ 11,193 $ 1,184 193,697 0.06 $ 20,517 0.06
(0.18) $ (0.18) $
(0.31) $ (0.31) $
DILUTED: Net income (loss) attributable to common stockholders $ Reallocation of net income (loss) attributable to participating securities Reallocation of net income (loss) as a result of conversion of Class C to Class B shares Reallocation of net income (loss) to Class C shares Net income (loss) attributable to common stockholders for diluted net income (loss) per share $ Number of shares used in basic computation Conversion of Class C to Class B common shares outstanding Weighted average effect of dilutive securities: Employee stock options Warrants Number of shares used in diluted net income (loss) per share Diluted net income (loss) per share $
$ (18,334) $ (3,781) $
$ (46,512) $ (6,310) $
$ 25,339 $ 2,556
$ 11,193 $ 1,184
6,860
3,319
(3,781)
(6,310)
2,556
(390)
1,184
(185)
$ (22,115) $ (3,781) $ 99,473 20,517
$ (52,822) $ (6,310) $ 151,234 20,517
$ 34,755 $ 2,166 203,364 20,517
$ 15,696 $ 193,697
999 20,517
243,597
20,517
20,517
20,517
20,517
20,517
20,517
94,301 11,074
96,619 11,524
119,990
20,517
171,751
20,517
329,256 0.11 $
20,517 0.11 $
322,357 0.05 $
20,517 0.05 $
264,114 0.00 $
20,517 0.00
(0.18) $ (0.18) $
(0.31) $ (0.31) $
F-35
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Zynga Inc. Notes to Consolidated Financial Statements (continued) Unaudited Pro Forma Net Income Per Share for Common Stock Unaudited pro forma basic and diluted net income (loss) per common share for the year ended December 31, 2010 and the nine months ended September 30, 2011 gives effect to the conversion of the Companys convertible preferred stock (using the as if-converted method) into common stock as though the conversion had occurred as of the beginning of the period or the original date of issuance, if later. In addition, upon the satisfaction of the qualifying liquidity event (initial public offering or change of control), employees vested ZSUs, less shares of common stock withheld to satisfy minimum tax withholding obligations, will automatically be converted into Class B common stock. As such, the converted Class B common stock are reflected in the denominator of the pro forma basic earnings per share calculation as though the vesting event had occurred as of the beginning of the period. Stock compensation expense associated with vesting of ZSUs that will occur upon the satisfaction of the liquidity event criteria is excluded from this pro forma presentation. If the vesting condition related to the qualifying liquidity event had occurred on December 31, 2010 or September 30, 2011, we would have recorded $81.8 million or $393.0 million (unaudited) of stock compensation expense on that date related to ZSUs, respectively.
Year Ended December 31, 2010 (Unaudited) (in thousands) Class B Nine Months Ended September 30, 2011(A) (Unaudited) (in thousands) Class A Class B Class C
Class A
Class C
Net income as reported Reallocation of net income due to pro forma adjustments Net income attributable to participating securities Net income attributable to common stockholders used in pro forma basic earnings per share calculation Adjustment to net income for Class C shares due to dilution Net income attributable to common stockholders used in pro forma diluted earnings per share calculation Weighted-average shares used to compute basic net income per share Pro forma adjustment to reflect assumed conversion of preferred stock to common stock upon consummation of the Company's expected initial public offering Pro forma adjustment to reflect assumed vesting of ZSUs upon consummation of the Companys expected initial public offering, net of shares withheld to satisfy minimum tax withholding obligations Weighted-average shares used to compute basic pro forma net income per share Diluted shares: Weighted-average shares used to compute basic pro forma net income per share Weighted-average effect of dilutive securities Employee stock options, including options subject to repurchase Restricted shares Warrants Weighted-average shares used to compute diluted pro forma net income per share Pro forma net income per share attributable to common stockholders: Basic Diluted
$ 82,293
$ 8,302
$ 28,305
$ 2,384
203,364
20,517
243,597
20,517
241,964
300,968
$ $ F-36
$ $
$ $
$ $
$ $
$ $
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Zynga Inc. Notes to Consolidated Financial Statements (continued) The following weighted-average employee stock options were excluded from the calculation of diluted net income (loss) per share and pro forma diluted net income per share attributable to common stockholders because their effect would have been anti-dilutive for the periods presented (in thousands):
2008 Year Ended December 31, 2009 2010 Nine Months Ended September 30, 2010 2011 (Unaudited) (Unaudited)
Stock options 10. Commitments and Contingencies Lease Commitments
5,835
12,768
5,235
7,232
We have entered into operating leases for facilities space. In 2010, we executed an operating lease agreement for 267,000 square feet of office space for our future headquarters in San Francisco, California. The lease term is seven years from the defined commencement date, with options to renew for two five-year terms. Under the terms of the lease we were provided $13.6 million in leasehold incentives and $9.8 million in rent abatements. Currently we intend to maintain our headquarters in San Francisco through the initial lease term, and therefore, amortize associated incentives and recognize rent associated with the lease on a straight line basis over the initial lease term. The minimum lease commitments for this lease agreement are included in the table below. Future minimum lease payments that have initial or remaining non-cancelable lease terms as of December 31, 2010, are as follows (in millions): Year ending December 31: 2011 2012 2013 2014 2015 and beyond $ 10.8 13.4 16.7 18.4 42.6 $101.9 Rent expense on operating leases for facilities for the years ended December 31, 2008, 2009 and 2010 totaled $0.5 million, $2.2 million and $7.0 million, respectively. Future lease obligations increased during the nine months ended September 30, 2011 for costs related to additional leases and amendments. Future payments associated with lease obligations increased by $155 million (unaudited) of which $4.5 million (unaudited) are due in less than one year, $33.8 million (unaudited) are due between one and three years, $37.9 million (unaudited) are due between four and five years, and $78.8 million (unaudited) are due after five years. Other Purchase Commitments Zynga has entered into several service contracts for hosting of data systems and payment processing. Future minimum purchase commitments that have initial or remaining non-cancelable terms as of December 31, 2010, are as follows (in millions): Year ending December 31: 2011 2012 $12.0 3.5 $15.5 F-37
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Zynga Inc. Notes to Consolidated Financial Statements (continued) Future minimum purchase commitments increased during the nine months ended September 30, 2011 for costs associated with hosting of data systems. Future payments associated with minimum purchase commitments increased by $39.1 million (unaudited), of which $32.7 million (unaudited) are due in less than one year, and $6.4 million (unaudited) are due between one and three years. Legal Matters From time to time, we may become subject to legal proceedings, claims, and litigation arising in the ordinary course of business. In addition, we may receive notification alleging infringement of patent or other intellectual property rights. We are not currently a party to any material legal proceedings, nor are we aware of any pending or threatened litigation that in our opinion would have a material adverse effect on our business, operating results, cash flows, or financial condition should such litigation be resolved unfavorably. Included in general and administrative expense within the consolidated statements of operations for the year ended December 31, 2010 is a net gain of $39.3 million related to legal settlements. In 2008, we recorded $7.0 million of general and administrative expenses related to a legal settlement. Indemnification Agreements In the ordinary course of business, we may provide indemnifications of varying scope and terms to customers, 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 us, or from intellectual property infringement claims made by third parties. In addition, we have entered into indemnification agreements with our directors and certain of our officers that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. To date, we have not incurred any material costs as a result of such indemnifications and have not accrued any liabilities related to such obligations in our consolidated financial statements. 11. 401(k) Plan We have a qualified defined contribution plan under Section 401(k) of the Internal Revenue Code. Substantially all full-time employees qualify for participation in the plan. To date, we have not made any matching contributions to this plan. 12. Geographical Information The following represents our geographic revenue based on the location of our players:
Revenue (in thousands) 2008 Year Ended December 31, 2009 2010 Nine Months Ended September 30, 2010 2011 (Unaudited) (Unaudited)
United States All other countries (1) Total revenue (1)
$16,774 2,636 $19,410
$ 88,440 33,027 $121,467
$402,010 195,449 $597,459
$ $
271,600 130,100 401,700
$ $
538,349 290,514 828,863
No country exceeded 10% of our total revenue for any periods presented. F-38
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Zynga Inc. Notes to Consolidated Financial Statements (continued)

Property and equipment, net (in thousands) 2008 December 31, 2009 2010 September 30, 2011 (unaudited)
United States All other countries Total property and equipment, net 13. Credit Facility (unaudited)
$4,052 $4,052
$34,827 $34,827
$73,649 1,310 $74,959
$ $
217,668 3,478 221,146
In July 2011, we executed a revolving credit agreement with certain lenders to borrow up to $1.0 billion in revolving loans. Per the terms of the credit agreement, we paid upfront fees of $2.5 million and we are required to pay ongoing commitment fees of up to $625,000 each quarter based on the portion of the credit facility that is not drawn down. The interest rate for the credit facility is determined based on a formula using certain market rates, as described in the credit agreement. We have not drawn down any funds under the terms of the credit agreement. 14. Subsequent Events For our consolidated financial statements as of December 31, 2009 and 2010, and for each of the three years in the period ended December 31, 2010, we evaluated subsequent events through July 1, 2011, the date our consolidated financial statements were available to be issued. Acquisitions From April through June 2011, we acquired five companies to expand our online social game offerings and our software development and engineering teams. These acquisitions were not individually significant and had an aggregate purchase price of $10.4 million. 15. Subsequent Events (unaudited) For our consolidated financial statements as of September 30, 2011 and for the nine months then ended, we evaluated subsequent events through November 17, 2011, the date our consolidated financial statements were available to be issued. Acquisitions From October 1, 2011 through November 17, 2011, we acquired two companies to expand our online social game offerings and our software development and engineering teams. These acquisitions were not individually significant and had an aggregate purchase price of $4.9 million. F-39
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PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. Other Expenses of Issuance and Distribution. The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable in connection with the sale and distribution of the securities being registered. All amounts are estimated except the SEC registration fee, the FINRA filing fee and the NASDAQ Global Select Market listing fee. Except as otherwise noted, all the expenses below will be paid by Zynga.
Item Amount
SEC Registration fee FINRA filing fee Initial NASDAQ Global Select Market listing fee Legal fees and expenses Accounting fees and expenses Printing and engraving expenses Transfer agent and registrar fees and expenses Blue Sky fees and expenses Miscellaneous fees and expenses Total * To be filed by amendment.
$116,100 75,500 250,000 * * * * * * $ *
ITEM 14. Indemnification of Directors and Officers. Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporations board of directors to grant, indemnity to directors and officers in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities, including reimbursement for expenses incurred, arising under the Securities Act of 1933, as amended. Our amended and restated certificate of incorporation to be in effect upon the closing of this offering provides for indemnification of our directors, officers, employees and other agents to the maximum extent permitted by the Delaware General Corporation Law, and our amended and restated bylaws to be in effect upon the closing of this offering provide for indemnification of our directors, officers, employees and other agents to the maximum extent permitted by the Delaware General Corporation Law. We have entered into indemnification agreements with our directors and officers, whereby we have agreed to indemnify our directors and officers to the fullest extent permitted by law, including advancement of expenses incurred in legal proceedings to which the director or officer was, or is threatened to be made, a party by reason of the fact that such director or officer is or was a director, officer, employee or agent of Zynga, provided that such director or officer acted in good faith and in a manner that the director or officer reasonably believed to be in, or not opposed to, the best interest of Zynga. At present, there is no pending litigation or proceeding involving a director or officer of Zynga regarding which indemnification is sought, nor is the registrant aware of any threatened litigation that may result in claims for indemnification. We maintain insurance policies that indemnify our directors and officers against various liabilities arising under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, and amended, that might be incurred by any director or officer in his capacity as such. The underwriters are obligated, under certain circumstances, pursuant to the underwriting agreement to be filed as Exhibit 1.1 hereto, to indemnify us, our officers, directors and the selling stockholders against liabilities under the Securities Act of 1933, as amended. II-1
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ITEM 15. Recent Sales of Unregistered Securities. The following sets forth information regarding all unregistered securities sold since January 1, 2008: (a) From January 1, 2008 to October 31, 2011, options to purchase 151,286,806 shares have been exercised by our employees, directors, consultants and former employees for cash consideration in the aggregate amount of $8,411,894. From January 1, 2008 to October 31, 2011, we granted restricted stock units for 109,114,422 shares to our employees and directors. Issuances of Capital Stock (1) (2) (3) (4) (5) (6) (7) (8) On February 12, 2008, we issued 40,207,312 shares of our Series A-1 preferred stock, par value $0.00000625, to accredited investors at a price per share of $0.125 for an aggregate purchase price of $5,025,914. On July 18, 2008, we issued 59,391,296 shares of our Series B preferred stock, par value $0.00000625, to accredited investors at a price per share of $0.4209375 for an aggregate purchase price of $25,000,024. On November 4, 2009, we issued 3,200,000 shares of our Series B-1 preferred stock, par value $0.00000625, to accredited investors at a price per share of $4.746075 for an aggregate purchase price of $15,187,440. On April 24, 2010, we issued 2,330,472 shares of our Series B-2 preferred stock, par value $0.00000625, to accredited investors at a price per share of $6.436465 for an aggregate purchase price of $15,000,002. On June 1, 2010, we issued 22,527,892 shares of our Series B-2 preferred stock, par value $0.00000625, to accredited investors at a price per share of $6.436465 for an aggregate purchase price of $144,999,988. On June 3, 2010, we issued 23,304,716 shares of our Series B-2 preferred stock, par value $0.00000625, to accredited investors at a price per share of $6.436465 for an aggregate purchase price of $149,999,989. On February 18, 2011, we issued 34,927,368 shares of our Series C preferred stock, par value $0.00000625, to accredited investors at a price per share of $14.029115 for an aggregate purchase price of $490,000,062. From January 1, 2008 to December 31, 2009, we issued an aggregate of 15,965,936 shares of our Class B common stock, par value $0.00000625, as consideration to certain investors in connection with acquisitions: (i) (ii) (iii) (iv) We issued shares of Class B common stock to three individuals in connection with an acquisition. We issued shares of Class B common stock to one individual in connection with the purchase of certain assets. We issued shares of Class B common stock to one individual in connection with the purchase of certain assets. We issued shares of Class B common stock to five individuals in connection with an acquisition. II-2
(b)
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(9)
From January 1, 2010 to December 31, 2010, we issued an aggregate of 26,583,930 shares of our Series Z preferred stock, par value $0.00000625, as consideration to certain investors in connection with acquisitions: (i) (ii) (iii) (iv) (v) (vi) We issued shares of our Series Z preferred stock to five entities or individuals in connection with an acquisition. We issued shares of our Series Z preferred stock to thirteen entities or individuals in connection with an acquisition. We issued shares of our Series Z preferred stock to ten entities or individuals in connection with an acquisition. We issued shares of our Series Z preferred stock to seven entities or individuals in connection with an acquisition. We issued shares of our Series Z preferred stock to three individuals in connection with an acquisition. We issued shares of our Series Z preferred stock to six individuals in connection with an acquisition.
(10)
From January 1, 2011 to date, we issued an aggregate of 2,393,627 shares of our Series Z preferred stock, par value $0.00000625, as consideration to certain investors in connection with acquisitions: (i) (ii) (iii) (iv) (v) (vi) We issued shares of our Series Z preferred stock to one individual in connection with an acquisition. We issued shares of our Series Z preferred stock to two individuals in connection with an acquisition. We issued shares of our Series Z preferred stock to fifteen entities or individuals in connection with an acquisition. We issued shares of our Series Z preferred stock to seven entities or individuals in connection with an acquisition. We issued shares of our Series Z preferred stock to four entities or individuals in connection with an acquisition. We issued shares of our Series Z preferred stock to three entities or individuals in connection with an acquisition.
The offers, sales and issuances of the securities described in Item 15(a) were deemed to be exempt from registration under the Securities Act under either (1) Rule 701 promulgated under the Securities Act as offers and sale of securities pursuant to certain compensatory benefit plans and contracts relating to compensation in compliance with Rule 701 or (2) Section 4(2) of the Securities Act as transactions by an issuer not involving any public offering, or because they did not involve a sales of securities. The recipients of securities in each of these transactions represented their intention to acquire the securities for investment only and not with view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the stock certificates and instruments issued in such transactions. All recipients had adequate access, through their relationships with us, to information about us. The offers, sales, and issuances of the securities described in Item 15(b) were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act or Regulation D promulgated thereunder as transactions by an issuer not involving a public offering. The recipients of securities in each of these transactions acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the securities issued in these transactions. Each of the recipients of securities in these transactions was an accredited or sophisticated person and had adequate access, through employment, business or other relationships, to information about us. II-3
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ITEM 16. Exhibits and Financial Statement Schedules. (a) Exhibits.

Exhibit No. Description of Exhibit
1.1* 3.1# 3.2 3.3# 3.4 4.1# 5.1* 10.1# 10.2#+ 10.3+ 10.4+ 10.5+ 10.6+ 10.7+ 10.8+ 10.9+ 10.10+ 10.11+ 10.12+ 10.13+ 10.14#
Form of Underwriting Agreement. Amended and Restated Certificate of Incorporation of Zynga Inc. Form of Amended and Restated Certificate of Incorporation of Zynga Inc., to be in effect upon closing of the offering. Amended and Restated Bylaws of Zynga Inc., as currently in effect. Form of Amended and Restated Bylaws of Zynga Inc., to be in effect upon closing of the offering. Form of Zynga Inc. Class A Common Stock Certificate. Form of Opinion of Cooley LLP. Fifth Amended and Restated Investor Rights Agreement, by and between Zynga Inc., the investors listed on Schedule A thereto and Mark Pincus, dated February 18, 2011. Zynga Inc. 2007 Equity Incentive Plan Forms of Stock Option Agreement and Stock Option Exercise Agreement under 2007 Equity Incentive Plan. Zynga Inc. 2011 Equity Incentive Plan Forms of Stock Option Grant Notice and Option Agreement under 2011 Equity Incentive Plan. Form of Indemnification Agreement made by and between Zynga Inc. and each of its directors and executive officers. Amended and Restated Offer Letter, between Zynga Inc. and Steven Chiang, dated October 26, 2011. Amended and Restated Offer Letter, between Zynga Inc. and Reginald D. Davis, dated October 26, 2011. Amended and Restated Offer Letter, between Zynga Inc. and Cadir Lee, dated October 21, 2011. Amended and Restated Offer Letter, between Zynga Inc. and Mark Pincus, dated November 16, 2011. Amended and Restated Offer Letter, between Zynga Inc. and John Schappert, dated July 22, 2011. Transition Letter Agreement, between Zynga Inc. and Owen Van Natta, dated November 16, 2011. Amended and Restated Offer Letter, between Zynga Inc. and David M. Wehner, dated November 16, 2011. Office Lease by and between 650 Townsend Associates LLC and Zynga Inc., dated September 24, 2010; First Amendment to Lease dated February 17, 2011; Second Amendment to Lease dated March 25, 2011; and Third Amendment to Lease dated September 27, 2011. Developer Addendum by and between facebook, Inc. and Zynga Inc., dated May 15, 2010 and Amendment No. 1 to Developer Addendum, dated October 13, 2011. Developer Addendum #2 by and between facebook, Inc. and Zynga Inc., dated December 27, 2010. Warrant to Purchase Class B Common Stock, dated July 18, 2008, issued to KPCB Holdings, Inc. Warrant to Purchase Class B Common Stock, dated July 31, 2009, issued to Allen & Company LLC. Warrant to Purchase Class B Common Stock, dated June 16, 2011, issued to Kleiner Perkins Caufield & Byers, LLC. II-4
10.15 10.16# 10.17# 10.18# 10.19#
Table of Contents Exhibit No. Description of Exhibit
10.20#+ 10.21# 10.22# 10.23+ 10.24+ 10.25+ 10.26+ 10.27+ 21.1# 23.1* 23.2 24.1# * + #
Zynga Inc. 2011 Employee Stock Purchase Plan. Revolving Credit Agreement, dated July 21, 2011, among Zynga Inc., The Lenders Party hereto and Morgan Stanley Senior Funding, Inc., as administrative agent. Office Lease by and between Chip Factory Commercial LLC and Zynga Inc., dated January 2008; Amendment to Lease, dated November 1, 2008; Amendment to Lease, dated February 1, 2011. Zynga Inc. Change in Control Severance Benefit Plan. Amended and Restated Offer Letter, between Zynga Inc. and Mark Vranesh, dated October 25, 2011. Amended and Restated Offer Letter between Zynga Inc. and Jeff Karp, dated October 25, 2011 Forms of Notice of Restricted Stock Unit Award and Restricted Stock Unit Agreement under 2007 Equity Incentive Plan. Forms of Restricted Stock Unit Grant Notice and Restricted Stock Unit Agreement under 2011 Equity Incentive Plan. List of subsidiaries. Consent of Cooley LLP (included in Exhibit 5.1). Consent of Independent Registered Public Accounting Firm. Power of Attorney. To be filed by amendment. Indicates management contract or compensatory plan. Portions of this exhibit have been omitted pending a determination by the Securities and Exchange Commission as to whether these portions should receive confidential treatment. Previously filed.
(b) Financial Statement Schedules. Schedule II Valuation and Qualifying Accounts

(In thousands) Beginning Balance Charged to Operations (A) Write-offs(B) Ending Balance
Allowance for Doubtful Accounts Year ended December 31, 2010 Year ended December 31, 2009 Year ended December 31, 2008 (A) (B) Reserves for customer balances Uncollectible accounts written off
$ $ $
356 210 0
$ $ $
9 175 210
$ $ $
(40) (29) (0)
$ 325 $ 356 $ 210
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. II-5
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Insofar as indemnification for liabilities arising under 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. 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. II-6
(2)
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SIGNATURES Pursuant to the requirements of the Securities Act of 1933, we have duly caused this Amendment No. 6 to the Registration Statement on Form S1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Francisco, State of California, on the 17th day of November, 2011. Zynga Inc. By: /S/ MARK PINCUS Mark Pincus Chief Executive Officer and Chairman Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 6 to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date
/S/ MARK PINCUS Mark Pincus /S/ DAVID M. W EHNER David M. Wehner /S/ MARK V RANESH Mark Vranesh * William Bing Gordon * Reid Hoffman * Jeffrey Katzenberg * Stanley J. Meresman Sunil Paul * John Schappert * Owen Van Natta *By: /s/ DAVID M. W EHNER David M. Wehner Attorney-in-fact
Chief Executive Officer and Chairman (Principal Executive Officer) Chief Financial Officer (Principal Financial Officer) Chief Accounting Officer (Principal Accounting Officer) Director
November 17, 2011
November 17, 2011
November 17, 2011
November 17, 2011
Director Director
November 17, 2011
November 17, 2011
Director
November 17, 2011
Director Director
November
, 2011
November 17, 2011
Director
November 17, 2011
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EXHIBIT INDEX
Exhibit No. Description of Exhibit
1.1* 3.1# 3.2 3.3# 3.4 4.1# 5.1* 10.1# 10.2#+ 10.3+ 10.4+ 10.5+ 10.6+ 10.7+ 10.8+ 10.9+ 10.10+ 10.11+ 10.12+ 10.13+ 10.14#
Form of Underwriting Agreement. Amended and Restated Certificate of Incorporation of Zynga Inc. Form of Amended and Restated Certificate of Incorporation of Zynga Inc., to be in effect upon closing of the offering. Amended and Restated Bylaws of Zynga Inc., as currently in effect. Form of Amended and Restated Bylaws of Zynga Inc., to be in effect upon closing of the offering. Form of Zynga Inc. Class A Common Stock Certificate. Form of Opinion of Cooley LLP. Fifth Amended and Restated Investor Rights Agreement, by and between Zynga Inc., the investors listed on Schedule A thereto and Mark Pincus, dated February 18, 2011. Zynga Inc. 2007 Equity Incentive Plan Forms of Stock Option Agreement and Stock Option Exercise Agreement under 2007 Equity Incentive Plan. Zynga Inc. 2011 Equity Incentive Plan Forms of Stock Option Grant Notice and Option Agreement under 2011 Equity Incentive Plan. Form of Indemnification Agreement made by and between Zynga Inc. and each of its directors and executive officers. Amended and Restated Offer Letter, between Zynga Inc. and Steven Chiang, dated October 26, 2011. Amended and Restated Offer Letter, between Zynga Inc. and Reginald D. Davis, dated October 26, 2011. Amended and Restated Offer Letter, between Zynga Inc. and Cadir Lee, dated October 21, 2011. Amended and Restated Offer Letter, between Zynga Inc. and Mark Pincus, dated November 16, 2011. Amended and Restated Offer Letter, between Zynga Inc. and John Schappert, dated July 22, 2011. Transition Letter Agreement, between Zynga Inc. and Owen Van Natta, dated November 16, 2011. Amended and Restated Offer Letter, between Zynga Inc. and David M. Wehner, November 16, 2011. Office Lease by and between 650 Townsend Associates LLC and Zynga Inc., dated September 24, 2010; First Amendment to Lease dated February 17, 2011; Second Amendment to Lease dated March 25, 2011; and Third Amendment to Lease dated September 27, 2011. Developer Addendum by and between facebook, Inc. and Zynga Inc., dated May 15, 2010 and Amendment No. 1 to Developer Addendum, dated October 13, 2011. Developer Addendum #2 by and between facebook, Inc. and Zynga Inc., dated December 27, 2010. Warrant to Purchase Class B Common Stock, dated July 18, 2008, issued to KPCB Holdings, Inc. Warrant to Purchase Class B Common Stock, dated July 31, 2009, issued to Allen & Company LLC. Warrant to Purchase Class B Common Stock, dated June 16, 2011, issued to Kleiner Perkins Caufield & Byers, LLC.
10.15 10.16# 10.17# 10.18# 10.19#
Table of Contents Exhibit No. Description of Exhibit
10.20#+ 10.21# 10.22# 10.23+ 10.24+ 10.25+ 10.26+ 10.27+ 21.1# 23.1* 23.2 24.1# * + #
Zynga Inc. 2011 Employee Stock Purchase Plan. Revolving Credit Agreement, dated July 21, 2011, among Zynga Inc., The Lenders Party hereto and Morgan Stanley Senior Funding, Inc., as administrative agent. Office Lease by and between Chip Factory Commercial LLC and Zynga Inc., dated January 2008; Amendment to Lease, dated November 1, 2008; Amendment to Lease, dated February 1, 2011. Zynga Inc. Change in Control Severance Benefit Plan. Amended and Restated Offer Letter, between Zynga Inc. and Mark Vranesh, dated October 25, 2011. Amended and Restated Offer Letter, between Zynga Inc. and Jeff Karp, dated October 25, 2011. Forms of Notice of Restricted Stock Unit Award and Restricted Stock Unit Agreement under 2007 Equity Incentive Plan. Forms of Restricted Stock Unit Grant Notice and Restricted Stock Unit Agreement under 2011 Equity Incentive Plan. List of subsidiaries. Consent of Cooley LLP (included in Exhibit 5.1). Consent of Independent Registered Public Accounting Firm. Power of Attorney. To be filed by amendment. Indicates management contract or compensatory plan. Portions of this exhibit have been omitted pending a determination by the Securities and Exchange Commission as to whether these portions should be granted confidential treatment. Previously filed.
Exhibit 3.2 SIXTEENTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF ZYNGA INC. Zynga Inc., a Delaware corporation, hereby certifies that: 1. The name of the corporation is Zynga Inc. The corporation filed its original Certificate of Incorporation with the Secretary of State on October 26, 2007 under the name Presidio Media Inc. 2. This Sixteenth Amended and Restated Certificate of Incorporation of the corporation attached hereto as Exhibit A, which is incorporated herein by this reference, and which restates, integrates and further amends the provisions of the Certificate of Incorporation of this corporation as previously amended or supplemented, has been duly adopted by the corporations Board of Directors and a majority of the corporations outstanding stock in accordance with Sections 242 and 245 of the Delaware General Corporation Law, with the approval of the corporations stockholders having been given by written consent without a meeting in accordance with Section 228 of the Delaware General Corporation Law. IN WITNESS WHEREOF, said corporation has caused this Sixteenth Amended and Restated Certificate of Incorporation to be signed by its duly authorized officer and the foregoing facts stated herein are true and correct. Dated: , 2011 ZYNGA INC. By: Mark Pincus, President and Chief Executive Officer
EXHIBIT A SIXTEENTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF ZYNGA INC. ARTICLE I NAME The name of the corporation is Zynga Inc. ARTICLE II REGISTERED AGENT The address of the registered office of the Corporation in the State of Delaware is 2711 Centerville Road, Suite 400, County of New Castle, Wilmington, Delaware 19808. The name of its registered agent at that address is Corporation Service Company. ARTICLE III PURPOSE 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 AUTHORIZED STOCK 1. Authorized Shares. This Corporation is authorized to issue two classes of shares, designated Common Stock and Preferred Stock. The total number of shares of Common Stock authorized to be issued is 2,020,517,472 shares, $0.00000625 par value per share, 1,100,000,000 of which are designated Class A Common Stock, 900,000,000 of which are designated Class B Common Stock and 20,517,472 of which are designated Class C Common Stock . The total number of shares of Preferred Stock authorized to be issued is 2,000,000 shares, $0.00000625 par value per share. 2. Preferred Stock . The Preferred Stock may be issued from time to time in one or more series. The Board is hereby expressly authorized to provide for the issue of all or any of the shares of the Preferred Stock in one or more series, and to fix the number of shares and to determine or alter for each such series, such voting powers, full or limited, or no voting powers, and such designation, preferences, and relative, participating, optional, or other rights and such qualifications, limitations, or restrictions thereof, as shall be stated and expressed in the
resolution or resolutions adopted by the Board providing for the issuance of such shares and as may be permitted by the Delaware General Corporation Law. The Board is also expressly authorized to increase or decrease the number of shares of any series of Preferred Stock subsequent to the issuance of shares of that series of Preferred Stock, but not below the number of shares of such series of Preferred Stock then outstanding. In case the number of shares of any series of Preferred Stock shall be decreased in accordance with the foregoing sentence, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series of Preferred Stock. The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the voting power of the stock of the corporation entitled to vote thereon, without a separate vote of the holders of the Preferred Stock, or of any series thereof, unless a vote of any such holders is required pursuant to the terms of any certificate of designation filed with respect to any series of Preferred Stock. ARTICLE V TERMS OF CLASSES AND SERIES The rights, preferences, privileges and restrictions granted to and imposed on the Common Stock are as follows: 1. Definitions. For purposes of this Article V, the following definitions apply; 1.1 Amended and Restated Certificate of Incorporation shall mean this Sixteenth Amended and Restated Certificate of Incorporation of the Corporation. 1.2 Board shall mean the Board of Directors of the Corporation. 1.3 Class A Common Stock shall mean the Class A Common Stock, $0.00000625 par value per share, of the Corporation. 1.4 Class B Common Stock shall mean the Class B Common Stock, $0.00000625 par value per share, of the Corporation. 1.5 Class C Common Stock shall mean the Class C Common Stock, $0.00000625 par value per share, of the Corporation. 1.6 Common Stock shall mean the Class A Common Stock, Class B Common Stock and the Class C Common Stock. 1.7 Combination Transaction shall mean any reorganization by way of share exchange, consolidation or merger or otherwise, in one transaction or series of related transactions, in which the Corporation is a constituent corporation or is a party with another entity if, as a result of such Combination Transaction, the voting securities of the Corporation that are outstanding immediately prior to the consummation of such Combination Transaction (other than any such securities that are held by an Acquiring Stockholder) do not represent, or are not converted into, securities of the surviving corporation of such Combination Transaction 2
(or such surviving corporations parent corporation if the surviving corporation is owned by the parent corporation) that, immediately after the consummation of such Combination Transaction, together possess a majority of the total voting power of all securities of such surviving corporation (or its parent corporation, if applicable) that are outstanding immediately after the consummation of such Combination Transaction, including securities of such surviving corporation (or its parent corporation, if applicable) that are held by the Acquiring Stockholder. As used herein, the term Acquiring Stockholder means a stockholder or group of stockholders of the Corporation that (i) merges or combines with the Corporation in such Combination Transaction or (ii) owns or controls a majority of another corporation that merges or combines with the Corporation in such Combination Transaction. 1.8 Corporation shall mean Zynga Inc. 1.9 Disability means permanent and total disability such that the Founder is unable to engage in any substantial gainful activity by reason of any medically determinable mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months as determined by a licensed medical practitioner. In the event of a dispute whether the Founder has suffered a Disability, no Disability of the Founder shall be deemed to have occurred unless and until an affirmative ruling regarding such Disability has been made by a court of competent jurisdiction, and such ruling has become final and non-appealable. 1.10 Effective Time shall mean the time at which this Amended and Restated Certificate of Incorporation is accepted for filing with the Secretary of State of the State of Delaware. 1.11 Final Conversion Date means 5:00 p.m. in New York City, New York on the first day falling on or after the date on which the outstanding shares of Class B Common Stock and Class C Common Stock together represent less than 10% of the total voting power of the shares of the Corporation then entitled to vote. 1.12 Founder means Mark Pincus. 1.13 Permitted Transfer shall mean a Transfer by a Senior Common Stockholder, for tax or estate planning purposes, to any of the persons or entities listed in clauses (a) through (c) below (each, a Permitted Transferee) and from any such Permitted Transferee back to such Senior Common Stockholder and/or any other Permitted Transferee established by or for such Senior Common Stockholder: (a) a trust for the benefit of such Senior Common Stockholder or persons other than the Senior Common Stockholder, if such Transfer does not involve any payment of cash, securities, property or other consideration (other than an interest in such trust) to the Senior Common Stockholder, or a trust under the terms of which such Senior Common Stockholder has retained a qualified interest within the meaning of 2702(b)(1) of the Internal Revenue Code and/or a reversionary interest, in each case so long as the Senior Common Stockholder has sole dispositive power and exclusive Voting Control with respect to the shares of Class B Common Stock and/or Class C Common Stock held by such trust; 3
(b) an Individual Retirement Account, as defined in Section 408(a) of the Internal Revenue Code, or a pension, profit sharing, stock bonus or other type of plan or trust of which such Senior Common Stockholder is a participant or beneficiary and which satisfies the requirements for qualification under Section 401 of the Internal Revenue Code; provided that in each case such Senior Common Stockholder has sole dispositive power and exclusive Voting Control with respect to the shares of Class B Common Stock and/or Class C Common Stock held in such account, plan or trust; or (c) a corporation, partnership or limited liability company in which such Senior Common Stockholder directly, or indirectly through one or more Permitted Transferees, owns shares, partnership interests or membership interests, as applicable, with sufficient Voting Control in the corporation, partnership or limited liability company, as the case may be, or otherwise has legally enforceable rights, such that the Senior Common Stockholder retains sole dispositive power and exclusive Voting Control with respect to the shares of Class B Common Stock and/or Class C Common Stock held by such corporation, partnership or limited liability company, as the case may be; provided, however, that in the event the Senior Common Stockholder (X) no longer has sole dispositive power and exclusive Voting Control with respect to the Shares of Class B Common Stock and/or Class C Common Stock then held by such trust under clause (a) above, account, plan or trust under clause (b) above, or (Y) no longer owns sufficient shares, partnership interests or membership interests, as applicable, or otherwise no longer has sufficient legally enforceable rights to ensure the Senior Common Stockholder retains sole dispositive power and exclusive Voting Control with respect to the shares of Class B Common Stock and/or Class C Common Stock then held by such corporation, partnership or limited liability company under clause (c) above, all shares of Class B Common Stock and/or Class C Common Stock then held by such trust, account, plan or trust, corporation, partnership or limited liability company, as applicable, shall automatically convert into fully paid and nonassessable shares of Class A Common Stock on the terms set forth in Section 5. 1.14 Preferred Stock shall mean the Preferred Stock, $0.00000625 per share, of the Corporation. 1.15 Senior Common Stockholder means any registered holder of a share of Class B Common Stock and/or Class C Common Stock as of immediately after the filing of this Amended and Restated Certificate of Incorporation. 1.16 Subsidiary shall mean any corporation of which at least fifty percent (50%) of the outstanding voting stock is at the time owned directly or indirectly by the Corporation or by one or more of such subsidiary corporations. 1.17 Transfer of a share of capital stock of the Corporation shall mean any sale, assignment, transfer, conveyance, hypothecation or other transfer or disposition of such share or any legal or beneficial interest in such share, whether or not for value and whether voluntary or involuntary or by operation of law; provided, however, that the following shall not be considered a Transfer: (a) the granting of a revocable proxy to officers or directors of the Corporation at the request of the Board in connection with actions to be taken at an annual or 4
special meeting of stockholders; (b) entering into a voting trust, agreement or arrangement (with or without granting a proxy) solely with the Corporation and/or its stockholders that (i) is disclosed either in a Schedule 13D filed with the Securities and Exchange Commission or in writing to the Secretary of the Corporation, (ii) either has a term not exceeding one (1) year or is terminable by the holder of the shares subject thereto at any time and (iii) does not involve any payment of cash, securities, property or other consideration to the holder of the shares subject thereto other than the mutual promise to vote shares in a designated manner; or (c) the pledge of shares of capital stock of the Corporation by a stockholder that creates a mere security interest in such shares pursuant to a bona fide loan or indebtedness transaction so long as such stockholder continues to exercise sole voting control over such pledged shares; provided, however, that a foreclosure on such shares or other similar action by the pledgee shall constitute a Transfer. 1.18 Voting Control with respect to a share of Class B Common Stock shall mean the exclusive power (whether directly or indirectly) to vote or direct the voting of such share of Class B Common Stock by proxy, voting agreement, or otherwise, and with respect to a share of Class C Common Stock shall mean the exclusive power (whether directly or indirectly) to vote or direct the voting of such share of Class C Common Stock by proxy, voting agreement, or otherwise. 2. Reserved. 3. Reserved. 4. Voting Rights. 4.1 Common Stock. (a) Class A Common Stock. Each holder of shares of Class A Common Stock shall be entitled to one vote for each share thereof held. (b) Class B Common Stock. Each holder of shares of Class B Common Stock shall be entitled to the number of votes equal to seven times (7x) the number of whole shares of Class A Common Stock into which such shares of Class B Common Stock could be converted pursuant to the provisions of Section 5 hereof at the record date for the determination of the stockholders entitled to vote on such matters or, if no such record date is established, the date such vote is taken or any written consent of stockholders is solicited. (c) Class C Common Stock. Each holder of shares of Class C Common Stock shall be entitled to the number of votes equal to seventy times (70x) the number of whole shares of Class A Common Stock into which such shares of Class C Common Stock could be converted pursuant to the provisions of Section 5 hereof at the record date for the determination of the stockholders entitled to vote on such matters or, if no such record date is established, the date such vote is taken or any written consent of stockholders is solicited. 4.2 General. Subject to the other provisions of this Amended and Restated Certificate of Incorporation, each holder of Class B Common Stock and/or Class C Common Stock shall have full voting rights and powers equal to the voting rights and powers of the holders of Class A Common Stock, and shall be entitled to notice of any stockholders meeting 5
in accordance with the Bylaws of the Corporation (as in effect at the time in question) and applicable law, and shall be entitled to vote, together with the holders of Class A Common Stock, with respect to any question upon which holders of Class A Common Stock have the right to vote, except as may be otherwise required by applicable law. Except as otherwise expressly provided herein or as required by law, the holders of Class A Common Stock, Class B Common Stock and Class C Common Stock shall vote together and not as separate series or classes. 4.3 Changes to Authorized Class A Common Stock . The number of authorized shares of Class A Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding), by the affirmative vote of the holders of a majority of the voting power of all shares of capital stock of the Corporation entitled to vote thereon without a vote of the holders of the Class A Common Stock voting as a separate class, irrespective of the provisions of Section 242(b)(2) of the Delaware General Corporation Law. 4.4 Election of Directors . Subject to any rights of the holders of any series of Preferred Stock to elect directors under specified circumstances, the holders of Common Stock, voting together as a single class, shall be entitled to elect, remove and replace all directors of the Corporation. 5. Conversion Rights. The outstanding shares of Class B Common Stock shall be convertible into Class A Common Stock and the outstanding shares of Class C Common Stock shall be convertible into Class A Common Stock as follows: 5.1 Optional Conversion. (a) Optional Conversion of the Class B Common Stock . (i) At the option of the holder thereof, each share of Class B Common Stock shall be convertible, at any time or from time to time prior to the close of business on the business day before any date fixed for redemption of such share, into one fully paid and nonassessable share of Class A Common Stock as provided herein. (ii) Each holder of Class B Common Stock who elects to convert the same into shares of Class A Common Stock shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or any transfer agent for the Class A Common Stock or Class B Common Stock, and shall give written notice to the Corporation at such office that such holder elects to convert the same and shall state therein the number of shares of Class B Common Stock being converted. Thereupon the Corporation shall promptly issue and deliver at such office to such holder a certificate or certificates for the number of shares of Class A Common Stock to which such holder is entitled upon such conversion. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the certificate or certificates representing the shares of Class B Common Stock to be converted, and the person entitled to receive the shares of Class A Common Stock issuable upon such conversion shall be treated for all purposes as the record holder of such shares of Class A Common Stock on such date. If a conversion election under this paragraph 3.1(a) is made in connection with an underwritten offering of the Corporations securities pursuant to the Securities Act of 1933, as amended, the conversion may, at the option 6
of the holder tendering shares of Class B Common Stock for conversion, be conditioned upon the closing with the underwriters of the sale of the Corporations securities pursuant to such offering, in which event the holders making such elections who are entitled to receive Class A Common Stock upon conversion of their Class B Common Stock shall not be deemed to have converted such shares of Class B Common Stock until immediately prior to the closing of such sale of the Corporations securities in the offering. (b) Optional Conversion of the Class C Common Stock . (i) At the option of the holder thereof, each share of Class C Common Stock shall be convertible, at any time or from time to time prior to the close of business on the business day before any date fixed for redemption of such share, into one fully paid and nonassessable share of Class A Common Stock as provided herein. (ii) Each holder of Class C Common Stock who elects to convert the same into shares of Class A Common Stock shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or any transfer agent for the Class A Common Stock or Class C Common Stock, and shall give written notice to the Corporation at such office that such holder elects to convert the same and shall state therein the number of shares of Class C Common Stock being converted. Thereupon the Corporation shall promptly issue and deliver at such office to such holder a certificate or certificates for the number of shares of Class A Common Stock to which such holder is entitled upon such conversion. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the certificate or certificates representing the shares of Class C Common Stock to be converted, and the person entitled to receive the shares of Class A Common Stock issuable upon such conversion shall be treated for all purposes as the record holder of such shares of Class A Common Stock on such date. If a conversion election under this paragraph 3.1(b) is made in connection with an underwritten offering of the Corporations securities pursuant to the Securities Act of 1933, as amended, the conversion may, at the option of the holder tendering shares of Class C Common Stock for conversion, be conditioned upon the closing with the underwriters of the sale of the Corporations securities pursuant to such offering, in which event the holders making such elections who are entitled to receive Class A Common Stock upon conversion of their Class C Common Stock shall not be deemed to have converted such shares of Class C Common Stock until immediately prior to the closing of such sale of the Corporations securities in the offering. 5.2 Automatic Conversion of the Class B Common Stock . Subject to any adjustments required by Sections 5.5 and 5.6, a share of Class B Common Stock shall automatically be converted into one fully paid and nonassessable share of Class A Common Stock upon the earlier of (a) a Transfer, other than a Permitted Transfer, of such share of Class B Common Stock or (b) the Final Conversion Date. Such conversion shall occur automatically without the need for any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent; provided, however, that the Corporation shall not be obligated to issue certificates evidencing the shares of Class A Common Stock issuable upon such conversion unless the certificates evidencing such shares of Class B Common Stock are either delivered to the Corporation or its transfer agent as provided below, or the holder notifies the Corporation or its transfer agent that 7
such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates. Upon the occurrence of such automatic conversion of the Class B Common Stock, the holders of Class B Common Stock shall surrender the certificates representing such shares at the office of the Corporation or any transfer agent for the Common Stock. Thereupon, there shall be issued and delivered to such holder promptly at such office and in its name as shown on such surrendered certificate or certificates, a certificate or certificates for the number of shares of Class A Common Stock into which the shares of Class B Common Stock surrendered were convertible on the date on which such automatic conversion occurred. 5.3 Automatic Conversion of the Class C Common Stock . Subject to any adjustments required by Sections 5.5 and 5.6, a share of Class C Common Stock shall automatically be converted into one fully paid and nonassessable share of Class A Common Stock upon the earlier of (a) a Transfer, other than a Permitted Transfer, of such share of Class C Common Stock or (b) the Final Conversion Date. Such conversion shall occur automatically without the need for any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent; provided, however, that the Corporation shall not be obligated to issue certificates evidencing the shares of Class A Common Stock issuable upon such conversion unless the certificates evidencing such shares of Class C Common Stock are either delivered to the Corporation or its transfer agent as provided below, or the holder notifies the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates. Upon the occurrence of such automatic conversion of the Class C Common Stock, the holders of Class C Common Stock shall surrender the certificates representing such shares at the office of the Corporation or any transfer agent for the Common Stock. Thereupon, there shall be issued and delivered to such holder promptly at such office and in its name as shown on such surrendered certificate or certificates, a certificate or certificates for the number of shares of Class A Common Stock into which the shares of Class C Common Stock surrendered were convertible on the date on which such automatic conversion occurred. 5.4 Conversion Upon Death or Disability . Each share of Class B Common Stock held of record by a Senior Common Stockholder, other than the Founder, who is a natural person, or by such Senior Common Stockholders Permitted Transferees, shall automatically, without any further action, convert into one fully paid and nonassessable share of Class A Common Stock upon the death of such Senior Common Stockholder. Each share of Class B Common Stock and Class C Common Stock held by the Founder shall automatically, without any further action, convert into one fully paid and nonassessable share of Class A Common Stock nine months after the date of the death or Disability of the Founder. 5.5 Common Class Adjustments for Other Dividends and Distributions . If, at any time or from time to time on or after the Effective Time, the Corporation pays a dividend or makes another distribution to the holders of Class A Common Stock payable in securities of the Corporation, without an equivalent issuance by the Corporation of securities of the Corporation as a dividend or other distribution on the outstanding shares of all other classes of Common Stock (each a Class A Event ), then, in each such event, provision shall be made so that the holders of any class of Common Stock that are not receiving such dividend or distribution with 8
respect to such other class of Common Stock (the Non-Distribution Common Classes ) shall receive upon conversion of their shares of such NonDistribution Common Classes into Class A Common Stock, in addition to the number of shares of Common Stock receivable upon conversion thereof pursuant to this Section 5, the number of shares of Class A Common Stock that they would have received had their shares of the NonDistribution Common Classes been converted into Class A Common Stock immediately prior to the first Class A Event (or the record date for the first Class A Event, as applicable) and had they continuously held such shares of Class A Common Stock during the period from the date of the first Class A Event (or the record date for the first Class A Event, as applicable) to and including the conversion date, subject to all other adjustments called for during such period under this Section 5 with respect to the rights of the holders of the Class A Common Stock (which shall not in any way limit or preclude further adjustments pursuant to this Section 5 for any future Class A Events). 5.6 Common Class Adjustment for Stock Splits or Combinations . (a) If at any time or from time to time after the Effective Time, the Corporation effects a subdivision of the outstanding shares of the Class A Common Stock into a greater number of shares of Class A Common Stock without an equivalent subdivision of the outstanding shares of the Class B Common Stock, then in the event of a conversion of shares of Class B Common Stock into shares of Class A Common Stock, the shares of Class B Common Stock shall convert into a number of shares of Class A Common Stock that has been proportionately increased. If at any time or from time to time after the Effective Time, the Corporation effects a combination of the outstanding shares of the Class A Common Stock into a smaller number of shares of Class A Common Stock without an equivalent combination of the outstanding shares of the Class B Common Stock, then in the event of a conversion of shares of Class B Common Stock into shares of Class A Common Stock, the shares of Class B Common Stock shall convert into a number of shares of Class A Common Stock that has been proportionately decreased. (b) If at any time or from time to time after the Effective Time, the Corporation effects a subdivision of the outstanding shares of the Class A Common Stock into a greater number of shares of Class A Common Stock without an equivalent subdivision of the outstanding shares of the Class C Common Stock, then in the event of a conversion of shares of Class C Common Stock into shares of Class A Common Stock, the shares of Class C Common Stock shall convert into a number of shares of Class A Common Stock that has been proportionately increased. If at any time or from time to time after the Effective Time, the Corporation effects a combination of the outstanding shares of the Class A Common Stock into a smaller number of shares of Class A Common Stock without an equivalent combination of the outstanding shares of the Class C Common Stock, then in the event of a conversion of shares of Class C Common Stock into shares of Class A Common Stock, the shares of Class C Common Stock shall convert into a number of shares of Class A Common Stock that has been proportionately decreased. 5.7 Reservation of Stock Issuable Upon Conversion . The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Class A Common Stock, solely for the purpose of effecting the conversion of the shares of the Class B Common Stock and the Class C Common Stock, as applicable, such number of its shares of 9
Class A Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Class B Common Stock and Class C Common Stock; and if at any time the number of authorized but unissued shares of Class A Common Stock shall not be sufficient to effect the conversion of all then-outstanding shares of Class B Common Stock and Class C Common Stock, as applicable, 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 Class A Common Stock to such number of shares as shall be sufficient for such purpose. 6. Restrictions and Limitations . 6.1 Class B Common Stock and Class C Common Stock Protective Provisions . So long as any shares of Class B Common Stock or Class C Common Stock remain outstanding, the Corporation shall not, without the approval by vote or written consent of the holders of a majority of the voting power of the Class B Common Stock and Class C Common Stock then outstanding, voting together as a single class, directly or indirectly, or by amendment (whether through merger, recapitalization, consolidation or otherwise): (a) amend, alter, or repeal of any provision of this Amended and Restated Certificate of Incorporation or the Bylaws of the Corporation (including any filing of a Certificate of Designation), that (i) modifies the voting or other powers, preferences, or other special rights or privileges, or restrictions of the Class B Common Stock so as to adversely affect such series or (ii) modifies the voting or other powers, preferences, or other special rights or privileges, or restrictions of the Class C Common Stock so as to adversely affect such series; or (b) reclassify any outstanding shares of capital stock of the Corporation into shares having rights, preferences or privileges senior to or on parity with the Class B Common Stock or Class C Common Stock as to dividend rights, liquidation preferences or voting preferences; or (c) effect, or permit any Subsidiary to effect, (i) a Combination Transaction, (ii) any transaction or series of transactions to which the Corporation is a party in which at least 50% of the Corporations voting power is transferred or (iii) a sale of all or substantially all of the assets of the Corporation, including without limitation by way of any lease, sale, distribution or other disposition of the Corporations or any Subsidiarys products or intellectual property, pursuant to which, for a transaction under clause (i), (ii), or (iii), the Class B Common Stock or the Class C Common Stock is not treated equally, identically and ratably, on a per share basis, with respect to any consideration into which such shares are converted or any consideration paid or otherwise distributed as compared to another class or series of the Corporations capital stock; or (d) increase or decrease the total number of authorized shares of Class B Common Stock or Class C Common Stock, or issue any shares of Class B Common Stock or Class C Common Stock (other than in connection with a redemption or a proportionate subdivision or combination of all shares of Common Stock and Preferred Stock). 10
7. Identical Rights. Except for (a) in connection with any dividend or distribution paid by the Corporation in the form of capital stock of the Corporation to holders of any class of Common Stock, (b) in connection with any subdivision or combination of the outstanding shares of Class A Common Stock, Class B Common Stock or Class C Common Stock or (c) as otherwise expressly provided herein or required by applicable law, shares of Class A Common Stock, Class B Common Stock and Class C Common Stock shall have the same rights and privileges and rank equally, share ratably and be identical in all respects as to all matters, including, without limitation: 7.1 Dividends and Distributions . Shares of Class A Common Stock, Class B Common Stock and Class C Common Stock shall be treated equally, identically and ratably, on a per-share basis, with respect to any cash distribution paid or distributed by the Corporation, unless different treatment of the shares of each such class is approved by the affirmative vote of the holders of a majority of the outstanding shares of the applicable class of Class A Common Stock, Class B Common Stock and/or Class C Common Stock treated adversely, voting separately as a class. 7.2 Equal Treatment in a Combination Transaction. In the event of any Combination Transaction to which the Corporation is a party in which the shares of Class A Common Stock, Class B Common Stock or Class C Common Stock will be exchanged for or converted into, or will receive a distribution of, cash or other property or securities of the Corporation or any other person or entity, each share of Common Stock shall be entitled to receive Equivalent Consideration (as defined herein) on a per-share basis, unless different treatment of the shares of each such class is approved by the affirmative vote of the holders of a majority of the outstanding shares of the applicable class of Class A Common Stock, Class B Common Stock and/or Class C Common Stock treated adversely, voting separately as a class. As used herein, the term Equivalent Consideration shall mean consideration in the same form, in the same amount and with the same voting rights on a per-share basis; provided, however, that for the avoidance of doubt, consideration to be paid or received by a holder of Class A Common Stock, Class B Common Stock or Class C Common Stock in connection with any Combination Transaction pursuant to any employment, consulting, severance or other arrangement shall not be deemed to be consideration that is included in the determination of Equivalent Consideration. 8. Miscellaneous. 8.1 No Reissuance of Class B Common Stock or Class C Common Stock . No share or shares of Class B Common Stock or Class C Common Stock acquired by the Corporation by reason of redemption, purchase, conversion (including conversion following the Final Conversion Date) or otherwise shall be reissued, and all such shares shall be cancelled, retired and eliminated from the shares that the Corporation shall be authorized to issue. 8.2 Preemptive Rights. No stockholder of the Corporation shall have a right to purchase shares of capital stock of the Corporation sold or issued by the Corporation except to the extent that such a right may from time to time be set forth in a written agreement between the Corporation and a stockholder. 11
ARTICLE VI The following provisions are inserted for the management of the business and the conduct of the affairs of the Corporation and for further definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders: 1. Board Size. Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, the total number of authorized directors constituting the Board (the Whole Board) shall be fixed from time to time exclusively by the Board pursuant to a resolution adopted by a majority of the Whole Board. 2. Special Meetings. Special meetings of the stockholders may be called only by (i) prior to the Final Conversion Date, at least 30% of the voting power of the Class A Common Stock, Class B Common Stock and Class C Common Stock, voting together as a single class, (ii) by the Board of Directors pursuant to a resolution adopted by a majority of the Whole Board; (iii) the chairperson of the Board of Directors; or (iv) the chief executive officer of the Corporation. 3. Stockholder Action by Written Consent . Until the Final Conversion Date, any action required or permitted to be taken at any annual or special meeting of the stockholders may be taken without a meeting, without prior notice and without a vote if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock of the Corporation 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 of stock of the Corporation entitled to vote thereon were present and voted. Effective on and after the Final Conversion Date, subject to the rights of the holders of any series of Preferred Stock, any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders. 4. Advance Notice of Nominations . Advance notice of nominations for the election of directors shall be given in the manner and to the extent provided in the Bylaws of the Corporation. 5. Choice of 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 Corporations stockholders; (iii) any action asserting a claim against the Corporation arising pursuant to any provision of the General Corporation Law, the Restated Certificate or the Bylaws of the Corporation; 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 to have consented to the provisions of this Article VI. 12
ARTICLE VII AMENDMENT OF BYLAWS The Board shall have the power to adopt, amend or repeal Bylaws of the Corporation. ARTICLE VIII VOTE BY BALLOT Election of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide. ARTICLE IX DIRECTOR LIABILITY 1. Limitation of Liability . To the fullest extent permitted by law, no director of the corporation shall be personally liable for monetary damages for breach of fiduciary duty as a director of the Corporation. Without limiting the effect of the preceding sentence, if the Delaware General Corporation Law is hereafter amended to authorize the further elimination or limitation of the liability of a director, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. 2. Agent Limitation of Liability . The Corporation is authorized to provide indemnification of its agents for breach of duty to the Corporation and its stockholders through bylaw provisions or through agreements with the agents, or through stockholder resolutions, or otherwise. 3. Change in Rights. Neither any amendment nor repeal of this Article IX, nor the adoption of any provision of this Amended and Restated Certificate of Incorporation inconsistent with this Article IX, shall eliminate, reduce or otherwise adversely affect any limitation on the personal liability of a director or agent of the Corporation existing at the time of such amendment, repeal or adoption of such an inconsistent provision. 13
Exhibit 3.4 AMENDED AND RESTATED BYLAWS OF ZYNGA INC. (A DELAWARE CORPORATION)
TABLE OF CONTENTS
PAGE
ARTICLE I Section 1. Section 2. ARTICLE II Section 3.
OFFICES Registered Office Other Offices CORPORATE SEAL Corporate Seal
1 1 1 1 1 1 1 1 5 6 6 7 7 7 8 8 8 9 9 9 9 9 9 11 11 11 11 12 13 i.
ARTICLE III STOCKHOLDERS MEETINGS Section 4. Section 5. Section 6. Section 7. Section 8. Section 9. Place Of Meetings Annual Meetings Special Meetings. Notice Of Meetings Quorum Adjournment And Notice Of Adjourned Meetings
Section 10. Voting Rights Section 11. Action Without Meeting. Section 12. Organization ARTICLE IV DIRECTORS Section 13. Section 14. Powers Section 15. Board of Directors Section 16. Vacancies Section 17. Resignation Section 18. Removal Section 19. Meetings Section 20. Quorum And Voting Section 21. Action Without Meeting Section 22. Fees And Compensation Section 23. Committees Section 24. Organization Section 25. Duties of Chairperson of the Board of Directors
TABLE OF CONTENTS ( CONTINUED )

PAGE
ARTICLE V Section 26. Section 27. Section 28. Section 29. Section 30. ARTICLE VI Section 31. Section 32.
OFFICERS Officers Designated Tenure And Duties Of Officers Delegation Of Authority Resignations Removal EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION Execution Of Corporate Instruments Voting Of Securities Owned By The Corporation
13 13 13 15 15 15 15 15 16 16 16 16 16 16 17 17 17 17 17 17 20 20 21 21 21 21 ii.
ARTICLE VII SHARES OF STOCK Section 33. Section 34. Section 35. Section 36. Form And Execution Of Certificates Lost Certificates Transfers Registered Stockholders
ARTICLE VIII OTHER SECURITIES OF THE CORPORATION Section 37. ARTICLE IX Section 38. ARTICLE X Section 39. ARTICLE XI Section 40. Execution Of Other Securities FISCAL YEAR Fiscal Year INDEMNIFICATION Indemnification of Directors, Executive Officers, Other Officers, Employees and Other Agents NOTICES Notices
ARTICLE XII AMENDMENTS Section 41. ARTICLE XIII Section 42. Amendments LOANS TO OFFICERS Loans To Officers
AMENDED AND RESTATED BYLAWS OF ZYNGA INC. (A DELAWARE CORPORATION) ARTICLE I OFFICES Section 1. Registered Office. The registered office of the corporation in the State of Delaware shall be in the City of Wilmington, County of New Castle. Section 2. Other Offices. The corporation shall also have and maintain an office or principal place of business at such place as may be fixed by the Board of Directors, and may also have offices at such other places, both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE II CORPORATE SEAL Section 3. Corporate Seal. The Board of Directors may provide for a corporate seal. The corporate seal shall consist of a die bearing the name of the corporation and the inscription, Corporate Seal-Delaware. Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE III STOCKHOLDERS MEETINGS Section 4. Place Of Meetings. Meetings of the stockholders of the corporation may be held at such place, either within or without the State of Delaware, as may be determined from time to time by the Board of Directors. The Board of Directors may, in its sole discretion, determine that the meeting shall not be held at any place, but may instead be held solely by means of remote communication as provided under the Delaware General Corporation Law (DGCL). Section 5. Annual Meetings. (a) The annual meeting of the stockholders of the corporation, for the purpose of election of directors and for such other business as may properly come before it, shall be held on such date and at such time as may be designated from time to time by the Board of Directors. Nominations of persons for election to the Board of Directors of the corporation and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders: (i) pursuant to the corporations notice of meeting of stockholders (with respect to business other than nominations); (ii) brought specifically by or at the direction of the Board of Directors; or (iii) by any stockholder of the corporation who was a stockholder of record at the time of giving the stockholders notice provided for in Section 5(b) below, who is entitled to vote at the meeting and who complied with the notice procedures 1.
set forth in Section 5. For the avoidance of doubt, clause (iii) above shall be the exclusive means for a stockholder to make nominations and submit other business (other than matters properly included in the corporations notice of meeting of stockholders and proxy statement under Rule 14a-8 under the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (the 1934 Act )) before an annual meeting of stockholders. (b) At an annual meeting of the stockholders, only such business shall be conducted as is a proper matter for stockholder action under Delaware law and as shall have been properly brought before the meeting in accordance with the procedures below. (i) For nominations for the election to the Board of Directors to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of Section 5(a) of these Bylaws, the stockholder must deliver written notice to the Secretary at the principal executive offices of the corporation on a timely basis as set forth in Section 5(b)(iii) and must update and supplement such written notice on a timely basis as set forth in Section 5(c). Such stockholders notice shall set forth: (A) as to each nominee such stockholder proposes to nominate at the meeting: (1) the name, age, business address and residence address of such nominee, (2) the principal occupation or employment of such nominee, (3) the class and number of shares of each class of capital stock of the corporation which are owned of record and beneficially by such nominee, (4) the date or dates on which such shares were acquired and the investment intent of such acquisition, and (5) such other information concerning such nominee as would be required to be disclosed in a proxy statement soliciting proxies for the election of such nominee as a director in an election contest (even if an election contest is not involved), or that is otherwise required to be disclosed pursuant to Section 14 of the 1934 Act and the rules and regulations promulgated thereunder (including such persons written consent to being named as a nominee and to serving as a director if elected); and (B) the information required by Section 5(b)(iv). The corporation may require any proposed nominee to furnish such other information as it may reasonably require to determine the eligibility of such proposed nominee to serve as an independent director of the corporation or that could be material to a reasonable stockholders understanding of the independence, or lack thereof, of such proposed nominee. (ii) For business other than nominations for the election to the Board of Directors to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of Section 5(a) of these Bylaws, the stockholder must deliver written notice to the Secretary at the principal executive offices of the corporation on a timely basis as set forth in Section 5(b)(iii), and must update and supplement such written notice on a timely basis as set forth in Section 5(c). Such stockholders notice shall set forth: (A) as to each matter such 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 (including any anticipated benefit of such business to any Proponent (as defined below) other than solely as a result of its ownership of the corporations capital stock, that is material to any Proponent individually, or to the Proponents in the aggregate) in such business of any Proponent; and (B) the information required by Section 5(b)(iv). (iii) To be timely, the written notice required by Section 5(b)(i) or 5(b)(ii) must be received by the Secretary at the principal executive offices of the corporation not later than the close of business on the ninetieth (90 th) day nor earlier than the close of business on the one hundred twentieth (120 th) day prior to the first anniversary of the preceding years annual meeting; provided, however, that, subject to the last sentence of this Section 5(b)(iii), in the event that the date of the annual meeting is advanced more than thirty (30) days prior to or delayed by more than thirty (30) days after the anniversary of the preceding years annual meeting, notice by the stockholder to be timely must be so received not earlier than the close of business on the one hundred twentieth (120 th) day prior to such 2.
annual meeting and not later than the close of business on the later of the ninetieth (90 th) day prior to such annual meeting or the tenth (10 th) day following the day on which public announcement of the date of such meeting is first made. In no event shall an adjournment or a postponement of an annual meeting for which notice has been given, or the public announcement thereof has been made, commence a new time period for the giving of a stockholders notice as described above. (iv) The written notice required by Section 5(b)(i) or 5(b)(ii) shall also set forth, as of the date of the notice and as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (each, a Proponent and collectively, the Proponents): (A) the name and address of each Proponent, as they appear on the corporations books; (B) the class, series and number of shares of the corporation that are owned beneficially and of record by each Proponent; (C) a description of any agreement, arrangement or understanding (whether oral or in writing) with respect to such nomination or proposal between or among any Proponent and any of its affiliates or associates, and any others (including their names) acting in concert, or otherwise under the agreement, arrangement or understanding, with any of the foregoing; (D) a representation that the Proponents are holders of record or beneficial owners, as the case may be, of shares of the corporation entitled to vote at the meeting and intend to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice (with respect to a notice under Section 5(b)(i)) or to propose the business that is specified in the notice (with respect to a notice under Section 5(b)(ii)); (E) a representation as to whether the Proponents intend to deliver a proxy statement and form of proxy to holders of a sufficient number of holders of the corporations voting shares to elect such nominee or nominees (with respect to a notice under Section 5(b)(i)) or to carry such proposal (with respect to a notice under Section 5(b)(ii)); (F) to the extent known by any Proponent, the name and address of any other stockholder supporting the proposal on the date of such stockholders notice; and (G) a description of all Derivative Transactions (as defined below) by each Proponent during the previous twelve (12) month period, including the date of the transactions and the class, series and number of securities involved in, and the material economic terms of, such Derivative Transactions. For purposes of Sections 5 and 6, a Derivative Transaction means any agreement, arrangement, interest or understanding entered into by, or on behalf or for the benefit of, any Proponent or any of its affiliates or associates, whether record or beneficial: (w) the value of which is derived in whole or in part from the value of any class or series of shares or other securities of the corporation, (x) which otherwise provides any direct or indirect opportunity to gain or share in any gain derived from a change in the value of securities of the corporation, (y) the effect or intent of which is to mitigate loss, manage risk or benefit of security value or price changes, or (z) which provides the right to vote or increase or decrease the voting power of, such Proponent, or any of its affiliates or associates, with respect to any securities of the corporation, which agreement, arrangement, interest or understanding may include, without limitation, any option, warrant, debt position, note, bond, convertible security, swap, stock appreciation right, short position, profit interest, hedge, right to dividends, voting agreement, performance-related fee or arrangement to borrow or lend shares (whether or not subject to payment, settlement, exercise or conversion in any such class or series), and any proportionate interest of such Proponent in the securities of the corporation held by any general or limited partnership, or any limited liability company, of which such Proponent is, directly or indirectly, a general partner or managing member. 3.
(c) A stockholder providing written notice required by Section 5(b)(i) or (ii) shall update and supplement such notice in writing, if necessary, so that the information provided or required to be provided in such notice is true and correct in all material respects as of (i) the record date for the meeting and (ii) the date that is five (5) business days prior to the meeting and, in the event of any adjournment or postponement thereof, five (5) business days prior to such adjourned or postponed meeting. In the case of an update and supplement pursuant to clause (i) of this Section 5(c), such update and supplement shall be received by the Secretary at the principal executive offices of the corporation not later than five (5) business days after the record date for the meeting. In the case of an update and supplement pursuant to clause (ii) of this Section 5(c), such update and supplement shall be received by the Secretary at the principal executive offices of the corporation not later than two (2) business days prior to the date for the meeting, and, in the event of any adjournment or postponement thereof, two (2) business days prior to such adjourned or postponed meeting. (d) Notwithstanding anything in Section 5(b)(iii) to the contrary, in the event that the number of directors of the Board of Directors of the corporation is increased and there is no public announcement of the appointment of a director, or, if no appointment was made, of the vacancy, made by the corporation at least ten (10) days before the last day a stockholder may deliver a notice of nomination in accordance with Section 5(b)(iii), a stockholders notice required by this Section 5 and which complies with the requirements in Section 5(b)(i), other than the timing requirements in Section 5(b)(iii), 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 at the principal executive offices 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. (e) A person shall not be eligible for election or re-election as a director unless the person is nominated either in accordance with clause (ii) of Section 5(a), or in accordance with clause (iii) of Section 5(a). Except as otherwise required by law, the chairperson of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made, or proposed, as the case may be, in accordance with the procedures set forth in these Bylaws and, if any proposed nomination or business is not in compliance with these Bylaws, or the Proponent does not act in accordance with the representations in Sections 5(b)(iv)(D) and 5(b)(iv)(E), to declare that such proposal or nomination shall not be presented for stockholder action at the meeting and shall be disregarded, notwithstanding that proxies in respect of such nominations or such business may have been solicited or received. (f) Notwithstanding the foregoing provisions of this Section 5, in order to include information with respect to a stockholder proposal in the proxy statement and form of proxy for a stockholders meeting, a stockholder must also comply with all applicable requirements of the 1934 Act and the rules and regulations thereunder. Nothing in these Bylaws shall be deemed to affect any rights of stockholders to request inclusion of proposals in the corporations proxy statement pursuant to Rule 14a-8 under the 1934 Act; provided, however, that any references in these Bylaws to the 1934 Act or the rules and regulations thereunder are not intended to and shall not limit the requirements applicable to proposals and/or nominations to be considered pursuant to Section 5(a)(iii) of these Bylaws. (g) For purposes of Sections 5 and 6, 4.
(i) 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 1934 Act; and (ii) affiliates and associates shall have the meanings set forth in Rule 405 under the Securities Act of 1933, as amended (the 1933 Act). Section 6. Special Meetings. (a) Special meetings of the stockholders of the corporation (i) may be called, for any purpose as is a proper matter for stockholder action under Delaware law, by (A) the Chairperson of the Board of Directors, (B) the Chief Executive Officer, or (C) the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board of Directors for adoption), and/or (ii) at any point prior to the Final Conversion Date (as such term is defined in the Certificate of Incorporation), may be called for any purpose as is a proper matter for stockholder action under Delaware law by the holders of at least 30% of the voting power of the Companys Class A Common Stock, Class B Common Stock and Class C Common Stock, voting together as a single class, provided that such written request is in compliance with the requirements of Section 6(b) hereof (Stockholder-Requested Meeting ). A Stockholder Requested Meeting may not be called at any point on or after the Final Conversion Date. A request to call a special meeting pursuant to Section 6(a)(ii) shall not be valid unless made in accordance with the requirements and procedures set forth in this Section 6. Except as may otherwise be required by law, the Board of Directors shall determine, in its sole judgment, the validity of any request under Section 6(a)(ii), including whether such request was properly made in compliance with these Bylaws. (b) For a special meeting called pursuant to Section 6(a)(i), the Board of Directors shall determine the time and place, if any, of such special meeting. Upon determination of the time and place, if any, of the meeting, the Secretary shall cause a notice of meeting to be given to the stockholders entitled to vote, in accordance with the provisions of Section 7 of these Bylaws. For a Stockholder-Requested Meeting, the request shall (i) be in writing, signed and dated by a stockholder of record, (ii) set forth the purpose of calling the special meeting and include the information required by the stockholders notice as set forth in Section 5(b)(i) and in Section 5(b)(ii) (for the proposal of business other than nominations) and (iii) be delivered personally or sent by certified or registered mail, return receipt requested, to the Secretary at the principal executive offices of the corporation. If the Board of Directors determines that a request pursuant to Section 6(a)(ii) is valid, the Board shall determine the time and place, if any, of a Stockholder-Requested Meeting, which time shall be not less than thirty (30) days nor more than ninety (90) days after the receipt of such request, and shall set a record date for the determination of stockholders entitled to vote at such meeting in the manner set forth in Section 36 hereof. Following determination of the time and place, if any, of the meeting, the Secretary shall cause a notice of meeting to be given to the stockholders entitled to vote, in accordance with the provisions of Section 7 of these Bylaws. No business may be transacted at a special meeting, including a Stockholder-Requested Meeting, otherwise than as specified in the notice of meeting. (c) Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the corporation who is a stockholder of record at the time of giving notice provided for in this paragraph, who shall be entitled to vote at the meeting and who delivers written notice to the Secretary of the corporation setting forth the information required by Section 5(b)(i). 5.
In the event the corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any such stockholder of record may nominate a person or persons (as the case may be), for election to such position(s) as specified in the corporations notice of meeting, if written notice setting forth the information required by Section 5(b)(i) of these Bylaws shall be 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 (90 th) day prior to such meeting or the tenth (10 th) day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. The stockholder shall also update and supplement such information as required under Section 5(c). In no event shall an adjournment or a postponement of a special meeting for which notice has been given, or the public announcement thereof has been made, commence a new time period for the giving of a stockholders notice as described above. (d) Notwithstanding the foregoing provisions of this Section 6, a stockholder must also comply with all applicable requirements of the 1934 Act and the rules and regulations thereunder with respect to matters set forth in this Section 6. Nothing in these Bylaws shall be deemed to affect any rights of stockholders to request inclusion of proposals in the corporations proxy statement pursuant to Rule 14a-8 under the 1934 Act; provided, however, that any references in these Bylaws to the 1934 Act or the rules and regulations thereunder are not intended to and shall not limit the requirements applicable to nominations for the election to the Board of Directors and/or proposals of other business to be considered pursuant to Section 6(a)(ii) or Section 6(c) of these Bylaws. Section 7. Notice Of Meetings. Except as otherwise provided by law, notice, given in writing or by electronic transmission, of each meeting of stockholders shall be given 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, such notice to specify the place, if any, date and hour, in the case of special meetings, the purpose or purposes of the 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 any such meeting. If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholders address as it appears on the records of the corporation. Notice of the time, place, if any, and purpose of any meeting of stockholders may be waived in writing, signed by the person entitled to notice thereof, or by electronic transmission by such person, either before or after such meeting, and will be waived by any stockholder by his attendance thereat in person, by remote communication, if applicable, or by proxy, except when the stockholder 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. Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given. Section 8. Quorum. At all meetings of stockholders, except where otherwise provided by statute or by the Certificate of Incorporation, or by these Bylaws, the presence, in person, by remote communication, if applicable, or by proxy duly authorized, of the holders of a majority of the voting power of the shares of stock entitled to vote shall constitute a quorum for the transaction of business. In the absence of a quorum, any meeting of stockholders may be adjourned, from time to time, either by the chairperson of the meeting or by vote of the holders of a majority of the voting power of the shares represented thereat, but no other business shall be transacted at such meeting. The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Except as otherwise provided by statute or by applicable stock exchange rules, or by the Certificate of Incorporation or these Bylaws, in all matters other than the election of directors, the affirmative vote of the holders of a majority of the voting power of the shares present in person, by remote communication, if applicable, or represented by proxy at the meeting and entitled to vote generally on the subject matter 6.
shall be the act of the stockholders. Except as otherwise provided by statute, the Certificate of Incorporation or these Bylaws, directors shall be elected by a plurality of the votes of the shares present in person, by remote communication, if applicable, or represented by proxy at the meeting and entitled to vote generally on the election of directors. Where a separate vote by a class or classes or series is required, except where otherwise provided by the statute or by the Certificate of Incorporation or these Bylaws, a majority of the outstanding shares of such class or classes or series, present in person, by remote communication, if applicable, or represented by proxy duly authorized, shall constitute a quorum entitled to take action with respect to that vote on that matter. Except where otherwise provided by statute or by the Certificate of Incorporation or these Bylaws, the affirmative vote of the holders of a majority (plurality, in the case of the election of directors) of shares of such class or classes or series present in person, by remote communication, if applicable, or represented by proxy at the meeting shall be the act of such class or classes or series. Section 9. Adjournment And Notice Of Adjourned Meetings. Any meeting of stockholders, whether annual or special, may be adjourned from time to time either by the chairperson of the meeting or by the vote of holders of a majority of the voting power of the shares present in person, by remote communication, if applicable, or represented by proxy at the meeting. When a meeting is adjourned to another time or place, if any, notice need not be given of the adjourned meeting if the time and place, if any, thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 10. Voting Rights. For the purpose of determining those stockholders entitled to vote at any meeting of the stockholders, except as otherwise provided by law, only persons in whose names shares stand on the stock records of the corporation on the record date shall be entitled to vote at any meeting of stockholders. Every person entitled to vote or execute consents shall have the right to do so either in person, by remote communication, if applicable, or by an agent or agents authorized by a proxy granted in accordance with Delaware law. An agent so appointed need not be a stockholder. No proxy shall be voted after three (3) years from its date of creation unless the proxy provides for a longer period. Section 11. Action Without Meeting. (a) Unless otherwise provided in the Certificate of Incorporation, any action required by statute to be taken at any annual or special meeting of the stockholders, or any action which may be taken at any annual or special meeting of the stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, or by electronic transmission until the Final Conversion Date (as defined in the Certificate of Incorporation) setting forth the action so taken, shall be 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. (b) In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, so long as such action is provided for, 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 date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written 7.
consent shall, by written notice to the Secretary, request the Board of Directors to fix a record date. The Board of Directors shall promptly, but in all events within ten (10) days after the date on which such a request is received, adopt a resolution fixing the record date. If no record date has been fixed by the Board of Directors within ten (10) days of the date on which such a request is received, 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 required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the corporations registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action. Section 12. Organization. (a) At every meeting of stockholders, the Chairperson of the Board of Directors, or, if a Chairperson has not been appointed or is absent, the Chief Executive Officer, or if no Chief Executive Officer is then serving or is absent, the President, or, if the President is absent, a chairperson of the meeting chosen by a majority in interest of the stockholders entitled to vote, present in person or by proxy, shall act as chairperson. The Chairperson of the Board may appoint the Chief Executive Officer as chairperson of the meeting. The Secretary, or, in his or her absence, an Assistant Secretary or other officer or other person directed to do so by the chairperson of the meeting, shall act as secretary of the meeting. (b) The Board of Directors of the corporation shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairperson of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairperson, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to stockholders of record of the corporation and their duly authorized and constituted proxies and such other persons as the chairperson shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot. The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting. Unless and to the extent determined by the Board of Directors or the chairperson of the meeting, meetings of stockholders shall not be required to be held in accordance with rules of parliamentary procedure. ARTICLE IV DIRECTORS Section 13. (a) Number And Term Of Office. The authorized number of directors of the corporation shall be fixed in accordance with the Certificate of Incorporation. Directors need not be 8.
stockholders unless so required by the Certificate of Incorporation. If for any cause, the directors shall not have been elected at an annual meeting, they may be elected as soon thereafter as convenient at a special meeting of the stockholders called for that purpose in the manner provided in these Bylaws. Section 14. Powers. The powers of the corporation shall be exercised, its business conducted and its property controlled by the Board of Directors, except as may be otherwise provided by statute or by the Certificate of Incorporation. Section 15. Board of Directors. Directors shall be elected at each annual meeting of stockholders to hold office until the next annual meeting. Each director shall hold office either until the expiration of the term for which elected or appointed and a successor has been elected and qualified, or until such directors earlier death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. Section 16. Vacancies. Unless otherwise provided in the Certificate of Incorporation and subject to the rights of the holders of any series of Preferred Stock or as otherwise provided by applicable law, any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other causes and any newly created directorships resulting from any increase in the number of directors shall, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by stockholders, be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum of the Board of Directors or by a sole remaining director. Except (i) as otherwise provided by applicable law or (ii) as may be otherwise determined by the Board of Directors by resolution and subject to the rights of the holders of any series of Preferred Stock, any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such directors successor shall have been elected and qualified. A vacancy in the Board of Directors shall be deemed to exist under this Section 16 in the case of the death, removal or resignation of any director. Section 17. Resignation. Any director may resign at any time by delivering his or her notice in writing or by electronic transmission to the Secretary, such resignation to specify whether it will be effective at a particular time. If no such specification is made, the Secretary, in his or her discretion, may either (a) require confirmation from the director prior to deeming the resignation effective, in which case the resignation will be deemed effective upon receipt of such confirmation, or (b) deem the resignation effective at the time of delivery of the resignation to the Secretary. When one or more directors shall resign from the Board of Directors, 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 for the unexpired portion of the term of the Director whose place shall be vacated and until his successor shall have been duly elected and qualified. Section 18. Removal. Subject to any requirements set forth in the Certificate of Incorporation, the Board of Directors or any individual director may be removed from office at any time with or without cause by the affirmative vote of the holders of a majority of the voting power of all the then-outstanding shares of capital stock of the corporation, entitled to vote generally at an election of directors. Section 19. Meetings. (a) Regular Meetings. Unless otherwise restricted by the Certificate of Incorporation, regular meetings of the Board of Directors may be held at any time or date and at any place 9.
within or without the State of Delaware which has been designated by the Board of Directors and publicized among all directors, either orally or in writing, by telephone, including a voice-messaging system or other system designed to record and communicate messages, facsimile, telegraph or telex, or by electronic mail or other electronic means. No further notice shall be required for regular meetings of the Board of Directors; provided that each member of the Board of Directors must receive written notice of any regular Board meeting at which any CEO Succession Matter is acted upon no less than seventy-two (72) hours prior to such meeting and such written notice shall include a detailed description of the CEO Succession Matter; for the purposes of this sentence only, notice shall be deemed received by a director when delivered personally, telecopied (with confirmation) or delivered by an overnight courier (with confirmation) to the directors at their addresses appearing in the books and records of the corporation (the Succession Matter Notice Requirements ). A CEO Succession Matter shall mean any matter before the Board of Directors or any committee thereof concerning the hiring, termination, retention or compensation of the Chief Executive Officer of the corporation. Without limitation, such matters shall include any action which would (i) interpret any provision of any employment agreement between the Chief Executive Officer and the corporation; (ii) approve any action that would constitute a constructive termination of the Chief Executive Officer or permit the Chief Executive Officer to terminate employment with the corporation for good reason or other similar cause under any employment or other agreement between the Chief Executive Officer and the corporation; (iii) determine that the Chief Executive Officer may be terminated for cause or other similar reason under the terms of any employment or other agreement between the Chief Executive Officer and the corporation, or otherwise; (iv) determine that the Chief Executive Officer is disabled or otherwise unable to perform his or her job functions; (v) determine to withhold any salary, benefits, incentives, equity compensation, termination benefits, retirement benefits, perquisites, change in control payments or other similar payments, or any other compensation under any agreement between the Chief Executive Officer and the corporation; (vi) terminate the Chief Executive Officer without cause; (vii) reduce the benefits or compensation of the Chief Executive Officer, including bonus target or terms; or (viii) approve of any Chief Executive Officer succession plan or similar measure. (b) Special Meetings. Unless otherwise restricted by the Certificate of Incorporation, special meetings of the Board of Directors may be held at any time and place within or without the State of Delaware whenever called by the Chairperson of the Board, the Chief Executive Officer or a majority of the total number of authorized directors. (c) Meetings by Electronic Communications Equipment. Any member of the Board of Directors, or of any committee thereof, may participate in a meeting by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting. (d) Notice of Special Meetings. Notice of the time and place of all special meetings of the Board of Directors shall be orally or in writing, by telephone, including a voice messaging system or other system or technology designed to record and communicate messages, facsimile, telegraph or telex, or by electronic mail or other electronic means, during normal business hours, at least twenty-four (24) hours before the date and time of the meeting; provided that each member of the Board of Directors must receive written notice that meets the Succession Matter Notice Requirements of any special meeting at which any CEO Succession Matter is discussed or acted upon no less than seventy-two (72) hours prior to such meeting and such written notice shall include a description of the CEO Succession Matter. If notice is sent by US mail, it shall be sent by first class mail, charges prepaid, at least three (3) days before the date of the meeting. Notice of any meeting may be waived in writing, or by electronic transmission, at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends the 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. 10.
(e) Waiver of Notice. The transaction of all business at any meeting of the Board of Directors, or any committee thereof, however called or noticed, or wherever held, shall be as valid as though it had been transacted at a meeting duly held after regular call and notice, if a quorum be present and if, either before or after the meeting, each of the directors not present who did not receive notice shall sign a written waiver of notice or shall waive notice by electronic transmission. All such waivers shall be filed with the corporate records or made a part of the minutes of the meeting. Section 20. Quorum And Voting. (a) Unless the Certificate of Incorporation requires a greater number, and except with respect to questions related to indemnification arising under Section 39 for which a quorum shall be one-third of the exact number of directors fixed from time to time, a quorum of the Board of Directors shall consist of a majority of the exact number of directors fixed from time to time by the Board of Directors in accordance with the Certificate of Incorporation; provided, however, at any meeting whether a quorum be present or otherwise, a majority of the directors present may adjourn from time to time until the time fixed for the next regular meeting of the Board of Directors, without notice other than by announcement at the meeting. (b) At each meeting of the Board of Directors at which a quorum is present, all questions and business shall be determined by the affirmative vote of a majority of the directors present, unless a different vote be required by law, the Certificate of Incorporation or these Bylaws. Section 21. Action Without 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 of Directors or committee, as the case may be, consent thereto in writing or by electronic transmission, and such writing or writings or transmission or transmissions are filed with the minutes of proceedings of the Board of Directors 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. Section 22. Fees And Compensation. Directors shall be entitled to such compensation for their services as may be approved by the Board of Directors, including, if so approved, by resolution of the Board of Directors, a fixed sum and expenses of attendance, if any, for attendance at each regular or special meeting of the Board of Directors and at any meeting of a committee of the Board of Directors. Nothing herein contained shall be construed to preclude any director from serving the corporation as an officer, agent, employee, or otherwise and receiving compensation therefor. Section 23. Committees. (a) Executive Committee. The Board of Directors may appoint an Executive Committee to consist of one (1) or more members of the Board of Directors. The Executive Committee, to the extent permitted by law and provided in a resolution of the Board of Directors 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 that may require it; but no such committee shall have the power or authority in reference to (i) approving or adopting, or recommending to the stockholders, any action or matter (other than the election or removal of directors) expressly required by the DGCL to be submitted to stockholders for approval, or (ii) adopting, amending or repealing any Bylaw of the corporation. 11.
(b) Other Committees. The Board of Directors may, from time to time, appoint such other committees as may be permitted by law. Such other committees appointed by the Board of Directors shall consist of one (1) or more members of the Board of Directors and shall have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committees, but in no event shall any such committee have the powers denied to the Executive Committee in these Bylaws. (c) Term. The Board of Directors, subject to any requirements of any outstanding series of Preferred Stock and the provisions of subsections (a) or (b) of this Section 23, may at any time increase or decrease the number of members of a committee or terminate the existence of a committee. The membership of a committee member shall terminate on the date of his death or voluntary resignation from the committee or from the Board of Directors. The Board of Directors may at any time for any reason remove any individual committee member and the Board of Directors may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they 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. (d) Meetings. Unless the Board of Directors shall otherwise provide, regular meetings of the Executive Committee or any other committee appointed pursuant to this Section 23 shall be held at such times and places as are determined by the Board of Directors, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter. Special meetings of any such committee may be held at any place which has been determined from time to time by such committee, and may be called by any Director who is a member of such committee, upon notice to the members of such committee of the time and place of such special meeting given in the manner provided for the giving of notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors. Notwithstanding the foregoing, each member of the Board of Directors must receive written notice that meets the Succession Matter Notice Requirements of any regular or special meeting at which any CEO Succession Matter is discussed or acted upon no less than seventy-two (72) hours prior to such meeting and such written notice shall include a description of the CEO Succession Matter. Notice of any special meeting of any committee may be waived in writing or by electronic transmission at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends such special 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. Unless otherwise provided by the Board of Directors in the resolutions authorizing the creation of the committee, a majority of the authorized number of members of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of such committee. Section 24. Organization. At every meeting of the directors, the Chairperson of the Board of Directors, or, if a Chairperson has not been appointed or is absent, the Chief Executive Officer (if a director), or, if a Chief Executive Officer is absent, the President (if a director), or if the President is absent, the most senior Vice President (if a director), or, in the absence of any such person, a chairperson 12.
of the meeting chosen by a majority of the directors present, shall preside over the meeting. The Secretary, or in his absence, any Assistant Secretary or other officer, director or other person directed to do so by the chairperson, shall act as secretary of the meeting. Section 25. Duties of Chairperson of the Board of Directors. The Chairperson of the Board of Directors, which position shall not be deemed to be an office of the corporation for the purposes of DGCL Section 142 (and such person shall not be deemed an officer solely by virtue of holding the office of Chairperson), when present, shall preside at all meetings of the Board of Directors. The Chairperson of the Board of Directors shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers, as the Board of Directors shall designate from time to time. The Chairperson shall be appointed by the Board of Directors and may be removed at any time by the Board of Directors. ARTICLE V OFFICERS Section 26. Officers Designated. The officers of the corporation shall include, if and when designated by the Board of Directors, the Chief Executive Officer, the President, one or more Vice Presidents, the Secretary, the Chief Financial Officer, the Chief Technology Officer and the Treasurer. The Board of Directors may also appoint one or more Assistant Secretaries and Assistant Treasurers and such other officers and agents with such powers and duties as it shall deem necessary. The Board of Directors may assign such additional titles to one or more of the officers as it shall deem appropriate. Any one person may hold any number of offices of the corporation at any one time unless specifically prohibited therefrom by law. The salaries and other compensation of the officers of the corporation shall be fixed by or in the manner designated by the Board of Directors or committee thereof to which the Board of Directors has delegated such responsibility. Section 27. Tenure And Duties Of Officers. (a) General. All officers shall hold office at the pleasure of the Board of Directors and until their successors shall have been duly elected and qualified, unless sooner removed. Any officer elected or appointed by the Board of Directors may be removed at any time by the Board of Directors. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors. (b) Duties of Chief Executive Officer. The Chief Executive Officer shall preside at all meetings of the stockholders and at all meetings of the Board of Directors (if a director), unless the Chairperson of the Board of Directors has been appointed, is present and has not appointed the Chief Executive Officer as chairperson. The Chief Executive Officer shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the corporation. To the extent that a Chief Executive Officer has been appointed and no President has been appointed, all references in these Bylaws to the President shall be deemed references to the Chief Executive Officer. The Chief Executive Officer shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers, as the Board of Directors shall designate from time to time. (c) Duties of President. The President shall preside at all meetings of the stockholders and at all meetings of the Board of Directors (if a director), unless the Chairperson of the Board of Directors or the Chief Executive Officer has been appointed and is present. Unless another 13.
officer has been appointed Chief Executive Officer of the corporation, the President shall be the chief executive officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the corporation. The President shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers, as the Board of Directors (or the Chief Executive Officer, if the Chief Executive Officer and President are not the same person and the Board of Directors has delegated the designation of the Presidents duties to the Chief Executive Officer) shall designate from time to time. (d) Duties of Vice Presidents. The Vice Presidents may assume and perform the duties of the President in the absence or disability of the President or whenever the office of President is vacant (unless the duties of the President are being filled by the Chief Executive Officer). The Vice Presidents shall perform other duties commonly incident to their office and shall also perform such other duties and have such other powers as the Board of Directors or the Chief Executive Officer, or, if the Chief Executive Officer has not been appointed, the President shall designate from time to time. (e) Duties of Secretary. The Secretary shall attend all meetings of the stockholders and of the Board of Directors and shall record all acts and proceedings thereof in the minute book of the corporation. The Secretary shall give notice in conformity with these Bylaws of all meetings of the stockholders and of all meetings of the Board of Directors and any committee thereof requiring notice. The Secretary shall perform all other duties provided for in these Bylaws and other duties commonly incident to the office and shall also perform such other duties and have such other powers, as the Board of Directors shall designate from time to time. The Chief Executive Officer, or if no Chief Executive Officer is then serving, the President, may direct any Assistant Secretary or other officer to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each Assistant Secretary shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors or the Chief Executive Officer, or if no Chief Executive Officer is then serving, the President shall designate from time to time. (f) Duties of Chief Financial Officer. The Chief Financial Officer shall keep or cause to be kept the books of account of the corporation in a thorough and proper manner and shall render statements of the financial affairs of the corporation in such form and as often as required by the Board of Directors or the Chief Executive Officer, or if no Chief Executive Officer is then serving, the President. The Chief Financial Officer, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the corporation. The Chief Financial Officer shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors or the Chief Executive Officer, or if no Chief Executive Officer is then serving, the President, shall designate from time to time. To the extent that a Chief Financial Officer has been appointed and no Treasurer has been appointed, all references in these Bylaws to the Treasurer shall be deemed references to the Chief Financial Officer. The President may direct the Treasurer, if any, or any Assistant Treasurer, or the controller or any assistant controller to assume and perform the duties of the Chief Financial Officer in the absence or disability of the Chief Financial Officer, and each Treasurer and Assistant Treasurer and each controller and assistant controller shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. (g) Duties of Chief Technology Officer. The Chief Technology Officer shall have responsibility for the general research and development activities of the corporation, for supervision of the corporations research and development personnel, for new product development and product improvements, for overseeing the development and direction of the corporations intellectual property development and such other responsibilities as may be given to the Chief Technology Officer by the Board of Directors, subject to: (a) the provisions of these Bylaws; (b) the direction of the Board of Directors; and (c) the supervisory powers of the Chief Executive Officer of the corporation. 14.
(h) Duties of Treasurer. Unless another officer has been appointed Chief Financial Officer of the corporation, the Treasurer shall be the chief financial officer of the corporation and shall keep or cause to be kept the books of account of the corporation in a thorough and proper manner and shall render statements of the financial affairs of the corporation in such form and as often as required by the Board of Directors or the Chief Executive Officer, or if no Chief Executive Officer is then serving, the President, and, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the corporation. The Treasurer shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors, the Chief Executive Officer, or if no Chief Executive Officer is then serving, the President, and the Chief Financial Officer (if not the Treasurer) shall designate from time to time. Section 28. Delegation Of Authority. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officer or agent, notwithstanding any provision hereof. Section 29. Resignations. Any officer may resign at any time by giving notice in writing or by electronic transmission to the Board of Directors or to the Chief Executive Officer, or if no Chief Executive Officer is then serving, the President, or to the Secretary. Any such resignation shall be effective when received by the person or persons to whom such notice is given, unless a later time is specified therein, in which event the resignation shall become effective at such later time. Unless otherwise specified in such notice, the acceptance of any such resignation shall not be necessary to make it effective. Any resignation shall be without prejudice to the rights, if any, of the corporation under any contract with the resigning officer. Section 30. Removal. Any officer may be removed from office at any time, either with or without cause, by the affirmative vote of a majority of the directors in office at the time, or by the unanimous written consent of the directors in office at the time, or by any committee or by the Chief Executive Officer or by other superior officers upon whom such power of removal may have been conferred by the Board of Directors. ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION Section 31. Execution Of Corporate Instruments. The Board of Directors may, in its discretion, determine the method and designate the signatory officer or officers, or other person or persons, to execute on behalf of the corporation any corporate instrument or document, or to sign on behalf of the corporation the corporate name without limitation, or to enter into contracts on behalf of the corporation, except where otherwise provided by law or these Bylaws, and such execution or signature shall be binding upon the corporation. All checks and drafts drawn on banks or other depositaries on funds to the credit of the corporation or in special accounts of the corporation shall be signed by such person or persons as the Board of Directors shall authorize so to do. Unless 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. 15.
Section 32. Voting Of Securities Owned By The Corporation. All stock and other securities of other corporations owned or held by the corporation for itself, or for other parties in any capacity, shall be voted, and all proxies with respect thereto shall be executed, by the person authorized so to do by resolution of the Board of Directors, or, in the absence of such authorization, by the Chairperson of the Board of Directors, the Chief Executive Officer, the President, or any Vice President. ARTICLE VII SHARES OF STOCK Section 33. Form And Execution Of Certificates. The shares of the corporation shall be represented by certificates, or shall be uncertificated if so provided by resolution or resolutions of the Board of Directors. Certificates for the shares of stock, if any, shall be in such form as is consistent with the Certificate of Incorporation and applicable law. Every holder of stock in the corporation represented by certificate shall be entitled to have a certificate signed by or in the name of the corporation by the Chairperson of the Board of Directors, or the President or any Vice President and by the Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary, certifying the number of shares owned by him in the corporation. Any or all of the signatures on the certificate may be facsimiles. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. Section 34. Lost Certificates. A new certificate or certificates shall be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. The corporation may require, as a condition precedent to the issuance of a new certificate or certificates, the owner of such lost, stolen, or destroyed certificate or certificates, or the owners legal representative, to agree to indemnify the corporation in such manner as it shall require or to give the corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen, or destroyed. Section 35. Transfers. (a) Transfers of record of shares of stock of the corporation shall be made only upon its books by the holders thereof, in person or by attorney duly authorized, and, in the case of stock represented by certificate, upon the surrender of a properly endorsed certificate or certificates for a like number of shares. (b) 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 DGCL. Section 36. 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, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. 16.
ARTICLE VIII OTHER SECURITIES OF THE CORPORATION Section 37. Execution Of Other Securities. All bonds, debentures and other corporate securities of the corporation, other than stock certificates (covered in Section 33), may be signed by the Chairperson of the Board of Directors, the Chief Executive Officer, the President or any Vice President, or such other person as may be authorized by the Board of Directors, and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an Assistant Secretary, or the Chief Financial Officer or Treasurer or an Assistant Treasurer; provided, however, that where any such bond, debenture or other corporate security shall be authenticated by the manual signature, or where permissible facsimile signature, of a trustee under an indenture pursuant to which such bond, debenture or other corporate security shall be issued, the signatures of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the corporation or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any officer who shall have signed or attested any bond, debenture or other corporate security, or whose facsimile signature shall appear thereon or on any such interest coupon, shall have ceased to be such officer before the bond, debenture or other corporate security so signed or attested shall have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the corporation and issued and delivered as though the person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the corporation. ARTICLE IX FISCAL YEAR Section 38. Fiscal Year. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors. ARTICLE X INDEMNIFICATION Section 39. Indemnification of Directors, Executive Officers, Other Officers, Employees and Other Agents. (a) Directors and Executive Officers. The corporation shall indemnify its directors and executive officers (for the purposes of this Article X, executive officers shall have the meaning defined in Rule 3b-7 promulgated under the 1934 Act) to the extent not prohibited by the DGCL or any other applicable law; provided, however, that the corporation may modify the extent of such indemnification by individual contracts with its directors and executive officers; and, provided, further, that the corporation shall not be required to indemnify any director or executive officer in connection with any proceeding (or part thereof) initiated by such person unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board of Directors of the 17.
corporation, (iii) such indemnification is provided by the corporation, in its sole discretion, pursuant to the powers vested in the corporation under the DGCL or any other applicable law or (iv) such indemnification is required to be made under subsection (d). (b) Other Officers, Employees and Other Agents. The corporation shall have power to indemnify its other officers, employees and other agents as set forth in the DGCL or any other applicable law. The Board of Directors shall have the power to delegate the determination of whether indemnification shall be given to any such person except executive officers to such officers or other persons as the Board of Directors shall determine. (c) Expenses. The corporation shall advance to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or executive officer, of the corporation, or is or was serving at the request of the corporation as a director or executive officer of another corporation, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request therefor, all expenses incurred by any director or executive officer in connection with such proceeding provided, however, that if the DGCL requires, an advancement of expenses incurred by a director or executive officer in his or her capacity as a director or executive officer (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the corporation of an undertaking (hereinafter an undertaking), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a final adjudication) that such indemnitee is not entitled to be indemnified for such expenses under this section or otherwise. Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph (e) of this section, no advance shall be made by the corporation to an executive officer of the corporation (except by reason of the fact that such executive officer is or was a director of the corporation in which event this paragraph shall not apply) in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly made (i) by a majority vote of directors who were not parties to the proceeding, even if not a quorum, or (ii) by a committee of such directors designated by a majority vote of such directors, even though less than a quorum, or (iii) if there are no such directors, or such directors so direct, by independent legal counsel in a written opinion, that the facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation. (d) Enforcement. Without the necessity of entering into an express contract, all rights to indemnification and advances to directors and executive officers under this Bylaw shall be deemed to be contractual rights and be effective to the same extent and as if provided for in a contract between the corporation and the director or executive officer. Any right to indemnification or advances granted by this section to a director or executive officer shall be enforceable by or on behalf of the person holding such right in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefor. To the extent permitted by law, the claimant in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting the claim. In connection with any claim for indemnification, the corporation shall be entitled to raise as a defense to any such action that the claimant has not met the standards of conduct that make it permissible under the DGCL or any other applicable law for the corporation to indemnify the claimant for the amount claimed. In connection with any claim by an executive officer of the corporation (except in any action, suit or proceeding, whether 18.
civil, criminal, administrative or investigative, by reason of the fact that such executive officer is or was a director of the corporation) for advances, the corporation shall be entitled to raise a defense as to any such action clear and convincing evidence that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation, or with respect to any criminal action or proceeding that such person acted without reasonable cause to believe that his conduct was lawful. Neither the failure of the corporation (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the DGCL or any other applicable law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. In any suit brought by a director or executive officer to enforce a right to indemnification or to an advancement of expenses hereunder, the burden of proving that the director or executive officer is not entitled to be indemnified, or to such advancement of expenses, under this section or otherwise shall be on the corporation. (e) Non-Exclusivity of Rights. The rights conferred on any person by this Bylaw shall not be exclusive of any other right which such person may have or hereafter acquire under any applicable statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding office. The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advances, to the fullest extent not prohibited by the DGCL, or by any other applicable law. (f) Survival of Rights. The rights conferred on any person by this Bylaw shall continue as to a person who has ceased to be a director or executive officer or officer, employee or other agent and shall inure to the benefit of the heirs, executors and administrators of such a person. (g) Insurance. To the fullest extent permitted by the DGCL or any other applicable law, the corporation, upon approval by the Board of Directors, may purchase insurance on behalf of any person required or permitted to be indemnified pursuant to this section. (h) Amendments. Any repeal or modification of this section shall only be prospective and shall not affect the rights under this Bylaw in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of the corporation. (i) Saving Clause. If this Bylaw or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each director and executive officer to the full extent not prohibited by any applicable portion of this section that shall not have been invalidated, or by any other applicable law. If this section shall be invalid due to the application of the indemnification provisions of another jurisdiction, then the corporation shall indemnify each director and executive officer to the full extent under any other applicable law. (j) Certain Definitions. For the purposes of this Bylaw, the following definitions shall apply: (i) The term proceeding shall be broadly construed and shall include, without limitation, the investigation, preparation, prosecution, defense, settlement, arbitration and appeal of, and the giving of testimony in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative. 19.
(ii) The term expenses shall be broadly construed and shall include, without limitation, court costs, attorneys fees, witness fees, fines, amounts paid in settlement or judgment and any other costs and expenses of any nature or kind incurred in connection with any proceeding. (iii) The term the corporation shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this section with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. (iv) References to a director, executive officer, officer, employee, or agent of the corporation shall include, without limitation, situations where such person is serving at the request of the corporation as, respectively, a director, executive officer, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise. (v) References to other enterprises shall include employee benefit plans; references to fines shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to serving at the request of the corporation shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner not opposed to the best interests of the corporation as referred to in this section. ARTICLE XI NOTICES Section 40. Notices. (a) Notice To Stockholders. Written notice to stockholders of stockholder meetings shall be given as provided in Section 7 herein. Without limiting the manner by which notice may otherwise be given effectively to stockholders under any agreement or contract with such stockholder, and except as otherwise required by law, written notice to stockholders for purposes other than stockholder meetings may be sent by U.S. mail or nationally recognized overnight courier, or by facsimile, telegraph or telex or by electronic mail or other electronic means. (b) Notice To Directors. Any notice required to be given to any director may be given by the method stated in subsection (a), as otherwise provided in these Bylaws, or by overnight delivery service, facsimile, telex or telegram, except that such notice other than one which is delivered personally shall be sent to such address as such director shall have filed in writing with the Secretary, or, in the absence of such filing, to the last known post office address of such director. (c) Affidavit Of Mailing. An affidavit of mailing, executed by a duly authorized and competent employee of the corporation or its transfer agent appointed with respect to the class of stock affected, or other agent, specifying the name and address or the names and addresses of the 20.
stockholder or stockholders, or director or directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall in the absence of fraud, be prima facie evidence of the facts therein contained. (d) Methods of Notice. It shall not be necessary that the same method of giving notice be employed in respect of all recipients of notice, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others. (e) Notice To Person With Whom Communication Is Unlawful. Whenever notice is required to be given, under any provision of law or of the Certificate of Incorporation or Bylaws of the corporation, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the DGCL, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful. (f) Notice to Stockholders Sharing an Address. Except as otherwise prohibited under DGCL, any notice given under the provisions of DGCL, the Certificate of Incorporation or the Bylaws shall be effective if given by a single written notice to stockholders who share an address if consented to by the stockholders at that address to whom such notice is given. Such consent shall have been deemed to have been given if such stockholder fails to object in writing to the corporation within sixty (60) days of having been given notice by the corporation of its intention to send the single notice. Any consent shall be revocable by the stockholder by written notice to the corporation. ARTICLE XII AMENDMENTS Section 41. Amendments. Subject to the limitations set forth in Section 39(h) of these Bylaws or the provisions of the Certificate of Incorporation, the Board of Directors is expressly empowered to adopt, amend or repeal the Bylaws of the corporation. Any adoption, amendment or repeal of the Bylaws of the corporation by the Board of Directors shall require the approval of a majority of the authorized number of directors. The stockholders also shall have power to adopt, amend or repeal the Bylaws of the corporation; provided, however, that, in addition to any vote of the holders of any class or series of stock of the corporation required by law or by the Certificate of Incorporation, such action by stockholders shall require the affirmative vote of the holders of at least a majority of the voting power of all of the then-outstanding shares of the capital stock of the corporation entitled to vote generally in the election of directors, voting together as a single class. ARTICLE XIII LOANS TO OFFICERS Section 42. Loans To Officers. Except as otherwise prohibited by applicable law, 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 subsidiaries, including any officer or employee who is a director of 21.
the corporation or its subsidiaries, whenever, in the judgment of the Board of Directors, such loan, guarantee or assistance may reasonably be expected to benefit the corporation. The loan, guarantee 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 these Bylaws shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. 22.
Exhibit 10.3 ZYNGA INC. 2007 EQUITY INCENTIVE PLAN STOCK OPTION AGREEMENT This Stock Option Agreement (the Agreement ) is made and entered into as of the date of grant set forth below (the Date of Grant ) by and between Zynga Inc., a Delaware corporation (the Company), and the participant named below (the Participant ). Capitalized terms not defined herein shall have the meaning ascribed to them in the Companys 2007 Equity Incentive Plan (the Plan). Participant: Social Security Number: Address: Total Option Shares: Exercise Price Per Share: Date of Grant: Vesting Start Date: Expiration Date: (unless earlier terminated under Section 5.6 of the Plan) Classification of Optionee [ ] Employee [ ] Non-Employee Type of Stock Option: Grant Number: 1. Grant of Option . The Company hereby grants to Participant an option (this Option) to purchase the total number of shares of Class A Common Stock, $0.00005 par value, of the Company set forth above as Total Option Shares (the Shares) at the Exercise Price Per Share set forth above (the Exercise Price), subject to all of the terms and conditions of this Agreement and the Plan. If designated as an Incentive Stock Option above, the Option is intended to qualify as an incentive stock option (the ISO) within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the Code). 2. Exercise Period. 2.1 Exercise Period of Option . Provided Participant continues to provide services to the Company or to any Parent or Subsidiary of the Company, the Shares issuable upon exercise of this Option will become vested and exercisable with respect to 25% of the Shares on the first anniversary of the Vesting Start Date set forth on the first page of this Agreement and 1/48 th monthly thereafter until the Shares are vested with respect to 100% of the $
Shares. If application of the vesting percentage causes a fractional share, such share shall be rounded down to the nearest whole share for each month except for the last month in such vesting period, at the end of which last month this Option shall become vested for the full remainder of the Shares. Notwithstanding any provision in the Plan or this Agreement to the contrary, Options for Unvested Shares (as defined in Section 2.2 of this Agreement) will not be exercisable on or after Participants Termination Date. 2.2 Vesting of Options. Shares that are vested pursuant to the schedule set forth in Section 2.1 are Vested Shares. Shares that are not vested pursuant to the schedule set forth in Section 2.1 are Unvested Shares. 2.3 Definitions. (a) Cause means Termination because of: (i) any willful, material violation by Participant of any law or regulation applicable to the business of the Company, Participants conviction for, or guilty plea to, a felony or a crime involving moral turpitude, or any willful perpetration by Participant of a common law fraud; (ii) Participants commission of an act of personal dishonesty that involves personal profit in connection with the Company or any other entity having a business relationship with the Company; (iii) any material breach by Participant of any provision of any agreement or understanding between the Company and Participant regarding the terms of Participants service as an employee, officer, director or consultant to the Company, including without limitation, the willful and continued failure or refusal of Participant to perform the material duties required of Participant as an employee, officer, director or consultant of the Company, other than as a result of having a Disability, or a breach of any applicable invention assignment and confidentiality agreement or similar agreement between the Company and Participant; (iv) Participants disregard of the policies of the Company so as to cause loss, damage or injury to the property, reputation or employees of the Company; or (v) any other misconduct by Participant that is materially injurious to the financial condition or business reputation of, or is otherwise materially injurious to, the Company. No act or failure to act by the Participant shall be considered willful if done or omitted by the Participant in good faith with reasonable belief that such action or omission was in the best interests of the Company. All references to the Company in this definition of Cause shall include parent, subsidiary, affiliate and successor entities of the Company. 2.4 Expiration. The Option shall expire on the Expiration Date set forth above or earlier as provided in Section 3 below or pursuant to Section 5.6 of the Plan.
3. Termination. 3.1 Termination for Any Reason Except Death, Disability or Cause . If Participant is Terminated for any reason, except death, Disability or for Cause, the Option, to the extent (and only to the extent) that it would have been exercisable by Participant on the Termination Date, may be exercised by Participant no later than three months after the Termination Date, but in any event no later than the Expiration Date. 3.2 Termination Because of Death or Disability . If Participant is Terminated because of death or Disability of Participant (or Participant dies within three months of Termination when Termination is for any reason other than Participants Disability or for Cause), the Option, to the extent that it is exercisable by Participant on the Termination Date, may be exercised by Participant (or Participants legal representative) no later than 12 months after the Termination Date, but in any event no later than the Expiration Date. Any exercise beyond (i) three months after the Termination Date when the Termination is for any reason other than the Participants death or disability, within the meaning of Section 22(e)(3) of the Code; or (ii) 12 months after the Termination Date when the termination is for Participants disability, within the meaning of Section 22(e)(3) of the Code, is deemed to be an NQSO. 3.3 Termination for Cause. If the Participant is terminated for Cause, Participants Options expire immediately upon such Termination. 3.4 No Obligation to Employ. Nothing in the Plan or this Agreement shall confer on Participant any right to continue in the employ of, or other relationship with, the Company or any Parent or Subsidiary of the Company, or limit in any way the right of the Company or any Parent or Subsidiary of the Company to terminate Participants employment or other relationship at any time, with or without Cause. 4. Manner of Exercise . 4.1 Stock Option Exercise Agreement . To exercise this Option, Participant (or in the case of exercise after Participants death or incapacity, Participants executor, administrator, heir or legatee, as the case may be) must deliver to the Company an executed stock option exercise agreement in the form attached hereto as Exhibit A, or in such other form as may be approved by the Committee from time to time (the Exercise Agreement ), which shall set forth, inter alia, (i) Participants election to exercise the Option, (ii) the number of Shares being purchased, (iii) any restrictions imposed on the Shares and (iv) any representations, warranties and agreements regarding Participants investment intent and access to information as may be required by the Company to comply with applicable securities laws. If someone other than Participant exercises the Option, then such person must submit documentation reasonably acceptable to the Company verifying that such person has the legal right to exercise the Option and such person shall be subject to all of the restrictions contained herein as if such person were the Participant. 4.2 Limitations on Exercise. The Option may not be exercised unless such exercise is in compliance with all applicable federal and state securities laws, as they are in effect on the date of exercise. The Option may not be exercised as to fewer than 100 Shares unless it is exercised as to all Shares as to which the Option is then exercisable.
4.3 Payment. The Exercise Agreement shall be accompanied by full payment of the Exercise Price for the shares being purchased in cash (by check), or where permitted by law: (a) by cancellation of indebtedness of the Company to the Participant; (b) by surrender of shares of the Companys Class A Common Stock that (i) either (A) have been paid for within the meaning of SEC Rule 144 (and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with respect to such shares); or (B) were obtained by Participant in the open public market; and (ii) are clear of all liens, claims, encumbrances or security interests; (c) by waiver of compensation due or accrued to Participant for services rendered; (d) provided that a public market for the Companys stock exists: (i) through a same day sale commitment from Participant and a Company-designated broker-dealer that is a member of the Financial Industry Regulatory Authority (a Dealer) whereby Participant irrevocably elects to exercise the Option and to sell a portion of the Shares so purchased sufficient to pay for the total Exercise Price and whereby the Dealer irrevocably commits upon receipt of such Shares to forward the total Exercise Price directly to the Company, or (ii) through a margin commitment from Participant and a Dealer whereby Participant irrevocably elects to exercise the Option and to pledge the Shares so purchased to the Dealer in a margin account as security for a loan from the Dealer in the amount of the total Exercise Price, and whereby the Dealer irrevocably commits upon receipt of such Shares to forward the total Exercise Price directly to the Company; (e) any other form of consideration approved by the Committee; or (f) by any combination of the foregoing. 4.4 Tax Withholding. Prior to the issuance of the Shares upon exercise of the Option, Participant must pay or provide for any applicable federal, state and local withholding obligations of the Company. If the Committee permits, Participant may provide for payment of withholding taxes upon exercise of the Option by requesting that the Company retain the minimum number of Shares with a Fair Market Value equal to the minimum amount of taxes required to be withheld; but in no event will the Company withhold Shares if such withholding would result in adverse accounting consequences to the Company. In such case, the Company shall issue the net number of Shares to the Participant by deducting the Shares retained from the Shares issuable upon exercise. 4.5 Issuance of Shares . Provided that the Exercise Agreement and payment are in form and substance satisfactory to counsel for the Company, the Company shall issue the Shares registered in the name of Participant, Participants authorized assignee, or Participants legal representative, and shall deliver certificates representing the Shares with the appropriate legends affixed thereto. 5. Notice of Disqualifying Disposition of ISO Shares . If the Option is an ISO, and if Participant sells or otherwise disposes of any of the Shares acquired pursuant to the ISO on or before the later of (i) the date two years after the Date of Grant, and (ii) the date one year after
transfer of such Shares to Participant upon exercise of the Option, Participant shall immediately notify the Company in writing of such disposition. Participant agrees that Participant may be subject to income tax withholding by the Company on the compensation income recognized by Participant from the early disposition by payment in cash or out of the current wages or other compensation payable to Participant. 6. Compliance with Laws and Regulations . The Plan and this Agreement are intended to comply with Section 25102(o) of the California Corporations Code and any regulations relating thereto. Any provision of this Agreement which is inconsistent with Section 25102(o) or any regulations relating thereto shall, without further act or amendment by the Company or the Board, be reformed to comply with the requirements of Section 25102(o) and any regulations relating thereto. The exercise of the Option and the issuance and transfer of Shares shall be subject to compliance by the Company and Participant with all applicable requirements of federal and state securities laws and with all applicable requirements of any stock exchange on which the Companys Class A Common Stock may be listed at the time of such issuance or transfer. Participant understands that the Company is under no obligation to register or qualify the Shares with the SEC, any state securities commission or any stock exchange to effect such compliance. 7. Nontransferability of Option . The Option may not be transferred in any manner other than by will or by the laws of descent and distribution, and, with respect to NQSOs, 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 immediate family as that term is defined in 17 C.F.R. 240.16a-1(e), and may be exercised during the lifetime of Participant only by Participant or in the event of Participants incapacity, by Participants legal representative. The terms of the Option shall be binding upon the executors, administrators, successors and assigns of Participant. 8. Companys Right of First Refusal . Before any Vested Shares held by Participant or any transferee of such Vested Shares may be sold or otherwise transferred (including without limitation a transfer by gift or operation of law), the Company and/or its assignee(s) shall have an assignable right of first refusal to purchase the Vested Shares to be sold or transferred on the terms and conditions set forth in the Exercise Agreement (the Right of First Refusal ). The Companys Right of First Refusal will terminate when the Companys securities become publicly traded. 9. Tax Consequences. Set forth below is a brief summary as of the Effective Date of the Plan of some of the federal and California tax consequences of exercise of the Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. PARTICIPANT SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THE OPTION OR DISPOSING OF THE SHARES. 9.1 Exercise of ISO . If the Option qualifies as an ISO, there will be no regular federal or California income tax liability upon the exercise of the Option, although the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price will be treated as a tax preference item for federal alternative minimum tax purposes and may subject the Participant to the alternative minimum tax in the year of exercise.
9.2 Exercise of Nonqualified Stock Option . If the Option does not qualify as an ISO, there may be a regular federal and California income tax liability upon the exercise of the Option. Participant will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price. If Participant is a current or former employee of the Company, the Company may be required to withhold from Participants compensation or collect from Participant and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income at the time of exercise. 9.3 Disposition of Shares . The following tax consequences may apply upon disposition of the Shares. (a) Incentive Stock Options. If the Shares are held for more than 12 months after the date of purchase of the Shares pursuant to the exercise of an ISO and are disposed of more than two years after the Date of Grant, any gain realized on disposition of the Shares will be treated as long term capital gain for federal and California income tax purposes. If Vested Shares purchased under an ISO are disposed of within the applicable one year or two year period, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates in the year of the disposition) to the extent of the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price. (b) Nonqualified Stock Options. If the Shares are held for more than 12 months after the date of the transfer of the Shares pursuant to the exercise of an NQSO, any gain realized on disposition of the Shares will be treated as long term capital gain. (c) Withholding. The Company may be required to withhold from the Participants compensation or collect from the Participant and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income. 10. Privileges of Stock Ownership . Participant shall not have any of the rights of a shareholder with respect to any Shares until the Shares are issued to Participant. 11. Interpretation. Any dispute regarding the interpretation of this Agreement shall be submitted by Participant or the Company to the Committee for review. The resolution of such a dispute by the Committee shall be final and binding on the Company and Participant. 12. Entire Agreement. The Plan is incorporated herein by reference. This Agreement and the Plan constitute the entire agreement and understanding of the parties with respect to the subject matter of this Agreement, and supersede all prior understandings and agreements, whether oral or written, between or among the parties hereto with respect to the specific subject matter hereof. 13. Notices. Any and all notices required or permitted to be given to a party pursuant to the provisions of this Agreement will be in writing and will be effective and deemed to provide such party sufficient notice under this Agreement on the earliest of the following: (i) at the time of personal delivery, if delivery is in person or by email; (ii) at the time of transmission by facsimile, addressed to the other party at its facsimile number specified herein (or hereafter modified by subsequent notice to the parties hereto), with confirmation of receipt made by both telephone and printed confirmation sheet verifying successful transmission of the facsimile; (iii) one business day after deposit with an express overnight courier for United States deliveries, or
two business days after such deposit for deliveries outside of the United States, with proof of delivery from the courier requested; or (iv) three business days after deposit in the United States mail by certified mail (return receipt requested) for United States deliveries. All notices for delivery outside the United States will be sent by facsimile or e-mail with confirmation of receipt, or by express courier. All notices not delivered personally or by facsimile or e-mail will be sent with postage and/or other charges prepaid and properly addressed to the Company at: 444 De Haro Street, Suite 132, San Francisco, CA 94107, 415-503-0222, or stockadmin@zynga.com and to the Participant at the address, facsimile number or email address set forth below the Participants signature line of this Agreement, or at such other address or facsimile number as such other party may designate by one of the indicated means of notice herein to the other parties hereto. Notices to the Company will be marked Attention: Stock Plan Administrator. 14. Successors and Assigns . The Company may assign any of its rights under this Agreement including its rights to purchase Shares under the Right of First Refusal. No other party to this Agreement may assign, whether voluntarily or by operation of law, any of its rights and obligations under this Agreement, except with the prior written consent of the Company. This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth herein, this Agreement shall be binding upon Participant and Participants heirs, executors, administrators, legal representatives, successors and assigns. 15. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California, without giving effect to that body of laws pertaining to conflict of laws. 16. Acceptance. Participant hereby acknowledges receipt of a copy of the Plan and this Agreement. Participant has read and understands the terms and provisions thereof, and accepts the Option subject to all the terms and conditions of the Plan and this Agreement. Participant acknowledges that there may be adverse tax consequences upon exercise of the Option or disposition of the Shares and that Participant should consult a tax adviser prior to such exercise or disposition. 17. Further Assurances. The parties agree to execute such further documents and instruments and to take such further actions as may be reasonably necessary to carry out the purposes and intent of this Agreement. 18. Titles and Headings. The titles, captions and headings of this Agreement are included for ease of reference only and will be disregarded in interpreting or construing this Agreement. Unless otherwise specifically stated, all references herein to sections and exhibits will mean sections and exhibits to this Agreement. 19. Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered will be deemed an original, and all of which together shall constitute one and the same agreement. 20. Severability. If any provision of this Agreement is determined by any court or arbitrator of competent jurisdiction to be invalid, illegal or unenforceable in any respect, such provision will be enforced to the maximum extent possible given the intent of the parties hereto.
If such clause or provision cannot be so enforced, such provision shall be stricken from this Agreement and the remainder of this Agreement shall be enforced as if such invalid, illegal or unenforceable clause or provision had (to the extent not enforceable) never been contained in this Agreement. Notwithstanding the forgoing, if the value of this Agreement based upon the substantial benefit of the bargain for any party is materially impaired, which determination as made by the presiding court or arbitrator of competent jurisdiction shall be binding, then both parties agree to substitute such provision(s) through good faith negotiations. 21. Facsimile Signatures. This Agreement may be executed and delivered by facsimile and upon such delivery the facsimile signature will be deemed to have the same effect as if the original signature had been delivered to the other party. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized representative and Participant has executed this Agreement, effective as of the Date of Grant. ZYNGA INC. By: Signature Reginald D. Davis (Please print name) Secretary, General Counsel 444 De Haro Street, Suite 132 San Francisco, CA 94107 Address: Fax: Email: PARTICIPANT
EXHIBIT A FORM OF STOCK OPTION EXERCISE AGREEMENT
ZYNGA INC. 2007 EQUITY INCENTIVE PLAN STOCK OPTION EXERCISE AGREEMENT This Stock Option Exercise Agreement (the Exercise Agreement ) is made and entered into as of , (the Effective Date) by and between Zynga Inc., a Delaware corporation (the Company), and the purchaser named below (the Purchaser). Capitalized terms not defined herein shall have the meanings ascribed to them in the Companys 2007 Equity Incentive Plan (the Plan). Purchaser: Social Security Number: Address: Total Number of Shares: Exercise Price Per Share: Date of Grant: First Vesting Date: Expiration Date: (Unless earlier terminated under Section 5.6 of the Plan) Type of Stock Option (Check one): 1. Exercise of Option. 1.1 Exercise. Pursuant to exercise of that certain option (the Option) granted to Purchaser under the Plan and subject to the terms and conditions of this Exercise Agreement, Purchaser hereby purchases from the Company, and the Company hereby sells to Purchaser, the Total Number of Shares set forth above (the Shares) of the Companys Class B Common Stock, at the Exercise Price Per Share set forth above (the Exercise Price). As used in this Exercise Agreement, the term Shares refers to the Shares purchased under this Exercise Agreement and includes all securities received (i) in replacement of the Shares, (ii) as a result of stock dividends or stock splits with respect to the Shares, and (iii) all securities received in replacement of the Shares in a merger, recapitalization, reorganization or similar corporate transaction. Incentive Stock Option Nonqualified Stock Option
1.2 Title to Shares. The exact spelling of the name(s) under which Purchaser will take title to the Shares is:
Purchaser desires to take title to the Shares as follows: Individual, as separate property Husband and wife, as community property Joint Tenants Other; please specify: ____________________________________________
To assign the Shares to a trust, a stock transfer agreement in the form attached hereto as Exhibit 4 (the Stock Transfer Agreement) must be completed and executed. To assign the Shares to a trust, a stock transfer agreement in the form agreeable to the company must be completed or executed. 1.3 Payment. Purchaser hereby delivers payment of the Exercise Price in the manner permitted in the Stock Option Agreement as follows (check and complete as appropriate): in cash (by check) in the amount of $ , receipt of which is acknowledged by the Company; ;
by cancellation of indebtedness of the Company owed to Purchaser in the amount of $
by delivery of fully-paid, nonassessable and vested shares of the Class B Common Stock of the Company owned by Purchaser for at least six months prior to the date hereof which have been paid for within the meaning of SEC Rule 144, (if purchased by use of a promissory note, such note has been fully paid with respect to such vested shares), or obtained by Purchaser in the open public market, and owned free and clear of all liens, claims, encumbrances or security interests, valued at the current Fair Market Value of $ per share; by the waiver hereby of compensation due or accrued for services rendered in the amount of $ .
2. Delivery.
2.1 Deliveries by Purchaser. Purchaser hereby delivers to the Company (i) this Exercise Agreement, (ii) two copies of a blank Stock Power and Assignment Separate from Stock Certificate in the form of Exhibit 1 attached hereto (the Stock Powers), both 2
executed by Purchaser (and Purchasers spouse, if any), (iii) if Purchaser is married, a Consent of Spouse in the form of Exhibit 2 attached hereto (the Spouse Consent ) executed by Purchasers spouse, and (iv) the Exercise Price and payment or other provision for any applicable tax obligations in the form of a check, a copy of which is attached hereto as Exhibit 3 and (v) the fully executed Stock Transfer Agreement in the form attached hereto as Exhibit 4 (if applicable). 2.2 Deliveries by the Company. Upon its receipt of the Exercise Price, payment or other provision for any applicable tax obligations and all the documents to be executed and delivered by Purchaser to the Company under Section 2.1, the Company will issue a duly executed stock certificate evidencing the Shares in the name of Purchaser to be placed in escrow as provided in Section 11 to secure payment of Purchasers obligation to the Company under the promissory note and until expiration or termination of the Companys Repurchase Option and Right of First Refusal described in Sections 8, 9 and 10. 3. Representations and Warranties of Purchaser . Purchaser represents and warrants to the Company that: 3.1 Agrees to Terms of the Plan. Purchaser has received a copy of the Plan and the Stock Option Agreement, has read and understands the terms of the Plan, the Stock Option Agreement and this Exercise Agreement, and agrees to be bound by their terms and conditions. Purchaser acknowledges that there may be adverse tax consequences upon exercise of the Option or disposition of the Shares, and that Purchaser should consult a tax adviser prior to such exercise or disposition. 3.2 Purchase for Own Account for Investment . Purchaser is purchasing the Shares for Purchasers own account for investment purposes only and not with a view to, or for sale in connection with, a distribution of the Shares within the meaning of the Securities Act. Purchaser has no present intention of selling or otherwise disposing of all or any portion of the Shares and no one other than Purchaser has any beneficial ownership of any of the Shares. 3.3 Access to Information. Purchaser has had access to all information regarding the Company and its present and prospective business, assets, liabilities and financial condition that Purchaser reasonably considers important in making the decision to purchase the Shares, and Purchaser has had ample opportunity to ask questions of the Companys representatives concerning such matters and this investment. 3.4 Understanding of Risks . Purchaser is fully aware of: (i) the highly speculative nature of the investment in the Shares; (ii) the financial hazards involved; (iii) the lack of liquidity of the Shares and the restrictions on transferability of the Shares ( e.g., that Purchaser may not be able to sell or dispose of the Shares or use them as collateral for loans); (iv) the qualifications and backgrounds of the management of the Company; and (v) the tax consequences of investment in the Shares. Purchaser is capable of evaluating the merits and risks of this investment, has the ability to protect Purchasers own interests in this transaction and is financially capable of bearing a total loss of this investment. 3.5 No General Solicitation. At no time was Purchaser presented with or solicited by any publicly issued or circulated newspaper, mail, radio, television or other form of general advertising or solicitation in connection with the offer, sale and purchase of the Shares. 3
4. Compliance with Securities Laws . 4.1 Compliance with U.S. Federal Securities Laws . Purchaser understands and acknowledges that the Shares have not been registered with the SEC under the Securities Act and that, notwithstanding any other provision of the Stock Option Agreement to the contrary, the exercise of any rights to purchase any Shares is expressly conditioned upon compliance with the Securities Act and all applicable state securities laws. Purchaser agrees to cooperate with the Company to ensure compliance with such laws. 4.2 Compliance with California Securities Laws . THE PLAN, THE STOCK OPTION AGREEMENT, AND THIS EXERCISE AGREEMENT ARE INTENDED TO COMPLY WITH SECTION 25102(o) OF THE CALIFORNIA CORPORATIONS CODE AND ANY RULES (INCLUDING COMMISSIONER RULES, IF APPLICABLE) OR REGULATIONS PROMULGATED THEREUNDER BY THE CALIFORNIA DEPARTMENT OF CORPORATIONS (THE REGULATIONS). ANY PROVISION OF THIS EXERCISE AGREEMENT THAT IS INCONSISTENT WITH SECTION 25102(o) SHALL, WITHOUT FURTHER ACT OR AMENDMENT BY THE COMPANY OR THE BOARD, BE REFORMED TO COMPLY WITH THE REQUIREMENTS OF SECTION 25102(o). THE SALE OF THE SECURITIES THAT ARE THE SUBJECT OF THIS EXERCISE AGREEMENT, IF NOT YET QUALIFIED WITH THE CALIFORNIA COMMISSIONER OF CORPORATIONS AND NOT EXEMPT FROM SUCH QUALIFICATION, IS SUBJECT TO SUCH QUALIFICATION, AND THE ISSUANCE OF SUCH SECURITIES, AND THE RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE IS EXEMPT. THE RIGHTS OF THE PARTIES TO THIS EXERCISE AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED OR AN EXEMPTION BEING AVAILABLE. 5. Restricted Securities. 5.1 No Transfer Unless Registered or Exempt. Purchaser understands that Purchaser may not transfer any Shares unless such Shares are registered under the Securities Act or qualified under applicable state securities laws or unless, in the opinion of counsel to the Company, exemptions from such registration and qualification requirements are available. Purchaser understands that only the Company may file a registration statement with the SEC and that the Company is under no obligation to do so with respect to the Shares. Purchaser has also been advised that exemptions from registration and qualification may not be available or may not permit Purchaser to transfer all or any of the Shares in the amounts or at the times proposed by Purchaser. 5.2 SEC Rule 144. In addition, Purchaser has been advised that SEC Rule 144 promulgated under the Securities Act, which permits certain limited sales of unregistered securities, is not presently available with respect to the Shares and, in any event, requires that the Shares be held for a minimum of six months, and in certain cases one year, after they have been purchased and paid for (within the meaning of Rule 144). Purchaser understands that Rule 144 may indefinitely restrict transfer of the Shares so long as Purchaser remains an affiliate of the Company or if current public information about the Company (as defined in Rule 144) is not publicly available. 6. Restrictions on Transfers. 6.1 Disposition of Shares . Purchaser hereby agrees that Purchaser shall make no disposition of the Shares (other than as permitted by this Exercise Agreement) unless and until: (a) Purchaser shall have notified the Company of the proposed disposition and provided a written summary of the terms and conditions of the proposed disposition; 4
(b) Purchaser shall have complied with all requirements of this Exercise Agreement applicable to the disposition of the Shares; (c) Purchaser shall have provided the Company with written assurances, in form and substance satisfactory to counsel for the Company, that (i) the proposed disposition does not require registration of the Shares under the Securities Act or (ii) all appropriate actions necessary for compliance with the registration requirements of the Securities Act or of any exemption from registration available under the Securities Act (including Rule 144) have been taken; and (d) Purchaser shall have provided the Company with written assurances, in form and substance satisfactory to the Company, that the proposed disposition will not result in the contravention of any transfer restrictions applicable to the Shares pursuant to the provisions of the Regulations referred to in Section 4.2 hereof. 6.2 Restriction on Transfer. Purchaser shall not transfer, assign, grant a lien or security interest in, pledge, hypothecate, encumber or otherwise dispose of any of the Shares which are subject to the Companys Repurchase Option or the Companys Right of First Refusal described below, except as permitted by this Exercise Agreement. 6.3 Transferee Obligations. Each person (other than the Company) to whom the Shares are transferred by means of one of the permitted transfers specified in this Exercise Agreement must, as a condition precedent to the validity of such transfer, acknowledge in writing to the Company that such person is bound by the provisions of this Exercise Agreement and that the transferred Shares are subject to (i) both the Companys Repurchase Option and the Companys Right of First Refusal granted hereunder and (ii) the market stand-off provisions of Section 7 hereof, to the same extent such Shares would be so subject if retained by the Purchaser. 7. Market Standoff Agreement . Purchaser agrees in connection with any registration of the Companys securities that, upon the request of the Company or the underwriters managing any public offering of the Companys securities, Purchaser will not sell or otherwise dispose of any Shares 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) after the effective date of such registration requested by such managing underwriters and subject to all restrictions as the Company or the underwriters may specify. Purchaser further agrees to enter into any agreement reasonably required by the underwriters to implement the foregoing. 8. Companys Right of First Refusal . Company and/or its assignee(s) will have a right of first refusal to purchase the Vested Shares (as defined in Section 2.2 of the Stock Option Agreement) to be sold or transferred (the Offered Shares) on the terms and conditions set forth in this Section (the Right of First Refusal ). 8.1 Notice of Proposed Transfer . The Holder of the Offered Shares will deliver to the Company (A) a written notice (the Notice) stating: (i) the Holders bona fide intention to sell or otherwise transfer the Offered Shares; (ii) the name and address of each proposed purchaser or other transferee (the Proposed Transferee); (iii) the number of Offered 5
Shares to be transferred to each Proposed Transferee; (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the Offered Shares (the Offered Price); and (v) that the Holder acknowledges this Notice is an offer to sell the Offered Shares to the Company and/or its assignee(s) pursuant to the Companys Right of First Refusal at the Offered Price as provided for in this Exercise Agreement and (B) a fully executed copy of the stock transfer agreement between the Holder and the Proposed Transferee. 8.2 Exercise of Right of First Refusal . At any time within 30 days after the date of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all (or, with the consent of the Holder, less than all) the Offered Shares proposed to be transferred to any one or more of the Proposed Transferees named in the Notice, at the purchase price, determined as specified below. 8.3 Purchase Price. The purchase price for the Offered Shares purchased under this Section will be the Offered Price, provided that if the Offered Price consists of no legal consideration (as, for example, in the case of a transfer by gift) the purchase price will be the fair market value of the Offered Shares as determined in good faith by the Companys Board of Directors. If the Offered Price includes consideration other than cash, then the value of the non-cash consideration, as determined in good faith by the Companys Board of Directors, will conclusively be deemed to be the cash equivalent value of such non-cash consideration. 8.4 Payment. Payment of the purchase price for the Offered Shares will be payable, at the option of the Company and/or its assignee(s) (as applicable), by check or by cancellation of all or a portion of any outstanding purchase money indebtedness owed by the Holder to the Company (or to such assignee, in the case of a purchase of Offered Shares by such assignee) or by any combination thereof. The purchase price will be paid without interest within 60 days after the Companys receipt of the Notice, or, at the option of the Company and/or its assignee(s), in the manner and at the time(s) set forth in the Notice. 8.5 Holders Right to Transfer. If all of the Offered 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, then the Holder may sell or otherwise transfer such Offered Shares to each Proposed Transferee at the Offered Price or at a higher price, provided that (i) such sale or other transfer is consummated within 120 days after the date of the Notice, (ii) any such sale or other transfer is effected in compliance with all applicable securities laws, and (iii) each Proposed Transferee agrees in writing that the provisions of this Section will continue to apply to the Offered Shares in the hands of such Proposed Transferee. If the Offered Shares described in the Notice are not transferred to each Proposed Transferee within such 120 day period, then a new Notice must be given to the Company pursuant to which the Company will again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred. 8.6 Exempt Transfers. Notwithstanding anything to the contrary in this Section, the following transfers of Vested Shares will be exempt from the Right of First Refusal: (i) the transfer of any or all of the Vested Shares during Purchasers lifetime by gift or on Purchasers death by will or intestacy to Purchasers Immediate Family (as defined below) or to a trust for the benefit of Purchaser or Purchasers Immediate Family, provided that each transferee or other recipient agrees in a writing satisfactory to the Company that the provisions of this Section will continue to apply to the transferred Vested Shares in the hands of such 6
transferee or other recipient; (ii) any transfer of Vested Shares made pursuant to a statutory merger or statutory consolidation of the Company with or into another corporation or corporations (except that the Right of First Refusal will continue to apply thereafter to such Vested Shares, in which case the surviving corporation of such merger or consolidation shall succeed to the rights of the Company under this Section unless the agreement of merger or consolidation expressly otherwise provides); or (iii) any transfer of Vested Shares pursuant to the winding up and dissolution of the Company. As used herein, the term Immediate Family will mean Purchasers spouse, the lineal descendant or antecedent, father, mother, brother or sister, child, adopted child, grandchild or adopted grandchild of the Purchaser or the Purchasers spouse, or the spouse of any of the above. 8.7 Termination of Right of First Refusal . The Right of First Refusal will terminate as to all Shares (i) on the effective date of the first sale of Class B Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the SEC under the 1933 Act (other than a registration statement relating solely to the issuance of Class B Common Stock pursuant to a business combination or an employee incentive or benefit plan) or (ii) on any transfer or conversion of Shares made pursuant to a statutory merger or statutory consolidation of the Company with or into another corporation or corporations if the common stock of the surviving corporation or any direct or indirect parent corporation thereof is registered under the Securities Exchange Act of 1934, as amended. 8.8 Encumbrances on Vested Shares. Purchaser may grant a lien or security interest in, or pledge, hypothecate or encumber Vested Shares only if each party to whom such lien or security interest is granted, or to whom such pledge, hypothecation or other encumbrance is made, agrees in a writing satisfactory to the Company that: (i) such lien, security interest, pledge, hypothecation or encumbrance will not apply to such Vested Shares after they are acquired by the Company and/or its assignees under this Section; and (ii) the provisions of this Section will continue to apply to such Vested Shares in the hands of such party and any transferee of such party. Purchaser may not grant a lien or security interest in, or pledge, hypothecate or encumber, any Unvested Shares (as defined in Section 2.2 of the Stock Option Agreement). 9. Rights as a Shareholder. Subject to the terms and conditions of this Exercise Agreement, Purchaser will have all of the rights of a shareholder of the Company with respect to the Shares from and after the date that Shares are issued to Purchaser until such time as Purchaser disposes of the Shares or the Company and/or its assignee(s) exercise(s) the Repurchase Option or Right of First Refusal. Upon an exercise of the Repurchase Option or the Right of First Refusal, Purchaser will have no further rights as a holder of the Shares so purchased upon such exercise, other than the right to receive payment for the Shares so purchased in accordance with the provisions of this Exercise Agreement, and Purchaser will promptly surrender the stock certificate(s) evidencing the Shares so purchased to the Company for transfer or cancellation. 10. Escrow. As security for Purchasers faithful performance of this Exercise Agreement, Purchaser agrees, immediately upon receipt of the stock certificate(s) evidencing the Shares, to deliver such certificate(s), together with the Stock Powers executed by Purchaser and by Purchasers spouse, if any (with the date and number of Shares left blank), to the Secretary of the Company or other designee of the Company (the Escrow Holder), who is hereby appointed to hold such certificate(s) and Stock Powers in escrow and to take all such actions and to effectuate all such transfers and/or releases of such Shares as are in accordance with the terms of 7
this Exercise Agreement. Purchaser and the Company agree that Escrow Holder will not be liable to any party to this Exercise Agreement (or to any other party) for any actions or omissions unless Escrow Holder is grossly negligent or intentionally fraudulent in carrying out the duties of Escrow Holder under this Exercise Agreement. Escrow Holder may rely upon any letter, notice or other document executed with any signature purported to be genuine and may rely on the advice of counsel and obey any order of any court with respect to the transactions contemplated by this Exercise Agreement. The Shares will be released from escrow upon termination of both the Repurchase Option and the Right of First Refusal. 11. Restrictive Legends and Stop-Transfer Orders. 11.1 Legends. Purchaser understands and agrees that the Company will place the legends set forth below or similar legends on any stock certificate(s) evidencing the Shares, together with any other legends that may be required by state or U.S. Federal securities laws, the Companys Certificate of Incorporation or Bylaws, any other agreement between Purchaser and the Company or any agreement between Purchaser and any third party: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS, 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 COUNSEL IN A FORM SATISFACTORY TO THE ISSUER THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON RESALE AND POTENTIAL FORFEITURE AS SET FORTH IN ISSUERS BYLAWS AND CERTAIN AGREEMENTS, COPIES OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. AS A RESULT OF SUCH AGREEMENTS, AMONG OTHER RESTRICTIONS, THESE SHARES MAY NOT BE SOLD OR TRADED AT ANY TIME DURING THE PERIOD BEGINNING ON THE DATE OF ISSUANCE OF SUCH SHARES AND ENDING ON THE LATER OF (i) 180 DAYS AFTER THE EFFECTIVE DATE OF THE INITIAL PUBLIC OFFERING OF THE COMMON STOCK OF THE ISSUER HEREOF OR (ii) THE DATE ON WHICH THE MARKET STAND-OFF AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER REFERRED TO ABOVE TERMINATES. SUCH RESTRICTIONS ARE BINDING ON TRANSFEREES OF SUCH SHARES. 11.2 Stop-Transfer Instructions. Purchaser agrees that, to ensure compliance with the restrictions imposed by this Exercise Agreement, the Company may issue appropriate stop-transfer instructions to its transfer agent, if any, and if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records. 11.3 Refusal to Transfer. The Company will 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 Exercise 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 have been so transferred. 12. Tax Consequences. PURCHASER UNDERSTANDS THAT PURCHASER MAY SUFFER ADVERSE TAX CONSEQUENCES AS A RESULT OF PURCHASERS PURCHASE OR DISPOSITION OF THE SHARES. PURCHASER REPRESENTS: (i) THAT PURCHASER HAS CONSULTED WITH ANY TAX ADVISER THAT PURCHASER 8
DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR DISPOSITION OF THE SHARES AND (ii) THAT PURCHASER IS NOT RELYING ON THE COMPANY FOR ANY TAX ADVICE. IN PARTICULAR, IF UNVESTED SHARES ARE SUBJECT TO REPURCHASE BY THE COMPANY, PURCHASER REPRESENTS THAT PURCHASER HAS CONSULTED WITH PURCHASERS OWN TAX ADVISER CONCERNING THE ADVISABILITY OF FILING AN 83(b) ELECTION WITH THE INTERNAL REVENUE SERVICE WHICH MUST BE FILED WITHIN 30 DAYS OF THE PURCHASE OF SHARES TO BE EFFECTIVE. Set forth below is a brief summary as of the date the Plan was adopted by the Board of some of the U.S. Federal and California tax consequences of exercise of the Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. PURCHASER SHOULD CONSULT HIS OR HER OWN TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES. 12.1 Exercise of Incentive Stock Option . If the Option qualifies as an ISO, there will be no regular U.S. Federal income tax liability or California income tax liability upon the exercise of the Option, although the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price will be treated as a tax preference item for U.S. Federal alternative minimum tax purposes and may subject Purchaser to the alternative minimum tax in the year of exercise. 12.2 Exercise of Nonqualified Stock Option . If the Option does not qualify as an ISO, there may be a regular U.S. Federal income tax liability and a California income tax liability upon the exercise of the Option. Purchaser will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price. If Purchaser is or was an employee of the Company, the Company may be required to withhold from Purchasers compensation or collect from Purchaser and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income at the time of exercise. 12.3 Disposition of Shares . The following tax consequences may apply upon disposition of the Shares. (a) Incentive Stock Options. If the Shares are held for more than 12 months after the date of purchase of the Shares pursuant to the exercise of an ISO and are disposed of more than two years after the Date of Grant, any gain realized on disposition of the Shares will be treated as long term capital gain for federal and California income tax purposes. If Vested Shares purchased under an ISO are disposed of within the applicable one year or two year period, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates in the year of the disposition) to the extent of the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price. To the extent the Shares were exercised prior to vesting coincident with the filing of an 83(b) Election, the amount taxed because of a disqualifying disposition will be based upon the excess, if any, of the fair market value on the date of vesting over the exercise price. (b) Nonqualified Stock Options. If the Shares are held for more than 12 months after the date of the transfer of the Shares pursuant to the exercise of an NQSO, any gain realized on disposition of the Shares will be treated as long term capital gain. 9
(c) Withholding. The Company may be required to withhold from the Purchasers compensation or collect from the Purchaser and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income. 13. Compliance with Laws and Regulations . The issuance and transfer of the Shares will be subject to and conditioned upon compliance by the Company and Purchaser with all applicable state and U.S. Federal laws and regulations and with all applicable requirements of any stock exchange or automated quotation system on which the Companys Class B Common Stock may be listed or quoted at the time of such issuance or transfer. 14. Successors and Assigns . The Company may assign any of its rights and obligations under this Exercise Agreement, including its rights to purchase Shares under the Repurchase Option and the Right of First Refusal. No other party to this Exercise Agreement may assign, whether voluntarily or by operation of law, any of its rights and obligations under this Exercise Agreement, except with the prior written consent of the Company. This Exercise Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Exercise Agreement will be binding upon Purchaser and Purchasers heirs, executors, administrators, legal representatives, successors and assigns. 15. Governing Law. This Exercise Agreement shall be governed by and construed in accordance with the laws of the State of California, without giving effect to that body of laws pertaining to conflict of laws. 16. Notices. Any and all notices required or permitted to be given to a party pursuant to the provisions of this Agreement will be in writing and will be effective and deemed to provide such party sufficient notice under this Agreement on the earliest of the following: (i) at the time of personal delivery, if delivery is in person or by email; (ii) at the time of transmission by facsimile, addressed to the other party at its facsimile number specified herein (or hereafter modified by subsequent notice to the parties hereto), with confirmation of receipt made by both telephone and printed confirmation sheet verifying successful transmission of the facsimile; (iii) one business day after deposit with an express overnight courier for United States deliveries, or two business days after such deposit for deliveries outside of the United States, with proof of delivery from the courier requested; or (iv) three business days after deposit in the United States mail by certified mail (return receipt requested) for United States deliveries. All notices for delivery outside the United States will be sent by facsimile or e-mail with confirmation of receipt, or by express courier. All notices not delivered personally or by facsimile or e-mail will be sent with postage and/or other charges prepaid and properly addressed to the Company at: 699 Eighth Street, San Francisco, CA 94103, facsimile (415) 503-0222, stockadmin@zynga.com and to the Participant at the address, facsimile number or email address set forth below the Participants signature line of this Agreement, or at such other address or facsimile number as such other party may designate by one of the indicated means of notice herein to the other parties hereto. Notices to the Company will be marked Attention: Stock Plan Administrator. 10
18. Further Assurances. The parties agree to execute such further documents and instruments and to take such further actions as may be reasonably necessary to carry out the purposes and intent of this Exercise Agreement. 19. Titles and Headings. The titles, captions and headings of this Exercise Agreement are included for ease of reference only and will be disregarded in interpreting or construing this Exercise Agreement. Unless otherwise specifically stated, all references herein to sections and exhibits will mean sections and exhibits to this Exercise Agreement. 20. Entire Agreement. The Plan, the Stock Option Agreement and this Exercise Agreement, together with all Exhibits thereto, constitute the entire agreement and understanding of the parties with respect to the subject matter of this Exercise Agreement, and supersede all prior understandings and agreements, whether oral or written, between or among the parties hereto with respect to the specific subject matter hereof. 21. Counterparts. This Exercise Agreement may be executed in any number of counterparts, each of which when so executed and delivered will be deemed an original, and all of which together shall constitute one and the same agreement. 22. Severability. If any provision of this Exercise Agreement is determined by any court or arbitrator of competent jurisdiction to be invalid, illegal or unenforceable in any respect, such provision will be enforced to the maximum extent possible given the intent of the parties hereto. If such clause or provision cannot be so enforced, such provision shall be stricken from this Exercise Agreement and the remainder of this Exercise Agreement shall be enforced as if such invalid, illegal or unenforceable clause or provision had (to the extent not enforceable) never been contained in this Exercise Agreement. Notwithstanding the forgoing, if the value of this Exercise Agreement based upon the substantial benefit of the bargain for any party is materially impaired, which determination as made by the presiding court or arbitrator of competent jurisdiction shall be binding, then both parties agree to substitute such provision(s) through good faith negotiations. 23. Facsimile Signatures. This Exercise Agreement may be executed and delivered by facsimile and upon such delivery the facsimile signature will be deemed to have the same effect as if the original signature had been delivered to the other party. 11
24. Compliance with Employee Invention Assignment and Confidentiality Agreement . Purchaser acknowledges and agrees that any breach by Purchaser of the Employee Invention Assignment and Confidentiality between Purchaser and the Company (or any predecessor-ininterest, including, but not limited to Presidio Media Inc.) may result in Purchasers personal liability for damages to the Company and that the Company may, or may not, accept the Shares as compensation for damages caused by such breach. IN WITNESS WHEREOF, the Company has caused this Exercise Agreement to be executed in triplicate by its duly authorized representative and Purchaser has executed this Exercise Agreement in triplicate as of the Effective Date, indicated above. ZYNGA INC. By: (Signature) (Please print name) (Please print title) Address: Address: (Please print name) PURCHASER
Email Address:
[Signature page to Stock Option Exercise Agreement] 12
LIST OF EXHIBITS Exhibit 1: Exhibit 2: Exhibit 3: Exhibit 4: Stock Power and Assignment Separate from Stock Certificate Spouse Consent Copy of Purchasers Check Stock Transfer Agreement
EXHIBIT 1 STOCK POWER AND ASSIGNMENT SEPARATE FROM STOCK CERTIFICATE
Stock Power and Assignment Separate from Stock Certificate FOR VALUE RECEIVED and pursuant to that certain Stock Option Exercise Agreement dated as of , , (the Agreement ), the undersigned hereby sells, assigns and transfers unto , shares of the Class B Common Stock of Zynga Inc., a Delaware corporation (the Company), standing in the undersigneds name on the books of the Company represented by Certificate No(s). delivered herewith, and does hereby irrevocably constitute and appoint the Secretary of the Company as the undersigneds attorney-in-fact, with full power of substitution, to transfer said stock on the books of the Company. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT AND ANY EXHIBITS THERETO. Dated: , PURCHASER
(Signature)
(Please Print Name)
(Spouses Signature, if any)
(Please Print Spouses Name) Instructions to Purchaser: Please do not fill in any blanks other than the signature line. The purpose of this Stock Power and Assignment is to enable the Company to acquire the shares and to exercise its Repurchase Option and Right of First Refusal set forth in the Exercise Agreement without requiring additional signatures on the part of the Purchaser or Purchasers Spouse.
EXHIBIT 2 SPOUSE CONSENT
Spouse Consent The undersigned spouse of (the Purchaser) has read, understands, and hereby approves the Stock Option Exercise Agreement between Purchaser and the Company (the Agreement ). In consideration of the Company granting my spouse the right to purchase the Shares as set forth in the Agreement, the undersigned hereby agrees to be irrevocably bound by the Agreement and further agrees that any community property interest I may have in the Shares shall similarly be bound by the Agreement. The undersigned hereby appoints Purchaser as my attorney-in-fact with respect to any amendment or exercise of any rights under the Agreement. Date:
Print Name of Purchasers Spouse Signature of Purchasers Spouse Address:
Check this box if you do not have a spouse.
EXHIBIT 3 COPY OF PURCHASERS CHECK
EXHIBIT 4 STOCK TRANSFER AGREEMENT 2
STOCK TRANSFER AGREEMENT (without consideration) This Stock Transfer Agreement (this Agreement ) is made and entered into as of , 200_ (the Effective Date), by and among (the Transferee), (the Transferor) and Zynga Inc., a Delaware corporation (the Company). A. Transferor is the holder of shares of the Class B Common Stock of the Company (the Shares), which are represented by stock certificate number CA. The Shares were originally issued to Transferor pursuant to a certain Stock Option Exercise Agreement dated , 20__, by and between the Company and the Transferor, as amended (the Acquisition Agreement ). B. In accordance with the terms of the Acquisition Agreement, Transferor desires to transfer a portion of such shares to Transferee as a gift and for no additional consideration, as indicated below. Now, therefore, the parties hereby agree as follows. 1. TRANSFER OF SHARES. On the Effective Date and subject to the terms and conditions of this Agreement, Transferor hereby transfers to Transferee as a gift and for no additional consideration, and Transferee hereby acquires from Transferor an aggregate of ( ) vested shares of the Companys Class B Common Stock (the Shares). As used in this Agreement, Shares shall include all the Shares transferred under this Agreement and all securities received (a) in replacement of the Shares, (b) as a result of stock dividends or stock splits in respect of the Shares and (c) as substitution for the Shares in a recapitalization, merger, reorganization or the like. The Company hereby consents to such transfer, it being expressly understood that such rights shall continue to be applicable to other proposed transfers of the Shares hereafter. 2. CLOSING. 2.1 Deliveries by Transferor. Transferor hereby delivers to the Company (a) any share certificates representing the Shares, if in Transferor possession, or otherwise authorizes Company to remove any such share certificates from escrow for cancellation and reissuance; (b) a Stock Power and Assignment Separate from Stock Certificate, in substantially the form attached hereto as Exhibit A (a Stock Power) and (c) an executed copy of this Agreement. 2.2 Deliveries by Transferee. Transferee hereby delivers to the Company (a) an executed copy of this Agreement, (b) if Transferee is married, a Consent of Spouse in the form of Exhibit B attached hereto, if any, duly executed by Transferees spouse and (d) if applicable, the blank Stock Power required by Section 5 below, executed by Transferee and Transferees spouse. 2.3 Deliveries of Stock Certificate . Transferor hereby instructs the Company to: (a) cancel any stock certificate issued to Transferors representing the Shares; (b) issue a duly executed stock certificate evidencing the Shares in Transferees name; and (c) issue a duly 3
executed stock certificate evidencing the number of shares remaining after the transfer to Transferee, if any, in Transferors name. All newly issued stock certificates will be held in escrow by the Company pursuant to Section 5 below. 3. REPRESENTATIONS AND WARRANTIES OF TRANSFEREE. Transferee represents and warrants to Transferor and the Company as follows. 3.1 Purchase for Own Account for Investment . Transferee is acquiring the Shares for Transferees own account, for investment purposes only and not with a view to, or for sale in connection with, a distribution of the Shares within the meaning of the Securities Act of 1933, as amended (the 1933 Act). Transferee has no present intention of selling or otherwise disposing of all or any portion of the Shares and, upon transfer of the Shares to Transferee, no one other than Transferee will have any beneficial ownership of any of the Shares. 3.2 Compliance with Securities Laws . Transferee understands and acknowledges that, in reliance upon the representations and warranties made by Transferee herein, the Shares are not being registered with the Securities and Exchange Commission ( SEC ) under the 1933 Act or being qualified under any other applicable securities laws, but instead, based upon a representation by Transferee that no value or consideration is being given by Transferee to Transferor for the Shares, the Shares are being transferred under an exemption or exemptions from the registration and qualification requirements of the 1933 Act or other applicable securities laws. Such securities laws impose certain restrictions on Transferees ability to transfer the Shares. 3.3 Securities Law Restrictions on Transfer. Transferee understands that Transferee may not transfer any Shares unless such Shares are registered under the 1933 Act or qualified under other applicable securities laws or unless, in the opinion of counsel to the Company, exemptions from such registration and qualification requirements are available. Transferee understands that only the Company may file a registration statement with the SEC or other applicable securities laws and the Company is under no obligation to do so with respect to the Shares. Transferee has also been advised that exemptions from registration and qualification may not be available or may not permit Transferee to transfer all or any of the Shares in the amounts or at the times proposed by Transferee. 3.4 Restrictions on Transfer and Ownership of Capital Stock of the Company. Until the occurrence of a Liquidity Event (as defined below), unless otherwise permitted pursuant to the terms of a written agreement between the Company and any such transferring stockholder or its permitted assigns, no share of capital stock of the Company acquired subsequent to November 10, 2010 may be Transferred (as defined below) by the acquirer thereof without the written consent of the Company. For purposes of this Section 3.4, the following terms shall have the meanings ascribed to them as set forth below: Liquidity Event means the first to occur of (i) an IPO (as defined below) or (ii) a Change of Control (as defined below). 4
Transferred, as it relates to the capital stock of the Company, means any sale, assignment, transfer, conveyance, hypothecation or other transfer or disposition of such capital stock or any legal or beneficial interest in such capital stock, whether or not for value and whether voluntary or involuntary or by operation of law. IPO means an underwritten public offering by the Company of its securities that is registered pursuant to the U.S. Securities Act of 1933, as amended. Change of Control means (i) (a) a dissolution or liquidation of the Company or (b) any reorganization, consolidation, merger or similar transaction or series of related transactions (each, a combination transaction) in which the Company is a constituent corporation or is a party if, as a result of such combination transaction, the voting securities of the Company that are outstanding immediately prior to the consummation of such combination transaction ( other than any such securities that are held by an Acquiring Shareholder (as defined below)) do not represent, or are not converted into, securities of the surviving corporation of such combination transaction (or such surviving corporations parent corporation if the surviving corporation is owned by the parent corporation) that, immediately after the consummation of such combination transaction, together possess at least fifty percent (50%) of the total voting power of all securities of such surviving corporation (or its parent corporation, if applicable) that are outstanding immediately after the consummation of such combination transaction , including securities of such surviving corporation (or its parent corporation, if applicable) that are held by the Acquiring Shareholder; or (ii) a sale of all or substantially all of the assets of the Company, that is followed by the distribution of the proceeds to the Companys shareholders. Acquiring Shareholder means a shareholder or shareholders of the company that (i) merges or combines with the Company in such combination transaction or (ii) owns or controls a majority of another corporation that merges or combines with the Company in such combination transaction. 3.5 Rule 144. In addition, Transferee has been advised that SEC Rule 144 promulgated under the 1933 Act, which permits certain limited sales of unregistered securities, may not be presently available with respect to the Shares and, in any event, requires that the Shares be held for a minimum of six (6) months, and in certain cases one (1) year, after they have been purchased and paid for (within the meaning of SEC Rule 144), before they may be resold under SEC Rule 144. Under certain circumstances where the Transferor is not an affiliate as defined under the 1933 Act, the holding period of the Transferor will carry over to the Transferee. 4. REPRESENTATIONS AND WARRANTIES OF TRANSFEROR. Transferor represents and warrants to the Company and Transferee as follows. 4.1 Transfer for Own Account. Transferor is transferring the Shares not with a view to, or for sale in connection with, a distribution of the Shares within the meaning of the 1933 Act. No cash, property or other consideration will be paid or given for the Shares by Transferee to Transferor or to the Company. 5
4.2 Title to Shares. Immediately prior to the Effective Date, Transferor had valid marketable title to the Shares to be transferred under this Agreement, free and clear of any pledge, lien, security interest, encumbrance, claim or equitable interest other than pursuant to any Agreement or other document described in Section 5 below. 4.3 Consents. All consents, approvals, authorizations and orders required for the execution and delivery of this Agreement and the transfer of the Shares under this Agreement have been obtained and are in full force and effect. 4.4 Authority. Transferor has full legal right, power and authority to enter into and perform its obligations under this Agreement and to transfer the Shares under this Agreement. Transferor, if other than a natural person, has been duly organized and is validly existing in good standing under the laws of the jurisdiction of its organization as the type of entity that it purports to be. 5. COMPLIANCE WITH ACQUISITION AGREEMENT . 5.1 Terms Continue to Apply. Transferee agrees to be bound by the terms and conditions of the Acquisition Agreement in the same manner as Transferor is bound, a copy of which is attached hereto as Exhibit D. Transferee expressly agrees to comply with such sections of the Acquisition Agreement and that the Shares shall be subject to the transfer restrictions contained therein to the same extent the Shares would be if retained by Transferor. Subject to the terms and conditions of this Agreement, Transferee will have all of the rights of a shareholder of the Company with respect to the Shares until such time as Transferee disposes of the Shares and/or the Company and/or its assignee(s) exercise(s) any rights pursuant thereto. 5.2 Escrow. As security for Transferees faithful performance of the Acquisition Agreement, Transferee and Transferees Spouse, if any, have executed the Stock Power attached hereto and marked Exhibit C which has been executed and blank (with the date and number of shares left blank). Immediately upon receipt of the stock certificate evidencing the Shares, Transferee will deliver such certificate to the Secretary of the Company or other designee of the Company (the Escrow Holder), who is hereby appointed to hold such certificate and Stock Power in escrow and to take all such actions and to effectuate all such transfers and/or releases of such Shares as are in accordance with the terms of the Acquisition Agreement. Transferee and the Company agree that Escrow Holder will not be liable to any party to this Agreement (or to any other person or entity) for any actions or omissions unless Escrow Holder is grossly negligent or intentionally fraudulent in carrying out the duties of Escrow Holder under this Section. Escrow Holder may rely upon any letter, notice or other document executed by any signature purported to be genuine and may rely on the advice of counsel and obey any order of any court with respect to the transactions contemplated by this Agreement or the Acquisition Agreement. The Shares will be released from escrow upon termination of the restrictions upon transfer set forth in the Acquisition Agreement. 6. COMPLIANCE WITH LAWS AND REGULATIONS. The sale and transfer of the Shares will be subject to and conditioned upon compliance by the Company and Transferee with all applicable state and federal laws and regulations and with all applicable requirements of any stock exchange or automated quotation system on which the Companys Common Stock may be listed or quoted at the time of such issuance or transfer. 6
7. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS . 7.1 Legends. Transferee understands and agrees that the Company will place the legends set forth below or similar legends on any stock certificate(s) evidencing the Shares, together with any other legends that may be required by state or federal securities laws, the Companys Certificate of Incorporation or Bylaws, any other agreement affecting the Shares between Transferor and the Company, including but not limited to the Acquisition Agreement, or between Transferor and any third party: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON RESALE AND POTENTIAL FORFEITURE AS SET FORTH IN ISSUERS BYLAWS AND CERTAIN AGREEMENTS, COPIES OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. AS A RESULT OF THE BYLAWS AND SUCH AGREEMENTS, AMONG OTHER RESTRICTIONS, THESE SHARES MAY NOT BE SOLD OR TRADED AT ANY TIME PRIOR TO AN INITIAL PUBLIC OFFERING OF THE COMMON STOCK OF THE ISSUER OR A CHANGE IN CONTROL OF THE ISSUER. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A 180 DAY MARKET STANDOFF RESTRICTION AS SET FORTH IN A CERTAIN AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. AS A RESULT OF SUCH AGREEMENT, THESE SHARES MAY NOT BE TRADED PRIOR TO 180 DAYS AFTER THE EFFECTIVE DATE OF ANY PUBLIC OFFERING OF THE COMMON STOCK OF THE ISSUER HEREOF. SUCH RESTRICTION IS BINDING ON TRANSFEREES OF THESE SHARES. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE RIGHT OF FIRST REFUSAL AND/OR RIGHT OF REPURCHASE HELD BY THE ISSUER AND/OR ITS ASSIGNEE(S) AS SET FORTH IN A CERTAIN AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH RIGHT OF FIRST REFUSAL AND/OR RIGHT OF REPURCHASE HELD BY THE ISSUER ARE BINDING ON THE TRANSFEREES OF THESE SHARES. 7
7.2 Stop-Transfer Instructions. Transferee agrees that, in order to ensure compliance with the restrictions imposed by this Agreement, the Company may issue appropriate stop-transfer instructions to its transfer agent, if any, and if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records. The Company will not be required (a) 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 (b) to treat as owner of such Shares, or to accord the right to vote or pay dividends, to any purchaser or other purchaser to whom such Shares have been so transferred. 8. CLOSING. GENERAL PROVISIONS . 8.1 Successors and Assigns; Assignment . Except as otherwise provided in this Agreement, this Agreement, and the rights and obligations of the parties hereunder, will be binding upon and inure to the benefit of their respective successors, assigns, heirs, executors, administrators and legal representatives. The Company may assign any of its rights and obligations under this Agreement. No other party to this Agreement may assign, whether voluntarily or by operation of law, any of its rights and obligations under this Agreement, except with the prior written consent of the Company. 8.2 Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of California, without giving effect to that body of laws pertaining to conflict of laws. 8.3 Notices. Any and all notices required or permitted to be given to a party pursuant to the provisions of this Agreement will be in writing and will be effective and deemed to provide such party sufficient notice under this Agreement on the earliest of the following: (a) at the time of delivery, if delivery is in person or by email or facsimile, with confirmation of receipt; (b) one (1) business day after deposit with an express overnight courier for United States deliveries, or two (2) business days after such deposit for deliveries outside of the United States; or (c) three (3) business days after deposit in the United States mail by certified mail (return receipt requested) for United States deliveries. All notices for delivery outside the United States will be sent by express courier. All notices not delivered personally or by email or facsimile will be sent with postage and/or other charges prepaid and properly addressed to the party to be notified at the address set forth below the signature lines of this Agreement or at such other address as such other party may designate by one of the indicated means of notice herein to the other party hereto. A business day shall be a day, other than Saturday or Sunday, when the banks in the city of San Francisco are open for business. 8.4 Further Assurances. The parties agree to execute such further documents and instruments and to take such further actions as may be reasonably necessary to carry out the purposes and intent of this Agreement. 8.5 Titles and Headings. The titles, captions and headings of this Agreement are included for ease of reference only and will be disregarded in interpreting or construing this Agreement. Unless otherwise specifically stated, all references herein to sections and exhibits will mean sections and exhibits to this Agreement. 8
8.6 Entire Agreement. This Agreement and the documents referred to herein constitute the entire agreement and understanding of the parties with respect to the subject matter of this Agreement, and supersede all prior understandings and agreements, whether oral or written, between or among the parties hereto with respect to the specific subject matter hereof. 8.7 Severability. If any provision of this Agreement is determined by any court or arbitrator of competent jurisdiction to be invalid, illegal or unenforceable in any respect, such provision will be enforced to the maximum extent possible given the intent of the parties hereto. If such clause or provision cannot be so enforced, such provision shall be stricken from this Agreement and the remainder of this Agreement shall be enforced as if such invalid, illegal or unenforceable clause or provision had (to the extent not enforceable) never been contained in this Agreement. Notwithstanding the forgoing, if the value of this Agreement based upon the substantial benefit of the bargain for any party is materially impaired, which determination as made by the presiding court or arbitrator of competent jurisdiction shall be binding, then both parties agree to substitute such provision(s) through good faith negotiations. 8.8 Amendment and Waivers. This Agreement may be amended only by a written agreement executed by each of the parties hereto. No amendment of or waiver of, or modification of any obligation under this Agreement will be enforceable unless set forth in a writing signed by the party against which enforcement is sought. Any amendment effected in accordance with this section will be binding upon all parties hereto and each of their respective successors and assigns. No delay or failure to require performance of any provision of this Agreement shall constitute a waiver of that provision as to that or any other instance. No waiver granted under this Agreement as to any one provision herein shall constitute a subsequent waiver of such provision or of any other provision herein, nor shall it constitute the waiver of any performance other than the actual performance specifically waived. 8.9 Counterparts; Facsimile Signatures . This Agreement may be executed in any number of counterparts, each of which when so executed and delivered will be deemed an original, and all of which together shall constitute one and the same agreement. This Agreement may be executed and delivered by facsimile and upon such delivery the facsimile signature will be deemed to have the same effect as if the original signature had been delivered to the other party. [Signature page follows] 9
IN WITNESS WHEREOF, the Company has caused this Stock Transfer Agreement to be executed by its duly authorized representative and Transferor and Transferee have each executed this Agreement, as of the Effective Date. TRANSFEROR: [__________] By: Its: Address: TRANSFEREE: [__________] By: Address:
COMPANY: Zynga Inc. By: Its: Address:
Attachments: Exhibit A Transferors Stock Power Exhibit B Consent of Spouse Exhibit C Transferees Stock Power Exhibit D Acquisition Agreement 10
EXHIBIT A TRANSFERORS STOCK POWER AND ASSIGNMENT SEPARATE FROM CERTIFICATE
Transferors Stock Power and Assignment Separate from Stock Certificate Pursuant to that certain Stock Transfer Agreement dated as of , 200_ (the Agreement ), the undersigned Transferor hereby assigns and transfers, as a gift and for no additional consideration, unto , as transferee, ( ) shares of the Class B Common Stock of Zynga Inc., a Delaware corporation (the Company), standing in the undersigneds name on the books of the Company represented by Certificate No. CAdelivered herewith, and does hereby irrevocably constitute and appoint the Secretary of the Company as the undersigneds attorneyin-fact, with full power of substitution, to transfer said stock on the books of the Company. Dated:
(Transferors Signature)
(Please Print Transferors Name) Instruction: Please fill in the blanks above and sign this Stock Power. This Stock Power will be used to transfer the Shares from Transferor to Transferee.
EXHIBIT B CONSENT OF SPOUSE
CONSENT OF SPOUSE The undersigned spouse of (the Transferee) has read, understands and hereby approves all the terms and conditions of the Stock Transfer Agreement dated , 200_ (the Agreement ), by and between Transferee, (the Transferor) and Zynga Inc., a Delaware corporation (the Company), pursuant to which Transferee has acquired ( ) shares of the Companys Class B Common Stock (the Shares). In consideration of the Company consenting to the transfer, and Transferor transferring the Shares to my spouse under the Agreement, I hereby agree to be irrevocably bound by all the terms and conditions of the Agreement and further agree that any community property interest I may have in the Shares will be similarly bound by the Agreement. I hereby appoint Transferee as my attorney-in-fact, to act in my name, place and stead with respect to any amendment of the Agreement. Dated:
Signature of Spouse [Sign Here]
Name of Spouse [Please Print] r Check this box if you do not have a spouse.
EXHIBIT C TRANSFEREES STOCK POWER AND ASSIGNMENT SEPARATE FROM CERTIFICATE
Stock Power and Assignment Separate From Stock Certificate FOR VALUE RECEIVED and pursuant to that certain Stock Transfer Agreement dated as of , , (the Agreement ), the undersigned hereby sells, assigns and transfers unto , as transferee, ( ) shares of the Class B Common Stock of Zynga Inc., a Delaware corporation (the Company), standing in the undersigneds name on the books of the Company represented by Certificate No(s). delivered herewith, and does hereby irrevocably constitute and appoint the Secretary of the Company as the undersigneds attorney-in-fact, with full power of substitution, to transfer said stock on the books of the Company. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT AND ANY EXHIBITS THERETO . Dated:
(Signature) (Please Print Name) (Spouses Signature, if any) (Please Print Spouses Name) Instruction: Please do not fill in any blanks other than the signature line. The purpose of this Stock Power and Assignment is to enable the Company, any third party and/or their assignee(s) to acquire the shares upon exercise of their rights under the Acquisition Agreement, as set forth in the Agreement, without requiring additional signatures on the part of the Transferee or Transferees Spouse.
EXHIBIT D COPY OF ACQUISITION AGREEMENT
Exhibit 10.4 ZYNGA IN C. 2011 EQUITY INCENTIVE PLAN ADOPTED BY THE BOARD OF DIRECTORS: OCTOBER 12, 2011 APPROVED BY THE STOCKHOLDERS : ______ ____, 2011 IPO DATE/EFFECTIVE DATE: ______ ____, 20___ 1. G ENERAL.
(a) Successor to and Continuation of Prior Plan. The Plan is intended as the successor to and continuation of the Zynga Game Network, Inc. 2007 Equity Incentive Plan, as amended (the Prior Plan). From and after 12:01 a.m. Pacific time on the Effective Date, no additional stock awards will be granted under the Prior Plan. All Awards granted on or after 12:01 a.m. Pacific time on the Effective Date will be granted under this Plan. All stock awards granted under the Prior Plan will remain subject to the terms of the Prior Plan. (i) Any shares that would otherwise remain available for future grants under the Prior Plan as of 12:01 a.m. Pacific time on the Effective Date (the Prior Plans Available Reserve) will cease to be available under the Prior Plan at such time. Instead, that number of shares of Common Stock equal to the Prior Plans Available Reserve will be added to the Share Reserve (as further described in Section 3(a) below) and be then immediately available for grants and issuance pursuant to Stock Awards hereunder, up to the maximum number set forth in Section 3(a) below. (ii) In addition, from and after 12:01 a.m. Pacific time on the Effective Date, with respect to the aggregate number of shares subject, at such time, to outstanding stock awards granted under the Prior Plan that would, but for the operation of this sentence, subsequently return to the share reserve of the Prior Plan by operation of Section 2.1 of the Prior Plan (that is, shares that (i) cease to be subject to issuance of an option other than due to the exercise of the option, (ii) are forfeited or repurchased at the original issue price or (iii) are subject to an award that terminates without shares being issued; such shares the Returning Shares), such shares will not return to the reserve of the Prior Plan, and instead that number of shares of Common Stock equal to the Returning Shares will immediately be added to the Share Reserve (as further described in Section 3(a) below) as and when the such a share becomes a Returning Share, up to the maximum number set forth in Section 3(a) below. Any share that is subject to an award granted under the Prior Plan that is tendered back to or otherwise withheld by the Company in payment of the exercise price of, or for the applicable tax obligations due in connection with, such award is also a Returning Share. (b) Eligible Award Recipients. Employees, Directors and Consultants are eligible to receive awards. (c) Available Awards. The Plan provides for the grant of the following Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock Options, (iii) Stock Appreciation Rights (iv) Restricted Stock Awards, (v) Restricted Stock Unit Awards, (vi) Performance Stock Awards, (vii) Performance Cash Awards, and (viii) Other Stock Awards. 1.
(d) Purpose. This Plan, through the granting of Awards, is intended to help the Company secure and retain the services of eligible award recipients, provide incentives for such persons to exert maximum efforts for the success of the Company and any Affiliate, and provide a means by which the eligible recipients may benefit from increases in value of the Common Stock. 2. ADMINISTRATION.
(a) Administration by Board. The Board will administer the Plan. The Board may delegate administration of the Plan to a Committee or Committees, as provided in Section 2(c). (b) Powers of Board. The Board will have the power, subject to, and within the limitations of, the express provisions of the Plan: (i) To determine: (A) who will be granted Awards; (B) when and how each Award will be granted; (C) what type of Award will be granted; (D) the provisions of each Award (which need not be identical), including when a person will be permitted to exercise or otherwise receive cash or Common Stock under the Award; (E) the number of shares of Common Stock subject to, or the cash value of, an Award; and (F) the Fair Market Value applicable to a Stock Award. (ii) To construe and interpret the Plan and Awards granted under it, and to establish, amend and revoke rules and regulations for administration of the Plan and Awards. The Board, in the exercise of these powers, may correct any defect, omission or inconsistency in the Plan or in any Award Agreement or in the written terms of a Performance Cash Award, in a manner and to the extent it will deem necessary or expedient to make the Plan or Award fully effective. (iii) To settle all controversies regarding the Plan and Awards granted under it. (iv) To accelerate, in whole or in part, the time at which an Award may be exercised or vest (or at which cash or shares of Common Stock may be issued). (v) To suspend or terminate the Plan at any time. Except as otherwise provided in the Plan or an Award Agreement, suspension or termination of the Plan will not materially impair a Participants rights under his or her then-outstanding Award without his or her written consent. (vi) To amend the Plan in any respect the Board deems necessary or advisable, including, without limitation, by adopting amendments relating to Incentive Stock Options and certain nonqualified deferred compensation under Section 409A of the Code and/or to bring the Plan or Awards granted under the Plan into compliance therewith, subject to the limitations, if any, of applicable law. If required by applicable law or listing requirements, and except as provided in Section 9(a) relating to Capitalization Adjustments, the Company will seek 2.
stockholder approval of any amendment of the Plan that (A) materially increases the number of shares of Common Stock available for issuance under the Plan, (B) materially expands the class of individuals eligible to receive Awards under the Plan, (C) materially increases the benefits accruing to Participants under the Plan, (D) materially reduces the price at which shares of Common Stock may be issued or purchased under the Plan, (E) materially extends the term of the Plan, or (F) materially expands the types of Awards available for issuance under the Plan. Except as otherwise provided in the Plan or an Award Agreement, no amendment of the Plan will materially impair that Participants rights under an outstanding Award without his or her written consent. (vii) To submit any amendment to the Plan for stockholder approval, including, but not limited to, amendments to the Plan intended to satisfy the requirements of (A) Section 162(m) of the Code regarding the exclusion of performance-based compensation from the limit on corporate deductibility of compensation paid to Covered Employees, (B) Section 422 of the Code regarding incentive stock options or (C) Rule 16b-3. (viii) To approve forms of Award Agreements for use under the Plan and to amend the terms of any one or more outstanding Awards. Except with respect to amendments that disqualify or impair the status of an Incentive Stock Option or as otherwise provided in the Plan or an Award Agreement, no amendment of an outstanding Award will materially impair that Participants rights under his or her outstanding Award without his or her written consent. To be clear, unless prohibited by applicable law, the Board may amend the terms of an Award without the affected Participants consent if necessary (A) to maintain the qualified status of the Award as an Incentive Stock Option, (B) to clarify the manner of exemption from, or to bring the Award into compliance with, Section 409A of the Code, or (C) to comply with other applicable laws. (ix) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company and that are not in conflict with the provisions of the Plan or Awards. (x) To adopt such procedures and sub-plans as are necessary or appropriate to permit participation in the Plan by Employees, Directors or Consultants who are foreign nationals or employed outside the United States. (xi) To effect, with the consent of any adversely affected Participant, (A) the reduction of the exercise, purchase or strike price of any outstanding Stock Award; (B) the cancellation of any outstanding Stock Award and the grant in substitution therefor of a new (1) Option or SAR, (2) Restricted Stock Award, (3) Restricted Stock Unit Award, (4) Other Stock Award, (5) cash award and/or (6) award of other valuable consideration determined by the Board, in its sole discretion, with any such substituted award (x) covering the same or a different number of shares of Common Stock as the cancelled Stock Award and (y) granted under the Plan or another equity or compensatory plan of the Company; or (C) any other action that is treated as a repricing under generally accepted accounting principles. 3.
(c) Delegation to Committee. (i) General. The Board may delegate some or all of the administration of the Plan to a Committee or Committees. If administration of the Plan is delegated to a Committee, the Committee will have, in connection with the administration of the Plan, the powers theretofore possessed by the Board that have been delegated to the Committee, including the power to delegate to a subcommittee of the Committee any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the Board will thereafter be to the Committee or subcommittee). Any delegation of administrative powers will be reflected in resolutions, not inconsistent with the provisions of the Plan, adopted from time to time by the Board or Committee (as applicable). The Board may retain the authority to concurrently administer the Plan with the Committee and may, at any time, revest in the Board some or all of the powers previously delegated. (ii) Section 162(m) and Rule 16b-3 Compliance. The Committee may consist solely of two or more Outside Directors, in accordance with Section 162(m) of the Code, or solely of two or more Non-Employee Directors, in accordance with Rule 16b-3. (d) Delegation to an Officer. The Board may delegate to one (1) or more Officers the authority to do one or both of the following (i) designate Employees who are not Officers to be recipients of Options and SARs (and, to the extent permitted by applicable law, other Stock Awards) and, to the extent permitted by applicable law, the terms of such rights and options, and (ii) determine the number of shares of Common Stock to be subject to such Stock Awards granted to such Employees; provided, however, that the Board resolutions regarding such delegation will specify the total number of shares of Common Stock that may be subject to the Stock Awards granted by such Officer and that such Officer may not grant a Stock Award to himself or herself. Any such Stock Awards will be granted on the form of Stock Award Agreement most recently approved for use by the Committee or the Board, unless otherwise provided in the resolutions approving the delegation authority. The Board may not delegate authority to an Officer who is acting solely in the capacity of an Officer (and not also as a Director) to determine the Fair Market Value pursuant to Section 13(x)(iii) below. (e) Effect of Boards Decision. All determinations, interpretations and constructions made by the Board in good faith will not be subject to review by any person and will be final, binding and conclusive on all persons. 3. S HARES SUBJECT TO THE PLAN.
(a) Share Reserve. Subject to Section 9(a) relating to Capitalization Adjustments, and the following sentence regarding the annual increase, the aggregate number of shares of Common Stock that may be issued pursuant to Stock Awards will not exceed 255,616,560 shares (the Share Reserve), which number is the sum of (i) 42,500,000 shares, plus (ii) the number of shares subject to the Prior Plans Available Reserve in an amount not to exceed 3,116,560 shares), plus (iii) the number of shares that are Returning Shares, as such shares become available from time to time, in an amount not to exceed 210,000,000 shares). In addition, the Share Reserve will automatically increase on January 1 st of each year, for a period of not more than ten years, commencing on January 1 of the year following the year in which the IPO Date 4.
occurs and ending on (and including) January 1, 2021, in an amount equal to 4.0% of the total number of shares of Capital Stock outstanding on December 31st of the preceding calendar year. Notwithstanding the foregoing, the Board may act prior to January 1 st of a given year to provide that there will be no January 1 st increase in the Share Reserve for such year or that the increase in the Share Reserve for such year will be a lesser number of shares of Common Stock than would otherwise occur pursuant to the preceding sentence. For clarity, the Share Reserve in this Section 3(a) is a limitation on the number of shares of Common Stock that may be issued pursuant to the Plan. Accordingly, this Section 3(a) does not limit the granting of Stock Awards except as provided in Section 7(a). Shares may be issued in connection with a merger or acquisition as permitted by NASDAQ Listing Rule 5635(c) or, if applicable, NYSE Listed Company Manual Section 303A.08, AMEX Company Guide Section 711 or other applicable rule, and such issuance will not reduce the number of shares available for issuance under the Plan. (b) Reversion of Shares to the Share Reserve. If a Stock Award or any portion thereof (i) expires or otherwise terminates without all of the shares covered by such Stock Award having been issued or (ii) is settled in cash ( i.e., the Participant receives cash rather than stock), such expiration, termination or settlement will not reduce (or otherwise offset) the number of shares of Common Stock that may be available for issuance under the Plan. If any shares of Common Stock issued pursuant to a Stock Award are forfeited back to or repurchased by the Company because of the failure to meet a contingency or condition required to vest such shares in the Participant, then the shares that are forfeited or repurchased will revert to and again become available for issuance under the Plan. Any shares reacquired by the Company in satisfaction of tax withholding obligations on a Stock Award or as consideration for the exercise or purchase price of a Stock Award will again become available for issuance under the Plan. (c) Incentive Stock Option Limit. Subject to the provisions of Section 9(a) relating to Capitalization Adjustments, the aggregate maximum number of shares of Common Stock that may be issued pursuant to the exercise of Incentive Stock Options will be 400,000,000 shares of Common Stock. (d) Section 162(m) Limitations . Subject to the provisions of Section 9(a) relating to Capitalization Adjustments, at such time as the Company may be subject to the applicable provisions of Section 162(m) of the Code: (i) a maximum of 5,000,000 shares of Common Stock subject to Options, SARs and Other Stock Awards whose value is determined by reference to an increase over an exercise or strike price of at least 100% of the Fair Market Value on the date the Stock Award is granted may be granted to any one Participant during any one calendar year, (ii) a maximum of 5,000,000 shares of Common Stock subject to Performance Stock Awards may be granted to any one Participant during any one calendar year (whether the grant, vesting or exercise is contingent upon the attainment during the Performance Period of the Performance Goals) and (iii) a maximum of $10,000,000 may be granted as a Performance Cash Award to any one Participant during any one calendar year. (e) Source of Shares. The stock issuable under the Plan will be shares of authorized but unissued or reacquired Common Stock, including shares repurchased by the Company on the open market or otherwise. 5.
4.
ELIGIBILITY .
(a) Eligibility for Specific Stock Awards . Incentive Stock Options may be granted only to employees of the Company or a parent corporation or subsidiary corporation thereof (as such terms are defined in Sections 424(e) and 424(f) of the Code). Stock Awards other than Incentive Stock Options may be granted to Employees, Directors and Consultants; provided, however, that Stock Awards may not be granted to Employees, Directors and Consultants who are providing Continuous Service only to any parent of the Company, as such term is defined in Rule 405 of the Securities Act, unless (i) the stock underlying such Stock Awards is treated as service recipient stock under Section 409A of the Code (for example, because the Stock Awards are granted pursuant to a corporate transaction such as a spin off transaction), (ii) the Company, in connection with its legal counsel, has determined that such Stock Awards are otherwise exempt from Section 409A of the Code, or (iii) the Company, in connection with its legal counsel, has determined that such Stock Awards comply with the distribution requirements of Section 409A of the Code. (b) Ten Percent Stockholders. A Ten Percent Stockholder will not be granted an Incentive Stock Option unless the exercise price of such Option is at least 110% of the Fair Market Value on the date of grant and the Option is not exercisable after the expiration of five years from the date of grant. 5. P ROVISIONS RELATING TO OPTIONS AND STOCK A PPRECIATION RIGHTS.
Each Option or SAR will be in such form and will contain such terms and conditions as the Board deems appropriate. All Options will be separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and, if certificates are issued, a separate certificate or certificates will be issued for shares of Common Stock purchased on exercise of each type of Option. If an Option is not specifically designated as an Incentive Stock Option, or if an Option is designated as an Incentive Stock Option but some portion or all of the Option fails to qualify as an Incentive Stock Option under the applicable rules, then the Option (or portion thereof) will be a Nonstatutory Stock Option. The provisions of separate Options or SARs need not be identical; provided, however, that each Award Agreement will conform to (through incorporation of provisions hereof by reference in the applicable Award Agreement or otherwise) the substance of each of the following provisions: (a) Term. Subject to the provisions of Section 4(b) regarding Ten Percent Stockholders, no Option or SAR will be exercisable after the expiration of ten years from the date of its grant or such shorter period specified in the Award Agreement. (b) Exercise Price. Subject to the provisions of Section 4(b) regarding Ten Percent Stockholders, the exercise or strike price of each Option or SAR will be not less than 100% of the Fair Market Value of the Common Stock subject to the Option or SAR on the date the Award is granted. Notwithstanding the foregoing, an Option or SAR may be granted with an exercise or strike price lower than 100% of the Fair Market Value of the Common Stock subject to the Award if such Award is granted pursuant to an assumption of or substitution for another option or stock appreciation right pursuant to a Corporate Transaction and in a manner consistent with the provisions of Section 409A and, if applicable, Section 424(a) of the Code. Each SAR will be denominated in shares of Common Stock equivalents. 6.
(c) Purchase Price for Options. The purchase price of Common Stock acquired pursuant to the exercise of an Option may be paid, to the extent permitted by applicable law and as determined by the Board in its sole discretion, by any combination of the methods of payment set forth below. The Board will have the authority to grant Options that do not permit all of the following methods of payment (or otherwise restrict the ability to use certain methods) and to grant Options that require the consent of the Company to use a particular method of payment. The permitted methods of payment are as follows: (i) by cash, check, bank draft or money order payable to the Company; (ii) pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board that, prior to the issuance of the stock subject to the Option, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds; (iii) by delivery to the Company (either by actual delivery or attestation) of shares of Common Stock; (iv) if an option is a Nonstatutory Stock Option, by a net exercise arrangement pursuant to which the Company will reduce the number of shares of Common Stock issuable upon exercise by the largest whole number of shares with a Fair Market Value that does not exceed the aggregate exercise price; provided, however, that the Company will accept a cash or other payment from the Participant to the extent of any remaining balance of the aggregate exercise price not satisfied by such reduction in the number of whole shares to be issued. Shares of Common Stock will no longer be subject to an Option and will not be exercisable thereafter to the extent that (A) shares issuable upon exercise are reduced to pay the exercise price pursuant to the net exercise, (B) shares are delivered to the Participant as a result of such exercise, and (C) shares are withheld to satisfy tax withholding obligations; or (v) in any other form of legal consideration that may be acceptable to the Board and specified in the applicable Award Agreement. (d) Exercise and Payment of a SAR. To exercise any outstanding SAR, the Participant must provide written notice of exercise to the Company in compliance with the provisions of the Stock Appreciation Right Agreement evidencing such SAR. The appreciation distribution payable on the exercise of a SAR will be not greater than an amount equal to the excess of (A) the aggregate Fair Market Value (on the date of the exercise of the SAR) of a number of shares of Common Stock equal to the number of Common Stock equivalents in which the Participant is vested under such SAR, and with respect to which the Participant is exercising the SAR on such date, over (B) the strike price. The appreciation distribution may be paid in Common Stock, in cash, in any combination of the two or in any other form of consideration, as determined by the Board and contained in the Award Agreement evidencing such SAR. 7.
(e) Transferability of Options and SARs. The Board may, in its sole discretion, impose such limitations on the transferability of Options and SARs as the Board will determine. In the absence of such a determination by the Board to the contrary, the following restrictions on the transferability of Options and SARs will apply: (i) Restrictions on Transfer. An Option or SAR will not be transferable except by will or by the laws of descent and distribution (or pursuant to subsections (ii) and (iii) below), and will be exercisable during the lifetime of the Participant only by the Participant. The Board may permit transfer of the Option or SAR in a manner that is not prohibited by applicable tax and securities laws. Except as explicitly provided herein, neither an Option nor a SAR may be transferred for consideration. (ii) Domestic Relations Orders. Subject to the approval of the Board or a duly authorized Officer, an Option or SAR may be transferred pursuant to the terms of a domestic relations order or official marital settlement agreement. If an Option is an Incentive Stock Option, such Option may be deemed to be a Nonstatutory Stock Option as a result of such transfer. (iii) Beneficiary Designation. Subject to the approval of the Board or a duly authorized Officer, a Participant may, by delivering written notice to the Company, in a form approved by the Company (or the designated broker), designate a third party who, on the death of the Participant, will thereafter be entitled to exercise the Option or SAR and receive the Common Stock or other consideration resulting from such exercise. In the absence of such a designation, the executor or administrator of the Participants estate will be entitled to exercise the Option or SAR and receive the Common Stock or other consideration resulting from such exercise. However, the Company may prohibit designation of a beneficiary at any time, including due to any conclusion by the Company that such designation would be inconsistent with the provisions of applicable laws. (f) Vesting Generally. The total number of shares of Common Stock subject to an Option or SAR may vest and therefore become exercisable in periodic installments that may or may not be equal. The Option or SAR may be subject to such other terms and conditions on the time or times when it may or may not be exercised (which may be based on the satisfaction of Performance Goals or other criteria) as the Board may deem appropriate. The vesting provisions of individual Options or SARs may vary. The provisions of this Section 5(f) are subject to any Option or SAR provisions governing the minimum number of shares of Common Stock as to which an Option or SAR may be exercised. (g) Termination of Continuous Service. Except as otherwise provided in the applicable Award Agreement or other agreement between the Participant and the Company, if a Participants Continuous Service terminates (other than for Cause and other than upon the Participants death or Disability), the Participant may exercise his or her Option or SAR (to the extent that the Participant was entitled to exercise such Award as of the date of termination of Continuous Service) within the period of time ending on the earlier of (i) the date three months following the termination of the Participants Continuous Service and (ii) the expiration of the term of the Option or SAR as set forth in the Award Agreement. If, after termination of Continuous Service, the Participant does not exercise his or her Option or SAR within the applicable time frame, the Option or SAR will terminate. 8.
(h) Extension of Termination Date. If the exercise of an Option or SAR following the termination of the Participants Continuous Service (other than for Cause and other than upon the Participants death or Disability) would be prohibited at any time solely because the issuance of shares of Common Stock would violate the registration requirements under the Securities Act, then the Option or SAR will terminate on the earlier of (i) the expiration of a total period of three months (that need not be consecutive) after the termination of the Participants Continuous Service during which the exercise of the Option or SAR would not be in violation of such registration requirements, and (ii) the expiration of the term of the Option or SAR as set forth in the applicable Award Agreement. In addition, unless otherwise provided in a Participants Award Agreement, if the sale of any Common Stock received on exercise of an Option or SAR following the termination of the Participants Continuous Service (other than for Cause) would violate the Companys insider trading policy, then the Option or SAR will terminate on the earlier of (i) the expiration of a period of months (that need not be consecutive) equal to the applicable post-termination exercise period after the termination of the Participants Continuous Service during which the sale of the Common Stock received upon exercise of the Option or SAR would not be in violation of the Companys insider trading policy, or (ii) the expiration of the term of the Option or SAR as set forth in the applicable Award Agreement. (i) Disability of Participant. Except as otherwise provided in the applicable Award Agreement or other agreement between the Participant and the Company, if a Participants Continuous Service terminates as a result of the Participants Disability, the Participant may exercise his or her Option or SAR (to the extent that the Participant was entitled to exercise such Option or SAR as of the date of termination of Continuous Service), but only within such period of time ending on the earlier of (i) the date 12 months following such termination of Continuous Service and (ii) the expiration of the term of the Option or SAR as set forth in the Award Agreement. If, after termination of Continuous Service, the Participant does not exercise his or her Option or SAR within the applicable time frame, the Option or SAR (as applicable) will terminate. (j) Death of Participant. Except as otherwise provided in the applicable Award Agreement or other agreement between the Participant and the Company, if (i) a Participants Continuous Service terminates as a result of the Participants death, or (ii) the Participant dies within the period (if any) specified in the Award Agreement for exercisability after the termination of the Participants Continuous Service for a reason other than death, then the Option or SAR may be exercised (to the extent the Participant was entitled to exercise such Option or SAR as of the date of death) by the Participants estate, by a person who acquired the right to exercise the Option or SAR by bequest or inheritance or by a person designated to exercise the Option or SAR upon the Participants death, but only within the period ending on the earlier of (i) the date 18 months following the date of death and (ii) the expiration of the term of such Option or SAR as set forth in the Award Agreement. If, after the Participants death, the Option or SAR is not exercised within the applicable time frame, the Option or SAR will terminate. 9.
(k) Termination for Cause. Except as explicitly provided otherwise in a Participants Award Agreement, if a Participants Continuous Service is terminated for Cause, the Option or SAR will terminate upon the date on which the event giving rise to the termination for Cause first occurred, and the Participant will be prohibited from exercising his or her Option or SAR from and after the date on which the event giving rise to the termination for Cause first occurred (or, if required by law, the date of termination of Continuous Service). (l) Non-Exempt Employees . If an Option or SAR is granted to an Employee who is a non-exempt employee for purposes of the Fair Labor Standards Act of 1938, as amended, the Option or SAR will not be first exercisable for any shares of Common Stock until at least six (6) months following the date of grant of the Option or SAR (although the Award may vest prior to such date). Consistent with the provisions of the Worker Economic Opportunity Act, (i) if such non-exempt Employee dies or suffers a Disability, (ii) upon a Corporate Transaction in which such Option or SAR is not assumed, continued, or substituted, (iii) upon a Change in Control, or (iv) upon the Participants retirement (as such term may be defined in the Participants Award Agreement in another agreement between the Participant and the Company, or, if no such definition, in accordance with the Companys then current employment policies and guidelines), the vested portion of any Options and SARs may be exercised earlier than six months following the date of grant. The foregoing provision is intended to operate so that any income derived by a non-exempt employee in connection with the exercise or vesting of an Option or SAR will be exempt from his or her regular rate of pay. To the extent permitted and/or required for compliance with the Worker Economic Opportunity Act to ensure that any income derived by a non-exempt employee in connection with the exercise, vesting or issuance of any shares under any other Stock Award will be exempt from the employees regular rate of pay, the provisions of this Section 5(l) will apply to all Stock Awards and are hereby incorporated by reference into such Stock Award Agreements. 6. P ROVISIONS OF STOCK A WARDS OTHER THAN OPTIONS AND SARS.
(a) Restricted Stock Awards. Each Restricted Stock Award Agreement will be in such form and will contain such terms and conditions as the Board will deem appropriate. To the extent consistent with the Companys bylaws, at the Boards election, shares of Common Stock may be (x) held in book entry form subject to the Companys instructions until any restrictions relating to the Restricted Stock Award lapse; or (y) evidenced by a certificate, which certificate will be held in such form and manner as determined by the Board. The terms and conditions of Restricted Stock Award Agreements may change from time to time, and the terms and conditions of separate Restricted Stock Award Agreements need not be identical. Each Restricted Stock Award Agreement will conform to (through incorporation of the provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions: (i) Consideration. A Restricted Stock Award may be awarded in consideration for (A) cash, check, bank draft or money order payable to the Company, (B) past services to the Company or an Affiliate, or (C) any other form of legal consideration (including future services) that may be acceptable to the Board, in its sole discretion, and permissible under applicable law. (ii) Vesting. Shares of Common Stock awarded under the Restricted Stock Award Agreement may be subject to forfeiture to the Company in accordance with a vesting schedule to be determined by the Board. 10.
(iii) Termination of Participants Continuous Service. If a Participants Continuous Service terminates, the Company may receive through a forfeiture condition or a repurchase right any or all of the shares of Common Stock held by the Participant that have not vested as of the date of termination of Continuous Service under the terms of the Restricted Stock Award Agreement. (iv) Transferability. Rights to acquire shares of Common Stock under the Restricted Stock Award Agreement will be transferable by the Participant only upon such terms and conditions as are set forth in the Restricted Stock Award Agreement, as the Board will determine in its sole discretion, so long as Common Stock awarded under the Restricted Stock Award Agreement remains subject to the terms of the Restricted Stock Award Agreement. (v) Dividends. A Restricted Stock Award Agreement may provide that any dividends paid on Restricted Stock will be subject to the same vesting and forfeiture restrictions as apply to the shares subject to the Restricted Stock Award to which they relate. (b) Restricted Stock Unit Awards. Each Restricted Stock Unit Award Agreement will be in such form and will contain such terms and conditions as the Board will deem appropriate. The terms and conditions of Restricted Stock Unit Award Agreements may change from time to time, and the terms and conditions of separate Restricted Stock Unit Award Agreements need not be identical. Each Restricted Stock Unit Award Agreement will conform to (through incorporation of the provisions hereof by reference in the Agreement or otherwise) the substance of each of the following provisions: (i) Consideration. At the time of grant of a Restricted Stock Unit Award, the Board will determine the consideration, if any, to be paid by the Participant upon delivery of each share of Common Stock subject to the Restricted Stock Unit Award. The consideration to be paid (if any) by the Participant for each share of Common Stock subject to a Restricted Stock Unit Award may be paid in any form of legal consideration that may be acceptable to the Board, in its sole discretion, and permissible under applicable law. (ii) Vesting. At the time of the grant of a Restricted Stock Unit Award, the Board may impose such restrictions on or conditions to the vesting of the Restricted Stock Unit Award as it, in its sole discretion, deems appropriate. (iii) Payment. A Restricted Stock Unit Award may be settled by the delivery of shares of Common Stock, their cash equivalent, any combination thereof or in any other form of consideration, as determined by the Board and contained in the Restricted Stock Unit Award Agreement. (iv) Additional Restrictions. At the time of the grant of a Restricted Stock Unit Award, the Board, as it deems appropriate, may impose such restrictions or conditions that delay the delivery of the shares of Common Stock (or their cash equivalent) subject to a Restricted Stock Unit Award to a time after the vesting of such Restricted Stock Unit Award. 11.
(v) Dividend Equivalents. Dividend equivalents may be credited in respect of shares of Common Stock covered by a Restricted Stock Unit Award, as determined by the Board and contained in the Restricted Stock Unit Award Agreement. At the sole discretion of the Board, such dividend equivalents may be converted into additional shares of Common Stock covered by the Restricted Stock Unit Award in such manner as determined by the Board. Any additional shares covered by the Restricted Stock Unit Award credited by reason of such dividend equivalents will be subject to all of the same terms and conditions of the underlying Restricted Stock Unit Award Agreement to which they relate. (vi) Termination of Participants Continuous Service. Except as otherwise provided in the applicable Restricted Stock Unit Award Agreement, such portion of the Restricted Stock Unit Award that has not vested will be forfeited upon the Participants termination of Continuous Service. (c) Performance Awards. (i) Performance Stock Awards . A Performance Stock Award is a Stock Award (covering a number of shares not in excess of that set forth in Section 3(d) above) that is payable (including that may be granted, vest or exercised) contingent upon the attainment during a Performance Period of certain Performance Goals. A Performance Stock Award may, but need not, require the completion of a specified period of Continuous Service. The length of any Performance Period, the Performance Goals to be achieved during the Performance Period, and the measure of whether and to what degree such Performance Goals have been attained will be conclusively determined by the Committee (or, if not required for compliance with Section 162(m) of the Code, the Board), in its sole discretion. In addition, to the extent permitted by applicable law and the applicable Award Agreement, the Board may determine that cash may be used in payment of Performance Stock Awards. (ii) Performance Cash Awards. A Performance Cash Award is a cash award (for a dollar value not in excess of that set forth in Section 3(d) above) that is payable contingent upon the attainment during a Performance Period of certain Performance Goals. A Performance Cash Award may also require the completion of a specified period of Continuous Service. At the time of grant of a Performance Cash Award, the length of any Performance Period, the Performance Goals to be achieved during the Performance Period, and the measure of whether and to what degree such Performance Goals have been attained will be conclusively determined by the Committee (or, if not required for compliance with Section 162(m) of the Code, the Board), in its sole discretion. The Board may specify the form of payment of Performance Cash Awards, which may be cash or other property, or may provide for a Participant to have the option for his or her Performance Cash Award, or such portion thereof as the Board may specify, to be paid in whole or in part in cash or other property. (iii) Section 162(m) Compliance . Unless otherwise permitted in compliance with the requirements of Section 162(m) of the Code with respect to an Award intended to qualify as performance-based compensation thereunder, the Committee will establish the Performance Goals applicable to, and the formula for calculating the amount payable under, the Award no later than the earlier of (a) the date 90 days after the commencement of the applicable Performance Period, and (b) the date on which 25% of the Performance Period has elapsed, and in any event at a time when the achievement of the applicable Performance Goals remains substantially uncertain. Prior to the payment of any compensation under an Award intended to 12.
qualify as performance-based compensation under Section 162(m) of the Code, the Committee will certify the extent to which any Performance Goals and any other material terms under such Award have been satisfied (other than in cases where such relate solely to the increase in the value of the Common Stock). Notwithstanding satisfaction of any completion of any Performance Goals, the number of shares of Common Stock, Options, cash or other benefits granted, issued, retainable and/or vested under an Award on account of satisfaction of such Performance Goals may be reduced by the Committee on the basis of such further considerations as the Committee, in its sole discretion, will determine. (d) Other Stock Awards . Other forms of Stock Awards valued in whole or in part by reference to, or otherwise based on, Common Stock, including the appreciation in value thereof (e.g., options or stock rights with an exercise price or strike price less than 100% of the Fair Market Value of the Common Stock at the time of grant) may be granted either alone or in addition to Stock Awards provided for under Section 5 and the preceding provisions of this Section 6. Subject to the provisions of the Plan, the Board will have sole and complete authority to determine the persons to whom and the time or times at which such Other Stock Awards will be granted, the number of shares of Common Stock (or the cash equivalent thereof) to be granted pursuant to such Other Stock Awards and all other terms and conditions of such Other Stock Awards. 7. C OVENANTS OF THE COMPANY .
(a) Availability of Shares. The Company will keep available at all times the number of shares of Common Stock reasonably required to satisfy then-outstanding Awards. (b) Securities Law Compliance. The Company will seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to grant Stock Awards and to issue and sell shares of Common Stock upon exercise of the Stock Awards; provided, however, that this undertaking will not require the Company to register under the Securities Act the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any such Stock Award. If, after reasonable efforts and at a reasonable cost, the Company is unable to obtain from any such regulatory commission or agency the authority that counsel for the Company deems necessary for the lawful issuance and sale of Common Stock under the Plan, the Company will be relieved from any liability for failure to issue and sell Common Stock upon exercise of such Stock Awards unless and until such authority is obtained. A Participant will not be eligible for the grant of an Award or the subsequent issuance of cash or Common Stock pursuant to the Award if such grant or issuance would be in violation of any applicable securities law. (c) No Obligation to Notify or Minimize Taxes. The Company will have no duty or obligation to any Participant to advise such holder as to the time or manner of exercising such Stock Award. Furthermore, the Company will have no duty or obligation to warn or otherwise advise such holder of a pending termination or expiration of an Award or a possible period in which the Award may not be exercised. The Company has no duty or obligation to minimize the tax consequences of an Award to the holder of such Award. 13.
8.
MISCELLANEOUS .
(a) Use of Proceeds from Sales of Common Stock. Proceeds from the sale of shares of Common Stock pursuant to Awards will constitute general funds of the Company. (b) Corporate Action Constituting Grant of Stock Awards. Corporate action constituting a grant by the Company of an Award to any Participant will be deemed completed as of the date of such corporate action, unless otherwise determined by the Board, regardless of when the instrument, certificate, or letter evidencing the Award is communicated to, or actually received or accepted by, the Participant. In the event that the corporate records (e.g., Board consents, resolutions or minutes) documenting the corporate action constituting the grant contain terms (e.g., exercise price, vesting schedule or number of shares) that are inconsistent with those in the Award Agreement as a result of a clerical error in the papering of the Award Agreement, the corporate records will control and the Participant will have no legally binding right to the incorrect term in the Award Agreement. (c) Stockholder Rights. No Participant will be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Common Stock subject to an Award unless and until (i) such Participant has satisfied all requirements for exercise of, or the issuance of shares under, the Award pursuant to its terms, and (ii) the issuance of the Common Stock subject to such Award has been entered into the books and records of the Company. (d) No Employment or Other Service Rights. Nothing in the Plan, any Award Agreement or any other instrument executed thereunder or in connection with any Award granted pursuant thereto will confer upon any Participant any right to continue to serve the Company or an Affiliate in the capacity in effect at the time the Award was granted or will affect the right of the Company or an Affiliate to terminate (i) the employment of an Employee with or without notice and with or without cause, (ii) the service of a Consultant pursuant to the terms of such Consultants agreement with the Company or an Affiliate, or (iii) the service of a Director pursuant to the bylaws of the Company or an Affiliate, and any applicable provisions of the corporate law of the state in which the Company or the Affiliate is incorporated, as the case may be. (e) Change in Time Commitment. In the event a Participants regular level of time commitment in the performance of his or her services for the Company and any Affiliates is reduced (for example, and without limitation, if the Participant is an Employee of the Company and the Employee has a change in status from a full-time Employee to a part-time Employee) after the date of grant of any Award to the Participant, the Board has the right in its sole discretion to (x) make a corresponding reduction in the number of shares or cash amount subject to any portion of such Award that is scheduled to vest or become payable after the date of such change in time commitment, and (y) in lieu of or in combination with such a reduction, extend the vesting or payment schedule applicable to such Award. In the event of any such reduction, the Participant will have no right with respect to any portion of the Award that is so reduced. 14.
(f) Incentive Stock Option Limitations. To the extent that the aggregate Fair Market Value (determined at the time of grant) of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by any Optionholder during any calendar year (under all plans of the Company and any Affiliates) exceeds $100,000 (or such other limit established in the Code) or otherwise does not comply with the rules governing Incentive Stock Options, the Options or portions thereof that exceed such limit (according to the order in which they were granted) or otherwise do not comply with the rules will be treated as Nonstatutory Stock Options, notwithstanding any contrary provision of the applicable Option Agreement(s). (g) Investment Assurances. The Company may require a Participant, as a condition of exercising or acquiring Common Stock under any Award, (i) to give written assurances satisfactory to the Company as to the Participants knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Award; and (ii) to give written assurances satisfactory to the Company stating that the Participant is acquiring Common Stock subject to the Award for the Participants own account and not with any present intention of selling or otherwise distributing the Common Stock. The foregoing requirements, and any assurances given pursuant to such requirements, will be inoperative if (A) the issuance of the shares upon the exercise or acquisition of Common Stock under the Award has been registered under a then currently effective registration statement under the Securities Act, or (B) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the Common Stock. (h) Withholding Obligations. Unless prohibited by the terms of an Award Agreement, the Company may, in its sole discretion, satisfy any federal, state or local tax withholding obligation relating to an Award by any of the following means or by a combination of such means: (i) causing the Participant to tender a cash payment; (ii) withholding shares of Common Stock from the shares of Common Stock issued or otherwise issuable to the Participant in connection with the Award; provided, however, that no shares of Common Stock are withheld with a value exceeding the minimum amount of tax required to be withheld by law (or such lesser amount as may be necessary to avoid classification of the Stock Award as a liability for financial accounting purposes); (iii) withholding cash from an Award settled in cash; (iv) withholding payment from any amounts otherwise payable to the Participant; or (v) by such other method as may be set forth in the Award Agreement. (i) Electronic Delivery. Any reference herein to a written agreement or document will include any agreement or document delivered electronically, filed publicly at www.sec.gov (or any successor website thereto) or posted on the Companys intranet. (j) Deferrals. To the extent permitted by applicable law, the Board, in its sole discretion, may determine that the delivery of Common Stock or the payment of cash, upon the exercise, vesting or settlement of all or a portion of any Award may be deferred and may establish programs and procedures for deferral elections to be made by Participants. Deferrals by Participants will be made in accordance with Section 409A of the Code. Consistent with 15.
Section 409A of the Code, the Board may provide for distributions while a Participant is still an employee or otherwise providing services to the Company. The Board is authorized to make deferrals of Awards and determine when, and in what annual percentages, Participants may receive payments, including lump sum payments, following the Participants termination of Continuous Service, and implement such other terms and conditions consistent with the provisions of the Plan and in accordance with applicable law. (k) Compliance with Section 409A. Unless otherwise expressly provided for in an Award Agreement, the Plan and Award Agreements will be interpreted to the greatest extent possible in a manner that makes the Plan and the Awards granted hereunder exempt from Section 409A of the Code, and, to the extent not so exempt, in compliance with Section 409A of the Code. If the Board determines that any Award granted hereunder is not exempt from and is therefore subject to Section 409A of the Code, the Award Agreement evidencing such Award will incorporate the terms and conditions necessary to avoid the consequences specified in Section 409A(a)(1) of the Code, and to the extent an Award Agreement is silent on terms necessary for compliance, such terms are hereby incorporated by reference into the Award Agreement. Notwithstanding anything to the contrary in this Plan (and unless the Award Agreement specifically provides otherwise), if the shares of Common Stock are publicly traded, and if a Participant holding an Award that constitutes deferred compensation under Section 409A of the Code is a specified employee for purposes of Section 409A of the Code, no distribution or payment of any amount that is due because of a separation from service (as defined in Section 409A of the Code without regard to alternative definitions thereunder) will be issued or paid before the date that is six (6) months following the date of such Participants separation from service or, if earlier, the date of the Participants death, unless such distribution or payment can be made in a manner that complies with Section 409A of the Code, and any amounts so deferred will be paid in a lump sum on the day after such six (6) month period elapses, with the balance paid thereafter on the original schedule. (l) Clawback/Recovery. All Awards granted under the Plan will be subject to recoupment in accordance with any clawback policy that the Company is required to adopt pursuant to the listing standards of any national securities exchange or association on which the Companys securities are listed or as is otherwise required by the Dodd-Frank Wall Street Reform and Consumer Protection Act or other applicable law. In addition, the Board may impose such other clawback, recovery or recoupment provisions in an Award Agreement as the Board determines necessary or appropriate, including but not limited to a reacquisition right in respect of previously acquired shares of Common Stock or other cash or property upon the occurrence of Cause. 9. ADJUSTMENTS UPON CHANGES I N COMMON STOCK ; OTHER CORPORATE EVENTS.
(a) Capitalization Adjustments . In the event of a Capitalization Adjustment, the Board will appropriately and proportionately adjust: (i) the class(es) and maximum number of securities subject to the Plan pursuant to Section 3(a), (ii) the class(es) and maximum number of securities that may be issued pursuant to the exercise of Incentive Stock Options pursuant to Section 3(c), (iii) the class(es) and maximum number of securities that may be awarded to any person pursuant to Sections 3(d), and (iv) the class(es) and number of securities and price per share of stock subject to outstanding Stock Awards. The Board will make such adjustments, and its determination will be final, binding and conclusive. 16.
(b) Dissolution or Liquidation. Except as otherwise provided in the Stock Award Agreement, in the event of a dissolution or liquidation of the Company, all outstanding Stock Awards (other than Stock Awards consisting of vested and outstanding shares of Common Stock not subject to a forfeiture condition or the Companys right of repurchase) will terminate immediately prior to the completion of such dissolution or liquidation, and the shares of Common Stock subject to the Companys repurchase rights or subject to a forfeiture condition may be repurchased or reacquired by the Company notwithstanding the fact that the holder of such Stock Award is providing Continuous Service; provided, however, that the Board may, in its sole discretion, cause some or all Stock Awards to become fully vested, exercisable and/or no longer subject to repurchase or forfeiture (to the extent such Stock Awards have not previously expired or terminated) before the dissolution or liquidation is completed but contingent on its completion. (c) Corporate Transaction. The following provisions will apply to Stock Awards in the event of a Corporate Transaction unless otherwise provided in the instrument evidencing the Stock Award or any other written agreement between the Company or any Affiliate and the Participant or unless otherwise expressly provided by the Board at the time of grant of a Stock Award. In the event of a Corporate Transaction, then, notwithstanding any other provision of the Plan, the Board will take one or more of the following actions with respect to Stock Awards, contingent upon the closing or completion of the Corporate Transaction: (i) arrange for the surviving corporation or acquiring corporation (or the surviving or acquiring corporations parent company) to assume or continue the Stock Award or to substitute a similar stock award for the Stock Award (including, but not limited to, an award to acquire the same consideration paid to the stockholders of the Company pursuant to the Corporate Transaction); (ii) arrange for the assignment of any reacquisition or repurchase rights held by the Company in respect of Common Stock issued pursuant to the Stock Award to the surviving corporation or acquiring corporation (or the surviving or acquiring corporations parent company); (iii) accelerate the vesting, in whole or in part, of the Stock Award (and, if applicable, the time at which the Stock Award may be exercised) to a date prior to the effective time of such Corporate Transaction as the Board will determine (or, if the Board will not determine such a date, to the date that is five days prior to the effective date of the Corporate Transaction), with such Stock Award terminating if not exercised (if applicable) at or prior to the effective time of the Corporate Transaction; (iv) arrange for the lapse, in whole or in part, of any reacquisition or repurchase rights held by the Company with respect to the Stock Award; 17.
(v) cancel or arrange for the cancellation of the Stock Award, to the extent not vested or not exercised prior to the effective time of the Corporate Transaction, in exchange for such cash consideration, if any, as the Board, in its sole discretion, may consider appropriate; and (vi) make a payment, in such form as may be determined by the Board equal to the excess, if any, of (A) the value of the property the Participant would have received upon the exercise of the Stock Award immediately prior to the effective time of the Corporate Transaction, over (B) any exercise price payable by such holder in connection with such exercise. The Board need not take the same action or actions with respect to all Stock Awards or portions thereof or with respect to all Participants. (d) Change in Control. A Stock Award may be subject to additional acceleration of vesting and exercisability upon or after a Change in Control as may be provided in the Stock Award Agreement for such Stock Award or as may be provided in any other written agreement between the Company or any Affiliate and the Participant, but in the absence of such provision, no such acceleration will occur. 10. P LAN TERM; EARLIER TERMINATION OR SUSPENSION OF THE PLAN.
The Board may suspend or terminate the Plan at any time. No Incentive Stock Options may be granted after the tenth anniversary of the earlier of (i) the date the Plan is adopted by the Board (the Adoption Date), or (ii) the date the Plan is approved by the stockholders of the Company. No Awards may be granted under the Plan while the Plan is suspended or after it is terminated. 11. EXISTENCE OF THE PLAN; TIMING OF FIRST GRANT OR EXERCISE.
The Plan will come into existence on the Adoption Date; provided, however, no Award may be granted prior to the IPO Date (that is, the Effective Date). In addition, no Stock Award will be exercised (or, in the case of a Restricted Stock Award, Restricted Stock Unit Award, Performance Stock Award, or Other Stock Award, will be granted) and no Performance Cash Award will be settled unless and until the Plan has been approved by the stockholders of the Company, which approval will be within 12 months after the date the Plan is adopted by the Board. 12. C HOICE OF LAW.
The law of the State of California will govern all questions concerning the construction, validity and interpretation of this Plan, without regard to that states conflict of laws rules. 13. DEFINITIONS . As used in the Plan, the following definitions will apply to the capitalized terms indicated below:
(a) Affiliate means, at the time of determination, any parent or subsidiary of the Company as such terms are defined in Rule 405 of the Securities Act. The Board will have the authority to determine the time or times at which parent or subsidiary status is determined within the foregoing definition. 18.
(b) Award means a Stock Award or a Performance Cash Award. (c) Award Agreement means a written agreement between the Company and a Participant evidencing the terms and conditions of an Award. (d) Board means the Board of Directors of the Company. (e) Capital Stock means each and every class of common stock of the Company, regardless of the number of votes per share. (f) Capitalization Adjustment means any change that is made in, or other events that occur with respect to, the Common Stock subject to the Plan or subject to any Stock Award after the Adoption Date without the receipt of consideration by the Company through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or any similar equity restructuring transaction, as that term is used in Financial Accounting Standards Board Accounting Standards Codification Topic 718 (or any successor thereto). Notwithstanding the foregoing, the conversion of any convertible securities of the Company will not be treated as a Capitalization Adjustment. (g) Cause means (i) if a Participant is party to an agreement with the Company or an Affiliate that relates to equity awards and contains a definition of Cause, the definition of Cause in the applicable agreement, or (ii) if a Participant is not party to any such agreement, such Participants termination because of (A) any willful, material violation by the Participant of any law or regulation applicable to the business of the Company or an Affiliate, the Participants conviction for, or guilty plea to, a felony or a crime involving moral turpitude, or any willful perpetration by the Participant of a common law fraud, (B) the Participants commission of an act of personal dishonesty that involves personal profit in connection with the Company or any other entity having a business relationship with the Company, (C) any material breach by the Participant of any provision of any agreement or understanding between the Company or an Affiliate and the Participant regarding the terms of the Participants service as an Employee, Officer, Director or Consultant to the Company or an Affiliate, including without limitation, the willful and continued failure or refusal of the Participant to perform the material duties required of such Participant as an Employee, Officer, Director or Consultant of the Company or an Affiliate, other than as a result of having a Disability, or a breach of any applicable invention assignment and confidentiality agreement or similar agreement between the Company or an Affiliate and the Participant, (D) the Participants disregard of the policies of the Company or an Affiliate so as to cause loss, damage or injury to the property, reputation or employees of the Company or an Affiliate, or (E) any other misconduct by the Participant that is materially injurious to the financial condition or business reputation of, or is otherwise materially injurious to, the Company or an Affiliate. (h) Change in Control means the occurrence, in a single transaction or in a series of related transactions, of any one or more of the following events: 19.
(i) any Exchange Act Person becomes the Owner, directly or indirectly, of securities of the Company representing more than 50% of the combined voting power of the Companys then outstanding securities other than by virtue of a merger, consolidation or similar transaction. Notwithstanding the foregoing, a Change in Control will not be deemed to occur (A) on account of the acquisition of securities of the Company directly from the Company, (B) on account of the acquisition of securities of the Company by an investor, any affiliate thereof or any other Exchange Act Person that acquires the Companys securities in a transaction or series of related transactions the primary purpose of which is to obtain financing for the Company through the issuance of equity securities, (C) on account of the acquisition of securities of the Company by Mark Pincus and/or any Entity in which Mark Pincus has a direct or indirect interest (whether in the form of voting rights or participation in profits or capital contributions) of more than 50% (collectively, the Pincus Entities ) or on account of the Pincus Entities continuing to hold shares that come to represent more than 50% of the combined voting power of the Companys then outstanding securities as a result of the conversion of any class of the Companys securities into another class of the Companys securities having a different number of votes per share pursuant to the conversion provisions set forth in the Companys Amended and Restated Certificate of Incorporation; or (D) solely because the level of Ownership held by any Exchange Act Person (the Subject Person ) exceeds the designated percentage threshold of the outstanding voting securities as a result of a repurchase or other acquisition of voting securities by the Company reducing the number of shares outstanding, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of voting securities by the Company, and after such share acquisition, the Subject Person becomes the Owner of any additional voting securities that, assuming the repurchase or other acquisition had not occurred, increases the percentage of the then outstanding voting securities Owned by the Subject Person over the designated percentage threshold, then a Change in Control will be deemed to occur; (ii) there is consummated a merger, consolidation or similar transaction involving (directly or indirectly) the Company and, immediately after the consummation of such merger, consolidation or similar transaction, the stockholders of the Company immediately prior thereto do not Own, directly or indirectly, either (A) outstanding voting securities representing more than 50% of the combined outstanding voting power of the surviving Entity in such merger, consolidation or similar transaction or (B) more than 50% of the combined outstanding voting power of the parent of the surviving Entity in such merger, consolidation or similar transaction, in each case in substantially the same proportions as their Ownership of the outstanding voting securities of the Company immediately prior to such transaction; provided, however, that a merger, consolidation or similar transaction will not constitute a Change in Control under this prong of the defintion if the outstanding voting securities representing more than 50% of the combined voting power of the surviving Entity or its parent are owned by the Pincus Entities; (iii) there is consummated a sale, lease, exclusive license or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries, other than a sale, lease, license or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries to an Entity, more than fifty percent (50%) of the combined voting power of the voting securities of which are Owned by stockholders of the Company in 20.
substantially the same proportions as their Ownership of the outstanding voting securities of the Company immediately prior to such sale, lease, license or other disposition; provided, however, that a sale, lease, exclusive license or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries will not constitute a Change in Control under this prong of the defintion if the outstanding voting securities representing more than 50% of the combined voting power of the acquiring Entity or its parent are owned by the Pincus Entities; or (iv) individuals who, on the date the Plan is adopted by the Board, are members of the Board (the Incumbent Board ) cease for any reason to constitute at least a majority of the members of the Board; provided, however, that if the appointment or election (or nomination for election) of any new Board member was approved or recommended by a majority vote of the members of the Incumbent Board then still in office, such new member will, for purposes of this Plan, be considered as a member of the Incumbent Board. For purposes of determining voting power under the term Change in Control, voting power shall be calculated by assuming the conversion of all equity securities convertible (immediately or at some future time) into shares entitled to vote, but not assuming the exercise of any warrant or right to subscribe to or purchase those shares. In addition, (A) the term Change in Control will not include a sale of assets, merger or other transaction effected exclusively for the purpose of changing the domicile of the Company, (B) the term Change in Control will not include a change in the voting power of any one or more stockholders as a result of the conversion of any class of the Companys securities into another class of the Companys securities having a different number of votes per share pursuant to the conversion provisions set forth in the Companys Amended and Restated Certificate of Incorporation, and (C) the definition of Change in Control (or any analogous term) in an individual written agreement between the Company or any Affiliate and the Participant will supersede the foregoing definition with respect to Awards subject to such agreement; provided, however, that if no definition of Change in Control or any analogous term is set forth in such an individual written agreement, the foregoing definition will apply. If required for compliance with Section 409A of the Code, in no event will a Change in Control be deemed to have occurred if such transaction is not also a change in the ownership or effective control of the Company or a change in the ownership of a substantial portion of the assets of the Company as determined under Treasury Regulation Section 1.409A-3(i)(5) (without regard to any alternative definition thereunder). The Board may, in its sole discretion and without a Participants consent, amend the definition of Change in Control to conform to the definition of Change in Control under Section 409A of the Code, and the regulations thereunder. (i) Code means the Internal Revenue Code of 1986, as amended, including any applicable regulations and guidance thereunder. (j) Committee means a committee of one or more Directors to whom authority has been delegated by the Board in accordance with Section 2(c). (k) Common Stock means, as of the IPO Date, the Class A common stock of the Company, having 1 vote per share. 21.
(l) Company means Zynga Inc., a Delaware corporation. (m) Consultant means any person, including an advisor, who is (i) engaged by the Company or an Affiliate to render consulting or advisory services and is compensated for such services, or (ii) serving as a member of the board of directors of an Affiliate and is compensated for such services. However, service solely as a Director, or payment of a fee for such service, will not cause a Director to be considered a Consultant for purposes of the Plan. Notwithstanding the foregoing, a person is treated as a Consultant under this Plan only if a Form S-8 Registration Statement under the Securities Act is available to register either the offer or the sale of the Companys securities to such person. (n) Continuous Service means that the Participants service with the Company or an Affiliate, whether as an Employee, Director or Consultant, is not interrupted or terminated. A change in the capacity in which the Participant renders service to the Company or an Affiliate as an Employee, Consultant or Director or a change in the entity for which the Participant renders such service, provided that there is no interruption or termination of the Participants service with the Company or an Affiliate, will not terminate a Participants Continuous Service ; provided, however, that if the Entity for which a Participant is rendering services ceases to qualify as an Affiliate, as determined by the Board, in its sole discretion, such Participants Continuous Service will be considered to have terminated on the date such Entity ceases to qualify as an Affiliate. To the extent permitted by law, the Board or the chief executive officer of the Company, in that partys sole discretion, may determine whether Continuous Service will be considered interrupted in the case of (i) any leave of absence approved by the Board or chief executive officer, including sick leave, military leave or any other personal leave, or (ii) transfers between the Company, an Affiliate, or their successors. Notwithstanding the foregoing, a leave of absence will be treated as Continuous Service for purposes of vesting in an Award only to such extent as may be provided in the Companys leave of absence policy, in the written terms of any leave of absence agreement or policy applicable to the Participant, or as otherwise required by law. In addition, to the extent required for exemption from or compliance with Section 409A of the Code, the determination of whether there has been a termination of Continuous Service will be made, and such term will be construed, in a manner that is consistent with the definition of separation from service as defined under Treasury Regulation Section 1.409A-1(h) (without regard to any alternative definition thereunder). (o) Corporate Transaction means the occurrence, in a single transaction or in a series of related transactions, of any one or more of the following events: (i) the consummation of a sale or other disposition of all or substantially all, as determined by the Board, in its sole discretion, of the consolidated assets of the Company and its Subsidiaries; (ii) the consummation of a sale or other disposition of at least 50% of the outstanding securities of the Company; (iii) the consummation of a merger, consolidation or similar transaction following which the Company is not the surviving corporation; or 22.
(iv) the consummation of a merger, consolidation or similar transaction following which the Company is the surviving corporation but the shares of Common Stock outstanding immediately preceding the merger, consolidation or similar transaction are converted or exchanged by virtue of the merger, consolidation or similar transaction into other property, whether in the form of securities, cash or otherwise. To the extent required for compliance with Section 409A of the Code, in no event will an event be deemed a Corporate Transaction if such transaction is not also a change in the ownership or effective control of the Company or a change in the ownership of a substantial portion of the assets of the Company as determined under Treasury Regulation Section 1.409A-3(i)(5) (without regard to any alternative definition thereunder). (p) Covered Employee will have the meaning provided in Section 162(m)(3) of the Code. (q) Director means a member of the Board. (r) Disability means, with respect to a Participant, the inability of such Participant to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or that has lasted or can be expected to last for a continuous period of not less than 12 months, as provided in Sections 22(e)(3) and 409A(a)(2)(c)(i) of the Code, and will be determined by the Board on the basis of such medical evidence as the Board deems warranted under the circumstances. (s) Effective Date means the IPO Date. (t) Employee means any person employed by the Company or an Affiliate. However, service solely as a Director, or payment of a fee for such services, will not cause a Director to be considered an Employee for purposes of the Plan. (u) Entity means a corporation, partnership, limited liability company or other entity. (v) Exchange Act means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. (w) Exchange Act Person means any natural person, Entity or group (within the meaning of Section 13(d) or 14(d) of the Exchange Act), except that Exchange Act Person will not include (i) the Company or any Subsidiary of the Company, (ii) any employee benefit plan of the Company or any Subsidiary of the Company or any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any Subsidiary of the Company, (iii) an underwriter temporarily holding securities pursuant to a registered public offering of such securities, (iv) an Entity Owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their Ownership of stock of the Company; or (v) any natural person, Entity or group (within the meaning of Section 13(d) or 14(d) of the Exchange Act) that, as of the Effective Date, is the Owner, directly or indirectly, of securities of the Company representing more than 50% of the combined voting power of the Companys then outstanding securities. 23.
(x) Fair Market Value means, as of any date, the value of the Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or traded on any established market, the Fair Market Value of a share of Common Stock will be, unless otherwise determined by the Board, the closing sales price for such stock as quoted on such exchange or market (or the exchange or market with the greatest volume of trading in the Common Stock) on the date of determination , as reported in a source the Board deems reliable. (ii) Unless otherwise provided by the Board, if there is no closing sales price for the Common Stock on the date of determination, then the Fair Market Value will be the closing selling price on the last preceding date for which such quotation exists. (iii) In the absence of such markets for the Common Stock, the Fair Market Value will be determined by the Board in good faith and in a manner that complies with Sections 409A and 422 of the Code. (y) Incentive Stock Option means an option granted pursuant to Section 5 of the Plan that is intended to be, and qualifies as, an incentive stock option within the meaning of Section 422 of the Code. (z) IPO Date means the date of the underwriting agreement between the Company and the underwriter(s) managing the initial public offering of the Common Stock, pursuant to which the Common Stock is priced for the initial public offering. (aa) Non-Employee Director means a Director who either (i) is not a current employee or officer of the Company or an Affiliate, does not receive compensation, either directly or indirectly, from the Company or an Affiliate for services rendered as a consultant or in any capacity other than as a Director (except for an amount as to which disclosure would not be required under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act (Regulation S-K )), does not possess an interest in any other transaction for which disclosure would be required under Item 404(a) of Regulation S-K, and is not engaged in a business relationship for which disclosure would be required pursuant to Item 404(b) of Regulation S-K; or (ii) is otherwise considered a non-employee director for purposes of Rule 16b-3. (bb) Nonstatutory Stock Option means any option granted pursuant to Section 5 of the Plan that does not qualify as an Incentive Stock Option. (cc) Officer means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act. (dd) Option means an Incentive Stock Option or a Nonstatutory Stock Option to purchase shares of Common Stock granted pursuant to the Plan. 24.
(ee) Option Agreement means a written agreement between the Company and an Optionholder evidencing the terms and conditions of an Option grant. Each Option Agreement will be subject to the terms and conditions of the Plan. (ff) Optionholder means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option. (gg) Other Stock Award means an award based in whole or in part by reference to the Common Stock which is granted pursuant to the terms and conditions of Section 6(d). (hh) Other Stock Award Agreement means a written agreement between the Company and a holder of an Other Stock Award evidencing the terms and conditions of an Other Stock Award grant. Each Other Stock Award Agreement will be subject to the terms and conditions of the Plan. (ii) Outside Director means a Director who either (i) is not a current employee of the Company or an affiliated corporation (within the meaning of Treasury Regulations promulgated under Section 162(m) of the Code), is not a former employee of the Company or an affiliated corporation who receives compensation for prior services (other than benefits under a tax-qualified retirement plan) during the taxable year, has not been an officer of the Company or an affiliated corporation, and does not receive remuneration from the Company or an affiliated corporation, either directly or indirectly, in any capacity other than as a Director, or (ii) is otherwise considered an outside director for purposes of Section 162(m) of the Code. (jj) Own, Owned, Owner, Ownership A person or Entity will be deemed to Own, to have Owned, to be the Owner of, or to have acquired Ownership of securities if such person or Entity, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares voting power, which includes the power to vote or to direct the voting, with respect to such securities. (kk) Participant means a person to whom an Award is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Stock Award. (ll) Performance Cash Award means an award of cash granted pursuant to the terms and conditions of Section 6(c)(ii). (mm) Performance Criteria means the one or more criteria that the Board will select for purposes of establishing the Performance Goals for a Performance Period. The Performance Criteria that will be used to establish such Performance Goals may be based on any one of, or combination of, the following as determined by the Board: (i) earnings (including earnings per share and net earnings); (ii) earnings before interest, taxes and depreciation; (iii) earnings before interest, taxes, depreciation and amortization; (iv) earnings before interest, taxes, depreciation, amortization and legal settlements; (v) earnings before interest, taxes, depreciation, amortization, legal settlements and other income (expense); (vi) earnings before interest, taxes, depreciation, amortization, legal settlements, other income (expense) and stock-based compensation; (vii) earnings before interest, taxes, depreciation, amortization, legal settlements, other income (expense), stock-based compensation and changes in deferred revenue; (viii) total stockholder 25.
return; (ix) return on equity or average stockholders equity; (x) return on assets, investment, or capital employed; (xi) stock price; (xii) margin (including gross margin); (xiii) income (before or after taxes); (xiv) operating income; (xv) operating income after taxes; (xvi) pre-tax profit; (xvii) operating cash flow; (xviii) sales or revenue targets; (xix) increases in revenue or product revenue; (xx) expenses and cost reduction goals; (xxi) improvement in or attainment of working capital levels; (xxii) economic value added (or an equivalent metric); (xxiii) market share; (xxiv) cash flow; (xxv) cash flow per share; (xxvi) share price performance; (xxvii) debt reduction; (xxviii) implementation or completion of projects or processes; (xxix) player satisfaction; including net promoter scores; (xxx) stockholders equity; (xxxi) capital expenditures; (xxxii) debt levels; (xxxiii) operating profit or net operating profit; (xxxiv) workforce diversity; (xxxv) growth of net income or operating income; (xxxvi) billings; (xxxvii) bookings; (xxxviii) daily active users of games, weekly active users of games, monthly active users of games, monthly unique users of games; (xxxix) employee retention; (xxxx) and to the extent that an Award is not intended to comply with Section 162(m) of the Code, other measures of performance selected by the Board. (nn) Performance Goals means, for a Performance Period, the one or more goals established by the Board for the Performance Period based upon the Performance Criteria. Performance Goals may be based on a Company-wide basis, with respect to one or more business units, divisions, Affiliates, or business segments, and in either absolute terms or relative to the performance of one or more comparable companies or the performance of one or more relevant indices. Unless specified otherwise by the Board (i) in the Award Agreement at the time the Award is granted or (ii) in such other document setting forth the Performance Goals at the time the Performance Goals are established, the Board will appropriately make adjustments in the method of calculating the attainment of Performance Goals for a Performance Period as follows: (1) to exclude restructuring and/or other nonrecurring charges; (2) to exclude exchange rate effects; (3) to exclude the effects of changes to generally accepted accounting principles; (4) to exclude the effects of any statutory adjustments to corporate tax rates; (5) to exclude the effects of any extraordinary items as determined under generally accepted accounting principles; (6) to exclude the dilutive effects of acquisitions or joint ventures; (7) to assume that any business divested by the Company achieved performance objectives at targeted levels during the balance of a Performance Period following such divestiture; (8) to exclude the effect of any change in the outstanding shares of common stock of the Company by reason of any stock dividend or split, stock repurchase, reorganization, recapitalization, merger, consolidation, spin-off, combination or exchange of shares or other similar corporate change, or any distributions to common stockholders other than regular cash dividends; (9) to exclude the effects of stock based compensation and the award of bonuses under the Companys bonus plans; (10) to exclude costs incurred in connection with potential acquisitions or divestitures that are required to expensed under generally accepted accounting principles; (11) to exclude the goodwill and intangible asset impairment charges that are required to be recorded under generally accepted accounting principles and (12) to exclude the effect of any other unusual, nonrecurring gain or loss or other extraordinary item. In addition, the Board retains the discretion to reduce or eliminate the compensation or economic benefit due upon attainment of Performance Goals and to define the manner of calculating the Performance Criteria it selects to use for such Performance Period. Partial achievement of the specified criteria may result in the payment or vesting corresponding to the degree of achievement as specified in the Stock Award Agreement or the written terms of a Performance Cash Award. 26.
(oo) Performance Period means the period of time selected by the Board over which the attainment of one or more Performance Goals will be measured for the purpose of determining a Participants right to and the payment of a Stock Award or a Performance Cash Award. Performance Periods may be of varying and overlapping duration, at the sole discretion of the Board. (pp) Performance Stock Award means a Stock Award granted under the terms and conditions of Section 6(c)(i). (qq) Plan means this Zynga Inc. 2011 Equity Incentive Plan. (rr) Restricted Stock Award means an award of shares of Common Stock which is granted pursuant to the terms and conditions of Section 6(a). (ss) Restricted Stock Award Agreement means a written agreement between the Company and a holder of a Restricted Stock Award evidencing the terms and conditions of a Restricted Stock Award grant. Each Restricted Stock Award Agreement will be subject to the terms and conditions of the Plan. (tt) Restricted Stock Unit Award means a right to receive shares of Common Stock which is granted pursuant to the terms and conditions of Section 6(b). (uu) Restricted Stock Unit Award Agreement means a written agreement between the Company and a holder of a Restricted Stock Unit Award evidencing the terms and conditions of a Restricted Stock Unit Award grant. Each Restricted Stock Unit Award Agreement will be subject to the terms and conditions of the Plan. (vv) Rule 16b-3 means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3, as in effect from time to time. (ww) Securities Act means the Securities Act of 1933, as amended. (xx) Stock Appreciation Right or SAR means a right to receive the appreciation on Common Stock that is granted pursuant to the terms and conditions of Section 5. (yy) Stock Appreciation Right Agreement means a written agreement between the Company and a holder of a Stock Appreciation Right evidencing the terms and conditions of a Stock Appreciation Right grant. Each Stock Appreciation Right Agreement will be subject to the terms and conditions of the Plan. (zz) Stock Award means any right to receive Common Stock granted under the Plan, including an Incentive Stock Option, a Nonstatutory Stock Option, a Restricted Stock Award, a Restricted Stock Unit Award, a Stock Appreciation Right, a Performance Stock Award or any Other Stock Award. 27.
(aaa) Stock Award Agreement means a written agreement between the Company and a Participant evidencing the terms and conditions of a Stock Award grant. Each Stock Award Agreement will be subject to the terms and conditions of the Plan. (bbb) Subsidiary means, with respect to the Company, (i) any corporation of which more than 50% of the outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, stock of any other class or classes of such corporation will have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, Owned by the Company, and (ii) any partnership, limited liability company or other entity in which the Company has a direct or indirect interest (whether in the form of voting or participation in profits or capital contribution) of more than 50%. (ccc) Ten Percent Stockholder means a person who Owns (or is deemed to Own pursuant to Section 424(d) of the Code) stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company or any Affiliate. 28.
Exhibit 10.5 ZYNGA IN C. S TOCK OPTION GRANT NOTICE (2011 EQUITY INCENTIVE PLAN) Zynga Inc. (the Company) hereby grants to Optionholder an option to purchase the number of shares of the Companys Common Stock set forth below. This option is subject to all of the terms and conditions as set forth in this notice, in the Option Agreement and in the 2011 Equity Incentive Plan (the Plan), both of which are attached hereto and incorporated herein in their entirety. Capitalized terms not explicitly defined herein but defined in the Plan or the Option Agreement will have the same definitions as in the Plan or the Option Agreement. If there is any conflict between the terms in the Option and the Plan, the terms of the Plan will control. Optionholder: Date of Grant: Vesting Commencement Date: Number of Shares Subject to Option: Exercise Price (Per Share): Total Exercise Price: Expiration Date: Type of Grant: Exercise Schedule: Vesting Schedule: Payment: Incentive Stock Option Nonstatutory Stock Option
Same as Vesting Schedule The Option vests with respect to [ through each such vesting date. ], subject to Optionholders Continuous Service with the Company
By one or a combination of the following items: x x x x By cash or check Pursuant to a Regulation T Program, if the Common Stock is publicly traded By delivery of already-owned shares, if the Common Stock is publicly traded If and only to the extent this option is a Nonstatutory Stock Option, and subject to the Companys consent at the time of exercise, by a net exercise arrangement
Additional Terms/Acknowledgements: Optionholder acknowledges receipt of, and understands and agrees to, this Stock Option Grant Notice, the Option Agreement, the Plan and the stock plan prospectus for this Plan. As of the Date of Grant, this Stock Option Grant Notice, the Option Agreement and the Plan set forth the entire understanding between Optionholder and the Company regarding the this option award and supersede all prior oral and written agreements on this option award, with the exception, if applicable, of (i) the written employment agreement or offer letter agreement entered into between the Company and Optionholder specifying the terms that should govern this option, (ii) the Companys Change in Control Severance Benefit Plan, and (iii) any compensation recovery policy that is adopted by the Company or is otherwise required by applicable law. By accepting this option, you consent to receive such documents by electronic delivery and to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company.
ZYNGA IN C. By: Signature Title: Date: ATTACHMENTS: Option Agreement, 2011 Equity Incentive Plan
O PTIONHOLDER :
Signature Date:
ZYNGA IN C. 2011 EQUITY INCENTIVE PLAN O PTION A GREEMENT (INCENTIVE STOCK OPTION OR NONSTATUTORY STOCK OPTION) Pursuant to your Stock Option Grant Notice ( Grant Notice ) and this Option Agreement, Zynga Inc. (the Company) has granted you an option under its 2011 Equity Incentive Plan (the Plan) to purchase the number of shares of the Companys Common Stock indicated in your Grant Notice at the exercise price indicated in your Grant Notice. The option is granted to you effective as of the date of grant set forth in the Grant Notice (the Date of Grant ). If there is any conflict between the terms in this Option Agreement and the Plan, the terms of the Plan will control. Defined terms not explicitly defined in this Option Agreement or in the Grant Notice but defined in the Plan will have the same definitions as in the Plan. The details of your option, in addition to those set forth in the Grant Notice and the Plan, are as follows: 1. V ESTING. Your option will vest as provided in your Grant Notice. Vesting will cease upon the termination of your Continuous Service. 2. NUMBER OF SHARES AND EXERCISE PRICE. The number of shares of Common Stock subject to your option and your exercise price per share in your Grant Notice will be adjusted for Capitalization Adjustments as provided in the Plan. 3. EXERCISE RESTRICTION FOR NON-EXEMPT EMPLOYEES . If you are an Employee eligible for overtime compensation under the Fair Labor Standards Act of 1938, as amended (that is, a Non-Exempt Employee ), and except as otherwise provided in the Plan, you may not exercise your option until you have completed at least six months of Continuous Service measured from the Date of Grant, even if you have already been an employee for more than six months. Consistent with the provisions of the Worker Economic Opportunity Act, you may exercise your option as to any vested portion prior to such six month anniversary in the case of (i) your death or disability, (ii) a Corporate Transaction in which your option is not assumed, continued or substituted, (iii) a Change in Control or (iv) your termination of Continuous Service on your retirement (as defined in the Companys benefit plans). 4. EXERCISE PRIOR TO V ESTING (EARLY EXERCISE). This option may not be exercised prior to vesting. 5. METHOD OF PAYMENT. You must pay the full amount of the exercise price for the shares you wish to exercise. You may pay the exercise price in cash or by check or in any other manner permitted by your Grant Notice, which may include one or more of the following: (a) Provided that at the time of exercise the Common Stock is publicly traded, pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board that, prior to the issuance of Common Stock, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds. This manner of payment is also known as a broker-assisted exercise, same day sale, or sell to cover.
(b) Provided that at the time of exercise the Common Stock is publicly traded, by delivery to the Company (either by actual delivery or attestation) of already-owned shares of Common Stock that are owned free and clear of any liens, claims, encumbrances or security interests, and that are valued at Fair Market Value on the date of exercise. Delivery for these purposes, in the sole discretion of the Company at the time you exercise your option, will include delivery to the Company of your attestation of ownership of such shares of Common Stock in a form approved by the Company. You may not exercise your option by delivery to the Company of Common Stock if doing so would violate the provisions of any law, regulation or agreement restricting the redemption of the Companys stock. (c) If this option is a Nonstatutory Stock Option, subject to the consent of the Company at the time of exercise, by a net exercise arrangement pursuant to which the Company will reduce the number of shares of Common Stock issued upon exercise of your option by the largest whole number of shares with a Fair Market Value that does not exceed the aggregate exercise price. You must pay any remaining balance of the aggregate exercise price not satisfied by the net exercise in cash or other permitted form of payment. Shares of Common Stock will no longer be outstanding under your option and will not be exercisable thereafter if those shares (i) are used to pay the exercise price pursuant to the net exercise, (ii) are delivered to you as a result of such exercise, and (iii) are withheld to satisfy your tax withholding obligations. 6. WHOLE SHARES. You may exercise your option only for whole shares of Common Stock. 7. SECURITIES LAW COMPLIANCE . In no event may you exercise your option unless the shares of Common Stock issuable upon exercise are then registered under the Securities Act or, if not registered, the Company has determined that your exercise and the issuance of the shares would be exempt from the registration requirements of the Securities Act. The exercise of your option also must comply with all other applicable laws and regulations governing your option, and you may not exercise your option if the Company determines that such exercise would not be in material compliance with such laws and regulations. 8. TERM. You may not exercise your option before the Date of Grant or after the expiration of the options term. The term of your option expires, subject to the provisions of Section 5(h) of the Plan, upon the earliest of the following: (a) immediately upon the termination of your Continuous Service for Cause; (b) three months after the termination of your Continuous Service for any reason other than Cause, your Disability or your death (except as otherwise provided in Section 8(d) below); provided, however, that if during any part of such three month period your option is not exercisable solely because doing so would violate the registration requirements under the Securities Act, your option will not expire until the earlier of the Expiration Date or until it has been exercisable for an aggregate period of three months after the termination of your
Continuous Service; provided further, that if (i) you are a Non-Exempt Employee, (ii) your Continuous Service terminates within six months after the Date of Grant, and (iii) you have vested in a portion of your option at the time of your termination of Continuous Service, your option will not expire until the earlier of (x) the later of (A) the date that is seven months after the Date of Grant, and (B) the date that is three months after the termination of your Continuous Service, and (y) the Expiration Date; (c) 12 months after the termination of your Continuous Service due to your Disability (except as otherwise provided in Section 8(d)); (d) 18 months after your death if you die either during your Continuous Service or within three months after your Continuous Service terminates for any reason other than Cause; (e) the Expiration Date indicated in your Grant Notice; or (f) the day before the tenth anniversary of the Date of Grant. If your option is an Incentive Stock Option, note that to obtain the federal income tax advantages associated with an Incentive Stock Option, the Code requires that at all times beginning on the Date of Grant and ending on the day three months before the date of your options exercise, you must be an employee of the Company or an Affiliate, except in the event of your death or Disability. The Company has provided for extended exercisability of your option under certain circumstances for your benefit but cannot guarantee that your option will necessarily be treated as an Incentive Stock Option if you continue to provide services to the Company or an Affiliate as a Consultant or Director after your employment terminates or if you exercise your option more than three months after the date your employment with the Company or an Affiliate terminates. 9. EXERCISE. (a) You may exercise the vested portion of your option during its term by (i) delivering a Notice of Exercise (in a form designated by the Company), or making the required electronic election with the Companys designated broker, and (ii) paying the exercise price and any applicable withholding taxes to the Companys stock plan administrator, or to such other person as the Company may designate, together with such additional documents as the Company may then require. (b) By exercising your option you agree that, as a condition to any exercise of your option, the Company may require you to enter into an arrangement providing for the payment by you to the Company of any tax withholding obligation of the Company arising by reason of (i) the exercise of your option, (ii) the lapse of any substantial risk of forfeiture to which the shares of Common Stock are subject at the time of exercise, or (iii) the disposition of shares of Common Stock acquired upon such exercise. (c) If your option is an Incentive Stock Option, by exercising your option, you agree that you will notify the Company in writing within 15 days after the date of any disposition of any of the shares of the Common Stock issued upon exercise of your option that occurs within two years after the Date of Grant or within one year after the effective date of your exercise.
10. TRANSFERABILITY . Except as otherwise provided in this Section 10, your option is not transferable, except by will or by the laws of descent and distribution, and is exercisable during your life only by you. (a) Certain Trusts. Upon receiving written permission from the Board or its duly authorized designee, you may transfer your option to a trust if you are considered to be the sole beneficial owner (determined under Section 671 of the Code and applicable state law) while the option is held in the trust. You and the trustee must enter into transfer and other agreements required by the Company. (b) Domestic Relations Orders. Upon receiving written permission from the Board or its duly authorized designee, and provided that you and the designated transferee enter into transfer and other agreements required by the Company, you may transfer your option pursuant to the terms of a domestic relations order or official marital settlement agreement that contains the information required by the Company to effectuate the transfer. You are encouraged to contact the Companys General Counsel regarding the proposed terms of any division of this option prior to finalizing the domestic relations order or marital settlement agreement to help ensure the required information is contained within the domestic relations order or marital settlement agreement. If this option is an Incentive Stock Option, this option may be deemed to be a Nonstatutory Stock Option as a result of such transfer. (c) Beneficiary Designation. Upon receiving written permission from the Board or its duly authorized designee, you may, by delivering written notice to the Company, in a form approved by the Company and any broker designated by the Company to handle option exercises, designate a third party who, on your death, will thereafter be entitled to exercise this option and receive the Common Stock or other consideration resulting from such exercise. In the absence of such a designation, your executor or administrator of your estate will be entitled to exercise this option and receive, on behalf of your estate, the Common Stock or other consideration resulting from such exercise. 11. OPTION NOT A SERVICE CONTRACT . Your option is not an employment or service contract, and nothing in your option will be deemed to create in any way whatsoever any obligation on your part to continue in the employ of the Company or an Affiliate, or of the Company or an Affiliate to continue your employment. In addition, nothing in your option will obligate the Company or an Affiliate, their respective stockholders, boards of directors, officers or Employees to continue any relationship that you might have as a Director or Consultant for the Company or an Affiliate. 12. WITHHOLDING OBLIGATIONS. (a) At the time you exercise your option, in whole or in part, and at any time thereafter as requested by the Company, you hereby authorize withholding from payroll and any other amounts payable to you, and otherwise agree to make adequate provision for (including by means of a same day sale pursuant to a program developed under Regulation T as promulgated
by the Federal Reserve Board to the extent permitted by the Company), any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Company or an Affiliate, if any, which arise in connection with the exercise of your option. (b) If this option is a Nonstatutory Stock Option, then upon your request and subject to approval by the Company and compliance with any applicable legal conditions or restrictions, the Company may withhold from fully vested shares of Common Stock otherwise issuable to you upon the exercise of your option a number of whole shares of Common Stock having a Fair Market Value, determined by the Company as of the date of exercise, not in excess of the minimum amount of tax required to be withheld by law (or such lower amount as may be necessary to avoid classification of your option as a liability for financial accounting purposes). (c) You may not exercise your option unless the tax withholding obligations of the Company and/or any Affiliate are satisfied. Accordingly, you may not be able to exercise your option when desired even though your option is vested, and the Company will have no obligation to issue a certificate for such shares of Common Stock unless such obligations are satisfied. 13. TAX CONSEQUENCES . You hereby agree that the Company does not have a duty to design or administer the Plan or its other compensation programs in a manner that minimizes your tax liabilities. You will not make any claim against the Company, or any of its Officers, Directors, Employees or Affiliates related to tax liabilities arising from your option or your other compensation. In particular, you acknowledge that this option is exempt from Section 409A of the Code only if the exercise price per share specified in the Grant Notice is at least equal to the fair market value per share of the Common Stock on the Date of Grant and there is no other impermissible deferral of compensation associated with the option. 14. NOTICES. Any notices provided for in your option or the Plan will be given in writing (including electronically) and will be deemed effectively given upon receipt or, in the case of notices delivered by mail by the Company to you, five days after deposit in the United States mail, postage prepaid, addressed to you at the last address you provided to the Company. The Company may, in its sole discretion, decide to deliver any documents related to participation in the Plan and this option by electronic means or to request your consent to participate in the Plan by electronic means. By accepting this option, you consent to receive such documents by electronic delivery and to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company. 15. GOVERNING PLAN DOCUMENT . Your option is subject to all the provisions of the Plan, the provisions of which are hereby made a part of your option, and is further subject to all interpretations, amendments, rules and regulations, which may from time to time be promulgated and adopted pursuant to the Plan. If there is any conflict between the provisions of your option and those of the Plan, the provisions of the Plan will control. In addition, your option (and any compensation paid or shares issued under your option) is subject to recoupment in accordance with The DoddFrank Wall Street Reform and Consumer Protection Act and any implementing regulations thereunder, any clawback policy adopted by the Company and any compensation recovery policy otherwise required by applicable law.
16. OTHER DOCUMENTS . You hereby acknowledge receipt of and the right to receive a document providing the information required by Rule 428(b)(1) promulgated under the Securities Act, which includes the Plan prospectus. In addition, you acknowledge receipt of the Companys policy permitting certain individuals to sell shares only during certain window periods and the Companys insider trading policy, in effect from time to time. 17. EFFECT ON OTHER EMPLOYEE BENEFIT PLANS. The value of this option will not be included as compensation, earnings, salaries, or other similar terms used when calculating your benefits under any employee benefit plan sponsored by the Company or any Affiliate, except as such plan otherwise expressly provides. The Company expressly reserves its rights to amend, modify, or terminate any of the Companys or any Affiliates employee benefit plans. 18. V OTING RIGHTS. You will not have voting or any other rights as a stockholder of the Company with respect to the shares to be issued pursuant to this option until such shares are issued to you. Upon such issuance, you will obtain full voting and other rights as a stockholder of the Company. Nothing contained in this option, and no action taken pursuant to its provisions, will create or be construed to create a trust of any kind or a fiduciary relationship between you and the Company or any other person. 19. SEVERABILITY . If all or any part of this Option Agreement or the Plan is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity will not invalidate any portion of this Option Agreement or the Plan not declared to be unlawful or invalid. Any Section of this Option Agreement (or part of such a Section) so declared to be unlawful or invalid shall, if possible, be construed in a manner which will give effect to the terms of such Section or part of a Section to the fullest extent possible while remaining lawful and valid. 20. MISCELLANEOUS . (a) The rights and obligations of the Company under your option will be transferable to any one or more persons or entities, and all covenants and agreements hereunder will inure to the benefit of, and be enforceable by the Companys successors and assigns. (b) You agree upon request to execute any further documents or instruments necessary or desirable in the sole determination of the Company to carry out the purposes or intent of your option. (c) You acknowledge and agree that you have reviewed your option in its entirety, have had an opportunity to obtain the advice of counsel prior to executing and accepting your option, and fully understand all provisions of your option. (d) This Option Agreement will be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.
(e) All obligations of the Company under the Plan and this Option Agreement will be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company. * * *
This Option Agreement will be deemed to be signed by you upon the signing by you of the Stock Option Grant Notice to which it is attached.
Exhibit 10.6 ZYNGA INC. INDEMNITY AGREEMENT and THIS AGREEMENT is made and entered into this (Agent ). , 2011 by and between ZYNGA IN C., a Delaware corporation (the Corporation),
RECITALS A. Agent performs a valuable service to the Corporation in the capacity as a director, officer, employee or agent of the Corporation. B. The stockholders of the Corporation have adopted bylaws (the Bylaws) and the Amended and Restated Certificate of Incorporation of the Corporation (the Certificate) providing for the indemnification of the directors, officers, employees and other agents of the Corporation, including persons serving at the request of the Corporation in such capacities with other corporations or enterprises, as authorized by the Delaware General Corporation Law, as amended (the Code). C. The Bylaws, the Certificate and the Code, by their non-exclusive nature, permit contracts between the Corporation and its directors, officers, employees and other agents with respect to indemnification of such persons. D. The Corporation and Agent intend that this Agreement would replace any existing agreement between the Corporation and Agent with respect to the subject matter of this Agreement. E. In order to induce Agent to serve or to continue to serve as a director, officer, or employee of the Corporation, the Corporation has determined and agreed to enter into this Agreement with Agent. In consideration of Agents continued service as a director, officer, employee or agent of the Corporation, the parties hereto agree as follows: AGREEMENT 1. DEFINITIONS. (a) Expenses. For purposes of this Agreement, the term Expenses shall be broadly construed and shall include, without limitation, all direct and indirect costs of any type or nature whatsoever (including, without limitation, all attorneys, witness, or other professional fees and related disbursements, and other out-of-pocket costs of whatever nature), actually and reasonably incurred by Agent in connection with the investigation, defense or appeal of a Proceeding, participation in a Proceeding as a witness or establishing or enforcing a right to indemnification under this Agreement, the Code or otherwise, and amounts paid in settlement by or on behalf of Agent, but shall not include any judgments, fines or penalties actually levied against Agent for such individuals violations of law. (b) Change in Control. For purposes of this Agreement, a Change in Control shall be deemed to have occurred if (i) any person (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the Act )), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or a corporation owned directly or indirectly by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation, becomes the beneficial owner (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Corporation representing more than 20% of the total voting power 1.
represented by the Corporations then outstanding Voting Securities; or (ii) there is consummated a merger, consolidation or similar transaction involving (directly or indirectly) the Corporation if, immediately after the consummation of such merger, consolidation or similar transaction, the stockholders of the Corporation immediately prior thereto do not own, directly or indirectly, either (A) outstanding Voting Securities representing more than 50% of the combined outstanding voting power of the surviving entity in such merger, consolidation or similar transaction or (B) more than 50% of the combined outstanding voting power of the parent of the surviving entity in such merger, consolidation or similar transaction. (c) Independent Legal Counsel. For purposes of this Agreement, Independent Legal Counsel shall mean an attorney or firm of attorneys, selected in accordance with the provisions of Section 5 hereof, who shall not have otherwise performed services for the Corporation (or for any entity that as of the time of selection of the attorney or firm of attorneys is controlled by, controlling or under common control with the Corporation) or Agent within the last three years (other than with respect to matters concerning the rights of Agent under this Agreement, or of other indemnitees under similar indemnity agreements). (d) Proceeding. For purposes of this Agreement, the term Proceeding shall mean and shall include, without limitation, any threatened, pending, or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing, whether brought in the right of or by the Corporation or otherwise and whether of a civil, criminal, administrative or investigative nature, and whether formal or informal in any case, in which Agent was, is or will be involved as a party or otherwise by reason of the fact that: (i) Agent is or was a director, officer, employee or agent of the Corporation; (ii) Agent took an action while acting as director, officer, employee or agent of the Corporation; or (iii) Agent is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, and in any such case described above, whether or not serving in any such capacity at the time any Expense is incurred for which indemnification, reimbursement, or advancement of Expenses may be provided under this Agreement. For the avoidance of doubt, an action by Agent to enforce Agents rights to indemnification under this Agreement shall be a Proceeding for purposes of this Agreement. (e) Voting Securities. For purposes of this Agreement, Voting Securities shall mean any securities of the Corporation that vote generally in the election of directors. 2. SERVICES TO THE CORPORATION. Agent will serve, at the will of the Corporation or under separate contract, if any such contract exists, as a director, officer, or employee of the Corporation or as a director, officer or other fiduciary of an affiliate of the Corporation (including, but not limited to, any employee benefit plan of the Corporation) faithfully and to the best of Agents ability so long as Agent (a) if an officer or director of the Corporation or an affiliate of the Corporation, is duly elected and qualified in accordance with the provisions of the Bylaws or other applicable charter documents of the Corporation or such affiliate and (b) if an employee of the Corporation or an affiliate of the Corporation, remains employed by the Corporation or such affiliate, as applicable; provided, however, that Agent may at any time and for any reason resign from such position (subject to any contractual obligation that Agent may be subject to apart from this Agreement) and that the Corporation or any affiliate of the Corporation shall have no obligation under this Agreement to continue Agent in any such position. 2.
3. INDEMNITY OF AGENT . The Corporation hereby agrees to hold harmless and indemnify Agent to the fullest extent authorized or permitted by the provisions of the Bylaws, the Certificate and the Code, as the same may be amended from time to time (but, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than the Bylaws, the Certificate or the Code permitted prior to adoption of such amendment). These obligations and the other obligations of the Corporation in this Agreement apply regardless of whether the conduct giving rise to the obligations occurred before or occur after the date this Agreement is executed. 4. PARTIAL INDEMNIFICATION. Agent shall be entitled under this Agreement to indemnification by the Corporation for a portion of the Expenses that Agent becomes legally obligated to pay in connection with any Proceeding even if not entitled hereunder to indemnification for the total amount thereof, and the Corporation shall indemnify Agent for the portion thereof to which Agent is entitled. 5. CHANGE IN CONTROL. The Corporation agrees that if there is a Change in Control of the Corporation then, with respect to all matters thereafter arising concerning the rights of Agent to indemnification (including, but not limited to, any right to advancement of Expenses) under this Agreement, any other agreement with the Corporation providing for indemnification, the Certificate, Bylaws and applicable law (collectively, the Indemnification Provisions) as now or hereafter in effect, Independent Legal Counsel (as defined in Section 1 hereof) shall be selected by Agent and approved by the Corporation (which approval shall not be unreasonably withheld). Such Independent Legal Counsel shall render its written opinion to the Corporation and Agent as to whether and to what extent Agent would be permitted to be indemnified under the Indemnification Provisions prior to and after the consummation of such Change in Control and such opinion shall be binding upon Agent and the Corporation. The Corporation agrees to pay the reasonable fees of the Independent Legal Counsel referred to above and to fully indemnify such counsel against any and all Expenses arising out of or relating to this Agreement or its engagement pursuant hereto. 6. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30) days after receipt by Agent of notice of the commencement of any Proceeding, Agent will, if a claim in respect thereof is to be made against the Corporation under this Agreement, notify the Corporation of the commencement thereof; but the failure so to notify the Corporation will not relieve the Corporation from any liability which it may have to Agent under this Agreement or otherwise. With respect to any such Proceeding as to which Agent notifies the Corporation of the commencement thereof: (a) the Corporation will be entitled to participate therein at its own expense; (b) except as otherwise provided below, the Corporation may, at its option and jointly with any other indemnifying party similarly notified and electing to assume such defense, assume the defense thereof, with counsel reasonably satisfactory to Agent. After notice from the Corporation to Agent of its election to assume the defense thereof, the Corporation will not be liable to Agent under this Agreement for any Expenses subsequently incurred by Agent in connection with the defense thereof except for reasonable costs of investigation or otherwise as provided below. Agent shall have the right to employ separate counsel in such Proceeding but the Expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of Agent; provided, however, that the Expenses of Agents separate counsel shall be borne by the Corporation if (i) the employment of separate counsel by Agent has been authorized by the Corporation and the Corporation has agreed in writing to bear such Expenses, (ii) Agent reasonably shall have concluded that there may be a conflict of interest between the Corporation and Agent in the conduct of the defense of such Proceeding, or (iii) the Corporation in fact shall not have employed counsel to assume the defense of such Proceeding or shall at any time have ceased to actively pursue the defense thereof. The Corporation shall not be entitled to assume the defense of any Proceeding brought by or on behalf of the Corporation or as to which Agent shall have made the conclusion provided for in clause (ii) above; and 3.
(c) the Corporation shall not be liable to indemnify Agent under this Agreement for any amounts paid in settlement of any Proceeding effected without its written consent, which shall not be unreasonably withheld or delayed. The Corporation shall be permitted to settle any Proceeding except that it shall not settle any Proceeding in any manner that would impose any penalty or limitation on Agent without Agents written consent, which may be given or withheld in Agents sole discretion. 7. EXPENSES. Promptly following request by Agent for the advancement of Expenses, the Corporation shall advance, prior to the final disposition of any Proceeding, all Expenses incurred by Agent in connection with such Proceeding (through the final disposition of any such Proceeding from which all rights of appeal have either been exhausted or have lapsed) upon receipt of an undertaking by or on behalf of Agent to repay such amounts if it shall ultimately be determined by a final judicial decision from which there is no further right of appeal that Agent is not entitled to be indemnified. 8. ENFORCEMENT. Any right to indemnification or advances granted by this Agreement to Agent shall be enforceable by or on behalf of Agent in any court of competent jurisdiction if (a) the claim for indemnification or advances is denied, in whole or in part, or (b) no disposition of such claim is made within ninety (90) days of request therefor. Agent, in such enforcement action, if successful in whole or in part, also shall be entitled to be paid the Expense of prosecuting Agents claim. Neither the failure of the Corporation (including its Board of Directors or its stockholders) to have made a determination prior to the commencement of such enforcement action that indemnification of Agent is proper in the circumstances, nor an actual determination by the Corporation (including its Board of Directors or its stockholders) that such indemnification is improper shall be a defense to the action or create a presumption that Agent is not entitled to indemnification under this Agreement or otherwise. 9. INSURANCE. [Note to draft: This provision should be removed for non-officer employees ] (a) Unless otherwise approved by the Board of Directors prior to a Change in Control, the Corporation shall obtain and maintain during the term of this Agreement directors and officers liability insurance (D&O Insurance) with respect to which Agent shall be named as an insured. Notwithstanding any other provision of this Agreement, the Corporation shall not be obligated to indemnify the Agent for Expenses that have been previously paid directly to the Agent by D&O Insurance. If the Corporation has D&O Insurance in effect at the time the Corporation receives from Agent any notice of the commencement of a Proceeding, the Corporation shall give prompt notice of the commencement of such Proceeding to the insurers in accordance with the procedures set forth in the policy. The Corporation shall thereafter take all reasonably necessary action to cause such insurers to pay, on behalf of the Agent, all amounts payable as a result of such Proceeding in accordance with the terms of such policy. (b) In the event that (i) the D&O Insurance policy is renewed but the renewed policy does not provide for prior acts coverage, or (ii) the Corporation obtains a new D&O Insurance policy for any period following the termination of the prior D&O Insurance, and such new D&O Insurance policy does not provide for prior acts coverage, or (iii) the Corporation does not renew the D&O Insurance policy or obtain a new D&O Insurance policy following the termination of a D&O Insurance policy, then unless otherwise determined by the Board of Directors, the Corporation shall add to the D&O Insurance policy or the applicable successor D&O Insurance policy a run-off endorsement (the Endorsement ) on 4.
the existing D&O Insurance policy (and in the case of (iii) above, do so prior to the termination of the existing D&O Insurance policy if necessary) or the applicable successor D&O Insurance policy subject to the same terms and conditions in all material respects. Unless otherwise approved by the Board of Directors prior to the date on which the Endorsement is obtained, the Endorsement shall be non-cancelable and shall provide for at least a six-year extended coverage period for any and all claims covered under the D&O Insurance policy. The Corporation shall pay all premiums, commissions and other costs or charges incurred in obtaining the Endorsement and shall promptly deliver to Agent a Certificate of Confirmation of Insurance with respect to such Endorsement. (c) [For Fund Representatives on the Board only:] [The Corporation hereby acknowledges that Agent has certain rights to indemnification, advancement of expenses and/or insurance provided by [Name of Fund/Sponsor] and certain of its affiliates (collectively, the Fund Indemnitors). The Corporation hereby agrees (i) that it is the indemnitor of first resort (i.e., its obligations to Agent are primary and any obligation of the Fund Indemnitors to advance expenses or to provide indemnification for the same expenses or liabilities incurred by Agent are secondary), (ii) that it shall be required to advance the full amount of expenses incurred by Agent 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 Certificate of Incorporation or Bylaws of the Corporation (or any other agreement between the Corporation and Agent), without regard to any rights Agent 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 Corporation further agrees that no advancement or payment by the Fund Indemnitors on behalf of Agent with respect to any claim for which Agent has sought indemnification from the Corporation 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 Agent against the Corporation. The Corporation and Agent agree that the Fund Indemnitors are express third party beneficiaries of the terms of this Section 9(c).] 10. SUBROGATION. In the event of payment under this Agreement, the Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of Agent, who shall execute all documents required and shall do all acts that may be reasonably necessary to secure such rights, including the execution of such documents necessary to enable the Corporation effectively to bring suit to enforce such rights. 11. CONTRIBUTION. To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Agent, the Corporation, in lieu of indemnifying Agent, shall contribute to the Agents Expenses in connection with any claim relating to any Proceeding, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such proceeding in order to reflect (a) the relative benefits received by the Corporation and Agent as a result of the events and transactions giving rise to such Proceeding; and (b) the relative fault of Agent and the Corporation (and its other directors, officers, employees and agents) in connection with the circumstances, events or transactions that gave rise to the Proceeding. 12. NON-EXCLUSIVITY AND SURVIVAL OF RIGHTS . (a) All agreements and obligations of the Corporation contained herein shall continue during the period Agent is a director, officer, employee or other agent of the Corporation (or is or was serving at the request of the Corporation as a director, officer, employee or other agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise) and shall continue thereafter so long as Agent shall be subject to any possible Proceeding. The benefits hereunder shall inure to the benefit of the heirs, executors and administrators and assigns of Agent. The rights conferred 5.
on Agent by this Agreement shall not be exclusive of any other right Agent may have or hereafter acquire under any statute, provision of the Certificate or Bylaws, agreement, vote of stockholders or disinterested directors, or otherwise, both as to action in Agents official capacity and as to action in another capacity while holding office. (b) The obligations and duties of the Corporation to Agent under this Agreement shall be binding on the Corporation and its successors and assigns until terminated in accordance with its terms. The Corporation shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to the Corporation or to all or substantially all of the business or assets of the Corporation, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform if no such succession had taken place. (c) No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Agent under this Agreement in respect of any action taken or omitted by such Agent prior to such amendment, alteration or repeal. To the extent that a change in the Code, whether by statute or judicial decision, permits greater indemnification or advancement of Expenses than would be afforded currently under the Certificate, Bylaws and this Agreement, it is the intent of the parties hereto that Agent shall enjoy by this Agreement the greater 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, by Agent shall not prevent the concurrent assertion or employment of any other right or remedy by Agent. 13. SEVERABILITY. Each of the provisions of this Agreement is a separate and distinct agreement and independent of the others, so that if any provision hereof shall be held to be invalid for any reason, such invalidity contained herein or unenforceability shall not affect the validity or enforceability of the other provisions hereof. Furthermore, if this Agreement shall be invalidated in its entirety on any ground, then the Corporation nevertheless shall indemnify Agent to the fullest extent provided by the Certificate, Bylaws, the Code or any other applicable law. 14. GOVERNING LAW. This Agreement shall be governed exclusively by and construed according to the laws of the State of Delaware, as applied to contracts between Delaware residents entered into and to be performed entirely within Delaware. 15. AMENDMENT, MODIFICATION, WAIVER AND TERMINATION. No amendment, modification, termination or cancellation of this Agreement shall be effective unless signed in writing by both parties hereto, provided, however, that the Corporation shall have the right to amend, modify, terminate or replace this Agreement if: (i) there is a change in the Code or any other applicable law; or (ii) the Corporation amends, modifies, terminates or replaces its form of Indemnification Agreement for directors, officers, employees and other agents of the Corporation; provided, that such amended or modified agreement or such new agreement does not diminish in any material respect the rights of Agent hereunder. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. 16. ENTIRE AGREEMENT . This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements, understandings and negotiations, written and oral, between the parties with respect to the subject matter of this Agreement; provided, however, that this Agreement is a supplement to and in furtherance of the Certificate, Bylaws, the Code and any other applicable law, and shall not be deemed a substitute therefore, nor to diminish or abrogate any rights of Agent thereunder. 6.
17. INTERPRETATION OF AGREEMENT. It is understood that the parties hereto intend this Agreement to be interpreted and enforced so as to provide indemnification to Agent to the fullest extent now or hereafter permitted by law. 18. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed for all purposes to be an original but all of which together shall constitute this Agreement. 19. HEADINGS. The headings of the sections of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction hereof. 20. NOTICES. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given (i) upon delivery if delivered by hand to the party to whom such communication was directed or (ii) upon the third business day after the date on which such communication was mailed if mailed by certified or registered mail with postage prepaid: (a) If to Agent, at the address indicated on the signature page hereof. (b) If to the Corporation, to Attn: General Counsel Zynga Inc. 699 Eighth Street San Francisco, CA 94103 or to such other address as may have been furnished to Agent by the Corporation, or to such other address as Agent may direct in writing the Corporation to use. 7.
The parties hereto have executed this Agreement on and as of the day and year first above written. ZYNGA IN C. By: Name: Title: AGENT (Signature) Print Name:
Address for Agent: c/o Zynga Inc. 699 Eighth Street San Francisco, CA 94103 8.
Exhibit 10.7 October 24, 2011 Steven Chiang Via email Re: Dear Steve: I am very pleased to confirm the terms of your continuing employment with Zynga Inc., a Delaware corporation (the Company), in the position of Executive Vice President, Games, reporting to the Companys Chief Operating Officer, John Schappert. This letter (the Clarifying Letter) amends and restates our original offer letter, dated January 27, 2010 (the Prior Letter), in its entirety. This Clarifying Letter also amends in order to clarify certain accelerated vesting rights applicable to your currently outstanding equity awards granted by the Company under our 2007 Equity Incentive Plan, as amended (the Plan). 1. Salary. Your current salary is $300,000 per year (as adjusted from time to time, your Salary), less all applicable deductions required by law, which shall be payable at the times and in the installments consistent with the Companys then current payroll practice. Your Salary is subject to periodic review and adjustment in accordance with the Companys policies as in effect from time to time. 2. Bonus. (a) For the first two years of your employment with the Company (the Guaranteed Bonus Period), which for this purpose, the parties agree ends on March 31, 2012, we have guaranteed you that for each full fiscal quarterly performance period that occurs during such time, and subject to your continued employment through the end of each applicable quarter (except as provided in Section 5(b)), you will earn a quarterly performance bonus (the Guaranteed Bonus) of at least $100,000 per quarter (that is, $400,000 per year), pro-rated based on time served for any partial quarters of service beginning on April 1, 2010. These bonus payments are subject to all applicable deductions required by law, and, in accordance with Company policy on bonus payments, are paid in the first regular paydate following the close of the quarter, but in all cases not later than two and one-half months after the end of the applicable quarter. (b) Following the end of the Guaranteed Bonus Period, you will be eligible to earn a discretionary bonus (the Annual Bonus ) under the Companys annual performance bonus program with the target amount of the bonus for target levels of performance equal to 100% of your thencurrent salary. Whether or not you earn an Annual Bonus for any given year, and the amount of any such Annual Bonus, will be determined in the sole discretion of the Companys Board of Directors (the Board) or the Compensation Committee, as applicable, based upon the Companys and your achievement of objectives and milestones to be determined by the Board or the Compensation Committee. In all events, any annual bonus earned will be paid on or before March 15 of the year following the year for which it is earned. Amended and Restated Offer of Employment by Zynga Inc.
3. Incentive Compensation; Benefits . You will continue to be eligible to participate in the incentive compensation programs, insurance programs and other employee benefit plans established by the Company for its employees from time to time in accordance with the terms of those programs and plans. The Company reserves the right to change the terms of its programs and plans at any time. 4. Confidentiality. As an employee of the Company, you have access to certain confidential information of the Company and you may, during the course of your employment, develop certain information or inventions that will be the property of the Company. To protect the interests of the Company, you signed the Companys standard Employee Invention Assignment and Confidentiality Agreement (the Confidentiality Agreement , the terms of which are incorporated by reference herein) as a condition of your employment. We wish to impress upon you that we do not want you to, and we have directed you not to, bring with you any confidential or proprietary material of any former employer or to violate any other obligations you may have to any former employer. During the period that you render services to the Company, you have agreed and continue to agree to not engage in any employment, business or activity that is in any way competitive with the business or proposed business of the Company. You will disclose to the Company in writing any other gainful employment, business or activity that you are currently associated with or participate in that competes with the Company. You will not assist any other person or organization in competing with the Company or in preparing to engage in competition with the business or proposed business of the Company. You represent that your signing of the Prior Letter, this Clarifying Letter, each agreement setting forth the terms and conditions of the stock awards granted to you, if any, under the Companys equity plans, and the Confidentiality Agreement, and your commencement of employment with the Company, do not violate any agreement in place (either on the date you commenced employment with the Company or now) between yourself and current or past employers. 5. Termination; Severance. (a) Resignation; Termination for Cause; Termination Due to Death or Disability. If, at any time, (i) you resign your employment for any reason, (ii) the Company terminates your employment for Cause (as defined in Section 6), or (iii) either party terminates your employment as a result of your death or disability, you will receive your Salary accrued through your last day of employment, as well as any unused vacation (if applicable) accrued through your last day of employment. In each of these events, you will not be entitled to any severance benefits. (b) Termination without Cause. If, at any time, the Company terminates your employment without Cause, and other than as a result of your death or disability, and provided such termination constitutes a separation from service (as defined under Treasury Regulations Section 1.409A-1(h), without regard to any alternative definition thereunder, a Separation from Service), then subject to your obligations below, you will be entitled to receive (collectively, the Severance Benefits): (i) an amount equal to 12 months of your then current Salary (the Salary Continuation), less all applicable withholdings and deductions, paid in equal installments on the Companys normal payroll schedule over the 12 month period immediately following your Separation from Service (the Severance Period); Page 2
(ii) provided that your Separation from Service occurs during the Guaranteed Bonus Period, the amount of the Guaranteed Bonus that you would have received in the ordinary course from the date of your termination through the end of the Guaranteed Performance Period, less all applicable withholdings and deductions, paid on the dates that active employees receive their quarterly bonuses; (iii) if you are participating in the Companys group health plans on the effective date of your termination and you timely elect continued coverage under COBRA for yourself and your covered dependents under the Companys group health plans following such termination of employment and complete and return all documents necessary to continue such coverage, then the Company will pay, as and when due directly to the COBRA carrier, the COBRA premiums necessary to continue your health insurance coverage in effect for yourself and your eligible dependents from the date of your Separation from Service until the earliest of (A) the close of the Severance Period, (B) the expiration of your eligibility for continuation coverage under COBRA, and (C) the date when you become eligible for substantially equivalent health insurance coverage in connection with your new employment or self-employment (such period from the date of your Separation from Service through the earliest of (A) through (C), the COBRA Payment Period ). Notwithstanding the foregoing, if at any time 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 Internal Revenue Code of 1986, as amended (the Code) or any statute or regulation of similar effect (including without limitation, the imposition of penalties on the Company under 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 to the carrier, the Company will instead pay you on the first day of each calendar month for the remainder of the COBRA Payment Period a fully taxable cash payment equal to the COBRA premiums for that month, subject to applicable withholdings and deductions (such amount, the Special Severance Payment ). If you become eligible for coverage under any employers group health plan or otherwise cease to be eligible for COBRA during the Severance Period, you must immediately notify the Company of such event, and all payments and obligations of the Company under this Section 5(b)(iii) will cease; and (iv) accelerated vesting with respect to that number of unvested shares or stock units subject to each of your then-outstanding compensatory equity awards (including without limitation stock options and restricted stock units, or ZSUs) that would have become vested and/or exercisable in the ordinary course based on your continued service with the Company as of the date that is six months after the date of your Separation from Service, with such vesting and/or exercisability effective as of the date of your Separation from Service. For clarity, such accelerated vesting will apply only with respect to any service-based vesting requirement or condition and not with respect to any performance-based or liquidity event-based vesting requirements or conditions. The Severance Benefits are conditioned upon (A) your continuing to comply with your obligations under your Confidentiality Agreement during the period of time in which you are Page 3
receiving the Severance Benefits, (B) your delivering to the Company an effective, general release of claims in favor of the Company in a form acceptable to the Company within 60 days following your Separation from Service, and (C) if you are a member of the Board, your resignation from the Board, to be effective no later than the date of your termination (or such other date as requested by the Board). No payments of the Severance Benefits will be made prior to the 60th day following your Separation from Service, and on such date, you will receive a lump sum payment equal to the Severance Benefits that you would have otherwise received while waiting for the expiration of the release period, with the balance paid thereafter on the original schedule, subject in all cases to any delay in payment required by Section 9. (c) Executive Severance Plan. As of the date of this Clarifying Letter, you are eligible to participate in the Zynga Inc. Change in Control Severance Benefit Plan, subject to the terms and conditions thereof. 6. Definition of Cause . For purposes of this Clarifying Letter, Cause means your termination because of: (a) any willful, material violation by you of any law or regulation applicable to the business of the Company, or your conviction for, or guilty plea to, a felony or a crime involving moral turpitude, or any willful perpetration by you of a common law fraud; (b) your commission of an act of personal dishonesty that involves personal profit in connection with the Company or any other entity having a business relationship with the Company; (c) any material breach by you of any provision of any agreement or understanding between the Company and you regarding the terms of your service as an employee, officer, director, or consultant to the Company, including without limitation your willful and continued failure or refusal to perform the material duties required of an employee, officer, director, or consultant of the Company (other than as a result of having a disability that prevents you from performing the material duties of a person holding your positions with the Company for a period of at least 120 days), or a breach by you of your Confidentiality Agreement or similar agreement between the Company and you; (d) your disregard of the policies of the Company so as to cause loss, damage, or injury to the property, reputation, or employees of the Company; or (e) any other misconduct by you that is materially injurious to the financial condition or business reputation of, or is otherwise materially injurious to, the Company. 7. Amendments to Stock Awards . You were granted Restricted Stock Unit Awards for 3,200,000 restricted stock units on April 15, 2010 and 800,000 restricted stock units (each as adjusted to reflect a two-for-one stock split completed by the Company in April 2011) (together, the 2010 ZSU Awards). The Company and you hereby amend the 2010 ZSU Awards to incorporate by reference the accelerated vesting provisions set forth in Section 5(b)(iv) of this Clarifying Letter. For clarity, such accelerated vesting will apply only with respect to the Time-Based Vesting Requirement and not with respect to the Liquidity Event Requirement (as defined in the 2010 ZSU Awards). This Clarifying Letter modifies the 2010 ZSU Awards only as expressly provided for herein. All other terms and conditions of these awards remain unchanged. 8. Section 280G Best After Tax. If any payment or benefit you would receive from the Company or otherwise in connection with a change in control of the Company or other similar transaction (a Payment ) would (a) constitute a parachute payment within the meaning of Page 4
Section 280G of the Code, and (b) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the Excise Tax), then such Payment will be equal to the Reduced Amount. The Reduced Amount will be either (i) the largest portion of the Payment that would result in no portion of the Payment being subject to the Excise Tax, or (ii) the largest portion, up to and including the total, of the Payment, whichever amount ((i) or (ii)), after taking into account all applicable federal, state, provincial, foreign and local employment taxes, income taxes, and the Excise Tax (all computed at the highest applicable marginal rate), results in your receipt of the greatest economic benefit notwithstanding that all or some portion of the Payment may be subject to the Excise Tax. If a Reduced Amount will give rise to the greater after tax benefit, the reduction in the Payments will occur in the following order: (A) reduction of cash payments; (B) cancellation of accelerated vesting of equity awards other than stock options; (C) cancellation of accelerated vesting of stock options; and (D) reduction of other benefits paid to you. Within any such category of payments and benefits (that is, (A), (B), (C) or (D)), a reduction will occur first with respect to amounts that are not deferred compensation within the meaning of Section 409A of the Code and then with respect to amounts that are. In the event that acceleration of compensation from your equity awards is to be reduced, such acceleration of vesting will be canceled, subject to the immediately preceding sentence, in the reverse order of the date of grant. If Section 409A of the Code is not applicable by law to you, the Company will determine whether any similar law in your jurisdiction applies and should be taken into account. 9. Section 409A. Notwithstanding anything to the contrary in this Clarifying Letter, it is intended that the severance benefits and other payments payable under this Clarifying Letter satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Code provided under Treasury Regulations Sections 1.409A-1(b)(4), 1.409A-1(b)(5), and 1.409A-(b)(9) and this Clarifying Letter will be construed to the greatest extent possible as consistent with those provisions. For purposes of Section 409A of the Code and the regulations and other guidance thereunder and any state law of similar effect (collectively, Section 409A) (including without limitation Treasury Regulations Section 1.409A2(b)(2)(iii)), all payments made under this Clarifying Letter (whether severance payments or otherwise) will be treated as a right to receive a series of separate payments and, accordingly, each installment payment under this Clarifying Letter will at all times be considered a separate and distinct payment. It is intended that any severance payment and any other benefits provided under this Clarifying Letter that are not exempt from application of Section 409A will be interpreted and administered so as to comply with the requirements of Section 409A to the greatest extent possible, including the requirement that, notwithstanding any provision to the contrary in this Clarifying Letter, if you are deemed by the Company at the time of your Separation from Service to be a specified employee for purposes of Section 409A(a)(2)(B)(i) of the Code, and to the extent payments due to you upon a Separation from Service are deemed to be deferred compensation, then to the extent delayed commencement of any portion of such payments (or delayed issuance of any shares subject to equity awards that are not themselves exempt from Section 409A) is required to avoid a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code and the related adverse taxation under Section 409A, such payments will not be provided to you (or such shares issued) prior to the earliest of (a) the expiration of the six month period measured from the date of your Separation from Service with the Company (or, if required under 409A, the expiration of the applicable 18 month period), (b) the date of your death or (c) such earlier date as permitted under Section 409A without the imposition of adverse Page 5
taxation, and on the first business day following the expiration of such applicable Code Section 409A(a)(2)(B)(i) period, all payments deferred pursuant to this Section 9 will be paid in a lump sum to you, and any remaining payments due will be paid as otherwise provided in this Clarifying Letter or in the applicable agreement, without interest. 10. At Will Employment. While we look forward to a long and profitable relationship, you will be an at will employee of the Company, which means the employment relationship can be terminated by either of us for any reason, at any time, with or without prior notice and with or without cause. Any statements or representations to the contrary (and any statements contradicting any provision in this Clarifying Letter) should be regarded by you as ineffective. Further, your participation in any stock incentive or benefit program is not to be regarded as assuring you of continuing employment for any particular period of time. Any modification or change in your at will employment status may occur only by way of a written employment agreement signed by you and the Chief Executive Officer of the Company. 11. Entire Agreement. This Clarifying Letter, including your Confidentiality Agreement, and any other documents referred to herein, constitute the entire agreement and understanding of the parties with respect to the subject matter of this Clarifying Letter, and supersede any and all prior understandings and agreements, whether oral or written, between or among the parties hereto with respect to the specific subject matter hereof, including without limitation the Prior Letter. 12. Acceptance. Please sign the enclosed copy of this Clarifying Letter in the space indicated and return it to me. Your signature will acknowledge that you have read and understood and agreed to the terms and conditions of this Clarifying Letter and the attached documents, if any. Should you have anything else that you wish to discuss, please do not hesitate to call me. We look forward to your continued employment with the Company. Very truly yours, ZYNGA INC. Colleen McCreary, Chief People Officer I have read and understood this Clarifying Letter and hereby acknowledge, accept and agree to the terms as set forth above and further acknowledge that no other commitments were made to me as part of the terms of my employment except as specifically set forth herein. /s/ Steven Chiang Steven Chiang Date signed: 10/26/11
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Exhibit 10.8 October 24, 2011 Reginald D. Davis Via email Re: Dear Reggie: I am very pleased to confirm the terms of your continuing employment with Zynga Inc., a Delaware corporation (the Company), in the position of Senior Vice President and General Counsel, reporting to the Companys Chief Operating Officer, John Schappert. This letter (the Clarifying Letter) amends and restates our original employment letter, dated April 21, 2009 (the Prior Letter), in its entirety. 1. Salary. Your current salary is $225,000 per year (as adjusted from time to time, your Salary), less all applicable deductions required by law, which shall be payable at the times and in the installments consistent with the Companys then current payroll practice. Your Salary is subject to periodic review and adjustment in accordance with the Companys policies in effect from time to time. 2. Incentive Compensation; Benefits . You will continue to be eligible to participate in the incentive compensation programs, insurance programs and other employee benefit plans established by the Company for its employees from time to time in accordance with the terms of those programs and plans. The Company reserves the right to change the terms of its programs and plans at any time. 3. Confidentiality. As an employee of the Company, you have access to certain confidential information of the Company and you may, during the course of your employment, develop certain information or inventions that will be the property of the Company. To protect the interests of the Company, you signed the Companys standard Employee Invention Assignment and Confidentiality Agreement (the Confidentiality Agreement , the terms of which are incorporated by reference herein) as a condition of your employment. We wish to impress upon you that we do not want you to, and we have directed you not to, bring with you any confidential or proprietary material of any former employer or to violate any other obligations you may have to any former employer. During the period that you render services to the Company, you have agreed and continue to agree to not engage in any employment, business or activity that is in any way competitive with the business or proposed business of the Company. You will disclose to the Company in writing any other gainful employment, business or activity that you are currently associated with or participate in that competes with the Company. You will not assist any other person or organization in competing with the Company or in preparing to engage in competition with the business or proposed business of the Company. You represent that your signing of the Prior Letter, this Clarifying Letter, each agreement setting forth the terms and conditions of the stock awards granted to you, if any, under the Companys equity plans, and the Confidentiality Agreement, and your commencement of employment with the Company, do not violate any agreement in place (either on the date you commenced employment with the Company or now) between yourself and current or past employers. Amended and Restated Offer of Employment by Zynga Inc.
4. Termination. If, at any time, (i) you resign your employment for any reason, (ii) the Company terminates your employment for any reason, or (iii) either party terminates your employment as a result of your death or disability, you will receive your Salary accrued through your last day of employment, as well as any unused vacation (if applicable) accrued through your last day of employment. Except as set forth in the Zynga Inc. Change in Control Severance Benefit Plan and the Stock Option Agreement between you and the Company, dated May 13, 2009, you are not eligible for any severance benefits upon a termination of your employment. 5. Section 409A. Unless otherwise expressly stated in an agreement between the Company and you, the Company intends that compensatory payments and benefits to you satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Internal Revenue Code provided under Treasury Regulations Sections 1.409A-1(b)(4), 1.409A-1(b)(5), and 1.409A-(b)(9) and will be construed to the greatest extent possible as consistent with those provisions. For purposes of Section 409A and the regulations and other guidance thereunder and any state law of similar effect (collectively, Section 409A) (including without limitation Treasury Regulations Section 1.409A-2(b)(2)(iii)), all compensatory payments made by the Company (whether severance payments or otherwise) will be treated as a right to receive a series of separate payments and will at all times be considered a separate and distinct payment. It is intended that any payments and benefits that are not exempt from application of Section 409A will be interpreted and administered so as to comply with the requirements of Section 409A to the greatest extent possible. Therefore, if you are deemed by the Company at the time of your separation from service (as defined under Treasury Regulation Section 1.409A-1(h), without regard to alternative definitions thereunder) to be a specified employee for purposes of Section 409A(a)(2)(B)(i), and if payments due to you upon a separation from service are deemed to be deferred compensation, then if delayed commencement of any portion of such payments (or delayed issuance of any shares subject to equity awards that are not themselves exempt from Section 409A) is required to avoid a prohibited distribution under Section 409A(a)(2)(B)(i) and the related adverse taxation under Section 409A, such payments will not be provided to you (or such shares issued) prior to the earliest of (a) the expiration of the six month period measured from the date of your separation from service (or, if required under Section 409A, the expiration of the applicable 18 month period), (b) the date of your death or (c) such earlier date as permitted under Section 409A without the imposition of adverse taxation, and on the first business day following the expiration of such applicable Section 409A(a)(2)(B)(i) period, all payments deferred pursuant to this Section 5 will be paid in a lump sum to you, and any remaining payments due will be paid as otherwise provided in the applicable agreement and no interest will be due on any amounts so delayed. 6. At Will Employment. While we look forward to a long and profitable relationship, you will be an at will employee of the Company, which means the employment relationship can be terminated by either of us for any reason, at any time, with or without prior notice and with or without cause. Any statements or representations to the contrary (and any statements contradicting any provision in this Clarifying Letter) should be regarded by you as ineffective. Further, your participation in any stock incentive or benefit program is not to be regarded as assuring you of continuing employment for any particular period of time. Any modification or change in your at will employment status may occur only by way of a written employment agreement signed by you and the Chief Executive Officer of the Company. Page 2
7. Entire Agreement. This Clarifying Letter, including your Confidentiality Agreement, Stock Option Agreement and any other documents referred to herein, constitute the entire agreement and understanding of the parties with respect to the subject matter of this Clarifying Letter, and supersede any and all prior understandings and agreements, whether oral or written, between or among the parties hereto with respect to the specific subject matter hereof, including without limitation the Prior Letter. 8. Acceptance. Please sign the enclosed copy of this Clarifying Letter in the space indicated and return it to me. Your signature will acknowledge that you have read and understood and agreed to the terms and conditions of this Clarifying Letter and the attached documents, if any. Should you have anything else that you wish to discuss, please do not hesitate to call me. We look forward to your continued employment with the Company. Very truly yours, ZYNGA INC. Colleen McCreary, Chief People Officer I have read and understood this Clarifying Letter and hereby acknowledge, accept and agree to the terms as set forth above and further acknowledge that no other commitments were made to me as part of the terms of my employment except as specifically set forth herein. /s/ Reginald D. Davis Reginald D. Davis Date signed: 10/26/11 Page 3
Exhibit 10.9 October 19, 2011 Cadir Lee Via email Re: Dear Cadir: I am very pleased to confirm the terms of your continuing employment with Zynga Inc., a Delaware corporation (the Company), in the position of EVP & Chief Technology Officer, reporting to the Companys Chief Operating Officer, John Schappert. This letter (the Clarifying Letter) amends and restates our original employment letter, dated November 17, 2008 (the Prior Letter), in its entirety. 1. Salary. Your current salary is $225,000 per year (as adjusted from time to time, your Salary), less all applicable deductions required by law, which shall be payable at the times and in the installments consistent with the Companys then current payroll practice. Your Salary is subject to periodic review and adjustment in accordance with the Companys policies in effect from time to time. 2. Incentive Compensation; Benefits . You will continue to be eligible to participate in the incentive compensation programs, insurance programs and other employee benefit plans established by the Company for its employees from time to time in accordance with the terms of those programs and plans. The Company reserves the right to change the terms of its programs and plans at any time. 3. Confidentiality. As an employee of the Company, you have access to certain confidential information of the Company and you may, during the course of your employment, develop certain information or inventions that will be the property of the Company. To protect the interests of the Company, you signed the Companys standard Employee Invention Assignment and Confidentiality Agreement (the Confidentiality Agreement , the terms of which are incorporated by reference herein) as a condition of your employment. We wish to impress upon you that we do not want you to, and we have directed you not to, bring with you any confidential or proprietary material of any former employer or to violate any other obligations you may have to any former employer. During the period that you render services to the Company, you have agreed and continue to agree to not engage in any employment, business or activity that is in any way competitive with the business or proposed business of the Company. You will disclose to the Company in writing any other gainful employment, business or activity that you are currently associated with or participate in that competes with the Company. You will not assist any other person or organization in competing with the Company or in preparing to engage in competition with the business or proposed business of the Company. You represent that your signing of the Prior Letter, this Clarifying Letter, each agreement setting forth the terms and conditions of the stock awards granted to you, if any, under the Companys equity plans, and the Confidentiality Agreement, and your commencement of employment with the Company, do not violate any agreement in place (either on the date you commenced employment with the Company or now) between yourself and current or past employers. Amended and Restated Offer of Employment by Zynga Inc.
4. Termination. If, at any time, (i) you resign your employment for any reason, (ii) the Company terminates your employment for any reason, or (iii) either party terminates your employment as a result of your death or disability, you will receive your Salary accrued through your last day of employment, as well as any unused vacation (if applicable) accrued through your last day of employment. Except as set forth in the Zynga Inc. Change in Control Severance Benefit Plan and the Stock Option Agreement between you and the Company, dated November 19, 2008, you are not eligible for any severance benefits upon a termination of your employment. 5. Section 409A. Unless otherwise expressly stated in an agreement between the Company and you, the Company intends that compensatory payments and benefits to you satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Internal Revenue Code provided under Treasury Regulations Sections 1.409A-1(b)(4), 1.409A-1(b)(5), and 1.409A-(b)(9) and will be construed to the greatest extent possible as consistent with those provisions. For purposes of Section 409A and the regulations and other guidance thereunder and any state law of similar effect (collectively, Section 409A) (including without limitation Treasury Regulations Section 1.409A-2(b)(2)(iii)), all compensatory payments made by the Company (whether severance payments or otherwise) will be treated as a right to receive a series of separate payments and will at all times be considered a separate and distinct payment. It is intended that any payments and benefits that are not exempt from application of Section 409A will be interpreted and administered so as to comply with the requirements of Section 409A to the greatest extent possible. Therefore, if you are deemed by the Company at the time of your separation from service (as defined under Treasury Regulation Section 1.409A-1(h), without regard to alternative definitions thereunder) to be a specified employee for purposes of Section 409A(a)(2)(B)(i), and if payments due to you upon a separation from service are deemed to be deferred compensation, then if delayed commencement of any portion of such payments (or delayed issuance of any shares subject to equity awards that are not themselves exempt from Section 409A) is required to avoid a prohibited distribution under Section 409A(a)(2)(B)(i) and the related adverse taxation under Section 409A, such payments will not be provided to you (or such shares issued) prior to the earliest of (a) the expiration of the six month period measured from the date of your separation from service (or, if required under Section 409A, the expiration of the applicable 18 month period), (b) the date of your death or (c) such earlier date as permitted under Section 409A without the imposition of adverse taxation, and on the first business day following the expiration of such applicable Section 409A(a)(2)(B)(i) period, all payments deferred pursuant to this Section 5 will be paid in a lump sum to you, and any remaining payments due will be paid as otherwise provided in the applicable agreement and no interest will be due on any amounts so delayed. 6. At Will Employment. While we look forward to a long and profitable relationship, you will be an at will employee of the Company, which means the employment relationship can be terminated by either of us for any reason, at any time, with or without prior notice and with or without cause. Any statements or representations to the contrary (and any statements contradicting any provision in this Clarifying Letter) should be regarded by you as ineffective. Further, your participation in any stock incentive or benefit program is not to be regarded as assuring you of continuing employment for any particular period of time. Any modification or change in your at will employment status may occur only by way of a written employment agreement signed by you and the Chief Executive Officer of the Company. Page 2
7. Entire Agreement. This Clarifying Letter, including your Confidentiality Agreement, Stock Option Agreement and any other documents referred to herein, constitute the entire agreement and understanding of the parties with respect to the subject matter of this Clarifying Letter, and supersede any and all prior understandings and agreements, whether oral or written, between or among the parties hereto with respect to the specific subject matter hereof, including without limitation the Prior Letter. 8. Acceptance. Please sign the enclosed copy of this Clarifying Letter in the space indicated and return it to me. Your signature will acknowledge that you have read and understood and agreed to the terms and conditions of this Clarifying Letter and the attached documents, if any. Should you have anything else that you wish to discuss, please do not hesitate to call me. We look forward to your continued employment with the Company. Very truly yours, ZYNGA INC. Colleen McCreary, Chief People Officer I have read and understood this Clarifying Letter and hereby acknowledge, accept and agree to the terms as set forth above and further acknowledge that no other commitments were made to me as part of the terms of my employment except as specifically set forth herein. /s/ Cadir Lee Cadir Lee Date signed: 10/21/2011
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Exhibit 10.10 Mark Pincus Via email Re: Dear Mark: I am very pleased to confirm the terms of your continuing employment with Zynga Inc., a Delaware corporation (the Company), in the position of Chief Executive Officer, reporting to the Companys Board of Directors. This letter (the Clarifying Letter) amends and restates our original employment letter, dated November 16, 2007 (the Prior Letter), in its entirety. 1. Salary. Your current salary is $300,000 per year (as adjusted from time to time, your Salary), less all applicable deductions required by law, which shall be payable at the times and in the installments consistent with the Companys then current payroll practice. Your Salary is subject to periodic review and adjustment in accordance with the Companys policies in effect from time to time. 2. Incentive Compensation; Benefits . You will continue to be eligible to participate in the incentive compensation programs, insurance programs and other employee benefit plans established by the Company for its employees from time to time in accordance with the terms of those programs and plans. The Company reserves the right to change the terms of its programs and plans at any time. 3. Confidentiality. As an employee of the Company, you have access to certain confidential information of the Company and you may, during the course of your employment, develop certain information or inventions that will be the property of the Company. To protect the interests of the Company, you signed the Companys standard Employee Invention Assignment and Confidentiality Agreement (the Confidentiality Agreement , the terms of which are incorporated by reference herein) as a condition of your employment. You hereby agree that the Confidentiality Agreement will govern and be applicable to your prior employment with the Companys predecessors, Presidio Media LLC, a California limited liability company, and Presidio Media Inc., a Delaware corporation, and your employment with the Company, and will survive thereafter according to its terms. We wish to impress upon you that we do not want you to, and we have directed you not to, bring with you any confidential or proprietary material of any former employer or to violate any other obligations you may have to any former employer. During the period that you render services to the Company, you have agreed and continue to agree to not engage in any employment, business or activity that is in any way competitive with the business or proposed business of the Company. You will disclose to the Company in writing any other gainful employment, business or activity that you are currently associated with or participate in that competes with the Company. You will not assist any other person or organization in competing with the Company or in preparing to engage in competition with the business or proposed business of the Company. You represent that your signing of the Prior Letter, this Clarifying Letter, each agreement setting forth the terms and conditions of the stock awards granted to you, if any, under the Companys equity plans, and the Confidentiality Amended and Restated Offer of Employment by Zynga Inc.
Agreement, and your commencement of employment with the Company, do not violate any agreement in place (either on the date you commenced employment with the Company or now) between yourself and current or past employers. 4. Termination. If, at any time, (i) you resign your employment for any reason, (ii) the Company terminates your employment for any reason, or (iii) either party terminates your employment as a result of your death or disability, you will receive your Salary accrued through your last day of employment, as well as any unused vacation (if applicable) accrued through your last day of employment. Except as set forth in the Zynga Inc. Change in Control Severance Benefit Plan and the Stock Option Agreement between you and the Company, dated April 30, 2009, you are not eligible for any severance benefits upon a termination of your employment. 5. Section 409A. Unless otherwise expressly stated in an agreement between the Company and you, the Company intends that compensatory payments and benefits to you satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Internal Revenue Code provided under Treasury Regulations Sections 1.409A-1(b)(4), 1.409A-1(b)(5), and 1.409A-(b)(9) and will be construed to the greatest extent possible as consistent with those provisions. For purposes of Section 409A and the regulations and other guidance thereunder and any state law of similar effect (collectively, Section 409A) (including without limitation Treasury Regulations Section 1.409A-2(b)(2)(iii)), all compensatory payments made by the Company (whether severance payments or otherwise) will be treated as a right to receive a series of separate payments and will at all times be considered a separate and distinct payment. It is intended that any payments and benefits that are not exempt from application of Section 409A will be interpreted and administered so as to comply with the requirements of Section 409A to the greatest extent possible. Therefore, if you are deemed by the Company at the time of your separation from service (as defined under Treasury Regulation Section 1.409A-1(h), without regard to alternative definitions thereunder) to be a specified employee for purposes of Section 409A(a)(2)(B)(i), and if payments due to you upon a separation from service are deemed to be deferred compensation, then if delayed commencement of any portion of such payments (or delayed issuance of any shares subject to equity awards that are not themselves exempt from Section 409A) is required to avoid a prohibited distribution under Section 409A(a)(2)(B)(i) and the related adverse taxation under Section 409A, such payments will not be provided to you (or such shares issued) prior to the earliest of (a) the expiration of the six month period measured from the date of your separation from service (or, if required under Section 409A, the expiration of the applicable 18 month period), (b) the date of your death or (c) such earlier date as permitted under Section 409A without the imposition of adverse taxation, and on the first business day following the expiration of such applicable Section 409A(a)(2)(B)(i) period, all payments deferred pursuant to this Section 5 will be paid in a lump sum to you, and any remaining payments due will be paid as otherwise provided in the applicable agreement and no interest will be due on any amounts so delayed. 6. At Will Employment. While we look forward to a long and profitable relationship, you will be an at will employee of the Company, which means the employment relationship can be terminated by either of us for any reason, at any time, with or without prior notice and with or without cause. Any statements or representations to the contrary (and any statements contradicting any provision in this Clarifying Letter) should be regarded by you as ineffective. Further, your participation in any stock incentive or benefit program is not to be regarded as Page 2
assuring you of continuing employment for any particular period of time. Any modification or change in your at will employment status may occur only by way of a written employment agreement signed by you and a member of the Companys Board of Directors (other than you). 7. Entire Agreement. This Clarifying Letter, including your Confidentiality Agreement, Stock Option Agreement and any other documents referred to herein, constitute the entire agreement and understanding of the parties with respect to the subject matter of this Clarifying Letter, and supersede any and all prior understandings and agreements, whether oral or written, between or among the parties hereto with respect to the specific subject matter hereof, including without limitation the Prior Letter. 8. Acceptance. Please sign the enclosed copy of this Clarifying Letter in the space indicated and return it to me. Your signature will acknowledge that you have read and understood and agreed to the terms and conditions of this Clarifying Letter and the attached documents, if any. Should you have anything else that you wish to discuss, please do not hesitate to call me. We look forward to your continued employment with the Company. Very truly yours, ZYNGA INC. Colleen McCreary, Chief People Officer I have read and understood this Clarifying Letter and hereby acknowledge, accept and agree to the terms as set forth above and further acknowledge that no other commitments were made to me as part of the terms of my employment except as specifically set forth herein. /s/ Mark Pincus 11/16/11 Date signed: Mark Pincus Page 3
Exhibit 10.11 July 22, 2011 John Schappert Re: Dear John: I am very pleased to clarify and confirm the terms of your employment with Zynga Inc., a Delaware corporation (the Company), in the position of Chief Operating Officer. You report to the Companys CEO, Mark Pincus. This letter (the Clarifying Agreement ) amends and restates our original offer letter, dated March 31, 2011 (the Prior Agreement ), in its entirety. The terms of your employment, including your compensation, are as follows: 1. Salary. Your current salary is $300,000 per year, less all deductions required by law, and is subject to periodic review and adjustment in accordance with the Companys then-current policies. Your salary shall not be reduced without your consent, absent a generally applicable salary reduction applicable to all other executives at your level with the Company. 2. Expense Reimbursement. The Company will reimburse you for all reasonable and necessary expenses you incur in the performance of your duties in accordance with the Companys standard expense reimbursement policy. In addition, the Company has agreed to reimburse you for the reasonable and necessary attorneys fees and expenses you incurred in reviewing and negotiating the terms of the Prior Agreement. For clarity, to the extent that any expense reimbursements to you from the Company (including but not limited to the attorneys fees) are subject to Section 409A of the Internal Revenue Code of 1986, as amended (the Code): (a) the expense reimbursements will be paid no later than December 31 of the year following the year in which the expense was incurred; (b) the amount of expenses reimbursed in one year will not affect the amount eligible for reimbursement in any subsequent year; and (c) the right to reimbursement will not be subject to liquidation or exchange for another benefit. 3. Sign-On Bonus. In connection with the start of your employment on May 2, 2011 (your Start Date ), the Company paid you (on the first payroll pay date thereafter) a one time signing bonus, less all deductions required by law. 4. Benefits. You are eligible to participate in regular health insurance and other employee benefit plans established by the Company for its employees from time to time in accordance with the terms of those plans. 5. Confidentiality. As an employee of the Company, you have access to certain confidential information of the Company and you may, during the course of your employment, develop certain information or inventions that will be the property of the Company. To protect the interests of the Company, you signed the Companys standard Employee Invention 1 Amended and Restated Offer of Employment by Zynga Inc.
Assignment and Confidentiality Agreement (the Confidentiality Agreement ) as a condition of your employment. During the period that you render services to the Company, you have agreed and continue to agree to not engage in any employment, business or activity that is in any way competitive with the business or proposed business of the Company. You will disclose to the Company in writing any other gainful employment, business or activity that you are currently associated with or participate in that competes with the Company. During the course of your employment, you will not assist any other person or organization in competing with the Company or in preparing to engage in competition with the business or proposed business of the Company. You represent that your signing of the Prior Agreement, this Clarifying Agreement, each agreement setting forth the terms and conditions of the stock awards granted to you, if any, under the Companys equity plans, and the Confidentiality Agreement, and your commencement of employment with the Company, will not to the best of your knowledge violate any agreement in effect (either at the Start Date or now) between yourself and current or past employers. The Company, likewise, does not envision that our having made an offer of employment to you and your commencement of employment would violate any such agreement with a prior employer. 6. Third Party Obligations. The Company has no need to learn and does not want any proprietary, confidential or trade secret information that belongs to your prior employers. We have directed you not to bring with you, or to use or disclose, any proprietary, confidential or trade secret information of any former employer or to violate any other contractual or statutory obligations you may have to any former employer. To help ensure against this unwanted porting, use or disclosure of proprietary, confidential or trade secret information, you undertook the measures set forth in the Pre-Start Certification that you executed prior to commencing employment with the Company. By signing this Clarifying Agreement, you represent that you have complied, and that you will continue to comply, with each of the requirements contained in the Pre-Start Certification. We realize that these measures are extraordinary and burdensome. However, we believe they are necessary in order to ensure that you comply fully with any statutory or contractual obligations you may owe to your former employer, and so that you started your employment with the Company with a clean slate. As a reminder, prior to your departure from your former employer, we requested that you refrain from engaging in any conduct that could be construed as (a) performing work for the Company, (b) copying or storing your former employers data off of such former employers network or servers (including transferring such data onto electronic storage devices, moving data to cloud storage, etc.), or (c) any other actions that might be misinterpreted as shifting your loyalties away from your former employer. You hereby acknowledge that until your employment with your former employer terminated, you continued to devote all of your efforts to your work at your former employer. 7. Zynga Stock Units & Zynga Cash Units. (a) ZSUs. The Company has granted you (i) an award of Zynga Stock Units covering 1,432,665 shares of the Companys Class A Common Stock on May 18, 2011 (the 2
Initial ZSU Award ) and (ii) an award of ZSUs covering 716,332 shares of the Companys Class A Common Stock on June 6, 2011 (the Additional ZSU Award ). These two awards are referred to as the ZSUs. The ZSUs are subject to the terms and conditions of the Companys 2007 Equity Incentive Plan, as amended (the Plan) and the two ZSU agreements between you and the Company (each, a ZSU Agreement ). The right to vest in and receive shares of Class A Common Stock upon settlement of the Initial ZSU Award is contingent upon both (x) your continued service (with the service requirement expiring with respect to 33.33% of the ZSUs thereunder on March 15, 2013 and the balance expiring in equal installments every three months thereafter for two years) (such first condition, the Initial Service Condition ) and (y) the occurrence of either an initial public offering of the Companys Class A Common Stock or a Change in Control (as defined in the Plan) of the Company (such second condition, the Liquidity Event Condition ). The right to vest in and receive shares of Class A Common Stock upon settlement of the Additional ZSU Award is contingent upon both (x) your continued service (with the service requirement expiring with respect to 100% of the ZSUs thereunder on March 15, 2012) (such first condition, the Additional Service Condition ) and (y) the occurrence of the Liquidity Event Condition. The ZSUs are intended to be exempt from Section 409A of the Code under Treasury Regulation Section 1.409A-1(b)(4), will be construed and administered in accordance therewith, and any terms necessary for compliance therewith and not expressly supplied herein, in the applicable ZSU agreement or the Plan are incorporated by reference. To the extent the ZSUs are not so exempt, they are intended to comply with Treasury Regulation Section 1.409A-3(a)(4) to the greatest extent possible, and will be construed and administered in accordance with such Sections, and any terms necessary for compliance with such Sections and not expressly supplied herein, in the applicable ZSU Agreement or the Plan are incorporated by reference. Your right to vest in and receive installment payments under each of the ZSUs will be treated as a right to receive a series of separate payments and, accordingly, each installment payment shall at all times be considered a separate and distinct payment. (b) ZCUs. The Company has also granted you an award of Zynga Cash Units ( ZCUs) under which you are eligible to vest in an amount of cash equal to $10,000,000. The cash under the ZCUs will vest and be paid as to 12.50% of the total ZCUs (or $1,250,000) on June 15, 2012 and the balance vesting thereafter in seven equal installments (that is, 12.50% or $1,250,000) every three months thereafter (on the 15 th of the applicable month), through March 15, 2014, subject to your continued service through each vesting date. Your right to vest in and receive these installment payments will be treated as a right to receive a series of separate payments and, accordingly, each installment payment hereunder shall at all times be considered a separate and distinct payment. Notwithstanding the continued service requirement in the paragraph above, if you have a separation from service (as defined under Treasury Regulation Section 1.409A-1(h), without regard to any alternative definition thereunder, a Separation from Service) prior to March 15, 2013 because either (i) the Company terminates your employment for a reason other than Cause (as defined below) at any time between your Start Date and prior to March 15, 2013, (ii) if your employment is terminated as a result of your death or Disability (as defined below) at any time between your Start Date and prior to March 15, 2013, or (iii) you terminate your employment after March 15, 2012 (but prior to March 15, 2013) for any reason, then solely with respect to those ZCUs that would have vested between the date of your Separation 3
from Service and March 15, 2013 (that is, exclusive of the installment vesting on March 15, 2012 and inclusive of the installment vesting on March 15, 2013) shall vest on the date of your Separation from Service, provided that you have delivered to the Company an effective, standard general release of claims in favor of the Company (with reasonable and customary exceptions) within 60 days following your Separation from Service. Such payment attributable to the accelerated vesting of your ZCUs will be paid to you on the 70 th day after your Separation from Service, unless at the time of your Separation from Service, you are a specified employee (as such term is defined in Section 409A(a)(2)(B)(i) of the Code) of the Company or any successor entity thereto, in which case, and solely to the extent necessary to avoid the incurrence of the adverse personal tax consequences under Section 409A of the Code, the payment attributable to the accelerated vesting of your ZCUs shall be delayed until the date that is six months and one day after your Separation from Service. The portion of your ZCUs that is not subject to acceleration of vesting on Separation from Service is intended to be exempt from Section 409A of the Code under Treasury Regulation Section 1.409A-1(b)(4) to the greatest extent permitted by law. To the extent not so exempt, as well as with respect to the portion that is subject to accelerated vesting, the ZCUs are intended to comply with Treasury Regulations Section 1.409A-3(a)(1) and (4) to the greatest extent possible, and will be construed and administered in accordance with the foregoing intent. Any terms necessary for compliance therewith and not expressly supplied herein are incorporated by reference. 4
As an illustration only, the table below sets forth the parties mutual understanding with respect to the amounts and payment and/or vesting dates (as applicable) of the ZSUs and ZCUs (not including any accelerated vesting of ZCUs upon your Separation from Service):
Value of ZCUs Vested and Paid* Initial ZSU Award Vesting ** Additional ZSU Award Vesting **
Date
May 2, 2011 March 15, 2012 June 15, 2012 September 15, 2012 December 15, 2012 March 15, 2013 June 15, 2013 September 15, 2013 December 15, 2013 March 15, 2014 June 15, 2014 September 15, 2014 December 15, 2014 March 15, 2015 * **
$ 0 $ 0 $1,250,000 $1,250,000 $1,250,000 $1,250,000 $1,250,000 $1,250,000 $1,250,000 $1,250,000 $ 0 $ 0 $ 0 $ 0
0% 0% 0% 0% 0% 33.33% 41.67% 50% 58.33% 66.67% 75% 83.33% 91.67% 100%
0% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
Assumes no acceleration. Sets forth the cumulative percentage vested of the ZSU award with respect to only the Initial Service Condition and the Additional Service Condition, as applicable. The table does not address or make any assumptions with respect to the satisfaction of the Liquidity Event Condition.
8. At Will Employment. While we look forward to a long and profitable relationship, you are an at-will employee of the Company, which means the employment relationship can be terminated by either of us for any reason, at any time, with or without prior notice and with or without cause. Any statements or representations to the contrary (and any statements contradicting any provision in this Clarifying Letter) should be regarded by you as ineffective. Further, your participation in any stock incentive or benefit program is not to be regarded as assuring you of continuing employment for any particular period of time. Any modification or change in your at will employment status may only occur by way of a written employment agreement signed by you and the Chief Executive Officer of the Company. 9. Severance. If you suffer a Separation from Service due to: (a) the Company terminating your employment for a reason other than Cause (as defined below), (b) your death or Disability, or (c) your resignation for any reason, then subject to your (i) continuing to comply with your obligations under your Confidentiality Agreement, and (ii) delivering to the Company an effective, standard general release of claims in favor of the Company (with reasonable and customary exceptions) within 60 days following your Separation from Service, the Company will pay you (or your legal representative) an amount equal to your gross annual salary at the time of your termination (the Separation Payment ). The Separation Payment will be paid to 5
you (or your legal representative) in a single lump sum payment of cash on the 70th day after your Separation from Service. Notwithstanding the foregoing, if at the time of your Separation from Service, you are a specified employee of the Company or any successor entity thereto, then, solely to the extent necessary to avoid the incurrence of the adverse personal tax consequences under Section 409A of the Code, the Separation Payment shall be delayed until the date that is six months and one day after your Separation from Service. The Separation Payment is intended to comply with Treasury Regulation Section 1.409A-3(a)(1) and, to the extent not expressly set forth herein, all necessary terms and conditions for compliance with such Section are incorporated by reference herein, and the right to the Separation Payment will be construed and interpreted in accordance therewith. By executing this Clarifying Letter, you affirm that you have consulted with your own tax advisor regarding the consequences of the payments provided for in this Clarifying Letter or knowingly and voluntarily declined to do so. 10. Definition of Cause. For purposes of this letter, Cause means termination because of: (i) any willful, material violation by you, personally, of any law or regulation applicable to the business of the Company that subjects it to a penalty, conviction for, or guilty plea to, a felony or a crime involving moral turpitude, or any willful perpetration by you of a common law fraud; (ii) commission of an act of personal dishonesty that involves personal profit in connection with the Company or any other entity having a business relationship with the Company; (iii) any intentional material breach of any provision of any agreement or understanding between the Company and you regarding the terms of your service as an employee, officer, director, or consultant to the Company that remains unresolved after 45 days notice of the breach and opportunity to cure is received by you from the company; (iv) the failure or refusal to perform the material duties required of an employee, officer, director or consultant of the Company (other than as a result of having a disability that prevents you from performing the material duties required of a person holding your position(s) with the Company for a period of at least 120 days (a Disability)) that remains unresolved after 45 days notice of the breach and opportunity to cure is received by you from the Company; (v) a willful breach of any applicable invention assignment and confidentiality agreement or similar agreement between you and the Company; (vi) a willful breach of the Pre-Start Certification; (vii) a disregard of the policies of the Company so as to cause material loss, damage, or injury to the property, reputation, or employees of the Company; or (viii) any other intentional violation of Company policy that is materially injurious to the financial condition or business reputation of, or is otherwise materially injurious to, the Company. 11. Potential Code Section 280G Reductions. (a) Anything in this Clarifying Letter to the contrary notwithstanding, in the event that it shall be determined that any payment, distribution, or other action by the Company or any of its affiliates to or for your benefit (whether paid or payable or distributed or distributable pursuant to the terms of this letter or otherwise) (a Payment ), would result in an excess parachute payment within the meaning of Section 280G(b)(i) of the Code, and the value determined in accordance with Section 280G(d)(4) of the Code of the Payments, net of all taxes imposed on you (the Net After-Tax Amount) that you would receive would be increased if the Payments were reduced, then the Payments shall be reduced by an amount (the Reduction Amount ) so that the Net After-Tax Amount after such reduction is greatest. For purposes of 6
determining the Net After-Tax Amount, you shall be deemed to (i) pay federal income taxes at the highest marginal rates of federal income taxation for the calendar year in which the Payment is to be made, and (ii) pay applicable state and local income taxes at the highest marginal rate of taxation for the calendar year in which the Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. (b) Subject to the provisions of this Section 11(b), all determinations required to be made under this Section 11, including the Net AfterTax Amount and the Reduction Amount pursuant to Section 11(a), and the assumptions to be utilized in arriving at such determinations, shall be made by a nationally recognized accounting firm (the Accounting Firm), which shall provide detailed supporting calculations both to the Company and you within 15 business days of the receipt of notice from you that there has been a Payment, or such earlier time as is requested by the Company. Anything in this Clarifying Letter to the contrary notwithstanding, the Reduction Amount shall not exceed the amount of the Payments that the Accounting Firm determines reasonably may be characterized as parachute payments under Section 280G of the Code and the only Payments that may be reduced are payments with respect to ZSUs (with the reduction occurring first with respect to amounts that are not deferred compensation within the meaning of Section 409A of the Code and then with respect to amounts that are). Any determination by the Accounting Firm shall be binding upon the Company and you. 12. Unfunded and Unsecured Obligations. For purposes of the payment of amounts due under this Clarifying Letter, the Companys assets will be, and remain, the general, unpledged, unrestricted assets of the Company. The Companys obligations hereunder shall be considered an unfunded and unsecured promise to pay money in the future. 13. Authorization to Work. The Company acknowledges that because of employer regulations adopted in the Immigration Reform and Control Act of 1986, within three (3) business days of starting your new position, you presented documentation demonstrating that you have authorization to work in the United States. If you have questions about this requirement, which applies to U.S. citizens and non-U.S. citizens alike, you may contact our personnel office. 14. Entire Agreement. This Clarifying Letter, along with your Confidentiality Agreement, the Pre-Start Certification, the ZSU Agreements, and any other documents referred to herein, constitute the entire agreement and understanding of the parties with respect to the subject matter of herein, and supersede any and all prior understandings and agreements, whether oral or written, between or among the parties hereto with respect to the specific subject matter hereof, including, without limitation, the Prior Agreement. The rights and obligations under this Clarifying Letter will be governed by and interpreted, construed and enforced in accordance with the laws of the State of California without regard to its or any other jurisdictions conflicts of laws principles. 15. Acceptance. Please sign the enclosed copy of this Clarifying Letter in the space indicated and return it to me. Your signature will acknowledge that you have read and understood and agreed to the terms and conditions of this Clarifying Letter and the attached documents, if any. Should you have anything else that you wish to discuss, please do not hesitate to call me. 7
We look forward to your continued employment with the Company. Very truly yours, /s/ Colleen McCreary ZYNGA, INC. Colleen McCreary, Chief People Officer I have read and understood this Clarifying Letter and hereby acknowledge, accept and agree to the terms as set forth above and further acknowledge that no other commitments were made to me as part of the terms of my employment except as specifically set forth herein. Date: July 22, 2011 /s/ John Schappert John Schappert 8
Exhibit 10.12 November 16, 2011 Owen Van Natta Via email Re: Transition of Services.
Dear Owen: We appreciate all your past efforts to help us grow Zynga Inc., a Delaware corporation (the Company or Zynga ). At your request and in light of your needs and desires, we have agreed to the terms and conditions set forth in this letter (the Transition Letter) and we look forward to your contribution as we move to the next stage of the Companys growth. This Transition Letter amends, restates and supersedes in its entirety our original employment letter, dated July 28, 2010 (the Prior Letter) and any other letters and agreements between the parties governing the terms of your employment and/or your service as a Board member for the Company (collectively, the Prior Agreements). 1. Resignation; Board Service. You have elected to resign your employment position with the Company as of November 16, 2011 (the Separation Date), and such resignation is a separation from service under Section 409A of the Internal Revenue Code of 1986, as amended (the Code). However, you have agreed to continue to serve as a member of the Companys Board of Directors (the Board) at the will of the Companys Board and its stockholders. Your rights to severance and your compensation as a member of the Board are set forth in this Transition Letter. In consideration for the promises and rights set forth herein, you expressly waive and release all rights to any severance benefits (whether in cash, COBRA payments or acceleration of vesting) you had under the Prior Agreements, the stock option agreement covering the Option, and the restricted stock unit agreements covering the Consultant ZSU and the Additional ZSU (as those terms are defined below) and any other compensatory equity award vesting acceleration benefits, which rights were exempt from Section 409A of the Internal Revenue Code as provided under Treasury Regulations Sections 1.409A-1(b)(4), 1.409A-1(b)(5), and 1.409A-(b)(9). 2. Accrued Salary and Vacation Pay. The Company will pay you all accrued salary, and all accrued and unused vacation (if any), earned through the Separation Date, less standard payroll deductions and withholdings. 3. Employee Benefits. Following the Separation Date, you will not be entitled to accrual of any employee benefits, including, but not limited to, vacation benefits, 401(k) contributions or bonuses or to participate in the Companys other employee benefit plans. Your coverage under the Companys group health plans will end on the last day of the month in which your Separation Date falls (or earlier, if provided in the applicable plan). To the extent provided by the federal COBRA law or, if applicable, state insurance laws, and by the Companys group health plan, you may be eligible to continue your group health insurance benefits at your own expense after the Separation Date. You will be separately provided a written notice of your rights and obligations under COBRA.
4. Conflict of Interest . During the period that you render services to the Company, we have agreed that you may engage in any employment, business or activity, provided that it is not in any way competitive with the business or proposed business of the Company or reasonably likely to interfere with the performance of your duties or create a conflict of interest. 5. Options. On September 17, 2010, the Company granted you a stock option under the Companys 2007 Equity Incentive Plan (the Plan) covering an aggregate of 6,750,000 shares of the Companys Class B Common Stock (as reflects capitalization adjustments) (the Option). As of the Separation Date, you had vested in 2,109,375 shares under the Option. In recognition of your transition, the parties have agreed that you will forfeit the 4,640,625 shares subject to the Option that were unvested as of the Separation Date. These forfeited unvested option shares will be cancelled as of the Separation Date and the Option will not be subject to any additional vesting (including acceleration of vesting) on or after the Separation Date. In addition, the Company has agreed to amend the post-termination exercise period applicable to the Option so that you may exercise the Option until the earliest of (i) the later of (x) November 16, 2014 and (y) the date of expiration of the applicable post-termination exercise period set forth in Section 3 of the stock option agreement governing the Option, (ii) the Expiration Date set forth in the stock option agreement, and (iii) unless the Option is assumed by the successor entity, the effective date of a Change in Control (as defined in the Plan). This Transition Letter modifies the Option only as expressly provided for herein. All other terms and conditions of the Option remain unchanged. The Company and you understand and agree that you have no other rights to any stock options from the Company. 6. ZSUs. On June 6, 2011, in connection with your prior service as a consultant to the Company, the Company granted you a Zynga Stock Unit award covering 233,336 shares of the Companys Class B Common Stock (as reflects capitalization adjustments) (the Consulting ZSU ), which has fully satisfied the Time-Based Requirement set forth in the applicable award agreement. In addition, on September 17, 2010, in connection with the commencement of your employment and service on the Board, the Company granted you a Zynga Stock Unit award covering 2,250,000 shares of the Companys Class B Common Stock (as reflects capitalization adjustments) (the Additional ZSU ). As of the Separation Date, you have satisfied the Time-Based Requirement set forth in the Additional ZSU award agreement as to 703,125 of the total units subject to the Additional ZSU. In recognition of your transition, the parties have agreed that you will forfeit 796,875 units subject to the Additional ZSU that had not satisfied the Time-Based Requirement as of the Separation Date. These forfeited units from the Additional ZSU will be cancelled as of the Separation Date and the Additional ZSU will not be subject to any additional vesting (including acceleration of vesting) on or after the Separation Date in respect of those 796,875 units. The remaining 750,000 unvested units subject to the Additional ZSU will be eligible to satisfy the Time-Based Requirement, subject to your continued service as a member of the Board, over the three year period beginning on the Separation Date, with 1/12 th satisfying the Time-Based Requirement on each February 16, May 16, August 16 and November 16 over the next three years. In addition, subject to your continued service through the time immediately prior to the closing of a Change in Control, you will become fully vested as to all of your then-unvested units under the Additional ZSU immediately prior to such closing. In addition, if prior to November 16, 2014, the Company does not re-nominate you to be a member of the Board, or if you are nominated but are not reelected as a member of the Board, then contingent upon your execution of the Companys standard form of release of all claims that is Page 2
effective within sixty (60) days following your last day of service as a member of the Board, you will be deemed to have fully satisfied the TimeBased Requirement (as of your last day of service) as to all of the then-unvested units under the Additional ZSU. The Additional ZSU will not be eligible for any other accelerated vesting under any other conditions, including but not limited to upon any other termination of your service with the Company. This Transition Letter modifies the Additional ZSU only as expressly provided for herein. All other terms and conditions of the Additional ZSU and the Consulting ZSU remain unchanged. The Company and you understand and agree that you have no other rights to any restricted stock awards from the Company (or any other equity awards, except the Option). 7. Section 409A. Unless otherwise expressly stated in an agreement between the Company and you, the Company intends that compensatory payments and benefits to you satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Internal Revenue Code provided under Treasury Regulations Sections 1.409A-1(b)(4), 1.409A-1(b)(5), and 1.409A-(b)(9) and will be construed to the greatest extent possible as consistent with those provisions. For purposes of Section 409A and the regulations and other guidance thereunder and any state law of similar effect (collectively, Section 409A) (including without limitation Treasury Regulations Section 1.409A-2(b)(2)(iii)), all compensatory payments made by the Company (whether severance payments, ZSUs or otherwise) will be treated as a right to receive a series of separate payments and will at all times be considered a separate and distinct payment. It is intended that any payments and benefits that are not exempt from application of Section 409A will be interpreted and administered so as to comply with the requirements of Section 409A to the greatest extent possible. Therefore, if you are deemed by the Company at the time of the termination of your Board service to be a specified employee for purposes of Section 409A(a)(2)(B)(i), and if payments then-due to you are deemed to be deferred compensation, then if delayed commencement of any portion of such payments (or delayed issuance of any shares subject to equity awards that are not themselves exempt from Section 409A) is required to avoid a prohibited distribution under Section 409A(a)(2)(B)(i) and the related adverse taxation under Section 409A, such payments will not be provided to you (or such shares issued) prior to the earliest of (a) the expiration of the six (6) month period measured from the date of your termination, (b) the date of your death or (c) such earlier date as permitted under Section 409A without the imposition of adverse taxation, and on the first business day following the expiration of such applicable Section 409A(a)(2)(B)(i) period, all payments deferred pursuant to this paragraph will be paid in a lump sum to you, and any remaining payments due will be paid as otherwise provided in the applicable agreement and no interest will be due on any amounts so delayed. You understand that the terms of this Transition Letter, including the agreement to extend your time to exercise stock options, may have personal tax consequences for you, and you represent that you have consulted with your tax and/or legal advisor before entering into this Transition Letter. 8. Mutual Release. In consideration for the valuable consideration provided in this Transition Letter, and to the fullest extent permitted by law, each party to this Transition Letter releases and forever discharges the other party from any and all claims, demands, obligations and causes of action of any and every kind, known or unknown, as of the date and time of signing this Transition Letter, relating in any way with your employment or service for Zynga, your resignation of employment, or your service on Zyngas Board of Directors, including but not limited to, any claims for equity compensation. Neither party is releasing any claims that Page 3
may not release as a matter of law. Section 1542 of the California Civil Code provides that a general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release which if known by him or her must have materially affected his or her settlement with the debtor. Acknowledging this Section 1542, both parties voluntarily elect to waive the rights described therein and elect to assume all risks for claims that may exist in their favor, known or unknown, arising from the subject matter of this Transition Letter. 9. Entire Agreement. This Transition Letter, including your Confidentiality Agreement, the stock option agreement covering the Option (as modified herein), the restricted stock unit agreements covering the Consultant ZSU and the Additional ZSU (as modified herein), and the Plan constitute the entire agreement and understanding of the parties with respect to the subject matter of this Transition Letter, and supersede any and all prior understandings and agreements, whether oral or written, between or among the parties hereto with respect to the specific subject matter hereof, including without limitation the Prior Letter and any letter detailing the terms of and compensation for your Board service. 10. Acceptance. Please sign the enclosed copy of this Transition Letter in the space indicated and return it to me. Your signature will acknowledge that you have read and understood and agreed to the terms and conditions of this Transition Letter and the attached documents, if any. Should you have anything else that you wish to discuss, please do not hesitate to call me. We look forward to your continued service with the Company. Very truly yours, ZYNGA INC. Reginald D. Davis Secretary & General Counsel Zynga Inc. I have read and understood this Transition Letter and hereby acknowledge, accept and agree to the terms as set forth above and further acknowledge that no other commitments were made to me as part of the terms of my service except as specifically set forth herein. /s/ Owen Van Natta Page 4 Owen Van Natta Date signed: 11/16/11
Exhibit 10.13 David M. Wehner Via email Re: Dear Dave: I am very pleased to confirm the terms of your continuing employment with Zynga Inc., a Delaware corporation (the Company), in the position of Chief Financial Officer, reporting to the Companys Chief Executive Officer, Mark Pincus. This letter (the Clarifying Letter) amends and restates our original offer letter, dated June 22, 2010 (the Prior Letter), in its entirety. This Clarifying Letter also amends in order to clarify certain accelerated vesting rights set forth in your currently outstanding equity awards granted by the Company under our 2007 Equity Incentive Plan, as amended (the Plan). 1. Salary. Your current salary is $225,000 per year (as adjusted from time to time, your Salary), less all applicable deductions required by law, which shall be payable at the times and in the installments consistent with the Companys then current payroll practice. Your Salary is subject to periodic review and adjustment in accordance with the Companys policies as in effect from time to time. 2. Incentive Compensation; Benefits . You will continue to be eligible to participate in the incentive compensation programs, insurance programs and other employee benefit plans established by the Company for its employees from time to time in accordance with the terms of those programs and plans. The Company reserves the right to change the terms of its programs and plans at any time. 3. Confidentiality. As an employee of the Company, you have access to certain confidential information of the Company and you may, during the course of your employment, develop certain information or inventions that will be the property of the Company. To protect the interests of the Company, you signed the Companys standard Employee Invention Assignment and Confidentiality Agreement (the Confidentiality Agreement , the terms of which are incorporated by reference herein) as a condition of your employment. We wish to impress upon you that we do not want you to, and we have directed you not to, bring with you any confidential or proprietary material of any former employer or to violate any other obligations you may have to any former employer. During the period that you render services to the Company, you have agreed and continue to agree to not engage in any employment, business or activity that is in any way competitive with the business or proposed business of the Company. You will disclose to the Company in writing any other gainful employment, business or activity that you are currently associated with or participate in that competes with the Company. You will not assist any other person or organization in competing with the Company or in preparing to engage in competition with the business or proposed business of the Company. You represent that your signing of the Prior Letter, this Clarifying Letter, each agreement setting forth the terms and conditions of the stock awards granted to you, if any, under the Companys equity plans, and the Confidentiality Agreement, and your commencement of employment with the Company, do not violate any agreement in place (either on the date you commenced employment with the Company or now) between yourself and current or past employers. Amended and Restated Offer of Employment by Zynga Inc.
4. Termination; Severance. (a) Resignation; Termination for Cause; Termination Due to Death or Disability. If, at any time, (i) you resign your employment for any reason, (ii) the Company terminates your employment for Cause (as defined in Section 5), or (iii) either party terminates your employment as a result of your death or disability, you will receive your Salary accrued through your last day of employment, as well as any unused vacation (if applicable) accrued through your last day of employment. In each of these events, you will not be entitled to any severance benefits. (b) Termination without Cause. If, at any time, the Company terminates your employment without Cause, and other than as a result of your death or disability, and provided such termination constitutes a separation from service (as defined under Treasury Regulations Section 1.409A-1(h), without regard to any alternative definition thereunder, a Separation from Service), then subject to your obligations below, you will be entitled to receive (collectively, the Severance Benefits): (i) an amount equal to six months of your then current Salary (the Salary Continuation), less all applicable withholdings and deductions, paid in equal installments on the Companys normal payroll schedule over the six month period immediately following your Separation from Service (the Severance Period); (ii) if you are participating in the Companys group health plans on the effective date of your termination and you timely elect continued coverage under COBRA for yourself and your covered dependents under the Companys group health plans following such termination of employment and complete and return all documents necessary to continue such coverage, then the Company will pay, as and when due directly to the COBRA carrier, the COBRA premiums necessary to continue your health insurance coverage in effect for yourself and your eligible dependents from the date of your Separation from Service until the earliest of (A) the close of the Severance Period, (B) the expiration of your eligibility for continuation coverage under COBRA, and (C) the date when you become eligible for substantially equivalent health insurance coverage in connection with your new employment or self-employment (such period from the date of your Separation from Service through the earliest of (A) through (C), the COBRA Payment Period ). Notwithstanding the foregoing, if at any time 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 Internal Revenue Code of 1986, as amended (the Code) or any statute or regulation of similar effect (including without limitation, the imposition of penalties on the Company under 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 to the carrier, the Company will instead pay you on the first day of each calendar month for the remainder of the COBRA Payment Period a fully taxable cash payment equal to the COBRA premiums for that month, subject to applicable withholdings and deductions (such amount, the Special Severance Payment ). If you become eligible for coverage under any employers group health plan or otherwise cease to be eligible Page 2
for COBRA during the Severance Period, you must immediately notify the Company of such event, and all payments and obligations of the Company under this Section 4(b)(i) will cease; and (iii) accelerated vesting with respect to 25% of the then-unvested shares or stock units subject to each of your then-outstanding compensatory equity awards (including without limitation stock options and ZSUs) that would have become vested and/or exercisable based upon your continued service with the Company, with such vesting and/or exercisability effective as of the date of your Separation from Service. For clarity, such accelerated vesting will apply only with respect to any service-based vesting requirement or condition and not with respect to any performance-based or liquidity event-based vesting requirements or conditions. The Severance Benefits are conditioned upon (A) your continuing to comply with your obligations under your Confidentiality Agreement during the period of time in which you are receiving the Severance Benefits, (B) your delivering to the Company an effective, general release of claims in favor of the Company in a form acceptable to the Company within 60 days following your Separation from Service, and (C) if you are a member of the Board, your resignation from the Board, to be effective no later than the date of your termination (or such other date as requested by the Board). No payments of the Severance Benefits will be made prior to the 60 th day following your Separation from Service, and on such date, you will receive a lump sum payment equal to the Severance Benefits that you would have otherwise received while waiting for the expiration of the release period, with the balance paid thereafter on the original schedule, subject in all cases to any delay in payment required by Section 8. (c) Executive Severance Plan. As of the date of this Clarifying Letter, you are eligible to participate in the Zynga Inc. Change in Control Severance Benefit Plan (the CIC Plan ), subject to the terms and conditions thereof. As set forth in Section 3(a)(i) of the CIC Plan, if the provisions of your existing equity award agreements provide for greater benefits than those set forth in the CIC Plan, the provisions of your existing equity award agreements will control. 5. Definition of Cause . For purposes of this Clarifying Letter, Cause means your termination because of: (a) any willful, material violation by you of any law or regulation applicable to the business of the Company, or your conviction for, or guilty plea to, a felony or a crime involving moral turpitude, or any willful perpetration by you of a common law fraud; (b) your commission of an act of personal dishonesty that involves personal profit in connection with the Company or any other entity having a business relationship with the Company; (c) any material breach by you of any provision of any agreement or understanding between the Company and you regarding the terms of your service as an employee, officer, director, or consultant to the Company, including without limitation your willful and continued failure or refusal to perform the material duties required of an employee, officer, director, or consultant of the Company (other than as a result of having a disability that prevents you from performing the material duties of a person holding your positions with the Company for a period of at least 120 days), or a breach by you of your Confidentiality Agreement or similar agreement between the Company and you; (d) your disregard of the policies of the Company so as to cause loss, Page 3
damage, or injury to the property, reputation, or employees of the Company; or (e) any other misconduct by you that is materially injurious to the financial condition or business reputation of, or is otherwise materially injurious to, the Company. 6. Amendments to Stock Awards . You were granted a Restricted Stock Unit Award for 2,500,000 restricted stock units (as adjusted for stock splits) on September 17, 2010 (the 2010 ZSU Award) and a second Restricted Stock Unit Award for 500,000 restricted stock units (as adjusted for stock splits) on March 31, 2011 (the 2011 ZSU Award). (a) The Company and you hereby clarify a clerical error in the definition of Constructive Termination set forth in the 2010 ZSU Award and the 2011 ZSU Award. Specifically, Constructive Termination means your voluntary termination from all positions you then hold with the Company, which resignation results in a Separation from Service with the Company, effective within 90 days after you provide written notice to the Companys General Counsel of the initial occurrence of one of the following actions taken without your written consent, which written notice must be provided within 30 days after the initial occurrence of such action, and which action is not reasonably cured by the Company within 30 days after receipt of your written notice: (i) a significant and material diminution in the nature or scope of your authority, title, function or duties in effect immediately preceding any Change of Control (as defined in the Plan, provided that no transaction will be a Change of Control for this purpose unless such transaction is also a change in the ownership or effective control of the Company or a change in the ownership of a substantial portion of the assets of the Company as determined under Treasury Regulation Section 1.409A-3(i)(5) (without regard to any alternative definition thereunder)); (ii) a greater than 10% reduction in your Salary in effect immediately preceding any Change of Control, which the parties agree is a material diminution in your annual base compensation; or (iii) the Companys requiring you to relocate or be based at any office or location that makes your commute 50 miles longer than your commute immediately preceding the Change of Control. (b) Each installment of the 2010 ZSU Award and the 2011 ZSU Award that vests is a separate payment for purposes of Treasury Regulations Section 1.409A-2(b)(2). Settlement of any vested ZSUs will occur no later than the date that is the fifteenth day of the third calendar month of the year following the year in which the installment of ZSUs is no longer subject to a substantial risk of forfeiture (within the meaning of Treasury Regulations Section 1.409A-1(d)) or, if required for compliance with Section 409A of the Code, by no later than December 31 of the calendar year in which the installment of ZSUs are no longer subject to a substantial risk of forfeiture (subject to any delay in payment required by Section 8 upon a Separation from Service). (c) This Clarifying Letter modifies the 2010 ZSU Award and the 2011 ZSU Award only as expressly provided for herein. All other terms and conditions of these awards remain unchanged. 7. Section 280G Best After Tax. If any payment or benefit you would receive from the Company or otherwise in connection with a change in control of the Company or other similar transaction (a Payment ) would (a) constitute a parachute payment within the meaning of Section 280G of the Code, and (b) but for this sentence, be subject to the excise tax imposed by Page 4
Section 4999 of the Code (the Excise Tax), then such Payment will be equal to the Reduced Amount. The Reduced Amount will be either (i) the largest portion of the Payment that would result in no portion of the Payment being subject to the Excise Tax, or (ii) the largest portion, up to and including the total, of the Payment, whichever amount ((i) or (ii)), after taking into account all applicable federal, state, provincial, foreign and local employment taxes, income taxes, and the Excise Tax (all computed at the highest applicable marginal rate), results in your receipt of the greatest economic benefit notwithstanding that all or some portion of the Payment may be subject to the Excise Tax. If a Reduced Amount will give rise to the greater after tax benefit, the reduction in the Payments will occur in the following order: (A) reduction of cash payments; (B) cancellation of accelerated vesting of equity awards other than stock options; (C) cancellation of accelerated vesting of stock options; and (D) reduction of other benefits paid to you. Within any such category of payments and benefits (that is, (A), (B), (C) or (D)), a reduction will occur first with respect to amounts that are not deferred compensation within the meaning of Section 409A of the Code and then with respect to amounts that are. In the event that acceleration of compensation from your equity awards is to be reduced, such acceleration of vesting will be canceled, subject to the immediately preceding sentence, in the reverse order of the date of grant. If Section 409A of the Code is not applicable by law to you, the Company will determine whether any similar law in your jurisdiction applies and should be taken into account. 8. Section 409A. Notwithstanding anything to the contrary in this Clarifying Letter, it is intended that the severance benefits and other payments payable under this Clarifying Letter satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Code provided under Treasury Regulations Sections 1.409A-1(b)(4), 1.409A-1(b)(5), and 1.409A-(b)(9) and this Clarifying Letter will be construed to the greatest extent possible as consistent with those provisions. For purposes of Section 409A of the Code and the regulations and other guidance thereunder and any state law of similar effect (collectively, Section 409A) (including without limitation Treasury Regulations Section 1.409A2(b)(2)(iii)), all payments made under this Clarifying Letter (whether severance payments or otherwise) will be treated as a right to receive a series of separate payments and, accordingly, each installment payment under this Clarifying Letter will at all times be considered a separate and distinct payment. It is intended that any severance payment and any other benefits provided under this Clarifying Letter that are not exempt from application of Section 409A will be interpreted and administered so as to comply with the requirements of Section 409A to the greatest extent possible, including the requirement that, notwithstanding any provision to the contrary in this Clarifying Letter, if you are deemed by the Company at the time of your Separation from Service to be a specified employee for purposes of Section 409A(a)(2)(B)(i) of the Code, and to the extent payments due to you upon a Separation from Service are deemed to be deferred compensation, then to the extent delayed commencement of any portion of such payments (or delayed issuance of any shares subject to equity awards that are not themselves exempt from Section 409A) is required to avoid a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code and the related adverse taxation under Section 409A, such payments will not be provided to you (or such shares issued) prior to the earliest of (a) the expiration of the six month period measured from the date of your Separation from Service with the Company (or, if required under Section 409A, the expiration of the applicable 18 month period), (b) the date of your death or (c) such earlier date as permitted under Section 409A without the imposition of adverse taxation, and on the first business day following the expiration of such applicable Code Page 5
Section 409A(a)(2)(B)(i) period, all payments deferred pursuant to this Section 8 will be paid in a lump sum to you, and any remaining payments due will be paid as otherwise provided in this Clarifying Letter or in the applicable agreement, wihtout interest. 9. At Will Employment. While we look forward to a long and profitable relationship, you will be an at will employee of the Company, which means the employment relationship can be terminated by either of us for any reason, at any time, with or without prior notice and with or without cause. Any statements or representations to the contrary (and any statements contradicting any provision in this Clarifying Letter) should be regarded by you as ineffective. Further, your participation in any stock incentive or benefit program is not to be regarded as assuring you of continuing employment for any particular period of time. Any modification or change in your at will employment status may occur only by way of a written employment agreement signed by you and the Chief Executive Officer of the Company. 10. Entire Agreement. This Clarifying Letter, including your Confidentiality Agreement, Restricted Stock Unit Agreement and any other documents referred to herein, constitute the entire agreement and understanding of the parties with respect to the subject matter of this Clarifying Letter, and supersede any and all prior understandings and agreements, whether oral or written, between or among the parties hereto with respect to the specific subject matter hereof, including without limitation the Prior Letter. 11. Acceptance. Please sign the enclosed copy of this Clarifying Letter in the space indicated and return it to me. Your signature will acknowledge that you have read and understood and agreed to the terms and conditions of this Clarifying Letter and the attached documents, if any. Should you have anything else that you wish to discuss, please do not hesitate to call me. We look forward to your continued employment with the Company. Very truly yours, ZYNGA INC. Colleen McCreary, Chief People Officer I have read and understood this Clarifying Letter and hereby acknowledge, accept and agree to the terms as set forth above and further acknowledge that no other commitments were made to me as part of the terms of my employment except as specifically set forth herein. /s/ David M. Wehner Page 6 David Wehner Date signed: 11/16/11
Exhibit 10.15 [*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED I N THIS DOCUMENT , MARKED BY BRACKETS , HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES A CT OF 1933, AS AMENDED . Developer Addendum This Developer Addendum (this Addendum) is effective as of May 14, 2010 (the Effective Date) and is made between Facebook, Inc. ( w e or u s) and Zynga Game Network Inc. ( you or your). We and you are sometimes referred to in this Addendum individually as a party and collectively as the parties. The parties hereby agree as follows: Recitals A. We and you are parties to our then-current standard online Statement of Rights and Responsibilities (together with all referenced policies, terms and guidelines, including without limitation, the online Developer Principles and Policies and the facebook Credits Terms, the SRR) which set forth the terms and conditions for your use of Facebook. The SRR is located at http://www.facebook.com/terms.php? ref=pf , or some other such URL designated by us in writing; As a high-volume user of facebook, your use of Platform far exceeds some or all of the thresholds in Section II.11 of the Developer Principles and Policies; You acknowledge that supporting your use of facebook requires significant operational, technical infrastructure, performance, employee and financial resources. Accordingly, in order to be able to continue to support your use of Facebook, we need to invest significant additional resources to help ensure the continued stability and reliability of our services. You wish to assist us in our effort to help us provide our users with a safe, secure, simple and efficient experience on facebook. In furtherance of such efforts, you agree to comply with the terms of this Addendum and cooperate with us in our efforts to encourage the adoption of Facebook Credits. Accordingly, the parties mutually agree to the terms and conditions of this Addendum. This Addendum supplements the SRR as set forth herein. Capitalized terms not defined in this Addendum or its Exhibits have the meanings given to them in the SRR.
B. C.
D.
E. F.
For mutual and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, we and you agree as follows: Agreement 1. API. Subject to your continued compliance with this Addendum and the SRR, during the Term, we will provide you with access to our public APIs that we generally make available to all other developers. For purposes of clarity, nothing herein obligates us to provide you with access to any distribution channels (e.g., requests, bookmarks, streams) for any Zynga Services or Covered Zynga Services. 2. Facebook Ad Units. a. Implementation of Facebook Ad Units. Subject to the terms herein, beginning on a date to be determined by us (the Facebook Ad Unit Launch Date) and continuing for so long as we wish to utilize Facebook Ad Units (defined below) during the remainder of the Term, you will enable us to display advertising purchased by a third party or other advertising purchased by us ( Content) through an iFrame (or some other functionality or technology that is mutually agreed upon by the parties in writing) provided by us that shall appear on Zynga Game Pages (and only Zynga Game Pages) on which you decide to implement such iFrame (the Facebook Ad Unit ) (all such Zynga Game Pages, Properties). 1
We will provide you with ninety (90) days prior written notice in the event that we elect to cease serving Content through facebook Ad Units for display on the Properties. b. Conditions and Restrictions Relating to Facebook Ad Units . The following conditions and restrictions apply to Facebook Ad Units on Properties: (i) Each facebook Ad Unit you implement shall (1) appear on the right hand side of the web page of all Properties so the user is not required to scroll horizontally to see the Facebook Ad Unit, and (2) be subject to and comply with the same dimension and substantially the same position and placement requirements that we use for and apply to third party advertisements placed on Canvas Pages as of the Effective Date, as such dimension, positioning and placement requirements are depicted and described in Exhibit F. You acknowledge and agree that we will be the executive producer of all Facebook Ad Units. Accordingly, and subject to Section 2.b (vii) below, you agree that we will have sole control over the appearance, design, layout, look-and-feel, Content (including adding, changing or removing Content), advertisers whose Content appear within, features, and functionality of all Facebook Ad Units and the methods and means used to monetize Facebook Ad Units. (ii) You must have and abide by an appropriate privacy policy. Your privacy policy should also include information about user options for cookie management. (iii) You agree to comply with commercially reasonable specifications provided by us from time to time to enable proper delivery, display, tracking, and reporting of Content and to enable proper tracking and reporting of impressions, clicks and other actions taken in connection with Content. (iv) You agree to direct to us, and not to any advertiser, any communication regarding any Content displayed in connection with facebook Ad Units. (v) You are solely responsible for the Properties, including all content and materials, maintenance and operation thereof and the proper implementation of our specifications. We are not responsible for anything related to Properties except for the serving of Content that appears in the facebook Ad Units implemented on such Properties. (vi) You will not (a) directly or indirectly generate impressions, clicks, or any other user engagement with Content through any automated, deceptive, fraudulent or other invalid means, including through repeated manual clicks, the use of robots or other automated tools or software; (b) modify or change in any way any Content; (c) use any interstitial, pop-up windows, other intermediate steps or any other technology or content which acts as a barrier to the transition of a user from any facebook Ad Unit to any web page or other location accessed by an end user after clicking on any Content ( Page); (d) remove, minimize, frame, or otherwise inhibit the full and complete display of any Page; (e) display any Content on any web page or web site that contains pornographic, hate-related, violent or illegal content; (f) redirect an end user away from any Page or provide a version of any Page that is different from the page an end user would access by going directly to the Page, intersperse any content between the Content and the Page; or otherwise provide anything other than a direct link from Content to a Page; (g) directly or indirectly access, launch, and/or activate Content through or from any software application, web site, or other means other than Properties and then only to the extent expressly permitted by this Section 2.b(vii); and (h) index, crawl, spider or in any non-transitory manner store or cache information obtained from any Content. In addition, you will not facilitate or encourage any of the foregoing. Notwithstanding anything to the contrary herein, we acknowledge that you may offer users the option to play games that are Covered Zynga Services in full screen mode, so long as such option shall be presented to a user in a manner that is not materially more prominent than the implementation of such option on Covered Zynga Services as of the Effective Date and as reflected in Exhibit G. (vii) You agree not to display on the same web page on which any facebook Ad Unit or Content is displayed, any advertisement(s) or content that an end user of any Properties would reasonably confuse 2 [*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED I N THIS DOCUMENT , MARKED BY BRACKETS , HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES A CT OF 1933, AS AMENDED .
with one of our advertisements or otherwise associate with us (e.g., by utilizing our branding or using the same font or branding elements used in the facebook Ad Unit). (viii) We will not serve any advertisement (A) for any Named Entity or (B) that disparages you or (C) that contains pornographic, hate-related, violent or illegal content, or (D) that contains animation, in each case within any facebook Ad Unit displayed on any Properties. In the event we do serve any such advertisement described in the foregoing (A) (D), you will notify us and, as your sole and exclusive remedy, we will promptly remove the advertisement, but in no event within more than [*] following receipt of such notification. In the event that we serve any Facebook Ad Unit that causes a material degradation in or otherwise materially impedes the functionality of any of your Properties, as your sole and exclusive remedy, you will be entitled to remove the Facebook Ad Unit and you will notify us immediately of such removal. You will reinstate the removed Facebook Ad Unit within 12 hours of us notifying you that we have cured the issue giving rise to the applicable material degradation or material impediment. (ix) We represent and warrant that, for the calendar month of April 2010, the average RPM for advertisements shown in connection with Covered Zynga Services on your Canvas Pages is [*]. (x) [*] Notwithstanding the foregoing, we may allow advertisers to choose not to place ads on your Properties or third party websites in general. You acknowledge and agree that if we offer any third party the ability to display advertising on its website as part of an official advertising network using iFrames that are larger than the Facebook Ad Unit, doing so shall not be deemed a breach of this Section 2.(x), and we agree to offer you the same larger iFrame format. (xi) We will provide advertisement partner management support to drive advertising revenue derived from facebook Ad Units. (xii) You acknowledge and agree that certain Content may, when clicked upon or otherwise engaged with by a user, render or generate an overlay, pop-up, or interactive functionality (collectively, an Overlay), and you hereby agree not to block, inhibit, impede, or interfere with the rendering, performance, or use of any such Overlay. You acknowledge and agree that the rendering of an Overlay in and of itself does not constitute a material degradation in, or a material impediment of, the functionality of any of your Properties. 3. Fees. a. Within 15 days of the end of each month of the Term you shall send us a report that (1) identifies the specific Properties on which you implemented the facebook Ad Unit during the previous month and (2) the number of Page Views generated during the previous month of all Zynga Game Pages on which a Facebook Ad Unit was not implemented ( Monthly Page View Count). b. Each month during the Term, for all Properties on which you implemented, during the previous month, the facebook Ad Unit, we will pay you a percentage of Net Revenue (Ad Share) arising from such Properties for the previous month. Such Ad Share will be [*]. Notwithstanding anything to the contrary in this Addendum, we shall not be liable for any payment identified by us within [*] after the date of such payment as having been based on: (a) any amounts which result from fraud, invalid queries or invalid clicks or impressions on Content generated by any person, bot, automated program or similar device, as reasonably determined by us, including without limitation through any clicks or impressions (i) originating from your IP addresses or computers under your control, (ii) solicited by payment of money, false representation, or request for end users to click on Content, or (iii) solicited by payment of money, false representation, or any illegal or otherwise invalid request for end users to complete events; (b) Content delivered to end users whose browsers have JavaScript disabled; (c) placeholder or transparent Content that we may deliver; or (d) clicks co-mingled with a significant number of invalid clicks described in (a) above, or as a result of any breach of this Addendum by you for any applicable pay period. We reserve the right to withhold payment or charge back your account due to any of the foregoing pending our reasonable investigation of any of the foregoing (provided that such investigation shall not exceed [*], 3 [*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED I N THIS DOCUMENT , MARKED BY BRACKETS , HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES A CT OF 1933, AS AMENDED .
or in the event that an advertiser whose Content is displayed in connection with Properties defaults on payment for such Content to us. Our records and figures, as determined by us using our tracking methodologies will be used to determine all Ad Share payments and will govern in all circumstances. c. For each month during the Term after the facebook Ad Unit Launch Date in which we served Content for display on the Properties, for all Zynga Game Pages on which you did not, during the previous month, implement the Facebook Ad Unit (other than as a result of the removals made pursuant to Section 2.b(viii)), you will pay us an amount equal to [*]. In no event shall the foregoing monthly payment exceed [*] for any given month. Each payment made by you pursuant to this Section 3.c will be accompanied by a detailed report verifying amounts paid and the manner in which payments were calculated. Each such report shall include such categories of data and level of detail as mutually agreed upon by the parties. Within fourteen (14) days of the date of any written request by us, you shall verify and certify in a writing signed by one of your senior executives your compliance with your payment obligations under Section 3.c. We may request any such certification no more than once each quarter during the Term. d. Each month during the Term, you shall have the right, but not the obligation, to display facebook Ad Units on game-related forums and game related web pages that are owned and operated by Zynga or its Affiliates that are not Zynga Game Pages. Your display of Facebook Ad Units on any other web pages that are not Zynga Game Pages shall be subject to our prior written approval on a case by case basis (which we may withhold at our sole discretion). For the sake of clarity, in the event that Facebook Ad Units are displayed on any such web pages, the provisions of Sections 2, 3.a and 3.b shall apply. e. Each payment made by us pursuant to Section 3.b will be accompanied by a detailed report verifying amounts paid and the manner in which such amounts were calculated. Each such report shall include such categories of data and level of detail as mutually agreed upon by the parties. Within fourteen (14) days of the date of any written request by you, we shall verify and certify in a writing signed by one of our senior executives our compliance with our payment obligations under Section 3.b. You may request any such certification no more than once each quarter during the Term. 4. Implementation of Facebook Credits . a. Implementation of Facebook Credits in Covered Zynga Services . You shall begin implementing (and you shall cause your Affiliates to begin implementing) Facebook Credits in all Covered Zynga Services commencing on the Implementation Start Date set forth in Exhibit B for each such Covered Zynga Service. You shall complete implementation (and you shall cause your Affiliates to complete implementation) of Facebook Credits in all Covered Zynga Services by no later than the Exclusivity Start Date set forth in Exhibit B for each such Covered Zynga Service. Within thirty (30) days after the Effective Date, the parties will mutually agree on a detailed written implementation plan that is consistent with the dates set forth on Exhibit B (Implementation Plan); provided, however, you acknowledge and agree that any failure by the parties to agree on the Implementation Plan will not affect or reduce any of your obligations under this Addendum including, without limitation, your obligations under Section 4.b. The Implementation Plan may only be accelerated upon mutual agreement of the parties. Notwithstanding anything to the contrary in this Addendum, you acknowledge and agree that we reserve the right to slow down the pace at which you implement Facebook Credits in any or all Covered Zynga Services by pushing back the Exclusivity Start Dates or the staging set forth in the Implementation Plan, with the understanding that the Exclusivity Start Date for each such Covered Zynga Service will be extended by the number of days by which we extend the staging of the implementation of Facebook Credits. Except as set forth in the foregoing sentence, any changes to Exhibit B must be mutually agreed upon by the parties in writing. Without limiting Section 4.b. of this Addendum, once you (or your Affiliates) begin implementing Facebook Credits in any Covered Zynga Service, you shall not (and you shall cause your Affiliates not to) remove Facebook Credits from such Covered Zynga Service unless we request otherwise in writing. Notwithstanding anything to the contrary in this Addendum, you acknowledge and agree that, no more frequently than [*] (the Removal Cap), we may request you (or any of your Affiliates) to remove Facebook Credits from, and to cease using Facebook Credits in connection with, any 4 [*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED I N THIS DOCUMENT , MARKED BY BRACKETS , HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES A CT OF 1933, AS AMENDED .
Covered Zynga Services at any time at our sole discretion upon written notice to you, and you shall comply with (and you shall cause your Affiliates to comply with) each such request within [*] of any such request. In the event of any request by us to remove Facebook Credits completely from any Covered Zynga Services, Section 4.b shall no longer apply to such Covered Zynga Service, and you shall be entitled to use any alternative Payment Method in place of Facebook Credits, until the date on which we instruct you in writing to once again include Facebook Credits in such Covered Zynga Service(s), which we may do at our sole discretion, at which point Section 4.b will once again apply in full force and effect to said Covered Zynga Service(s) within twenty four (24) hours of such instruction being made. Notwithstanding anything to the contrary herein, you acknowledge and agree that the Removal Cap shall not apply to any requests by us for you to remove Facebook Credits from any Covered Zynga Services for breaches or violations by you (or any of your Affiliates) of this Addendum or the SRR. b. Facebook Credits Exclusivity for Covered Zynga Services. (i) You acknowledge and agree that facebook Credits will be the sole and exclusive Payment Method that is used, accepted or otherwise made available on or in connection with all Covered Zynga Services during the Term. Subject to Section 4.a, this exclusivity obligation will commence with respect to each of the Covered Zynga Services set forth in Exhibit B on the Exclusivity Start Date set forth therein and will continue for the remainder of the Term for so long as such Covered Zynga Service remains a Covered Zynga Service. For each Covered Zynga Service that is created after the Effective Date or offered or otherwise made available to any third party for the first time after the Effective Date, the exclusivity obligations set forth in this Section 4.b. will commence for such Covered Zynga Service on the date such Covered Zynga Service is first offered or otherwise made available (or some other date as mutually agreed by you and us by way of a written amendment to this Addendum) and will continue for the remainder of the Term, provided that in the event that you acquire a Covered Zynga Service from a third party (whether by merger, stock purchase, asset acquisition or otherwise), you will provide us written notice thereof, and the exclusivity obligations set forth in this Section 4.b will commence for such Covered Zynga Service on that date that is [*] after the closing date of the applicable transaction. Within fourteen (14) days of the date of any written request by us, you shall verify and certify in a writing signed by one of your senior executives your (and your Affiliates) compliance with the terms of this Section 4.b. We may request such certification no more than once per each quarter of the Term. (ii) Notwithstanding anything to the contrary in Section 4.b(i), the parties acknowledge and agree that Section 4.b(i) shall be subject only to the following limited exceptions set forth in this Section 4.b(ii): (1) If, for any individual Covered Zynga Service, facebook Credits cannot be used by users of such Covered Zynga Service (an Impacted Covered Zynga Service) for a period of [*] due to a technical error and such inability to use Facebook Credits is not caused by any acts or omissions of you or any of your Affiliates or the systems or technology of you or any of your Affiliates (such [*] outage a Facebook Credits Outage), as your sole and exclusive remedy, you shall notify us of the Facebook Credits Outage by sending a screenshot of the outage via email to an email address designated by us to enable us to verify the Facebook Credits Outage, and, beginning on [*] and continuing only for so long as Facebook Credits cannot be used by users of an Impacted Covered Zynga Service due to such Facebook Credits Outage, you may use any alternative Payment Method in place of Facebook Credits (a Substitute Payment Method) to complete purchases made by users within all Impacted Covered Zynga Services. You shall replace the Substitute Payment Method with Facebook Credits within [*] following your receipt of notice (email acceptable) from us that Facebook Credits is capable of being used (such notice, the Replacement Notice); provided, however, if you are unable to do so within such time period, you will notify us (email acceptable) and you shall complete such replacement within [*] of your receipt of the Replacement Notice during normal business hours, and within [*] of your receipt of the Replacement Notice outside of normal business hours. You shall comply with the requirements set forth herein for each Facebook Credits Outage that occurs. The messaging you display or send to users related to Facebook Credits Outages shall be subject to our prior review and written approval, not to be unreasonably withheld or delayed, 5 [*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED I N THIS DOCUMENT , MARKED BY BRACKETS , HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES A CT OF 1933, AS AMENDED .
provided that you may display or send to users any messaging that is substantially similar to messaging already approved by us in accordance with this Section 4.b.(ii)(1) without seeking our prior review and approval. Such messaging may only be displayed to users of the Impacted Covered Zynga Service who have attempted or are attempting to make a purchase while a facebook Credits Outage is occurring and who experience the Facebook Credits Outage. (2) You may use a Payment Method that is not facebook Credits to complete purchases made within Covered Zynga Services by users of such Covered Zynga Services that reside in any country in which we prohibit, pursuant to the SRR, residents of such country to purchase Facebook Credits from us (a Restricted Country). In the event we remove any such prohibition, without limiting Section 4.b(i), you will use Facebook Credits as the sole and exclusive Payment Method for purchases made by users of Covered Zynga Services that that reside in any Restricted Country in accordance with Section 4.b(i) above within thirty (30) days of receipt of written notice from us. Notwithstanding anything to the contrary in Section 4.b(i): (a) Your Gift Cards. Subject to the terms herein, we acknowledge that your distribution of Gift Cards [*] is not a violation of Section 4.b(i), provided that all Gift Cards that are redeemable on Covered Zynga Services may be redeemed only for Facebook Credits. As used herein, Gift Card(s) mean a stored value gift card that is redeemable on Covered Zynga Services and/or Other Zynga Services. Subject to Section 4.b(ii)(3)(d) below, to enable you to use Gift Cards as a Payment Method for facebook Credits in Covered Zynga Services in accordance with this Section 4.b(ii)(3)(a), we will sell you Facebook Credits [*]. You shall then resell to users [*] in transactions using such Gift Cards on Covered Zynga Services. You assume all risk of loss for and shall be solely responsible for, all fraud, returns, refunds, reversals, fines, chargebacks and other such fees arising from or relating to the resale by you of Facebook Credits pursuant to this Section 4.b(ii)(3)(a) or Section 4.b(ii)(3)(b). For the avoidance of doubt, this Section 4.b(ii)(3)(a) is not intended to and shall not preclude you from offering and redeeming Gift Cards that are redeemable only on Other Zynga Services [*]. (b) Permitted Third Party Payment Options . In the event we do not offer, and only until such time as we begin to offer, Wire Transfers or any of the payment options set forth on Exhibit D hereto ( Permitted Third Party Payment Options ) as a Payment Method for Facebook Credits, we will allow you to offer within Covered Zynga Services such Permitted Third Party Payment Option to end users directly for the sole and exclusive purpose of enabling such end users to purchase Facebook Credits from you using such Permitted Third Party Payment Option; provided, however, you acknowledge and agree that Wire Transfers may be used solely to complete individual purchases from you of Facebook Credits that are in excess of [*]. Subject to Section 4.b(ii)(3)(d) below, if applicable, to enable you to use Permitted Third Party Payment Options as a Payment Method for facebook Credits in Covered Zynga Services in accordance with this Section 4.b(ii)(3(a), we will sell you Facebook Credits [*] which you shall then resell to users [*] using Permitted Third Party Payment Option. We agree that we will, within a commercially practicable time period, implement and maintain a high volume mechanized process in order to implement the applicable provisions of this Section 4.b(ii)(3)(b). We acknowledge that use of Permitted Third Party Payment Options in accordance with this Section 4.b(ii)(3)(b) is not a violation of Section 4.b(i). As used herein, Wire Transfer means a same day irrevocable electronic transfer of funds between banks by electronic means. 6 [*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED I N THIS DOCUMENT , MARKED BY BRACKETS , HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES A CT OF 1933, AS AMENDED .
(3)
Notwithstanding anything to the contrary herein, you acknowledge and agree that we may restrict or limit your ability to offer or use Permitted Third Party Options to the extent we reasonably believe necessary to prevent or respond to fraudulent activity or money laundering, or as required by law. (c) (d) [*]. Zynga In-Game Currency. We acknowledge and agree that (i) you are entitled to use Zynga In-Game Currency in accordance with this Addendum and all applicable laws, provided that to the extent Zynga In-Game Currency is sold or purchased in or in connection with Covered Zynga Services, such Zynga In-Game Currency must be sold and purchased via Facebook Credits and will be subject to Section 4.b(i); (ii) your continued use of Zynga In-Game Currency in Covered Zynga Services in accordance with this Addendum during the Term is not a violation of Section 4.b(i); and (iii) we will not require you to denominate items sold in Covered Zynga Services in Facebook Credits (for purposes of clarity, and subject to Section 4.b(ii), Zynga In-Game Currency used in Covered Zynga Services must be purchasable using Facebook Credits only). Zynga In-Game Currency means any currency that is developed and maintained solely by or on behalf of you and offered solely by you or any of your Affiliates. For purposes of clarity, no third party currencies will be Zynga In-Game Currencies. You acknowledge and agree that each Zynga In-Game Currency that is used in a Covered Zynga Service: (a) may not be used in any other Covered Zynga Service, with the exception of experience points that are earned only through game play and are not purchased with any Payment Method; (b) may not be converted into or redeemed for any other Zynga In-Game Currency or any other currency including, without limitation, cash, any cash equivalents, or the experience points described in (a) of this subsection; (c) may not be given by a user to another user within any Covered Zynga Services, provided that the limitation in this subsection (c) shall not apply to the winning and losing of poker chips in a poker game play or to any gift that is not deducted from the gifting users balance; (d) may not be used or accepted by any third party. For purposes of clarity, experience points described in Section 4.b(ii)(3)(d) of this section are subject to subsection (b), (c) and (d) of this Section 4.b(ii)(3)(d). Special Provisions Related to Reselling Facebook Credits . You acknowledge and agree that: (i) you shall not resell any Facebook Credits other than those purchased from us pursuant to and resold in accordance with Sections 4.b(ii)(3)(b) or 4.b(ii)(3)(c); (ii) you must segregate all Facebook Credits that you purchase from us to resell to users from all other Facebook Credits you receive from users and redeem with us; and (iii) at our sole discretion, Facebook Credits that are resold by you may move directly from us into the applicable users account and may never be stored by you. Co-Marketing. We acknowledge and agree that you have the right to issue up to [*] of the value of your paid Zynga In-Game Currency per Covered Zynga Service per month through advertising co-marketing relationships with third parties. Payment Terms for Facebook Credits Resold by You. There will be [*] payment periods [*] for all Facebook Credits sold by you pursuant to Section 4.b(ii)(3)(a) or Section 4.b(ii)(3)(b): [*]. You will pay out to us for each period within [*] days after the end of each period.
(e)
(f) (g)
(4) (5)
The amount of the service fee described in the facebook Credits Terms that we charge to you at any given time to redeem Facebook Credits shall be [*] 30% per each Facebook Credit redeemed [*]. Section 4.b shall not apply to Payment Methods used, accepted or otherwise made available to sell physical goods that are not Payment Methods. 7
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED I N THIS DOCUMENT , MARKED BY BRACKETS , HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES A CT OF 1933, AS AMENDED .
5. Other Agreements. The parties acknowledge and agree to the following: a. Intentionally Left Blank. b. The parties will engage in the activities described on Exhibit H regarding operational requirements that are necessary to implement facebook Credits. c. On a mutually agreed upon date after the Effective Date, the parties shall issue a joint press release, with the wording of such press release to be mutually agreed to by the parties in writing (the Press Release). Except as expressly set forth in this Section 5.c, neither party will make any press release regarding the terms of this Addendum without the prior written approval of the other party, provided that to the extent such disclosure is required by law, rule, regulation, or governmental or court order, the party requesting disclosure will furnish the counter-party with sufficient time to address such request with any such governmental agency and seek confidential treatment. d. We will not [*] to the extent such efforts are permitted under the SRR in effect as of the time of collection unless any such actions are generally applicable to developers or required by law. e. We acknowledge and agree that you are entitled to promote Other Zynga Services from within Covered Zynga Services. f. We acknowledge and agree that the Excluded Zynga Games shall not be considered Covered Zynga Services for the purposes of this Addendum, provided that in the event that any of the following Excluded Zynga Games on [*] access or use the Facebook API, then such game shall become a Covered Zynga Service for the purposes of this Addendum: [*] 6. Operating Guidelines. Without limiting any of our rights under the SRR, in an effort to minimize the strain you place on our systems, from time to time we may, at our sole discretion, establish restrictions or operating guidelines and procedures governing your use of Facebook provided such guidelines and procedures are generally applicable to other developers (collectively, Operating Guidelines). All Operating Guidelines will be provided to you in writing, will be effective thirty (30) days after the date provided, and may be changed by us at our sole discretion upon thirty (30) days prior written notice to you. You shall comply with (and to cause your Affiliates to comply with) all Operating Guidelines, and you acknowledge and agree that a material breach by you or any of your Affiliates of any Operating Guidelines will be deemed a material breach by you of the SRR and this Addendum. 7. SRR. You acknowledge and agree that your use of or access to Facebook (including, without limitation, your use of Facebook Credits) shall be subject to the SRR and you hereby agree to comply with (and to cause your Affiliates to comply with) the SRR. This Addendum is part of and is hereby incorporated by this reference into the SRR. In the event of a conflict between the SRR and this Addendum, this Addendum shall govern to the extent of the conflict. Except as supplemented or expressly modified by this Addendum, the SRR shall remain unmodified and in full force and effect and you hereby ratify your obligations thereunder. Any changes made by us to the SRR [*]. The definition of application(s), data, information and content in the SRR will not apply to any uses of such terms in this Addendum, and solely in this Addendum. For purposes of clarity, you acknowledge and agree that the foregoing shall not modify the meaning of such terms as they apply to the SRR or your obligations with respect to data, content, and information as defined in the SRR and pursuant to the SRR. Unless defined otherwise or noted herein, all definitions included in the SRR will apply to this Addendum. The definitions in Exhibit A shall apply to the terms of this Addendum only, and shall not modify such terms as used in and as they apply to, the SRR. 8. Term; Termination. a. This Addendum shall commence on the Effective Date and shall continue for five (5) years after the Effective Date (the Term), unless terminated earlier in accordance with this Addendum. 8 [*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED I N THIS DOCUMENT , MARKED BY BRACKETS , HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES A CT OF 1933, AS AMENDED .
b. Either party may terminate (without penalty to the terminating party arising from such termination) this Addendum or the SRR upon written notice to the other party if the other party materially breaches any term of this Addendum or materially breaches or materially violates any term or provision of the SRR and such party fails to cure any such breach or violation within 30 days of receipt of written notice of such breach from the non-breaching party (such thirty (30) day period, the Breach Cure Period). You acknowledge that if any such breach or violation by you is a breach or violation of any term or provision of the SRR or Addendum relating to the storing, caching, deletion, transferring, acquiring, disclosing, selling or displaying of user data or is a violation of any term or provision of the SRR that requires you to comply with applicable laws, then we may, in addition to our termination remedy, at our sole discretion, cease providing you with access to Facebook (including, without limitation, our APIs) during the Breach Cure Period, provided that [*] in a good faith attempt to resolve the issue that gave rise to such breach, provided, further if [*], we may so notify your General Counsel via email and thereafter and immediately cease providing you with access to Facebook (including, without limitation, our APIs). c. Within two (2) days after a partys receipt of notice of a breach or violation described in Section 8.b the appropriate parties identified on Exhibit E will meet in person to attempt in good faith to resolve the issue that gave rise to the breach ( Level 1 Escalation). If the parties are unable to resolve such issue via the Level 1 Escalation within five (5) days after such issue was referred to Level 1 Escalation, then senior executives of the parties will meet in person to attempt in good faith to resolve the issue that gave rise to the breach ( Level 2 Escalation). If the parties are unable to resolve such issue via the Level 2 Escalation, then the CEOs of the parties will meet in person to attempt in good faith to resolve the issue that gave rise to the breach (Level 3 Escalation). A party may only terminate this Addendum if the parties have been unable to resolve the issue via the Level 3 Escalation within thirty (30) days of written notice of the breach. Any deletion by you (or your Affiliates) of your account (or the accounts of your Affiliates) or any disabling by you (or any of your Affiliates) of any Covered Zynga Services will not limit or affect your obligations under this Addendum. (i) In the event that either party: (i) becomes insolvent; (ii) files a petition in bankruptcy or reorganization or has such a petition filed against it (and fails to lift any stay imposed thereby within sixty (60) days after such stay becomes effective); (iii) has a receiver appointed with respect to all or substantially all of its assets; (iv) makes an assignment for the benefit of creditors; (v) ceases to do business in the ordinary course; or (vi) takes any corporate action for your winding-up, dissolution or administration, the other party may terminate this Addendum immediately upon written notice. d. Sections 7, 8(c), 8(e) (for the time period set forth therein), 9 and 10 shall survive the early termination or natural expiration of this Addendum. In addition to the foregoing, in the event of any termination of this Addendum or the SRR by us pursuant to this Addendum, Sections 2, 3 and 4 shall survive any such early termination for 5 years after the Effective Date if we so choose at our sole discretion, provided that in such event we will continue to provide you with access to facebook to the extent necessary to enable performance of the obligations set forth in such Sections. e. Transition Services. In the event of any termination by you due to a breach of this Addendum by us, and provided you are not in breach of this Addendum or in violation of the SRR, the parties shall operate under the following guidelines for no more than [*] following the effective date of such termination (the Transition Period) (i) We shall continue to provide you with access to the APIs in accordance with this Addendum. (ii) You shall continue to abide by the terms of this Addendum. 9. Confidentiality. Confidential Information means the existence of this Addendum, the specific terms of this Addendum, any information, data, or other materials provided by one party to the other in the course of discussions and negotiations relating to this Addendum. In addition, Confidential information means any information, data or other materials provided by one party to the other under or in connection with this Addendum that is (a) clearly and conspicuously marked as confidential or with a similar 9 [*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED I N THIS DOCUMENT , MARKED BY BRACKETS , HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES A CT OF 1933, AS AMENDED .
designation; (b) is identified by the disclosing party ( Discloser) as confidential and/or proprietary before, during, or promptly after presentation or communication; or (c) is disclosed in a manner which the Discloser reasonably communicated, or the receiving party ( Recipient) should reasonably have understood under the circumstances that the disclosure should be treated as confidential, whether or not the specific designation confidential or any similar designation is used. Except with the prior written consent of the disclosing party, neither party shall (i) use or disclose any Confidential Information other than (A) to employees and contractors who have a need to know and any disclosure to contractors may only be to contractors who have signed a non-disclosure agreement to protect the confidential information of third parties, (B) the terms of this Addendum to investors or potential investors in connection with the sale of such partys securities, including any disclosure required by state or federal securities laws, pursuant to an agreement imposing confidentiality obligations substantially similar to those set forth herein (except as prohibited or otherwise required by state or federal securities laws)or (C) the terms of this Addendum to acquirors or potential acquirors and their advisors in connection with a Change of Control of such party, pursuant to an agreement imposing confidentiality obligations substantially similar to those set forth herein or (ii) make copies or allow others to make copies of such Confidential Information except as is necessary for internal business purposes. In addition, nothing in this Agreement shall prohibit or limit either partys use or disclosure of information (a) previously known to it without obligation of confidence (excluding, for clarity, any information, data, or other materials provided by one party to the other in the course of negotiations relating to this Agreement); (b) independently developed by or for it without use of or access to the other partys Confidential Information; (c) acquired by it from a third party which is not under an obligation of confidence with respect to such information; (d) which is or becomes publicly available through no breach of this Addendum; or (e) is required to be disclosed by operation of law, court order or other governmental demand. Notwithstanding the foregoing provisions, any disclosure made by you to your investors as of the Effective Date, Board members, or advisors prior to the execution of this Addendum shall not be deemed to be a breach of this Section 9. The parties acknowledge and agree that the Press Release will not be deemed a breach of this Section 9. 10. General. Your obligations under this Addendum shall apply in the Territory. You will cause all of your Affiliates to comply with this Addendum, and you will be liable for any failure of any of your Affiliates to comply with this Addendum. You will not, and you will cause all of your Affiliates not to, allow or enable any third party to engage in any activity that violates, contravenes, or is inconsistent with the terms Addendum. This Addendum supersedes any other prior or collateral agreements, whether oral or written, with respect to the subject matter of this Addendum. This Addendum (including the SRR and the Exhibits attached to this Addendum) sets forth the entire understanding and agreement between the parties with respect to the subject matter of this Addendum. This Addendum may be amended only in a writing signed by both parties; provided, however, for clarity, and notwithstanding anything to the contrary in this Addendum, nothing in this Addendum restricts our right to change, modify, or amend the SRR or any aspect thereof in accordance with its terms. Capitalized terms that are not defined herein shall have the meaning assigned to them in Exhibit A. This Addendum shall be construed as if jointly drafted by the parties. The parties are entering this Agreement as independent contractors, and this Addendum will not be construed to create a partnership, joint venture or employment relationship between them. This Addendum will not be effective unless and until signed by both parties. You may not assign or otherwise transfer your rights or obligations under this Addendum without the prior written permission of us except in the event of a Change of Control where the assignee agrees to be bound by the terms of this Addendum. IN WITNESS WHEREOF, this Addendum has been duly executed by the parties as of the Effective Date. Facebook, Inc. BY: [*] NAME: [*] TITLE: [*] DATE: [*] 10 [*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED I N THIS DOCUMENT , MARKED BY BRACKETS , HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES A CT OF 1933, AS AMENDED . Zynga Game Network Inc. BY: [*] NAME: [*] TITLE: [*] DATE: [*]
Exhibit A Certain Definitions Affiliate(s) means, as to a party hereto, any Downstream Affiliate(s) or any Internal Reorg Affiliate(s) Average RPM means the average total ad revenue earned by us per every 1000 Page Views for advertising inventory displayed on the top twenty (20) most trafficked third party social games on which our advertising inventory appears, as calculated based on data maintained by us. Canvas Page(s) means a page on www.facebook.com where the majority of the content of such page is provided by a developer. Change of Control means a third party acquires, directly or indirectly, through merger, stock purchase, or otherwise: (i) beneficial ownership of more than fifty percent (50%) of the voting power of the issued and outstanding shares of you, (ii) the ability to nominate a majority of your board of directors, or (iii) all or substantially all of your assets. Cost of Goods Sold means [*]. Covered Zynga Services means all Zynga Services where (a) such Zynga Services are accessing or using any aspect of Facebook or (b) such Zynga Services utilize, incorporate, or contain any Facebook Data. Downstream Affiliate(s) means, as to any party hereto, any corporation, firm, partnership, person or other entity, whether de jure or de facto, directly or indirectly controlled by such party, where control means (a) beneficial ownership of greater than fifty percent (50%) of the equity interests in such entity (based on either economic ownership or voting power) or (b) the possession, directly or indirectly, of the power to independently direct or cause the direction of the management and policies of an entity, whether through the ownership of a voting equity interest, by contract or otherwise. Exclusivity Start Date means the date on which the obligations in Section 4.b(i) of this Addendum begin applying to each of the Covered Zynga Services, as such dates or the process for determining such dates are set forth in Exhibit B or Section 4.b(i) of this Addendum. Excluded Zynga Games mean the current (as of the Effective Date) and successor versions of the following (and only the following) games on [*], provided the successor version of any such game (i) is branded and offered under the same product name as the original version (i.e., a future successor version of [*] must be branded and offered as [*]) and (ii) uses substantially the same game play mechanics and user experience as the original version: [*]. Facebook means the products, services and technology we make available, including, without limitation, through (a) the website at www.facebook.com and any other Facebook branded or co-branded websites (including sub-domains, international versions, widgets, and mobile versions); (b) the Platform; and (c) other media, software (such as a toolbar), devices, or networks now existing or later developed. Facebook Data means all data or information (including, without limitation, data or information received from or about Facebook Users) you or any of your Affiliates receive or received directly from or through Facebook (including, without limitation, any data or information that you or any of your Affiliates knowingly receive or received directly from a third party that received, directly, such data or information from or through Facebook), or any data or information derived therefrom (including, without limitation, data or information that can be reversed engineered to data or information that you received from or through Facebook). By way of example only, and without limitation, a friend list that originated from or through 11 [*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED I N THIS DOCUMENT , MARKED BY BRACKETS , HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES A CT OF 1933, AS AMENDED .
facebook would constitute Facebook Data and your use of such friend list would result in all Zynga Services containing, incorporating, or utilizing such Facebook Data being a Covered Zynga Service. For purposes of clarity and illustration (but without limitation), the utilization, incorporation or containment of the following game-derived data for a user in a Zynga Service would not constitute Facebook Data and would not, in and of itself, cause such Zynga Service to be deemed a Covered Zynga Service: such users experience points with you, any of your virtual goods purchased by such user, and the game level achieved by such user in your game. Facebook Credits means any of our Payment Methods we elect to make available at our sole discretion. Facebook User is a human user of any aspect of Facebook. Implementation Start Date means the date on which you and your Affiliates must begin implementing Facebook Credits in each of the Covered Zynga Services, as such dates are set forth in Exhibit B and may be changed in accordance with this Addendum. Internal Reorg Affiliate(s) means, as to any party hereto, any Downstream Affiliate(s) of any direct or indirect parent or successor of such party (whether such parent or successor shall be a corporation, firm, partnership, person or other entity), whether de jure or de facto, that arises in connection with any reorganization of such party (whether by sale of all or substantially all of the assets, merger, consolidation or otherwise) in which (a) a majority of the members of the board of directors of such party prior to such reorganization represent a majority of the members of the board of directors of such parent or successor following the reorganization, or (b) the holders of shares or other ownership interests of such party prior to the reorganization continue to hold at least a majority of the shares or other ownership interests (based on either economic ownership or voting power) of such parent or successor following the reorganization. Named Entity individually and collectively means the social game properties owned by the companies identified in Exhibit C. Once each quarter during the Term or more frequently as may be agreed by the parties, you may update the list of Named Entities in Exhibit C upon no less than fourteen (14) days prior written notice to us by adding additional companies and removing the same number of companies, such that in no event shall there be more than [*] separate Named Entities at any given time. Net Revenue means revenue actually collected by us from third party advertisers (excluding our Affiliates or any of our other corporate affiliates or subsidiaries) [*], net of our Cost of Goods Sold. Other Zynga Services mean all Zynga Services that are not Covered Zynga Services. Page View means a request to load a web page that is seen by a user. Payment Method means any solution, functionality, platform, method, wallet, item, product, checkout process, currency (either virtual or real world currency), resource, means, or mechanism (a) used to fund or process purchases of any kind or (b) used to give or receive anything of value including, but not limited to, third party funded offers. Platform means a set of APIs and services that enable services and others including, without limitation, application (including, without limitation, applications or websites that use or access Platform, as well as anything else that receives data from Facebook) developers and website operators to retrieve or access data from Facebook or provide data to Facebook. Territory means worldwide. Zynga Other Page mean any web page that is owned and operated by you or any of your Affiliates that is not a Zynga Game Page. 12 [*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED I N THIS DOCUMENT , MARKED BY BRACKETS , HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES A CT OF 1933, AS AMENDED .
Zynga Game Page means any web page on which a Covered Zynga Service is playable (including, without limitation, loading pages and landing pages) and that is accessible or made available on any websites that are owned and operated by you or any of your Affiliates. For the purposes of clarification, Zynga Game Pages do not include Canvas Pages or any other pages on www.faceboook.com. Zynga Services means all games, game-related technology, game-related applications, and/or game-related platforms, now existing or later developed, that are made available, offered or provided by you or any of your Affiliates, either directly or indirectly through a third party (including, without limitation as part of a relationship or experience that is substantially branded or co-branded with any of your trademarks, logos or other branding elements or those of any of your Affiliates). 13 [*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED I N THIS DOCUMENT , MARKED BY BRACKETS , HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES A CT OF 1933, AS AMENDED .
Exhibit B Implementation Schedule

Covered Zynga Services Implementation Start Date Exclusivity Start Date
PetVille FishVille Treasure Isle Caf World Mafia Wars YoVille Live Poker by Zynga FarmVille All other Covered Zynga Services*
Effective Date Effective Date Effective Date Effective Date Effective Date Effective Date Effective Date Effective Date Effective Date
June 30, 2010 June 30, 2010 July 15, 2010 July 15, 2010 July 31, 2010 August 15, 2010 August 31, 2010 August 31, 2010 August 31, 2010, or as set forth in Section 4.b(i) for all Covered Zynga Services that are created after the Effective Date or offered or made available for the first time after the Effective Date
* For purposes of clarity, for each Covered Zynga Service that is created after the Effective Date or offered or otherwise made available to any third party for the first time after the Effective Date, the Implementation Start Date shall be the same as the Exclusivity Start Date. You shall provide us with prior written notice of any Covered Zynga Services you intend to offer or make available no later than seven (7) days prior to it being offered or otherwise made available to any third party. 14 [*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED I N THIS DOCUMENT , MARKED BY BRACKETS , HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES A CT OF 1933, AS AMENDED .
Exhibit C Named Entities [*] 15 [*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED I N THIS DOCUMENT , MARKED BY BRACKETS , HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES A CT OF 1933, AS AMENDED .
Exhibit D Permitted Third Party Payment Options [*] 16 [*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED I N THIS DOCUMENT , MARKED BY BRACKETS , HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES A CT OF 1933, AS AMENDED .
Exhibit E Escalation Personnel For operational or business issues: Zynga: [*] Facebook: [*] For technical issues: Zynga: [*] Facebook: [*] In the event that either party appoints a successor to any of the above personnel, such party shall notify the other party and, upon the other partys receipt of such notice, this Exhibit E shall be deemed amended to reflect such successor. 17 [*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED I N THIS DOCUMENT , MARKED BY BRACKETS , HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES A CT OF 1933, AS AMENDED .
Exhibit F [*] 18 [*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED I N THIS DOCUMENT , MARKED BY BRACKETS , HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES A CT OF 1933, AS AMENDED .
Exhibit G Full Screen Option Mockup
19 [*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED I N THIS DOCUMENT , MARKED BY BRACKETS , HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES A CT OF 1933, AS AMENDED .
Exhibit H Operational Requirements Compliance We will become PCI Level 1 certified compliant by [*]. Fraud The parties will work together in good faith to identify and implement procedures to (i) manage fraud issues; (ii) effect appropriate overrides of fraud triggers and velocity limits; and (iii) provide reason codes to you describing the reason for any rejections. For the avoidance of doubt, until such time as we implement user flow for transactions that are greater than $1,000.00, you may maintain your own high value transaction flow. Financial Reporting Within ten (10) days after the Effective Date, you will provide [*] ( Your Reporting Requirements). We will use commercially reasonable efforts to enable the settlement of funds to multiple accounts by July 31, 2010 for all transactions occurring on or after July 1, 2010. We will use commercially reasonable efforts to provide detailed API reporting that meets your Reporting Requirements no later than July 31, 2010 for all transactions occurring on or after July 1, 2010. We will use commercially reasonable efforts to provide detailed flat file reporting that meets Your Reporting Requirements no later than July 31, 2010 for all transactions occurring on or after July 1, 2010. Customer Service The parties will work together in good faith to identify and implement procedures to offer satisfactory customer service in connection with the use of facebook Credits on Covered Zynga Services. Payment Terms There will be [*] payment periods [*] for all Facebook Credits you have accepted for transactions and redeemed by you: [*]. We will pay out for each period within [*] days after the end of each period. 20 [*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED I N THIS DOCUMENT , MARKED BY BRACKETS , HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES A CT OF 1933, AS AMENDED .
AMENDMENT NO. 1 TO DEVELOPER ADDENDUM This Amendment No. 1 (this Amendment) to the Developer Addendum dated May 14, 2010, by and between Zynga Inc. ( Zynga) and Facebook, Inc. (Facebook ) (the Addendum and together with the Statement of Rights and Responsibilities, as amended and supplemented by the Addendum and the Developer Addendum No. 2 dated December 26, 2010, the Original Agreement), is made effective as of October 1, 2011 ( Amendment Effective Date) by and between Zynga, Facebook, Zynga Game Ireland Limited, a limited company organized under the laws of Ireland, resident in Ireland and having its registered office located at 25-28 North Wall Quay, Dublin 1, Ireland ( Zynga Ireland), Zynga Luxembourg S.r.l.., a Luxembourg Socit Anonyme Responsabilit Limite having its registered office at 15, rue Edward Steichen, L-2540 Luxembourg (Commissionaire) (solely to the extent set forth on the signature page hereto) and Facebook Ireland Limited, a limited company organized under the laws of Ireland, resident in Ireland and having its principal place of business at Hanover Reach, 5-7 Hanover Quay, Dublin 2, Ireland (Facebook Ireland ). Zynga, Facebook, Zynga Ireland, Commissionaire (solely to the extent set forth on the signature page hereto) and Facebook Ireland are each a Party and together Parties under this Amendment. Capitalized terms used and not otherwise defined herein shall have the meanings given such terms in the Original Agreement to the extent defined therein. W HEREAS Zyngas Affiliates (as defined in the Addendum), including Zynga Ireland and Commissionaire, are bound by the terms of the Addendum; W HEREAS Zynga and Facebook now wish to amend the Addendum to specifically add Zynga Ireland, Commissionaire (solely to the extent set forth on the signature page hereto) and Facebook Ireland as parties to the Addendum; W HEREAS outside of the United States players enter into transactions with Zynga Ireland and within the United States players enter into transactions with Zynga; W HEREAS the Parties further wish to specify that with respect to transactions entered into with players by Zynga Ireland, any related transactions will be transacted between Zynga Ireland and Facebook Ireland; W HEREAS Zynga and Zynga Ireland have authorized and designated the Commissionaire to be responsible for the collection and receipt of payments due to Zynga Ireland and wish all revenue payments owed by Facebook Ireland to Zynga Ireland be remitted to Commissionaire; NOW , THEREFORE , in consideration of the mutual promises and assurances contained in the Original Agreement and this Amendment, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows: 1. 2. Zynga Ireland, Commissionaire (solely to the extent set forth on the signature page hereto) and facebook Ireland are hereby added as parties to the Addendum. Any transactions as described in the Addendum and this Amendment arising from transactions entered into by Zynga Ireland shall be transacted between facebook Ireland and Zynga Ireland. For clarity, any such transactions entered into by Zynga shall be transacted between Facebook and Zynga. 21
3. 4.
facebook Ireland shall remit any and all revenue payments due to Zynga Ireland to Commissionaire as directed by Zynga or Zynga Ireland. The determination of these amounts will be based on a process mutually agreeable to the Parties. Notices to Zynga Ireland, the Commissionaire and facebook Ireland shall be sent to: If to facebook Ireland: Hanover Reach, 5-7 Hanover Quay Dublin 2, Ireland Attn: Shane Crehan email: shanecrehan@fb.com If to Zynga Ireland or Commissionaire: Zynga Game Ireland Limited 25-28 North Wall Quay Dublin 1, Ireland Attn: Managing Director Zynga Luxembourg S.r.l. 15, rue Edward Steichen L-2540 Luxembourg Attn: Managing Director With copies to: Zynga Inc. 699 8th Street San Francisco, CA 94103 USA Attn: Sundeep Jain cc: Office of General Counsel email: legalnotices@zynga.com fax: +1-415-358-5665
5.
This Amendment together with the Original Agreement constitute the entire agreement of the parties with respect to the matters set forth herein and there are no other agreements, commitments or understandings among the parties with respect to the matters set forth herein. Nothing in this Amendment shall amend the terms and conditions of Developer Addendum No. 2, and all terms and conditions of the Original Agreement not expressly amended herein shall remain in full force and effect. The terms and conditions of this Amendment shall prevail over any conflicting terms and conditions in the Original Agreement. Signature Page Follows 22
The parties hereto have entered into this Amendment as of the Amendment Effective Date by their duly authorized representatives. ZYNGA INC: By: Name: Title: Date: /s/ Dave Wehner Dave Wehner CFO October 7, 2011 FACEBOOK, INC.: By: Name: Title: Date: FACEBOOK IRELAND LTD: By: Name: Title: Date: /s/ Shane Crehan Shane Crehan Director Finance 13/10/11
ZYNGA GAME IRELAND LTD: By: Name: Title: Date: Accepted, acknowledged and agreed solely as to the right to receive all payments owed to Zynga Ireland as set forth in this Amendment and for no other purpose: Zynga Luxembourg S.r.l. By: Name: Title: Date: 23
The parties hereto have entered into this Amendment as of the Amendment Effective Date by their duly authorized representatives. ZYNGA INC: By: Name: Title: Date: /s/ Dave Wehner Dave Wehner CFO October 7, 2011 FACEBOOK, INC.: By: /s/ Dan Rose
Name: Dan Rose Title: VP Partnerships and Platform Marketing Date: 13/10/11
ZYNGA GAME IRELAND LTD: By: Name: Title: Date: Accepted, acknowledged and agreed solely as to the right to receive all payments owed to Zynga Ireland as set forth in this Amendment and for no other purpose: Zynga Luxembourg S.r.l. By: Name: Title: Date: 24
FACEBOOK IRELAND LTD: By: /s/ Shane Crehan
Name: Shane Crehan Title: Director Finance Date: 13/10/11
The parties hereto have entered into this Amendment as of the Amendment Effective Date by their duly authorized representatives. ZYNGA INC: By: Name: Title: Date: ZYNGA GAME IRELAND LTD: By: Name: Title: Date: /s/ Ana Fitzpatrick Ana Fitzpatrick Director 7/10/11 FACEBOOK, INC.: By: Name: Title: Date: FACEBOOK IRELAND LTD: By: Name: Title: Date:
Accepted, acknowledged and agreed solely as to the right to receive all payments owed to Zynga Ireland as set forth in this Amendment and for no other purpose: Zynga Luxembourg S.r.l. By: Name: Title: Date: 25
The parties hereto have entered into this Amendment as of the Amendment Effective Date by their duly authorized representatives. ZYNGA INC: By: Name: Title: Date: ZYNGA GAME IRELAND LTD: By: Name: Title: Date: Accepted, acknowledged and agreed solely as to the right to receive all payments owed to Zynga Ireland as set forth in this Amendment and for no other purpose: Zynga Luxembourg S.r.l. By: Name: Title: Date: /s/ Alberto Fasanotti Alberto Fasanotti Director 10/7/2011 26 FACEBOOK, INC.: By: Name: Title: Date: FACEBOOK IRELAND LTD: By: Name: Title: Date:
Exhibit 10.23 ZYNGA IN C. C HANGE I N CONTROL SEVERANCE BENEFIT PLAN 1. INTRODUCTION . The Zynga Inc. Change in Control Severance Benefit Plan (the Plan) is established effective September 14, 2011 (the Effective Date). The Plan provides for the payment of accelerated vesting severance benefits to certain employees of Zynga Inc. (the Company) in the event of a Change in Control. This document constitutes the Summary Plan Description for the Plan. 2. DEFINITIONS . For purposes of the Plan, the following terms are defined as follows: (a) Board means the Board of Directors of the Company.
(b) Cause means, with respect to a Participant: (i) any willful, material violation of any law or regulation applicable to the business of the Company, conviction for, or guilty plea to, a felony or a crime involving moral turpitude, or any willful perpetration of a common law fraud; (ii) commission of an act of personal dishonesty that involves personal profit in connection with the Company or any other entity having a business relationship with the Company; (iii) any material breach of any provision of any agreement or understanding between the Company and the Participant regarding the terms of service as an employee, officer, director, or consultant to the Company, including without limitation, the willful and continued failure or refusal to perform the material duties required an employee, officer, director or consultant of the Company, other than as a result of having a disability that prevents the Participant from performing the material duties required of a person holding the Participants position with the Company for a period of at least 120 days, or a breach of any applicable invention assignment and confidentiality agreement or similar agreement between the Company and the Participant; (iv) disregard of the policies of the Company so as to cause loss, damage, or injury to the property, reputation, or employees of the Company; or (v) any other misconduct that is materially injurious to the financial condition or business reputation of, or is otherwise materially injurious to, the Company. (c) Change in Control means the occurrence, in a single transaction or in a series of related transactions, of any one or more of the following events: (i) any person, entity or group (within the meaning of Section 13(2)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended) acquires beneficial ownership of securities of the Company representing more than 50% of the combined voting power of the Companys then outstanding securities other than by virtue of a merger, consolidation or similar transaction. Notwithstanding the foregoing, a Change in Control will not be deemed to occur (A) on account of the acquisition of securities of the Company directly from the Company, (B) on account of the acquisition of securities of the Company by an investor, any affiliate thereof or any other person, entity or group that acquires the Companys securities in a transaction or series of related transactions the primary purpose of which is to obtain financing for the Company through the issuance of equity securities, or (C) solely because the level of beneficial ownership held by any such person, entity or group (the Subject Person ) exceeds the designated percentage threshold of the outstanding voting securities as a result of a repurchase or other 1
acquisition of voting securities by the Company reducing the number of shares outstanding, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of voting securities by the Company, and after such share acquisition, the Subject Person becomes the beneficial owner of any additional voting securities that, assuming the repurchase or other acquisition had not occurred, increases the percentage of the then outstanding voting securities beneficially owned by the Subject Person over the designated percentage threshold, then a Change in Control will be deemed to occur; (ii) there is consummated a merger, consolidation or similar transaction involving (directly or indirectly) the Company and, immediately after the consummation of such merger, consolidation or similar transaction, the stockholders of the Company immediately prior thereto do not beneficially own, either (A) outstanding voting securities representing more than 50% of the combined outstanding voting power of the surviving entity in such merger, consolidation or similar transaction, or (B) more than 50% of the combined outstanding voting power of the parent of the surviving entity in such merger, consolidation or similar transaction, in each case in substantially the same proportions as their beneficial ownership of the outstanding voting securities of the Company immediately prior to such transaction; (iii) there is consummated a sale, lease, exclusive license or other disposition of all or substantially all of the consolidated assets of the Company and its subsidiaries, other than a sale, lease, license or other disposition of all or substantially all of the consolidated assets of the Company and its subsidiaries to an entity, more than 50% of the combined voting power of the voting securities of which are beneficially owned by stockholders of the Company in substantially the same proportions as their beneficial ownership of the outstanding voting securities of the Company immediately prior to such sale, lease, license or other disposition; or (iv) individuals who, on the date the Plan is adopted by the Board, are members of the Board (the Incumbent Board ) cease for any reason to constitute at least a majority of the members of the Board; provided, however, that if the appointment or election (or nomination for election) of any new Board member was approved or recommended by a majority vote of the members of the Incumbent Board then still in office, such new member will, for purposes of the Plan, be considered as a member of the Incumbent Board. Notwithstanding the foregoing, the term Change in Control will not include a sale of assets, merger or other transaction effected exclusively for the purpose of changing the domicile of the Company. To the extent required for compliance with Section 409A of the Code, in no event will a Change in Control be deemed to have occurred if such transaction is not also a change in the ownership or effective control of the Company or a change in the ownership of a substantial portion of the assets of the Company as determined under Treasury Regulations Section 1.409A-3(i)(5) (without regard to any alternative definition thereunder). (d) Code means the Internal Revenue Code of 1986, as amended.
(e) Constructive Termination means the voluntary termination of employment with the Company by the Participant resulting in a Separation from Service after one of the following is undertaken without the Participants written consent: (i) the assignment to the Participant of any duties or responsibilities that results in a material diminution in the 2
Participants employment role in the Company as in effect immediately prior to the date of such actions; (ii) a greater than 10% aggregate reduction by the Company in the Participants annual base salary (that is, a material reduction in base compensation), as in effect immediately prior to the date of such actions; provided, however, that if there are across-the-board proportionate reductions for all similarly situated employees of the Company, as determined by the Plan Administrator, by the same percentage amount as part of a general salary reduction, the reduction as to the Participant shall not constitute a basis for a Constructive Termination or (iii) a non-temporary relocation of the Participants business office to a location that increases the Participants one way commute by more than 35 miles from the primary location at which the Participant performs duties as of immediately prior to the date of such action. An event or action by the Company will not give the Participant grounds to voluntarily terminate employment as a Constructive Termination unless (A) the Participant gives the Company written notice within 30 days after the initial existence of such event or action that the event or action by the Company would give the Participant such grounds to so terminate employment, (B) such event or action is not reversed, remedied or cured, as the case may be, by the Company as soon as possible but in no event later than within 30 days of receiving such written notice from the Participant, and (C) the Participant terminates employment within 90 days following the end of the cure period. (f) ERISA means the Employee Retirement Income Security Act of 1974, as amended.
(g) Involuntary Termination Without Cause means a Participants involuntary termination of employment by the Company resulting in a Separation from Service for a reason other than death, disability or Cause. (h) Participant means an individual (i) who is employed by the Company who holds a title of Vice President of the Company or above, and (ii) who has received a Participation Notice from and executed and returned such Participation Notice to the Company. (i) Participation Notice means the latest notice delivered by the Company to a Participant informing the employee that the employee is eligible to participate in the Plan, substantially in the form of EXHIBIT A hereto. (j) Plan Administrator means the Board or any committee thereof duly authorized by the Board to administer the Plan. The Plan Administrator may, but is not required to be, the Compensation Committee of the Board. The Board may at any time administer the Plan, in whole or in part, notwithstanding that the Board has previously appointed a committee to act as the Plan Administrator. (k) Qualifying Termination means either (i) an Involuntary Termination Without Cause, or (ii) a Constructive Termination, in either case that occurs during the 30 day period immediately preceding a Change in Control or the 18 month period immediately following a Change in Control. Termination of employment of a Participant due to death or disability will not constitute a Qualifying Termination. 3
(l) Separation from Service means a separation from service within the meaning of Treasury Regulations Section 1.409A-1(h), without regard to any permissible alternative definition of termination of employment thereunder. 3. ELIGIBILITY FOR BENEFITS.
(a) Eligibility; Exceptions to Benefits. Subject to the terms and conditions of this Plan, the Company will provide the benefits described in Section 4 to the affected Participant. A Participant will not receive benefits under the Plan (or will receive reduced benefits under the Plan) in the following circumstances, as determined by the Plan Administrator, in its sole discretion: (i) The Participant is a party to an employment agreement or equity award agreement with the Company, or is an eligible participant in another benefit plan, in each case providing for accelerated vesting of equity awards in the event of a Change in Control and/or a Qualifying Termination, and which agreement or plan is in effect at the time of the Change in Control and/or the Qualifying Termination, and which agreement or plan provides benefits in an amount that is greater than the amount provided for in this Plan, in which case such Participants applicable benefit will be governed by the terms of such agreement or plan. This Plan does not provide for duplication of benefits with any such other agreement or plan. (ii) The Participants employment terminates or is terminated for any reason other than a Qualifying Termination, or is terminated for any reason more than 30 days prior to a Change in Control. (iii) The Participant has not entered into the Companys standard form of Employee Invention Assignment and Confidentiality Agreement or any similar or successor document (the Proprietary Agreement ). (iv) The Participant has failed to execute, or has revoked, the Release (as defined and described in Section 6(a) below) within 60 days following his or her Separation from Service. (v) The Participant has failed to return all Company Property. For this purpose, Company Property means all paper and electronic Company documents (and all copies thereof) created and/or received by the Participant during his or her period of employment with the Company and other Company materials and property that the Participant has in his or her possession or control, including, without limitation, Company files, notes, drawings records, plans, forecasts, reports, studies, analyses, proposals, agreements, financial information, research and development information, sales and marketing information, operational and personnel information, specifications, code, software, databases, computer-recorded information, tangible property and equipment (including, without limitation, leased vehicles, computers, computer equipment, software programs, facsimile machines, mobile telephones, servers), credit and calling cards, entry cards, identification badges and keys, and any materials of any kind that contain or embody any proprietary or confidential information of the Company (and all reproductions thereof, in whole or in part). As a condition to receiving benefits under the Plan, a Participant must not make or retain copies, reproductions or summaries of any such Company 4
documents, materials or property. However, a Participant is not required to return his or her personal copies of documents evidencing the Participants hire, termination, compensation, benefits and stock options and any other documentation received as a stockholder of the Company. (b) Termination of Benefits. A Participants right to receive benefits under the Plan will terminate immediately if, at any time prior to or during the period for which the Participant is receiving benefits under the Plan, the Participant, without the prior written approval of the Plan Administrator: (i) willfully breaches a material provision of the Proprietary Agreement;
(ii) encourages or solicits any of the Companys then current employees to leave the Companys employ for any reason or interferes in any other manner with employment relationships at the time existing between the Company and its then current employees; or (iii) induces any of the Companys then current clients, customers, suppliers, vendors, distributors, licensors, licensees or other third party to terminate their existing business relationship with the Company or interferes in any other manner with any existing business relationship between the Company and any then current client, customer, supplier, vendor, distributor, licensor, licensee or other third party. 4. AMOUNT OF BENEFITS.
(a) Single Trigger Vesting. Subject to a Participants continued service and eligibility under this Plan through the time immediately prior to a Change in Control, or in the event of a Qualifying Termination in the 30 day period immediately preceding a Change in Control, and except as may otherwise be provided in the Participants Participation Notice, 25% of the total number of shares (or such lesser number as remain unvested) subject to each of the Participants compensatory equity awards that are outstanding as of immediately prior to the Change in Control (or, in the case of a Qualifying Termination, as of the Qualifying Termination and after giving effect to the accelerated vesting in Section 4(b) below), including, without limitation, stock options and restricted stock units, will immediately vest, and, as applicable, become exercisable. (b) Double Trigger Vesting. In the event of the Qualifying Termination of a Participant who is serving at or above the level of Senior Vice President at the time of the Qualifying Termination, and except as may otherwise be provided in the Participants Participation Notice, an additional 25% of the total number of shares (or such lesser number as remain unvested) subject to each of the Participants then-outstanding compensatory equity awards, including, without limitation, stock options and restricted stock units, will vest, and, as applicable, become exercisable, effective as of the date of the Qualifying Termination This vesting is in addition to any vesting benefit for which the Participant is eligible under Section 4(a) above, such that a Participant serving at or above the level of Senior Vice President at the time of the Qualifying Termination may be eligible for acceleration of up to 50% of the total number of shares subject to each then-outstanding compensatory equity award. 5
5. ADDITIONAL BENEFITS. The Plan Administrator may, in its sole discretion, provide additional or enhanced benefits to the Participants and may also provide the benefits of this Plan to employees who are not Participants ( Non-Participants) but who are chosen by the Plan Administrator, in its sole discretion, to receive benefits under this Plan. The provision of any such benefits to a Participant or a Non-Participant will in no way obligate the Company to provide such benefits to any other Participant or to any other Non-Participant, even if similarly situated. If benefits under the Plan are provided to a Non-Participant, references in the Plan to Participant will be deemed to refer to such Non-Participants. 6. LIMITATIONS ON BENEFITS.
(a) Release. To be eligible to receive any benefits under the Plan that are triggered by a Qualifying Termination, a Participant must execute, in connection with the Participants Qualifying Termination, a general waiver and release in substantially the form attached hereto as EXHIBIT B, EXHIBIT C, or EXHIBIT D, as appropriate (the Release), and such release must become effective in accordance with its terms within 60 days following the Separation from Service (the Release Date). With respect to any outstanding stock option held by the Participant that is subject to acceleration under this Plan, such option may not be exercised as to any shares as to which the vesting was accelerated until the Release Date, and only if the Release becomes effective. The Plan Administrator, in its sole discretion, may modify the form of the required Release to comply with applicable law, and any such Release may be incorporated into a termination agreement or other agreement with the Participant. (b) Prior Agreements; Certain Reductions. The Plan Administrator will reduce a Participants benefits under this Plan by any other statutory severance obligations or contractual severance benefits, obligations for pay in lieu of notice, and any other similar benefits payable to the Participant by the Company (or any successor thereto) that are due in connection with the Participants Qualifying Termination and that are in the same form as the benefits provided under this Plan (that is, equity award vesting credit). Without limitation, this reduction includes a reduction for any benefits required pursuant to (i) any applicable legal requirement, including, without limitation, the Worker Adjustment and Retraining Notification Act (the WARN Act ), (ii) a written employment or severance agreement with the Company, (iii) any Company policy or practice providing for the Participant to remain on the payroll for a limited period of time after being given notice of the termination of the Participants employment, and (iv) any required salary continuation, notice pay, statutory severance payment, or other payments either required by local law, or owed pursuant to a collective labor agreement, as a result of the termination of the Participants employment. The benefits provided under the Plan are intended to satisfy, to the greatest extent possible, and not to provide benefits duplicative of, any and all statutory, contractual and collective agreement obligations of the Company in respect of the form of benefits provided under this Plan that may arise out of a Qualifying Termination, and the Plan Administrator will so construe and implement the terms of the Plan. Reductions may be applied on a retroactive basis, with benefits previously provided being recharacterized as benefits pursuant to the Companys statutory or other contractual obligations. The payments pursuant to the Plan are in addition to, and not in lieu of, any unpaid salary, bonuses or employee welfare benefits to which a Participant may be entitled for the period ending with the Participants Qualifying Termination. 6
(c) Mitigation. Except as otherwise specifically provided in the Plan, a Participant will not be required to mitigate damages or the amount of any payment provided under the Plan by seeking other employment or otherwise, nor will the amount of any payment provided for under the Plan be reduced by any compensation earned by a Participant as a result of employment by another employer or any retirement benefits received by such Participant after the date of the Participants termination of employment with the Company. (d) Indebtedness of Participants. If a Participant is indebted to the Company on the effective date of his or her Qualifying Termination, the Company reserves the right to offset the payment of any severance benefits under the Plan by the amount of such indebtedness. Such offset shall be made in accordance with all applicable laws. The Participants execution of the Participant Notice constitutes knowing written consent to the foregoing. (e) Parachute Payments. Except as otherwise expressly provided in an agreement between a Participant and the Company, if any payment or benefit the Participant would receive in connection with a Change in Control from the Company or otherwise (a Payment ) would (i) constitute a parachute payment within the meaning of Section 280G of the Code, and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the Excise Tax), then such Payment will be equal to the Reduced Amount. The Reduced Amount will be either (A) the largest portion of the Payment that would result in no portion of the Payment being subject to the Excise Tax, or (B) the largest portion, up to and including the total, of the Payment, whichever amount, after taking into account all applicable federal, state, provincal, foreign and local employment taxes, income taxes, and the Excise Tax (all computed at the highest applicable marginal rate), results in the Participants receipt, on an after-tax basis, of the greatest economic benefit notwithstanding that all or some portion of the Payment may be subject to the Excise Tax. If a reduction in payments or benefits constituting parachute payments is necessary so that the Payment equals the Reduced Amount, reduction will occur in the following order: (1) reduction of cash payments; (2) cancellation of accelerated vesting of stock awards other than stock options; (3) cancellation of accelerated vesting of stock options; and (4) reduction of other benefits paid to the Participant. Within any such category of Payments (that is, (1), (2), (3) or (4)), a reduction will occur first with respect to amounts that are not deferred compensation within the meaning of Section 409A of the Code and then with respect to amounts that are. In the event that acceleration of vesting of stock award compensation is to be reduced, such acceleration of vesting will be cancelled in the reverse order of the date of grant of the Participants applicable type of stock award (i.e., earliest granted stock awards are cancelled last). If Section 409A is not applicable by law to a Participant, the Company shall determine whether any similar law in the Participants jurisdiction applies and should be taken into account. 7. TAX MATTERS.
(a) Application of Code Section 409A. It is intended that all of the benefits provided under the Plan satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Code and the regulations and other guidance thereunder and any state law of similar effect (collectively, Section 409A) provided under Treasury Regulations Sections 1.409A-1(b)(4), 1.409A-1(b)(5) and 1.409A-1(b)(9), and the Plan will be construed to the greatest extent possible as consistent with those provisions. To the extent not so exempt, the Plan 7
(and any definitions under the Plan) will be construed in a manner that complies with Section 409A, and incorporates by reference all required definitions and payment terms. For purposes of Section 409A (including, without limitation, for purposes of Treasury Regulations Section 1.409A2(b)(2)(iii)), a Participants right to receive any installment payments under the Plan will be treated as a right to receive a series of separate payments and, accordingly, each installment payment under the Plan will at all times be considered a separate and distinct payment. If the Plan Administrator determines that any of the payments upon a Separation from Service provided under the Plan constitute deferred compensation under Section 409A and if the Participant is a specified employee of the Company, as such term is defined in Section 409A(a)(2)(B)(i), at the time of his or her Separation from Service, then, solely to the extent necessary to avoid the incurrence of the adverse personal tax consequences under Section 409A, the timing of the payments upon a Separation from Service will be delayed as follows: on the earlier to occur of (i) the date that is six months and one day after the effective date of the Participants Separation from Service, and (ii) the date of the Participants death (such earlier date, the Delayed Initial Payment Date ), the Company will (A) pay to the Participant a lump sum amount equal to the sum of the payments upon Separation from Service that the Participant would otherwise have received through the Delayed Initial Payment Date if the commencement of the payments had not been delayed pursuant to this Section 7(a), and (B) commence paying the balance of the payments in accordance with the applicable payment schedules set forth in above. No interest will be due on any amounts so deferred. If Section 409A is not applicable by law to a Participant, the Company shall determine whether any similar law in the Participants jurisdiction applies and should be taken into account. (b) Withholding. All payments under the Plan will be subject to all applicable withholding obligations of the Company, including, without limitation, obligations to withhold for federal, state, provincial, foreign and local income and employment taxes. (c) Tax Advice. By becoming a Participant in the Plan, Participant agrees to review with Participants own tax advisors the federal, state, provincial, local and foreign tax consequences of participation in this Plan. Participant shall rely solely on such advisors and not on any statements or representations of the Company or any of its agents. Participant understands that Participant (and not the Company) shall be responsible for his or her own tax liability that may arise as a result of becoming a Participant in the Plan. 8. REEMPLOYMENT . In the event of a Participants reemployment by the Company during the period of time in respect of which severance benefits have been provided (that is, benefits as a result of a Qualifying Termination), the Company, in its sole and absolute discretion, may require such Participant to repay to the Company all or a portion of such severance benefits as a condition of reemployment. 9. RIGHT TO INTERPRET PLAN; A MENDMENT AND TERMINATION.
(a) Exclusive Discretion. The Plan Administrator will have the exclusive discretion and authority to establish rules, forms, and procedures for the administration of the Plan and to construe and interpret the Plan and to decide any and all questions of fact, interpretation, definition, computation or administration arising in connection with the operation of the Plan, 8
including, without limitation, the eligibility to participate in the Plan, the amount of benefits paid under the Plan and any adjustments that need to be made in accordance with the laws applicable to a Participant. The rules, interpretations, computations and other actions of the Plan Administrator will be binding and conclusive on all persons. (b) Amendment or Termination. The Company reserves the right to amend or terminate the Plan, any Participation Notice issued pursuant to the Plan or the benefits provided hereunder at any time; provided, however, that no such amendment or termination will apply to any Participant who would be adversely affected by such amendment or termination unless such Participant consents in writing to such amendment or termination. Any action amending or terminating the Plan or any Participation Notice will be in writing and executed by a duly authorized officer of the Company. 10. NO IMPLIED EMPLOYMENT CONTRACT . The Plan will not be deemed (i) to give any employee or other person any right to be retained in the employ of the Company, or (ii) to interfere with the right of the Company to discharge any employee or other person at any time, with or without cause, which right is hereby reserved. 11. LEGAL CONSTRUCTION . the Plan will be governed by and construed under the laws of the State of California (without regard to principles of conflict of laws), except to the extent preempted by ERISA. 12. C LAIMS, INQUIRIES A N D A PPEALS.
(a) Applications for Benefits and Inquiries. Any application for benefits, inquiries about the Plan or inquiries about present or future rights under the Plan must be submitted to the Plan Administrator in writing by an applicant (or his or her authorized representative). The Plan Administrator is set forth in Section 14(d). (b) Denial of Claims. In the event that any application for benefits is denied in whole or in part, the Plan Administrator must provide the applicant with written or electronic notice of the denial of the application, and of the applicants right to review the denial. Any electronic notice will comply with the regulations of the U.S. Department of Labor. The notice of denial will be set forth in a manner designed to be understood by the applicant and will include the following: (1) (2) the specific reason or reasons for the denial; references to the specific Plan provisions upon which the denial is based;
(3) a description of any additional information or material that the Plan Administrator needs to complete the review and an explanation of why such information or material is necessary; and (4) an explanation of the Plans review procedures and the time limits applicable to such procedures, including a statement of the applicants right to bring a civil 9
action under Section 502(a) of ERISA following a denial on review of the claim, as described in Section 12(d). The notice of denial will be given to the applicant within 90 days after the Plan Administrator receives the application, unless special circumstances require an extension of time, in which case, the Plan Administrator has up to an additional 90 days for processing the application. If an extension of time for processing is required, written notice of the extension will be furnished to the applicant before the end of the initial 90 day period. The notice of extension will describe the special circumstances necessitating the additional time and the date by which the Plan Administrator is to render its decision on the application. (c) Request for a Review. Any person (or that persons authorized representative) for whom an application for benefits is denied, in whole or in part, may appeal the denial by submitting a request for a review to the Plan Administrator within 60 days after the application is denied. A request for a review will be in writing and will be addressed to: Zynga Inc. Attn: General Counsel 444 De Haro Street Suite 132 San Francisco, CA 94107 A request for review must set forth all of the grounds on which it is based, all facts in support of the request and any other matters that the applicant feels are pertinent. The applicant (or his or her representative) will have the opportunity to submit (or the Plan Administrator may require the applicant to submit) written comments, documents, records, and other information relating to his or her claim. The applicant (or his or her representative) will be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to his or her claim. The review will take into account all comments, documents, records and other information submitted by the applicant (or his or her representative) relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination. (d) Decision on Review. The Plan Administrator will act on each request for review within 60 days after receipt of the request, unless special circumstances require an extension of time (not to exceed an additional 60 days), for processing the request for a review. If an extension for review is required, written notice of the extension will be furnished to the applicant within the initial 60 day period. This notice of extension will describe the special circumstances necessitating the additional time and the date by which the Plan Administrator is to render its decision on the review. The Plan Administrator will give prompt, written or electronic notice of its decision to the applicant. Any electronic notice will comply with the regulations of the U.S. Department of Labor. In the event that the Plan Administrator confirms the denial of the application for benefits, in whole or in part, the notice will set forth, in a manner designed to be understood by the applicant, the following: (1) the specific reason or reasons for the denial; 10
(2)
references to the specific Plan provisions upon which the denial is based;
(3) a statement that the applicant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to his or her claim; and (4) a statement of the applicants right to bring a civil action under Section 502(a) of ERISA.
(e) Rules and Procedures. The Plan Administrator will establish rules and procedures, consistent with the Plan and with ERISA, as necessary and appropriate in carrying out its responsibilities in reviewing benefit claims. The Plan Administrator may require an applicant who wishes to submit additional information in connection with an appeal from the denial of benefits to do so at the applicants own expense. (f) Exhaustion of Remedies. No legal action for benefits under the Plan may be brought until the applicant (i) has submitted a written application for benefits in accordance with the procedures described by Section 12(a), (ii) has been notified by the Plan Administrator that the application is denied, (iii) has filed a written request for a review of the application in accordance with the appeal procedure described in Section 12(c), and (iv) has been notified that the Plan Administrator has denied the appeal. Notwithstanding the foregoing, if the Plan Administrator does not respond to an applicants claim or appeal within the relevant time limits specified in this Section 12, the applicant may bring legal action for benefits under the Plan pursuant to Section 502(a) of ERISA. 13. BASIS OF PAYMENTS TO A N D FROM PLAN. All benefits under the Plan will be paid by the Company. The Plan will be unfunded, and benefits hereunder will be paid only from the general assets of the Company. 14. O THER PLAN INFORMATION.
(a) Employer and Plan Identification Numbers. The Employer Identification Number assigned to the Company (which is the Plan Sponsor as that term is used in ERISA) by the Internal Revenue Service is 42-1733483. The Plan Number assigned to the Plan by the Plan Sponsor pursuant to the instructions of the Internal Revenue Service is 525. (b) Ending Date for Plans Fiscal Year. The date of the end of the fiscal year for the purpose of maintaining the Plans records is December 31. (c) Agent for the Service of Legal Process . The agent for the service of legal process with respect to the Plan is: 11
Zynga Inc. Attn: General Counsel 444 De Haro Street Suite 132 San Francisco, CA 94107 (d) Plan Sponsor and Administrator. The Plan Sponsor and the Plan Administrator of the Plan is: Zynga Inc. Attn: General Counsel 444 De Haro Street Suite 132 San Francisco, CA 94107 The Plan Sponsors and Plan Administrators telephone number is (800) 762-2530. The Plan Administrator is the named fiduciary charged with the responsibility for administering the Plan. 15. S TATEMENT OF ERISA R IGHTS.
Participants in the Plan (which is a welfare benefit plan sponsored by Zynga Inc.) are entitled to certain rights and protections under ERISA. If you are a Participant, you are considered a participant in the Plan for the purposes of this Section 15 and, under ERISA, you are entitled to: Receive Information About Your Plan and Benefits (a) Examine, without charge, at the Plan Administrators office and at other specified locations, such as worksites, all documents governing the Plan and a copy of the latest annual report (Form 5500 Series), if applicable, filed by the Plan with the U.S. Department of Labor and available at the Public Disclosure Room of the Employee Benefits Security Administration; (b) Obtain, upon written request to the Plan Administrator, copies of documents governing the operation of the Plan and copies of the latest annual report (Form 5500 Series), if applicable, and an updated (as necessary) Summary Plan Description. The Plan Administrator may make a reasonable charge for the copies; and (c) Receive a summary of the Plans annual financial report, if applicable. The Plan Administrator is required by law to furnish each participant with a copy of this summary annual report. Prudent Actions By Plan Fiduciaries In addition to creating rights for Plan participants, ERISA imposes duties upon the people who are responsible for the operation of the employee benefit plan. The people who operate the Plan, called fiduciaries of the Plan, have a duty to do so prudently and in the interest of you and other Plan participants and beneficiaries. No one, including your employer, your union or any 12
other person, may fire you or otherwise discriminate against you in any way to prevent you from obtaining a Plan benefit or exercising your rights under ERISA. Enforce Your Rights If your claim for a Plan benefit is denied or ignored, in whole or in part, you have a right to know why this was done, to obtain copies of documents relating to the decision without charge, and to appeal any denial, all within certain time schedules. Under ERISA, there are steps you can take to enforce the above rights. For instance, if you request a copy of Plan documents or the latest annual report from the Plan, if applicable, and do not receive them within 30 days, you may file suit in a federal court. In such a case, the court may require the Plan Administrator to provide the materials and pay you up to $110 a day until you receive the materials, unless the materials were not sent because of reasons beyond the control of the Plan Administrator. If you have a claim for benefits that is denied or ignored, in whole or in part, you may file suit in a state or federal court. If you are discriminated against for asserting your rights, you may seek assistance from the U.S. Department of Labor, or you may file suit in a federal court. The court will decide who should pay court costs and legal fees. If you are successful, the court may order the person you have sued to pay these costs and fees. If you lose, the court may order you to pay these costs and fees, for example, if it finds your claim is frivolous. Assistance With Your Questions If you have any questions about the Plan, you should contact the Plan Administrator. If you have any questions about this statement or about your rights under ERISA, or if you need assistance in obtaining documents from the Plan Administrator, you should contact the nearest office of the Employee Benefits Security Administration, U.S. Department of Labor, listed in your telephone directory or the Division of Technical Assistance and Inquiries, Employee Benefits Security Administration, U.S. Department of Labor, 200 Constitution Avenue N.W., Washington, D.C. 20210. You may also obtain certain publications about your rights and responsibilities under ERISA by calling the publications hotline of the Employee Benefits Security Administration. 16. G ENERAL PROVISIONS .
(a) Notices. Any notice, demand or request required or permitted to be given by either the Company or a Participant pursuant to the terms of the Plan will be in writing and will be deemed given when delivered personally, when received electronically (including email addressed to the Participants Company email account and to the Company email account of the Companys General Counsel), or deposited in the U.S. mail, First Class with postage prepaid, and addressed to the parties, in the case of the Company, at the address set forth in Section 14(d), in the case of a Participant, at the address as set forth in the Companys employment file maintained for the Participant as previously furnished by the Participant or such other address as a party may request by notifying the other in writing. 13
(b) Transfer and Assignment. The rights and obligations of a Participant under the Plan may not be transferred or assigned without the prior written consent of the Company. The Plan will be binding upon any surviving entity resulting from a Change in Control and upon any other person who is a successor by merger, acquisition, consolidation or otherwise to the business formerly carried on by the Company without regard to whether or not such person or entity actively assumes the obligations hereunder. (c) Waiver. Any partys failure to enforce any provision or provisions of the Plan will not in any way be construed as a waiver of any such provision or provisions, nor prevent any party from thereafter enforcing each and every other provision of the Plan. The rights granted to the parties herein are cumulative and will not constitute a waiver of any partys right to assert all other legal remedies available to it under the circumstances. (d) Severability. Should any provision of the Plan be declared or determined to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions will not in any way be affected or impaired. (e) Section Headings. Section headings in the Plan are included only for convenience of reference and will not be considered part of the Plan for any other purpose. 17. EXECUTION . To record the adoption of the Plan as set forth herein, Zynga Inc. has caused its duly authorized officer to execute the same as of the Effective Date. ZYNGA IN C.:
(Signature) By: Title: 14
For Employees Age 40 or Older Individual Termination EXHIBIT A ZYNGA IN C. C HANGE I N CONTROL SEVERANCE BENEFIT PLAN P ARTICIPATION NOTICE To: Date: Zynga Inc. (the Company) has adopted the Zynga Inc. Change in Control Severance Benefit Plan (the Plan). The Company is providing you this Participation Notice to inform you that you have been designated as a Participant in the Plan. A copy of the Plan document is attached to this Participation Notice. The terms and conditions of your participation in the Plan are as set forth in the Plan and this Participation Notice, which together constitute the Summary Plan Description for the Plan. You understand that by accepting your status as a Participant in the Plan, your stock options that have been considered to be incentive stock options prior to the date hereof may cease to qualify as incentive stock options as a result of the vesting acceleration benefit provided in the Plan. By accepting participation, you represent that you have either consulted your personal tax or financial planning advisor about the tax consequences of your participation in the Plan, or you have knowingly declined to do so. Notwithstanding the terms of the Plan:
Please return to the Companys General Counsel a copy of this Participation Notice signed by you and retain a copy of this Participation Notice, along with the Plan document, for your records. ZYNGA IN C.:
(Signature) By: Title:
EXHIBIT B RELEASE A GREEMENT [EMPLOYEES A G E 40 OR OVER; INDIVIDUAL TERMINATION] I understand and agree completely to the terms set forth in the Zynga Inc. Change in Control Severance Benefit Plan (the Plan). I understand that this Release, together with the Plan, constitutes the complete, final and exclusive embodiment of the entire agreement between the Company, affiliates of the Company and me with regard to the subject matter hereof. I am not relying on any promise or representation by the Company or an affiliate of the Company that is not expressly stated therein. Certain capitalized terms used in this Release are defined in the Plan. I hereby confirm my obligations under my Proprietary Agreement. Except as otherwise set forth in this Release, I hereby generally and completely release the Company and its affiliates, and their parents, subsidiaries, successors, predecessors and affiliates, and their partners, members, directors, officers, employees, stockholders, shareholders, agents, attorneys, predecessors, insurers, affiliates and assigns, from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring at any time prior to and including the date I sign this Release. This general release includes, but is not limited to: (a) all claims arising out of or in any way related to my employment with the Company and its affiliates, or their affiliates, or the termination of that employment; (b) all claims related to my compensation or benefits, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company and its affiliates, or their affiliates; (c) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (d) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (e) all federal, state, provincial and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990 (as amended), the federal Age Discrimination in Employment Act (as amended) (ADEA), the federal Employee Retirement Income Security Act of 1974 (as amended), and the California Fair Employment and Housing Act (as amended). Notwithstanding the foregoing, I understand that the following rights or claims are not included in my Release: (a) any rights or claims for indemnification I may have pursuant to any written indemnification agreement with the Company or its affiliate to which I am a party; the charter, bylaws, or operating agreements of the Company or its affiliate; or under applicable law; or (b) any rights which cannot be waived as a matter of law. In addition, I understand that nothing in this Release prevents me from filing, cooperating with, or participating in any proceeding before the Equal Employment Opportunity Commission, the Department of Labor, or the California Department of Fair Employment and Housing, except that I hereby waive my right to any monetary benefits in connection with any such claim, charge or proceeding. I hereby ii
represent and warrant that, other than the claims identified in this paragraph, I am not aware of any claims I have or might have that are not included in the Release. I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under the ADEA, and that the consideration given under the Plan for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which I was already entitled. I further acknowledge that I have been advised by this writing, as required by the ADEA, that: (a) my waiver and release do not apply to any rights or claims that may arise after the date I sign this Release; (b) I should consult with an attorney prior to signing this Release (although I may choose voluntarily not do so); (c) I have 21 days to consider this Release (although I may choose voluntarily to sign this Release earlier); (d) I have seven days following the date I sign this Release to revoke the Release by providing written notice to an officer of the Company; and (e) this Release will not be effective until the date upon which the revocation period has expired, which will be the eighth day after I sign this Release. I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor. I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to my release of any claims hereunder. I hereby represent that I have been paid all compensation owed and for all hours worked; I have received all the leave and leave benefits and protections for which I am eligible pursuant to the Family and Medical Leave Act, the California Family Rights Act, or otherwise; and I have not suffered any on-the-job injury for which I have not already filed a workers compensation claim. I acknowledge that to become effective, I must sign and return this Release to the Company so that it is received not later than 21 days following the date it is provided to me. P ARTICIPANT:
(Signature) By: Date: iii
EXHIBIT C RELEASE A GREEMENT [EMPLOYEES A G E 40 OR OVER; GROUP TERMINATION] I understand and agree completely to the terms set forth in the Zynga Inc. Change in Control Severance Benefit Plan (the Plan). I understand that this Release, together with the Plan, constitutes the complete, final and exclusive embodiment of the entire agreement between the Company, affiliates of the Company and me with regard to the subject matter hereof. I am not relying on any promise or representation by the Company or an affiliate of the Company that is not expressly stated therein. Certain capitalized terms used in this Release are defined in the Plan. I hereby confirm my obligations under my Proprietary Agreement. Except as otherwise set forth in this Release, I hereby generally and completely release the Company and its affiliates, and their parents, subsidiaries, successors, predecessors and affiliates, and its and their partners, members, directors, officers, employees, stockholders, shareholders, agents, attorneys, predecessors, insurers, affiliates and assigns, from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring at any time prior to and including the date I sign this Release. This general release includes, but is not limited to: (a) all claims arising out of or in any way related to my employment with the Company and its affiliates, or their affiliates, or the termination of that employment; (b) all claims related to my compensation or benefits, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company and its affiliates, or their affiliates; (c) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (d) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (e) all federal, state, provincial and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990 (as amended), the federal Age Discrimination in Employment Act (as amended) ( ADEA), the federal Employee Retirement Income Security Act of 1974 (as amended), and the California Fair Employment and Housing Act (as amended). Notwithstanding the foregoing, I understand that the following rights or claims are not included in my Release: (a) any rights or claims for indemnification I may have pursuant to any written indemnification agreement with the Company or its affiliate to which I am a party; the charter, bylaws, or operating agreements of the Company or its affiliate; or under applicable law; or (b) any rights which cannot be waived as a matter of law. In addition, I understand that nothing in this Release prevents me from filing, cooperating with, or participating in any proceeding before the Equal Employment Opportunity Commission, the Department of Labor, or the California Department of Fair Employment and Housing, except that I hereby waive my right to any monetary benefits in connection with any such claim, charge or proceeding. I hereby
represent and warrant that, other than the claims identified in this paragraph, I am not aware of any claims I have or might have that are not included in the Release. I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under the ADEA, and that the consideration given under the Plan for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which I was already entitled. I further acknowledge that I have been advised by this writing, as required by the ADEA, that: (a) my waiver and release do not apply to any rights or claims that may arise after the date I sign this Release; (b) I should consult with an attorney prior to signing this Release (although I may choose voluntarily not to do so); (c) I have 45 days to consider this Release (although I may choose voluntarily to sign this Release earlier); (d) I have seven days following the date I sign this Release to revoke the Release by providing written notice to an office of the Company; (e) this Release will not be effective until the date upon which the revocation period has expired, which will be the eighth day after I sign this Release; and (f) I have received with this Release a detailed list of the job titles and ages of all employees who were terminated in this group termination and the ages of all employees of the Company in the same job classification or organizational unit who were not terminated. I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor. I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to my release of any claims hereunder. I hereby represent that I have been paid all compensation owed and for all hours worked; I have received all the leave and leave benefits and protections for which I am eligible pursuant to the Family and Medical Leave Act, the California Family Rights Act, or otherwise; and I have not suffered any on-the-job injury for which I have not already filed a workers compensation claim. I acknowledge that to become effective, I must sign and return this Release to the Company so that it is received not later than 45 days following the date it is provided to me. P ARTICIPANT:
(Signature) By: Date: ii
EXHIBIT D RELEASE A GREEMENT [EMPLOYEES UNDER A G E 40] I understand and agree completely to the terms set forth in the Zynga Inc. Change in Control Severance Benefit Plan (the Plan). I understand that this Release, together with the Plan, constitutes the complete, final and exclusive embodiment of the entire agreement between the Company, affiliates of the Company and me with regard to the subject matter hereof. I am not relying on any promise or representation by the Company or an affiliate of the Company that is not expressly stated therein. Certain capitalized terms used in this Release are defined in the Plan. I hereby confirm my obligations under my Employee Proprietary Agreement. Except as otherwise set forth in this Release, I hereby generally and completely release the Company and its affiliates, and their parents, subsidiaries, successors, predecessors and affiliates, and its and their partners, members, directors, officers, employees, stockholders, shareholders, agents, attorneys, predecessors, insurers, affiliates and assigns, from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring at any time prior to and including the date I sign this Release. This general release includes, but is not limited to: (a) all claims arising out of or in any way related to my employment with the Company and its affiliates, or their affiliates, or the termination of that employment; (b) all claims related to my compensation or benefits, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company and its affiliates, or their affiliates; (c) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (d) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (e) all federal, state, provincial and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990 (as amended), the federal Employee Retirement Income Security Act of 1974 (as amended), and the California Fair Employment and Housing Act (as amended). Notwithstanding the foregoing, I understand that the following rights or claims are not included in my Release: (a) any rights or claims for indemnification I may have pursuant to any written indemnification agreement with the Company or its affiliate to which I am a party; the charter, bylaws, or operating agreements of the Company or its affiliate; or under applicable law; or (b) any rights which cannot be waived as a matter of law. In addition, I understand that nothing in this Release prevents me from filing, cooperating with, or participating in any proceeding before the Equal Employment Opportunity Commission, the Department of Labor, or the California Department of Fair Employment and Housing, except that I hereby waive my right to any monetary benefits in connection with any such claim, charge or proceeding. I hereby represent and warrant that, other than the claims identified in this paragraph, I am not aware of any claims I have or might have that are not included in the Release.
I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor. I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to my release of any claims hereunder. I hereby represent that I have been paid all compensation owed and for all hours worked; I have received all the leave and leave benefits and protections for which I am eligible pursuant to the Family and Medical Leave Act, the California Family Rights Act, or otherwise; and I have not suffered any on-the-job injury for which I have not already filed a workers compensation claim. I acknowledge that to become effective, I must sign and return this Release to the Company so that it is received not later than 14 days following the date it is provided to me. P ARTICIPANT:
(Signature) By: Date: ii
Exhibit 10.24 October 19, 2011 Mark Vranesh via email Re: Dear Mark: I am very pleased to confirm the terms of your continuing employment with Zynga Inc., a Delaware corporation (the Company), in the position of Chief Accounting Officer, reporting to the Companys Chief Financial Officer, David Wehner. This letter (the Clarifying Letter) amends and restates our original employment letter, dated April 10, 2008 (the Prior Letter), in its entirety. 1. Salary. Your current salary is $200,000 per year (as adjusted from time to time, your Salary), less all applicable deductions required by law, which shall be payable at the times and in the installments consistent with the Companys then current payroll practice. Your Salary is subject to periodic review and adjustment in accordance with the Companys policies in effect from time to time. 2. Incentive Compensation; Benefits . You will continue to be eligible to participate in the incentive compensation programs, insurance programs and other employee benefit plans established by the Company for its employees from time to time in accordance with the terms of those programs and plans. The Company reserves the right to change the terms of its programs and plans at any time. 3. Confidentiality. As an employee of the Company, you have access to certain confidential information of the Company and you may, during the course of your employment, develop certain information or inventions that will be the property of the Company. To protect the interests of the Company, you signed the Companys standard Employee Invention Assignment and Confidentiality Agreement (the Confidentiality Agreement , the terms of which are incorporated by reference herein) as a condition of your employment. We wish to impress upon you that we do not want you to, and we have directed you not to, bring with you any confidential or proprietary material of any former employer or to violate any other obligations you may have to any former employer. During the period that you render services to the Company, you have agreed and continue to agree to not engage in any employment, business or activity that is in any way competitive with the business or proposed business of the Company. You will disclose to the Company in writing any other gainful employment, business or activity that you are currently associated with or participate in that competes with the Company. You will not assist any other person or organization in competing with the Company or in preparing to engage in competition with the business or proposed business of the Company. You represent that your signing of the Prior Letter, this Clarifying Letter, each agreement setting forth the terms and conditions of the stock awards granted to you, if any, under the Companys equity plans, and the Confidentiality Agreement, and your commencement of employment with the Company, do not violate any agreement in place (either on the date you commenced employment with the Company or now) between yourself and current or past employers. Amended and Restated Offer of Employment by Zynga Inc.
4. Termination. If, at any time, (i) you resign your employment for any reason, (ii) the Company terminates your employment for any reason, or (iii) either party terminates your employment as a result of your death or disability, you will receive your Salary accrued through your last day of employment, as well as any unused vacation (if applicable) accrued through your last day of employment. Except as set forth in the Zynga Inc. Change in Control Severance Benefit Plan and the Stock Option Agreement between you and the Company, dated June 3, 2008, you are not eligible for any severance benefits upon a termination of your employment. 5. Section 409A. Unless otherwise expressly stated in an agreement between the Company and you, the Company intends that compensatory payments and benefits to you satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Internal Revenue Code provided under Treasury Regulations Sections 1.409A-1(b)(4), 1.409A-1(b)(5), and 1.409A-(b)(9) and will be construed to the greatest extent possible as consistent with those provisions. For purposes of Section 409A and the regulations and other guidance thereunder and any state law of similar effect (collectively, Section 409A) (including without limitation Treasury Regulations Section 1.409A-2(b)(2)(iii)), all compensatory payments made by the Company (whether severance payments or otherwise) will be treated as a right to receive a series of separate payments and will at all times be considered a separate and distinct payment. It is intended that any payments and benefits that are not exempt from application of Section 409A will be interpreted and administered so as to comply with the requirements of Section 409A to the greatest extent possible. Therefore, if you are deemed by the Company at the time of your separation from service (as defined under Treasury Regulation Section 1.409A-1(h), without regard to alternative definitions thereunder) to be a specified employee for purposes of Section 409A(a)(2)(B)(i), and if payments due to you upon a separation from service are deemed to be deferred compensation, then if delayed commencement of any portion of such payments (or delayed issuance of any shares subject to equity awards that are not themselves exempt from Section 409A) is required to avoid a prohibited distribution under Section 409A(a)(2)(B)(i) and the related adverse taxation under Section 409A, such payments will not be provided to you (or such shares issued) prior to the earliest of (a) the expiration of the six month period measured from the date of your separation from service (or, if required under Section 409A, the expiration of the applicable 18 month period), (b) the date of your death or (c) such earlier date as permitted under Section 409A without the imposition of adverse taxation, and on the first business day following the expiration of such applicable Section 409A(a)(2)(B)(i) period, all payments deferred pursuant to this Section 5 will be paid in a lump sum to you, and any remaining payments due will be paid as otherwise provided in the applicable agreement and no interest will be due on any amounts so delayed. 6. At Will Employment. While we look forward to a long and profitable relationship, you will be an at will employee of the Company, which means the employment relationship can be terminated by either of us for any reason, at any time, with or without prior notice and with or without cause. Any statements or representations to the contrary (and any statements contradicting any provision in this Clarifying Letter) should be regarded by you as ineffective. Further, your participation in any stock incentive or benefit program is not to be regarded as assuring you of continuing employment for any particular period of time. Any modification or change in your at will employment status may occur only by way of a written employment agreement signed by you and the Chief Executive Officer of the Company.
7. Entire Agreement. This Clarifying Letter, including your Confidentiality Agreement, Stock Option Agreement and any other documents referred to herein, constitute the entire agreement and understanding of the parties with respect to the subject matter of this Clarifying Letter, and supersede any and all prior understandings and agreements, whether oral or written, between or among the parties hereto with respect to the specific subject matter hereof, including without limitation the Prior Letter. 8. Acceptance. Please sign the enclosed copy of this Clarifying Letter in the space indicated and return it to me. Your signature will acknowledge that you have read and understood and agreed to the terms and conditions of this Clarifying Letter and the attached documents, if any. Should you have anything else that you wish to discuss, please do not hesitate to call me. We look forward to your continued employment with the Company. Very truly yours, ZYNGA INC. Colleen McCreary, Chief People Officer I have read and understood this Clarifying Letter and hereby acknowledge, accept and agree to the terms as set forth above and further acknowledge that no other commitments were made to me as part of the terms of my employment except as specifically set forth herein. /s/ Mark Vranesh Mark Vranesh Date signed: 10/25/11
Exhibit 10.25 October 21, 2011 Jeff Karp Via email Re: Dear Jeff: I am very pleased to confirm the terms of your continuing employment with Zynga Inc., a Delaware corporation (the Company), in the position of Chief Marketing and Revenue Officer (which is classified by the Company as a position equivalent to, or above, a Senior Vice President level), reporting to the Companys Chief Operating Officer, John Schappert. This letter (the Clarifying Letter) amends and restates our original offer letter, dated July 21, 2011 (the Prior Letter), in its entirety. 1. Salary. Your current salary is $300,000 per year (as adjusted from time to time, your Salary), less all applicable deductions required by law, which shall be payable at the times and in the installments consistent with the Companys then current payroll practice. Your Salary is subject to periodic review and adjustment in accordance with the Companys policies as in effect from time to time. 2. Bonus. For the first two years of your employment with the Company (the Guaranteed Bonus Period), which the parties agree ends on July 25, 2013, we have guaranteed you that for each fiscal quarterly performance period that occurs during such time, and subject to your continued employment through the end of each applicable quarter (except as provided in Section 5(b)), you will earn a quarterly performance bonus (the Guaranteed Bonus) of at least 25% of your then current Salary per quarter (that is, 100% of your Salary per year), pro-rated based on time served for any partial quarters of service. As your start date was in July 2011, you will be given full credit for a bonus for the fiscal quarter ending September 30, 2011, and, assuming your Salary remains $300,000 at the end of each applicable quarter during the Guaranteed Bonus Period, you will continue to earn a quarterly bonus at the end of each fiscal quarter of $75,000. This Guaranteed Bonus Period will expire, and no performance bonus will be guaranteed after the fiscal quarter ending June 31, 2013. These bonus payments are subject to all applicable deductions required by law, and, in accordance with Company policy on bonus payments, are paid in the first regular paydate following the close of the quarter, but in all cases not later than two and one-half months after the end of the applicable quarter. 3. Incentive Compensation; Benefits . You will continue to be eligible to participate in the incentive compensation programs, insurance programs and other employee benefit plans established by the Company for its employees from time to time in accordance with the terms of those programs and plans. The Company reserves the right to change the terms of its programs and plans at any time. 4. Confidentiality. As an employee of the Company, you have access to certain confidential information of the Company and you may, during the course of your employment, develop certain information or inventions that will be the property of the Company. To protect Amended and Restated Offer of Employment by Zynga Inc.
the interests of the Company, you signed the Companys standard Employee Invention Assignment and Confidentiality Agreement (the Confidentiality Agreement , the terms of which are incorporated by reference herein) as a condition of your employment. We wish to impress upon you that we do not want you to, and we have directed you not to, bring with you any confidential or proprietary material of any former employer or to violate any other obligations you may have to any former employer. During the period that you render services to the Company, you have agreed and continue to agree to not engage in any employment, business or activity that is in any way competitive with the business or proposed business of the Company. You will disclose to the Company in writing any other gainful employment, business or activity that you are currently associated with or participate in that competes with the Company. You will not assist any other person or organization in competing with the Company or in preparing to engage in competition with the business or proposed business of the Company. You represent that your signing of the Prior Letter, this Clarifying Letter, each agreement setting forth the terms and conditions of the stock awards granted to you, if any, under the Companys equity plans, and the Confidentiality Agreement, and your commencement of employment with the Company, do not violate any agreement in place (either on the date you commenced employment with the Company or now) between yourself and current or past employers. 5. Termination; Severance. (a) Resignation; Termination for Cause; Termination Due to Death or Disability. If, at any time, (i) you resign your employment for any reason, (ii) the Company terminates your employment for Cause (as defined in Section 6), or (iii) either party terminates your employment as a result of your death or disability, you will receive your Salary accrued through your last day of employment, as well as any unused vacation (if applicable) accrued through your last day of employment. In each of these events, you will not be entitled to any severance benefits. (b) Termination without Cause. If, at any time, the Company terminates your employment without Cause, and other than as a result of your death or disability, and provided such termination constitutes a separation from service (as defined under Treasury Regulations Section 1.409A-1(h), without regard to any alternative definition thereunder, a Separation from Service), then subject to your obligations below, you will be entitled to receive (collectively, the Severance Benefits): (i) an amount equal to six months of your then current Salary (the Salary Continuation), less all applicable withholdings and deductions, paid in equal installments on the Companys normal payroll schedule over the six month period immediately following your Separation from Service (the Severance Period); (ii) provided that your Separation from Service occurs during the Guaranteed Bonus Period, the amount of the Guaranteed Bonus that you would have received in the ordinary course, based on your then current Salary as of the date of your termination, from the date of your termination through the earlier of (A) six months after the date of your termination, and (B) the end of the Guaranteed Performance Period, less all applicable withholdings and deductions, paid on the dates that active employees receive their quarterly bonuses; and Page 2
(iii) if you are participating in the Companys group health plans on the effective date of your termination and you timely elect continued coverage under COBRA for yourself and your covered dependents under the Companys group health plans following such termination of employment and complete and return all documents necessary to continue such coverage, then the Company will pay, as and when due directly to the COBRA carrier, the COBRA premiums necessary to continue your health insurance coverage in effect for yourself and your eligible dependents from the date of your Separation from Service until the earliest of (A) the close of the Severance Period, (B) the expiration of your eligibility for continuation coverage under COBRA, and (C) the date when you become eligible for substantially equivalent health insurance coverage in connection with your new employment or self-employment (such period from the date of your Separation from Service through the earliest of (A) through (C), the COBRA Payment Period ). Notwithstanding the foregoing, if at any time 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 Internal Revenue Code of 1986, as amended (the Code) or any statute or regulation of similar effect (including without limitation, the imposition of penalties on the Company under 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 to the carrier, the Company will instead pay you on the first day of each calendar month for the remainder of the COBRA Payment Period a fully taxable cash payment equal to the COBRA premiums for that month, subject to applicable withholdings and deductions (such amount, the Special Severance Payment ). If you become eligible for coverage under any employers group health plan or otherwise cease to be eligible for COBRA during the Severance Period, you must immediately notify the Company of such event, and all payments and obligations of the Company under this Section 5(b)(iii) will cease. The Severance Benefits are conditioned upon (A) your continuing to comply with your obligations under your Confidentiality Agreement during the period of time in which you are receiving the Severance Benefits, (B) your delivering to the Company an effective, general release of claims in favor of the Company in a form acceptable to the Company within 60 days following your Separation from Service, and (C) if you are a member of the Board, your resignation from the Board, to be effective no later than the date of your termination (or such other date as requested by the Board). No payments of the Severance Benefits will be made prior to the 60th day following your Separation from Service, and on such date, you will receive a lump sum payment equal to the Severance Benefits that you would have otherwise received while waiting for the expiration of the release period, with the balance paid thereafter on the original schedule, subject in all cases to any delay in payment required by Section 8. (c) Executive Severance Plan. As of the date of this Clarifying Letter, you are eligible to participate in the Zynga Inc. Change in Control Severance Benefit Plan, subject to the terms and conditions thereof. 6. Definition of Cause . For purposes of this Clarifying Letter, Cause means your termination because of: (a) any willful, material violation by you of any law or regulation applicable to the business of the Company, or your conviction for, or guilty plea to, a felony or a crime involving moral turpitude, or any willful perpetration by you of a common law fraud; (b) Page 3
your commission of an act of personal dishonesty that involves personal profit in connection with the Company or any other entity having a business relationship with the Company; (c) any material breach by you of any provision of any agreement or understanding between the Company and you regarding the terms of your service as an employee, officer, director, or consultant to the Company, including without limitation your willful and continued failure or refusal to perform the material duties required of an employee, officer, director, or consultant of the Company (other than as a result of having a disability that prevents you from performing the material duties of a person holding your positions with the Company for a period of at least 120 days), or a breach by you of your Confidentiality Agreement or similar agreement between the Company and you; (d) your disregard of the policies of the Company so as to cause loss, damage, or injury to the property, reputation, or employees of the Company; or (e) any other misconduct by you that is materially injurious to the financial condition or business reputation of, or is otherwise materially injurious to, the Company. 7. Section 280G Best After Tax. If any payment or benefit you would receive from the Company or otherwise in connection with a change in control of the Company or other similar transaction (a Payment ) would (a) constitute a parachute payment within the meaning of Section 280G of the Code, and (b) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the Excise Tax), then such Payment will be equal to the Reduced Amount. The Reduced Amount will be either (i) the largest portion of the Payment that would result in no portion of the Payment being subject to the Excise Tax, or (ii) the largest portion, up to and including the total, of the Payment, whichever amount ((i) or (ii)), after taking into account all applicable federal, state, provincial, foreign and local employment taxes, income taxes, and the Excise Tax (all computed at the highest applicable marginal rate), results in your receipt of the greatest economic benefit notwithstanding that all or some portion of the Payment may be subject to the Excise Tax. If a Reduced Amount will give rise to the greater after tax benefit, the reduction in the Payments will occur in the following order: (A) reduction of cash payments; (B) cancellation of accelerated vesting of equity awards other than stock options; (C) cancellation of accelerated vesting of stock options; and (D) reduction of other benefits paid to you. Within any such category of payments and benefits (that is, (A), (B), (C) or (D)), a reduction will occur first with respect to amounts that are not deferred compensation within the meaning of Section 409A of the Code and then with respect to amounts that are. In the event that acceleration of compensation from your equity awards is to be reduced, such acceleration of vesting will be canceled, subject to the immediately preceding sentence, in the reverse order of the date of grant. If Section 409A of the Code is not applicable by law to you, the Company will determine whether any similar law in your jurisdiction applies and should be taken into account. 8. Section 409A. Notwithstanding anything to the contrary in this Clarifying Letter, it is intended that the severance benefits and other payments payable under this Clarifying Letter satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Code provided under Treasury Regulations Sections 1.409A-1(b)(4), 1.409A-1(b)(5), and 1.409A-(b)(9) and this Clarifying Letter will be construed to the greatest extent possible as consistent with those provisions. For purposes of Section 409A of the Code and the regulations and other guidance thereunder and any state law of similar effect (collectively, Section 409A) (including without limitation Treasury Regulations Section 1.409A2(b)(2)(iii)), all payments made under this Clarifying Letter (whether severance payments or otherwise) will be treated as a right to receive a series of separate payments and, accordingly, each installment payment under this Clarifying Letter will at all times be considered a separate and distinct payment. Page 4
It is intended that any severance payment and any other benefits provided under this Clarifying Letter that are not exempt from application of Section 409A will be interpreted and administered so as to comply with the requirements of Section 409A to the greatest extent possible, including the requirement that, notwithstanding any provision to the contrary in this Clarifying Letter, if you are deemed by the Company at the time of your Separation from Service to be a specified employee for purposes of Section 409A(a)(2)(B)(i) of the Code, and to the extent payments due to you upon a Separation from Service are deemed to be deferred compensation, then to the extent delayed commencement of any portion of such payments (or delayed issuance of any shares subject to equity awards that are not themselves exempt from Section 409A) is required to avoid a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code and the related adverse taxation under Section 409A, such payments will not be provided to you (or such shares issued) prior to the earliest of (a) the expiration of the six month period measured from the date of your Separation from Service with the Company (or, if required under Section 409A, the expiration of the applicable 18 month period), (b) the date of your death or (c) such earlier date as permitted under Section 409A without the imposition of adverse taxation, and on the first business day following the expiration of such applicable Code Section 409A(a)(2)(B)(i) period, all payments deferred pursuant to this Section 8 will be paid in a lump sum to you, and any remaining payments due will be paid as otherwise provided in this Clarifying Letter or in the applicable agreement, without interest. 9. At Will Employment. While we look forward to a long and profitable relationship, you will be an at will employee of the Company, which means the employment relationship can be terminated by either of us for any reason, at any time, with or without prior notice and with or without cause. Any statements or representations to the contrary (and any statements contradicting any provision in this Clarifying Letter) should be regarded by you as ineffective. Further, your participation in any stock incentive or benefit program is not to be regarded as assuring you of continuing employment for any particular period of time. Any modification or change in your at will employment status may occur only by way of a written employment agreement signed by you and the Chief Executive Officer of the Company. 10. Entire Agreement. This Clarifying Letter, including your Confidentiality Agreement, and any other documents referred to herein, constitute the entire agreement and understanding of the parties with respect to the subject matter of this Clarifying Letter, and supersede any and all prior understandings and agreements, whether oral or written, between or among the parties hereto with respect to the specific subject matter hereof, including without limitation the Prior Letter. 11. Acceptance. Please sign the enclosed copy of this Clarifying Letter in the space indicated and return it to me. Your signature will acknowledge that you have read and understood and agreed to the terms and conditions of this Clarifying Letter and the attached documents, if any. Should you have anything else that you wish to discuss, please do not hesitate to call me. Page 5
We look forward to your continued employment with the Company. Very truly yours, ZYNGA INC. Colleen McCreary, Chief People Officer I have read and understood this Clarifying Letter and hereby acknowledge, accept and agree to the terms as set forth above and further acknowledge that no other commitments were made to me as part of the terms of my employment except as specifically set forth herein. /s/ Jeff Karp Jeff Karp Date signed: Page 6 10-25-11
Exhibit 10.26 ZYNGA INC. 2007 EQUITY INCENTIVE PLAN NOTICE OF RESTRICTED STOCK UNIT AWARD GRANT NUMBER: Number Terms defined in the Companys 2007 Equity Incentive Plan (the Plan) shall have the same meanings in this Notice of Restricted Stock Unit Award (Notice of Grant ). Name: Employee ID/Tax ID: FirstName LastName ID
You (Participant ) have been granted an award of Restricted Stock Units ( ZSUs), subject to the terms and conditions of the Plan, this Notice of Grant, and the attached Restricted Stock Unit Agreement (hereinafter ZSU Agreement ) under the Plan, as follows: Total Number of ZSUs: Vest Start Date: Date of Grant: Expiration Date: Shares VCD Grant_Date ExpirationDate
Vesting: You will receive a benefit with respect to a ZSU only if it vests. Two vesting requirements must be satisfied on or before the Expiration Date specified above in order for a ZSU to vest a time and service-based requirement (the Time-Based Requirement ) and the Liquidity Event Requirement (described below). Your ZSUs will not vest (in whole or in part) if only one (or if neither) of such requirements is satisfied on or before the Expiration Date. If both the Time-Based Requirement and the Liquidity Event Requirement are satisfied on or before the Expiration Date, the vesting date ( Vesting Date) of a ZSU will be the first date upon which both of those requirements were satisfied with respect to that particular ZSU. Liquidity Event Requirement: The Liquidity Event Requirement will be satisfied (as to any then-outstanding ZSUs that have not theretofore been terminated pursuant to Section 3 of the ZSU Agreement) on the first to occur of: (1) an underwritten public offering by the Company of its securities that is registered under the United States Securities Act of 1933, as amended (an IPO), or (2) a Change of Control. Time-Based Requirement: The Time-Based Requirement will be satisfied in installments as to the ZSUs as follows: (1) the requirement will be satisfied as to twenty-five percent (25%) of the Total Number of ZSUs subject to the award on the one year anniversary of the Vest Start Date, and (2) on each subsequent three (3) month anniversary of the Vest Start Date (continuing for three years from the one year anniversary of the Vest Start Date) an additional 1/16th of the Total Number of ZSUs will vest; in each case subject to Section 3 of the Notice of Grant. Settlement: If a ZSU vests as provided for above, the Company will deliver one Share for that ZSU unless at the time of settlement the Committee, in its sole discretion, determines that settlement shall, in whole or in part, be in the form of cash, based on the then Fair Market Value of a Share of the Companys Class B Common Stock. Notwithstanding the immediately preceding sentence, settlement of ZSUs that become Vested ZSUs upon a Change of Control will be made in Shares, unless otherwise specified in the definitive agreement for such Change of Control. Settlement will occur not later than two and one-half (2-1/2) months following the end of the year in which the Vesting Date applicable to that ZSU occurs 1
Participant understands that his or her employment or consulting relationship with the Company is for an unspecified duration, can be Terminated at any time (i.e., is at-will), and that nothing in this Notice of Grant, the ZSU Agreement or the Plan changes the at-will nature of that relationship. Participant acknowledges that the vesting of the ZSUs pursuant to this Notice of Grant is conditioned on the satisfaction of the Time-Based Requirement and the occurrence, on or before the Expiration Date of an IPO or Change of Control. Participant will have no right with respect to the ZSUs to the extent an IPO or Change of Control does not occur on or before the Expiration Date (regardless of the extent to which the TimeBased Requirement was satisfied). By your signature and the signature of the Companys representative below, you and the Company agree that this ZSU is granted under and governed by the terms and conditions of the Plan, this Notice of Grant and the ZSU Agreement. You agree that you have reviewed the Plan, this Notice of Grant and the ZSU Agreement in their entirety, have had an opportunity to obtain the advice of counsel prior to executing this Notice of Grant, and fully understand all provisions of the Plan, this Notice of Grant and the ZSU Agreement. You hereby agree to accept as binding, conclusive and final all decisions or interpretations of the Committee upon any questions relating to the Plan, this Notice of Grant and the ZSU Agreement. You further agree to notify the Company upon any change in your residence address. ZYNGA INC. Signature: Print Name: Title: Reginald D. Davis Secretary, General Counsel 699 Eighth Street San Francisco, CA 94103 2 PARTICIPANT Signature: Print Name: Address:
ZYNGA INC. RESTRICTED STOCK UNIT AGREEMENT UNDER THE 2007 EQUITY INCENTIVE PLAN Unless otherwise defined herein, the terms defined in the Companys 2007 Equity Incentive Plan (the Plan) or in the related Notice of Grant, as the case may be, shall have the same defined meanings in this Restricted Stock Unit Agreement (the Agreement ). 1. No Stockholder Rights. Unless and until such time as Shares are issued in settlement of vested ZSUs, Participant shall have no ownership of the Shares (including, without limitation, voting rights). Further, Participant shall have no right to dividends (or as to any adjustment for dividends, other than stock dividends) as to any dividend record date that occurs before such Shares are issued in settlement of vested ZSUs. 2. No Transfer. The ZSUs and any interest therein shall not be sold, assigned, transferred, pledged, hypothecated, or otherwise disposed of. 3. Termination. If Participants service is Terminated for any reason, all ZSUs as to which the Time-Based Requirement has not been satisfied as of the date of such Termination shall automatically terminate upon such Termination. In such event, any ZSUs as to which the Time-Based Requirement had been satisfied will (if an IPO or Change of Control had not occurred) remain outstanding until the first to occur of an IPO, Change of Control, or the Expiration Date In case of any dispute as to whether a Termination of Participants service has occurred, the Committee shall have sole discretion to determine whether such Termination has occurred and the effective date of such Termination. Further, if an IPO or Change of Control does not occur on or before the Expiration Date, all ZSUs (regardless of whether or not, or the extent to which, the Time-Based Requirement had been satisfied as to such ZSUs) shall automatically terminate upon such Expiration Date. Upon a termination of one or more ZSUs pursuant to this Section 4, Participant shall have no further right with respect to such ZSUs. 4. Acknowledgement. The Company and Participant agree that the ZSUs are granted under and governed by the Notice of Grant, this Agreement and by the provisions of the Plan (incorporated herein by reference). Participant: (i) acknowledges receipt of a copy of each of the foregoing documents, (ii) represents that Participant has carefully read and is familiar with their provisions, and (iii) hereby accepts the ZSUs subject to all of the terms and conditions set forth herein and those set forth in the Plan and the Notice of Grant. 5. Withholding of Tax . When the ZSUs are vested and/or settled, the fair market value of the Shares is treated as income subject to withholding by the Company for income and employment taxes. The Company shall, in its discretion, withhold an amount equal to the tax due at vesting and/or settlement from the Participants other compensation or require Participant to remit to the Company an amount equal to the tax then due. In its sole discretion and subject to all applicable laws, the Company may instead withhold a number of Shares with a fair market value (determined on the date the Shares are issued) equal to the minimum amount the Company is then required to withhold for taxes. Participant acknowledges that there will be tax consequences upon vesting and/or settlement of the ZSUs and/or disposition of the Shares, if any, received in connection therewith, and Participant should consult a tax adviser regarding Participants tax obligations prior to such settlement or disposition. 6. Limitations on Transfer of Shares . In addition to any other limitation on transfer created by applicable securities laws, Participant shall not assign, encumber or dispose of any interest in the Shares issued pursuant to this Agreement except in compliance with the provisions below and applicable securities laws. 1
(a) Right of First Refusal. Before any Shares held by Participant or any transferee of Participant (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 herein (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 Holders bona fide intention to sell or otherwise transfer such Shares; (ii) the name of each proposed Participant 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 Offered 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 determined in accordance with subsection (iii) below. (iii) Purchase Price. The purchase price (Purchase Price) for the Shares purchased by the Company or its assignee(s) shall be the Offered Price. If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration shall be determined by the Committee in good faith. (iv) Payment. Payment of the Purchase Price shall be made, at the option 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 thirty (30) days after receipt of the Notice or in the manner and at the times set forth in the Notice. (v) Holders 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 herein, then the Holder may sell or otherwise transfer such Shares to that Proposed Transferee at the Offered Price or at a higher price, provided that such sale or other transfer is consummated within sixty (60) 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 Right of First Refusal 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. (b) Involuntary Transfer. (i) Companys Right to Purchase upon Involuntary Transfer. In the event, at any time after the date of this Agreement, of any transfer by operation of law or other involuntary transfer (including death or divorce) 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 Fair Market Value of the Shares on the date of transfer. 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. (ii) Price for Involuntary Transfer. With respect to any stock to be transferred pursuant to subsection (b)(i) above, the price per Share shall be a price set by the Committee that will reflect the current value of the stock in terms of present earnings and future prospects of the Company. 2
The Company shall notify Participant or his or her executor of the price so determined within thirty (30) days after receipt by it of written notice of the transfer or proposed transfer of Shares. However, if the Participant does not agree with the valuation as determined by the Committee, the Participant shall be entitled to have the valuation determined by an independent appraiser to be mutually agreed upon by the Company and the Participant and whose fees shall be borne equally by the Company and the Participant. (c) Assignment. The Companys rights under this Section 6 may be assigned in whole or in part to any shareholder or shareholders 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 Companys Shares shall be void unless the provisions of this agreement are satisfied. (e) Termination of Rights. The rights provided under this Section 6 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 ), or as otherwise determined by the Company or its successor. 7. Market Standoff Agreement. Participant agrees that in connection with any registration of the Companys securities that, upon the request of the Company or the underwriters managing any public offering of the Companys securities, Participant will not sell or otherwise dispose of any Shares without the prior written consent of the Company or such underwriters, as the case may be, for such reasonable period of time after the effective date of such registration as may be requested by such managing underwriters and subject to all restrictions as the Company or the underwriters may specify. Participant will enter into any agreement reasonably required by the underwriters to implement the foregoing. 8. Compliance with Laws and Regulations . In accordance with Section 16 of the Plan, the issuance of Shares will be subject to and conditioned upon compliance with all applicable state and federal laws and regulations and with all applicable requirements of any stock exchange or automated quotation system on which the Companys Common Stock may be listed or quoted at the time of such issuance or transfer. Participant (or the beneficiary or personal representative of Participant in the event of Participants death or incapacity, as the case may be) shall deliver to the Company any representations or other documents or assurances as the Company may deem necessary or reasonably desirable to ensure compliance with all applicable legal and regulatory requirements. 9. Legend on Certificates. The certificates representing the Shares issued hereunder shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan, this Restricted Stock Unit Agreement or the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which such Shares are listed, and any applicable Federal or state laws, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. 10. Successors and Assigns. The Company may assign any of its rights under this Agreement. This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth herein, this Agreement will be binding upon Participant and Participants heirs, executors, administrators, legal representatives, successors and assigns. 11. Entire Agreement; Amendment; Severability . The Plan and Notice of Grant are incorporated herein by reference. The Plan, the Notice of Grant and this Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter hereof (including, without limitation, any other form of equity award (such as stock options) that may have been set forth in any employment offer letter or other agreement between the parties). The Plan, this Agreement and the 3
Notice of Grant may be amended pursuant to Section 21 of the Plan. Such amendment must be in writing and signed by the Company. The Company may, however, unilaterally waive any provision hereof or of the Notice of Grant in writing to the extent such waiver does not adversely affect the interests of the Participant hereunder, but no such waiver shall operate as or be construed to be a subsequent waiver of the same provision or a waiver of any other provision hereof. If any provision of this Agreement is determined by a court of law to be illegal or unenforceable, then such provision will be enforced to the maximum extent possible and the other provisions will remain fully effective and enforceable. 12. Plan. The ZSUs and all rights of the Participant under this Agreement are subject to the terms and conditions of the Plan, incorporated herein by this reference. The Participant agrees to be bound by the terms of the Plan, the Notice of Grant and this Agreement. The Participant acknowledges having read and understood the Plan, the Notice of Grant and this Agreement. Unless otherwise expressly provided in other sections of this Agreement, provisions of the Plan that confer discretionary authority on the Board or the Committee do not and shall not be deemed to create any rights in the Participant unless such rights are expressly set forth herein or are otherwise in the sole discretion of the Board or the Committee so conferred by appropriate action of the Board or the Committee under the Plan after the date hereof. 13. No Rights as Employee, Director or Consultant . Nothing in the Plan, the Notice of Grant or 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 Participant s service, for any reason, with or without cause, affect the Participants status, if he or she is an employee, as an employee at will who is subject to termination without cause, confer upon the Participant any right to remain employed by or in service to the Company or any Parent or Subsidiary of the Company, interfere in any way with the right of the Company or any Parent or Subsidiary of the Company at any time to terminate such employment or service, or affect the right of the Company or any Parent or Subsidiary of the Company to increase or decrease the Participants other compensation. 4
Exhibit 10.27 ZYNGA IN C. RESTRICTED STOCK UNIT GRANT NOTICE 2011 EQUITY INCENTIVE PLAN Zynga Inc. (the Company) hereby awards to Participant the number of restricted stock units ( RSUs) set forth below (the Award). The Award is subject to all of the terms and conditions as set forth in this Notice, the 2011 Equity Incentive Plan (the Plan) and the Restricted Stock Unit Agreement (the Award Agreement), both of which are attached hereto and incorporated herein in their entirety. Capitalized terms not explicitly defined herein but defined in the Plan or the Award Agreement will have the same definitions as in the Plan or the Award Agreement. In the event of any conflict between the terms of the Award and the Plan, the terms of the Plan will control. Participant: Date of Grant: Vesting Commencement Date: Number of RSUs: Vesting Schedule: The Award vests as to [ ], subject to Participants Continuous Service with the Company through each such vesting date. Each installment of RSUs that vests hereunder is a separate payment for purposes of Treasury Regulation Section 1.409A-2(b)(2). Subject to any change on a Capitalization Adjustment, one share of Common Stock will be issued for each RSU which vests at the time set forth in Section 6 of the Award Agreement.
Issuance Schedule:
Additional Terms/Acknowledgements: Participant acknowledges receipt of, and understands and agrees to, this Restricted Stock Unit Grant Notice, the Award Agreement, the Plan and the stock plan prospectus for this Plan. As of the Date of Grant, this Restricted Stock Unit Grant Notice, the Award Agreement and the Plan set forth the entire understanding between Participant and the Company regarding the Award and supersede all prior oral and written agreements on the terms of the Award, with the exception, if applicable, of (i) the written employment agreement or offer letter agreement entered into between the Company and Participant specifying the terms that should govern this Award, (ii) the Companys Change in Control Severance Benefit Plan, and (iii) any compensation recovery policy that is adopted by the Company or is otherwise required by applicable law. By accepting this Award, you consent to receive Plan documents by electronic delivery and to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company. ZYNGA IN C. By: Signature Title: Date: ATTACHMENTS: Award Agreement, 2011 Equity Incentive Plan Date: Signature P ARTICIPANT:
ZYNGA IN C. 2011 EQUITY INCENTIVE PLAN RESTRICTED STOCK UNIT A GREEMENT Pursuant to the Restricted Stock Unit Grant Notice (the Grant Notice ) and this Restricted Stock Unit Agreement (the Agreement ) and in consideration of your services, Zynga Inc. (the Company) has awarded you a Restricted Stock Unit award (the Award) under its 2011 Equity Incentive Plan (the Plan) for the number of Restricted Stock Units indicated in the Grant Notice. Capitalized terms not explicitly defined in this Agreement or in the Grant Notice but defined in the Plan will have the same definitions as in the Plan. In the event of any conflict between the terms in this Agreement and the Plan, the terms of the Plan will control. The details of your Award, in addition to those set forth in the Grant Notice and the Plan, are as follows. 1. GRANT OF THE A WARD. This Award represents your right to be issued on a future date one share of the Companys Common Stock for each Restricted Stock Unit that vests. 2. V ESTING. Your Restricted Stock Units will vest as provided in the Grant Notice. Vesting will cease upon the termination of your Continuous Service. Any Restricted Stock Units that have not yet vested will be forfeited on the termination of your Continuous Service. 3. NUMBER OF RESTRICTED STOCK UNITS & SHARES OF COMMON STOCK . (a) The Restricted Stock Units subject to your Award will be adjusted for Capitalization Adjustments, as provided in the Plan. (b) Any additional Restricted Stock Units and any shares, cash or other property that become subject to the Award pursuant to this Section 3 will be subject, in a manner determined by the Board, to the same forfeiture restrictions, restrictions on transferability, and time and manner of delivery as applicable to the other Restricted Stock Units and shares covered by your Award. (c) No fractional shares or rights for fractional shares of Common Stock will be created pursuant to this Section 3. Any fraction of a share will be rounded down to the nearest whole share. 4. SECURITIES LAW COMPLIANCE . You will not be issued any Common Stock underlying the Restricted Stock Units or other shares with respect to your Restricted Stock Units unless either (i) the shares are registered under the Securities Act, or (ii) the Company has determined that such issuance would be exempt from the registration requirements of the Securities Act. Your Award also must comply with other applicable laws and regulations governing the Award, and you will not receive shares underlying your Restricted Stock Units if the Company determines that such receipt would not be in material compliance with such laws and regulations. 1.
5. TRANSFERABILITY . Prior to the time that shares of Common Stock have been delivered to you, you may not transfer, pledge, sell or otherwise dispose of any portion of the Restricted Stock Units or the shares in respect of your Restricted Stock Units. For example, you may not use shares that may be issued in respect of your Restricted Stock Units as security for a loan, nor may you transfer, pledge, sell or otherwise dispose of such shares. This restriction on transfer will lapse upon delivery to you of shares in respect of your vested Restricted Stock Units. (a) Death. Your Restricted Stock Units are not transferable other than by will and by the laws of descent and distribution. Upon receiving written permission from the Board or its duly authorized designee, you may, by delivering written notice to the Company, in a form provided by or otherwise satisfactory to the Company and any broker designated by the Company to effect transactions under the Plan, designate a third party who, in the event of your death, will thereafter be entitled to receive any distribution of Common Stock or other consideration to which you were entitled at the time of your death pursuant to this Agreement. In the absence of such a designation, your executor or administrator of your estate will be entitled to receive, on behalf of your estate, such Common Stock or other consideration. (b) Domestic Relations Orders. Upon receiving written permission from the Board or its duly authorized designee, and provided that you and the designated transferee enter into transfer and other agreements required by the Company, you may transfer your right to receive the distribution of Common Stock or other consideration under your Restricted Stock Units, pursuant to the terms of a domestic relations order or official marital settlement agreement that contains the information required by the Company to effectuate the transfer. You are encouraged to discuss with the Companys General Counsel the proposed terms of any such transfer prior to finalizing the domestic relations order or marital settlement agreement to help ensure the required information is contained within the domestic relations order or marital settlement agreement. The Company is not obligated to allow you to transfer your Award in connection with your domestic relations order or marital settlement agreement. 6. DATE OF ISSUANCE . (a) The issuance of shares in respect of the Restricted Stock Units is intended to comply with Treasury Regulation Section 1.409A1(b)(4) and will be construed and administered in such a manner. (b) Subject to the satisfaction of the withholding obligations set forth in Section 10 of this Agreement, in the event one or more Restricted Stock Units vests, the Company will issue to you, on the applicable vesting date, one share of Common Stock for each Restricted Stock Unit that vests and such issuance date is referred to as the Original Issuance Date . If the Original Issuance Date falls on a date that is not a business day, delivery will instead occur on the next following business day. 2.
(c) However, if (i) the Original Issuance Date does not occur (1) during an open window period applicable to you, as determined by the Company in accordance with the Companys then-effective policy on trading in Company securities, or (2) on a date when you are otherwise permitted to sell shares of Common Stock on an established stock exchange or stock market (including but not limited to under a previously established Company-approved 10b5-1 trading plan), and (ii) the Company elects, prior to the Original Issuance Date, (1) not to satisfy the Withholding Taxes described in Section 10 by withholding shares of Common Stock from the shares otherwise due, on the Original Issuance Date, to you under this Award, (2) not to permit you to enter into a same day sale commitment with a broker-dealer pursuant to Section 10 of this Agreement (including but not limited to a commitment under a previously established Company-approved 10b5-1 trading plan) and (3) not to permit you to pay your Withholding Taxes in cash, then the shares that would otherwise be issued to you on the Original Issuance Date will not be delivered on such Original Issuance Date and will instead be delivered on the first business day when you are not prohibited from selling shares of the Companys Common Stock in the open public market, but in no event later than December 31 of the calendar year in which the Original Issuance Date occurs (that is, the last day of your taxable year in which the Original Issuance Date occurs), or, if and only if permitted in a manner that complies with Treasury Regulation Section 1.409A-1(b)(4), no later than the date that is the 15th day of the third calendar month of the year following the year in which the shares of Common Stock under this Award are no longer subject to a substantial risk of forfeiture within the meaning of Treasury Regulation Section 1.409A-1(d). 7. DIVIDENDS. You will receive no benefit or adjustment to your Restricted Stock Units with respect to any cash dividend, stock dividend or other distribution except as provided in the Plan with respect to a Capitalization Adjustment. 8. RESTRICTIVE LEGENDS. The Common Stock issued with respect to your Restricted Stock Units will be endorsed with appropriate legends determined by the Company. 9. A WARD NOT A SERVICE CONTRACT . Your Continuous Service is not for any specified term and may be terminated by you or by the Company or an Affiliate at any time, for any reason, with or without cause and with or without notice. Nothing in this Agreement (including, but not limited to, the vesting of your Restricted Stock Units or the issuance of the shares subject to your Restricted Stock Units), the Plan or any covenant of good faith and fair dealing that may be found implicit in this Agreement or the Plan shall: (i) confer upon you any right to continue in the employ or service of, or affiliation with, the Company or an Affiliate; (ii) constitute any promise or commitment by the Company or an Affiliate regarding the fact or nature of future positions, future work assignments, future compensation or any other term or condition of employment or affiliation; (iii) confer any right or benefit under this Agreement or the Plan unless such right or benefit has specifically accrued under the terms of this Agreement or Plan; or (iv) deprive the Company of the right to terminate you at will and without regard to any future vesting opportunity that you may have. 3.
10. WITHHOLDING OBLIGATIONS. (a) On each vesting date, and on or before the time you receive a distribution of the shares underlying your Restricted Stock Units, and at any other time as reasonably requested by the Company in accordance with applicable tax laws, you agree to make adequate provision for any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Company or any Affiliate that arise in connection with your Award (the Withholding Taxes). Specifically, the Company or an Affiliate may, in its sole discretion, satisfy all or any portion of the Withholding Taxes relating to your Award by any of the following means or by a combination of such means: (i) withholding from any compensation otherwise payable to you by the Company or an Affiliate; (ii) causing you to tender a cash payment; (iii) permitting or requiring you to enter into a same day sale commitment with a broker-dealer that is a member of the Financial Industry Regulatory Authority (a FINRA Dealer) whereby you irrevocably elect to sell a portion of the shares to be delivered in connection with your Restricted Stock Units to satisfy the Withholding Taxes and whereby the FINRA Dealer irrevocably commits to forward the proceeds necessary to satisfy the Withholding Taxes directly to the Company and/or its Affiliates; or (iv) withholding shares of Common Stock from the shares of Common Stock issued or otherwise issuable to you in connection with your Restricted Stock Units with a Fair Market Value (measured as of the date shares of Common Stock are issued to you) equal to the amount of such Withholding Taxes; provided, however, that the number of such shares of Common Stock so withheld will not exceed the amount necessary to satisfy the Companys required tax withholding obligations using the minimum statutory withholding rates for federal, state, local and foreign tax purposes, including payroll taxes, that are applicable to supplemental taxable income. (b) Unless the Withholding Taxes of the Company and/or any Affiliate are satisfied, the Company will have no obligation to deliver to you any Common Stock. (c) In the event the Companys obligation to withhold arises prior to the delivery to you of Common Stock or it is determined after the delivery of Common Stock to you that the amount of the Companys withholding obligation was greater than the amount withheld by the Company, you agree to indemnify and hold the Company harmless from any failure by the Company to withhold the proper amount. 11. UNSECURED OBLIGATION. Your Award is unfunded, and as a holder of vested Restricted Stock Units, you will be considered an unsecured creditor of the Company with respect to the Companys obligation, if any, to issue shares or other property pursuant to this Agreement. You will not have voting or any other rights as a stockholder of the Company with respect to the shares to be issued pursuant to this Agreement until such shares are issued to you. Upon such issuance, you will obtain full voting and other rights as a stockholder of the Company. Nothing contained in this Agreement, and no action taken pursuant to its provisions, will create or be construed to create a trust of any kind or a fiduciary relationship between you and the Company or any other person. 12. OTHER DOCUMENTS . You hereby acknowledge receipt of and the right to receive a document providing the information required by Rule 428(b)(1) promulgated under the Securities Act, which includes the Plan prospectus. In addition, you acknowledge receipt of the Companys policy permitting certain individuals to sell shares only during certain window periods and the Companys insider trading policy, in effect from time to time. 4.
13. NOTICES. Any notices provided for in this Agreement or the Plan will be given in writing (including electronically) and will be deemed effectively given upon receipt or, in the case of notices delivered by the Company to you, five days after deposit in the United States mail, postage prepaid, addressed to you at the last address you provided to the Company. The Company may, in its sole discretion, decide to deliver any documents related to participation in the Plan and this Award by electronic means or to request your consent to participate in the Plan by electronic means. By accepting this Award, you consent to receive such documents by electronic delivery and to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company. 14. MISCELLANEOUS . (a) The rights and obligations of the Company under your Award will be transferable to any one or more persons or entities, and all covenants and agreements hereunder will inure to the benefit of, and be enforceable by the Companys successors and assigns. (b) You agree upon request to execute any further documents or instruments necessary or desirable in the sole determination of the Company to carry out the purposes or intent of your Award. (c) You acknowledge and agree that you have reviewed your Award in its entirety, have had an opportunity to obtain the advice of counsel prior to executing and accepting your Award, and fully understand all provisions of your Award. (d) This Agreement will be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. (e) All obligations of the Company under the Plan and this Agreement will be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company. 15. GOVERNING PLAN DOCUMENT . Your Award is subject to all the provisions of the Plan, the provisions of which are hereby made a part of your Award, and is further subject to all interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted pursuant to the Plan. Except as expressly provided in this Agreement, in the event of any conflict between the provisions of your Award and those of the Plan, the provisions of the Plan will control. In addition, your Award (and any compensation paid or shares issued under your Award) is subject to recoupment in accordance with The DoddFrank Wall Street Reform and Consumer Protection Act and any implementing regulations thereunder, any clawback policy adopted by the Company and any compensation recovery policy otherwise required by applicable law. 16. SEVERABILITY . If all or any part of this Agreement or the Plan is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity will not invalidate any portion of this Agreement or the Plan not declared to be unlawful or invalid. Any Section of this Agreement (or part of such a Section) so declared to be unlawful or invalid shall, if possible, be construed in a manner which will give effect to the terms of such Section or part of a Section to the fullest extent possible while remaining lawful and valid. 5.
17. EFFECT ON OTHER EMPLOYEE BENEFIT PLANS. The value of the Award subject to this Agreement will not be included as compensation, earnings, salaries, or other similar terms used when calculating the Employees benefits under any employee benefit plan sponsored by the Company or any Affiliate, except as such plan otherwise expressly provides. The Company expressly reserves its rights to amend, modify, or terminate any of the Companys or any Affiliates employee benefit plans. 18. A MENDMENT . Any amendment to this Agreement must be in writing, signed by a duly authorized representative of the Company. The Board reserves the right to amend this Agreement in any way it may deem necessary or advisable to carry out the purpose of the grant as a result of any change in applicable laws or regulations or any future law, regulation, interpretation, ruling, or judicial decision. 19. COMPLIANCE WITH SECTION 409A OF THE CODE. This Award is intended to comply with the short-term deferral rule set forth in Treasury Regulation Section 1.409A-1(b)(4). However, if this Award fails to satisfy the requirements of the short-term deferral rule and is otherwise not exempt from, and therefore deemed to be deferred compensation subject to, Section 409A of the Code, and if you are a Specified Employee (within the meaning set forth Section 409A(a)(2)(B)(i) of the Code) as of the date of your separation from service (within the meaning of Treasury Regulation Section 1.409A-1(h)), then the issuance of any shares that would otherwise be made upon the date of the separation from service or within the first six months thereafter will not be made on the originally scheduled dates and will instead be issued in a lump sum on the date that is six months and one day after the date of the separation from service, with the balance of the shares issued thereafter in accordance with the original vesting and issuance schedule set forth above, but if and only if such delay in the issuance of the shares is necessary to avoid the imposition of taxation on you in respect of the shares under Section 409A of the Code. Each installment of shares that vests is a separate payment for purposes of Treasury Regulation Section 1.409A-2(b)(2). 20. NO OBLIGATION TO MINIMIZE TAXES. The Company has no duty or obligation to minimize the tax consequences to you of this Award and will not be liable to you for any adverse tax consequences to you arising in connection with this Award. You are hereby advised to consult with your own personal tax, financial and/or legal advisors regarding the tax consequences of this Award and by signing the Grant Notice, you have agreed that you have done so or knowingly and voluntarily declined to do so. * * *
This Restricted Stock Unit Agreement will be deemed to be signed by you upon the signing by you of the Restricted Stock Unit Grant Notice to which it is attached. 6.
Exhibit 23.2 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the reference to our firm under the caption Experts and the use of our report dated July 1, 2011, except for the retrospective application of the change in the capital structure as described in Note 1 to the consolidated financial statements, as to which the date is September 16, 2011, in Amendment No. 6 to the Registration Statement (Form S-1 No. 333-175298) and related Prospectus of Zynga Inc. for the registration of shares of its common stock. /s/ Ernst & Young LLP San Francisco, California November 17, 2011
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Amendment No. 6 to FORM S-1 REGISTRATION STATEMENT

Source: ZYNGA INC, S-1/A, November 17, 2011

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PROSPECTUS (Subject to Completion) Issued November 17, 2011

Class A Common Stock

Underwriting Discounts and Commissions

Proceeds to Selling Stockholders

Per Share Total

We have granted the underwriters the right to purchase up to an additional

shares of Class A common stock to cover over-allotments.

GOLDMAN, SACHS & CO.

Source: ZYNGA INC, S-1/A, November 17, 2011

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Source: ZYNGA INC, S-1/A, November 17, 2011

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Source: ZYNGA INC, S-1/A, November 17, 2011

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Source: ZYNGA INC, S-1/A, November 17, 2011

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Source: ZYNGA INC, S-1/A, November 17, 2011

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Our mission is to connect the world through games.

Source: ZYNGA INC, S-1/A, November 17, 2011

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Source: ZYNGA INC, S-1/A, November 17, 2011

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Source: ZYNGA INC, S-1/A, November 17, 2011

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Jun 30, 2009 NA NA NA NA

Sep 30, 2009 24 99 63 $ 0.044

Dec 31, 2009 58 207 110 $ 0.027

Dec 31, 2010 48 195 111 $ 0.055

Mar 31, 2011 62 236 146 $ 0.051

Jun 30, 2011 59 228 151 $ 0.051

Sep 30, 2011 54 227 152 $ 0.058

Source: ZYNGA INC, S-1/A, November 17, 2011

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Source: ZYNGA INC, S-1/A, November 17, 2011

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Source: ZYNGA INC, S-1/A, November 17, 2011

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shares shares shares shares

Proposed NASDAQ Global Select Market symbol

Source: ZYNGA INC, S-1/A, November 17, 2011

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Source: ZYNGA INC, S-1/A, November 17, 2011

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$ (22,115) $ (52,822) $ 90,595

$ (22,115) $ (52,822) $ 27,895 $ $ (0.18) $ (0.18) $ (0.31) $ (0.31) $ 0.12 0.11

Source: ZYNGA INC, S-1/A, November 17, 2011

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(2) (3) (4) (5)

Source: ZYNGA INC, S-1/A, November 17, 2011

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As of December 31, 2009 2010

As of September 30, 2011 Actual As Adjusted(1)(2) (in thousands)

$199,958 34,827 (12,496) 258,848 223,799 (21,478)

$ 738,090 74,959 385,564 1,112,572 465,236 482,215

$ 926,333 221,145 504,487 1,511,652 485,375 787,663

Source: ZYNGA INC, S-1/A, November 17, 2011