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Section 1: S-4 (S-4)

S-4
Table of Contents

As filed with the Securities and Exchange Commission on August 2, 2019

Registration No. 333-            

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-4

REGISTRATION STATEMENT

Under

The Securities Act of 1933

 

 

ELASTIC N.V.

(Exact name of Registrant as specified in its charter)

 

 

 

The Netherlands   7372   Not Applicable
(State or other jurisdiction of
incorporation or organization)
 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

800 West El Camino Real, Suite 350

Mountain View, California 94040

(650) 458-2620

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

 

Shay Banon

Elastic N.V.

800 West El Camino Real, Suite 350

Mountain View, California 94040

(650) 458-2620

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Steven E. Bochner, Esq.

Steven V. Bernard, Esq.

Andrew D. Hoffman, Esq.

Wilson Sonsini Goodrich & Rosati, P.C.

650 Page Mill Road,

Palo Alto, California 94304

(650) 493-9300

 

W.H. Baird Garrett, Esq.

800 West El Camino Real, Suite 350

Mountain View, California 94040

(650) 458-2620

 

Reinier Kleipool

De Brauw Blackstone

Westbroek N.V.

Claude Debussylaan 80

1082 MD Amsterdam

The Netherlands

+31 20 577 1771

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this registration statement becomes effective and upon completion of the Merger.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, 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, 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, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)  

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)  

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of each class of

securities to be registered

 

Amount to be

registered

 

Proposed maximum

offering price

per share

 

Proposed maximum

aggregate

offering price

 

Amount of

registration
fee

Ordinary Shares, par value 0.01 per share

  3,500,000 shares(1)   N/A   $26,471(2)   $3.21(3)

 

 

(1) 

Represents the maximum number of ordinary shares of Elastic N.V. (“Elastic”) estimated to be issuable upon consummation of the merger described herein.

(2) 

Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457 under the Securities Act based on a par value per share of $0.001 per share, assuming the conversion of all shares of Endgame, Inc. preferred stock into shares of Endgame, Inc. common stock as described in this registration statement, for up to (i) 56,738,120 shares of outstanding common stock of Endgame, Inc., (ii) 16,087,082 shares of common stock of Endgame, Inc. which may be issued upon exercise of stock options prior to the completion of the proposed merger, (iii) 473,861 shares of common stock of Endgame, Inc. subject to outstanding warrants, and (iv) 6,111,202 shares of common stock of Endgame, Inc. issuable upon conversion of outstanding convertible promissory notes. As Endgame, Inc. has an accumulated capital deficit, the maximum aggregate offering price is calculated using one-third of the par value of Endgame, Inc. in accordance with Rule 457(f)(2).

(3) 

The amount of the filing fee, calculated in accordance with Rule 457(f) under the Securities Act, equals 0.0001212 multiplied by the proposed maximum offering price.

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 this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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Information contained herein is subject to completion or amendment. A registration statement relating to the securities to be issued in the Merger has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This proxy statement/prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale is not permitted or would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.

 

PRELIMINARY PROXY STATEMENT/PROSPECTUS

DATED AUGUST 2, 2019, SUBJECT TO COMPLETION

 

                                  LOGO   LOGO                                  

[                ], 2019

MERGER PROPOSAL—YOUR VOTE IS VERY IMPORTANT

EXPLANATORY NOTE

 

 

On June 5, 2019, Elastic N.V. (“Elastic”), Endgame, Inc. (“Endgame”), Avengers Acquisition Corp, a wholly owned subsidiary of Elastic (“Merger Sub”), and Shareholder Representative Services LLC, solely in its capacity as the representative, agent and attorney-in-fact of the securityholders of Endgame (the “Securityholder Representative”), entered into an Agreement and Plan of Reorganization (the “Merger Agreement”). Pursuant to the terms of and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into Endgame (the “Merger”), with Endgame surviving the Merger as a wholly owned subsidiary of Elastic.

Pursuant to the terms of the Merger Agreement, Elastic will acquire Endgame for a total purchase price of $234 million, subject to customary adjustments, including the establishment of an indemnity escrow fund. Elastic will pay the purchase price through (i) the issuance of ordinary shares, par value 0.01 per share, of Elastic (the “Elastic Ordinary Shares”), (ii) the repayment of Endgame’s outstanding indebtedness not receiving Elastic Ordinary Shares (estimated, as of the date hereof, to be approximately $18 million), (iii) the assumption of Endgame’s outstanding options, and (iv) a cash deposit of $350,000 to fund an expense fund for the fees and expenses of the Securityholder Representative.

If the Merger is completed, Endgame securityholders will have the right to receive, in respect of their shares of Endgame Capital Stock, (i) such number of Elastic Ordinary Shares as required pursuant to the terms of the Merger Agreement and Endgame’s charter in respect of such shares of Endgame Capital Stock (except shares held by Endgame as treasury stock or dissenting shares), (ii) the par value of such Elastic Ordinary Shares which amount shall not be paid but shall be set off against the corresponding obligation to pay such par value of each Elastic Ordinary Share to Elastic, (iii) the contingent right to receive a portion of the remaining amount (if any) of the Securityholder Representative’s expense fund, which will be deposited with the Securityholder Representative, and (iv) the contingent right to receive such party’s share of any Elastic Ordinary Shares released from the escrow fund pursuant to the terms of the Merger Agreement. No fractional shares of Elastic Ordinary Shares will be issued in the Merger, and holders of Endgame Capital Stock will not receive any consideration in lieu of any such fractional shares. Each share of Elastic Ordinary Shares to be issued in the Merger will be valued at an amount equal to the volume weighted average price per share rounded to four decimal places (with amounts 0.00005 and above rounded up) of the Elastic Ordinary Shares on the New York Stock Exchange (the “NYSE”) for the 20 consecutive trading days ending with the complete trading day ending five trading days prior to the date upon which the Merger is consummated, provided that in no event shall an Elastic Ordinary Share be valued at more than $98.55 per share or less than $68.49 per share. Elastic shareholders will continue to own their existing Elastic Ordinary Shares. Elastic Ordinary Shares are currently traded on the NYSE under the symbol “ESTC.” We urge you to obtain current market quotations of Elastic Ordinary Shares.

Based on estimates as of [], 2019, the record date for the extraordinary General Meeting noticed below, Elastic expects to issue no more than approximately [] Elastic Ordinary Shares and no fewer than approximately [] Elastic Ordinary Shares to Endgame securityholders in connection with the


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Merger, which would result in former Endgame securityholders owning between approximately []% and []% of issued and outstanding Elastic Ordinary Shares upon completion of the Merger.

Elastic will hold an extraordinary General Meeting of its shareholders in connection with the proposed Merger (the “Extraordinary Meeting”).

At the Extraordinary Meeting, Elastic shareholders will be asked to consider and vote on a proposal to approve the resolution of the Board that Elastic shall (i) enter into the Merger Agreement and (ii) approve the transactions contemplated by the Merger Agreement, including the Merger and issuance of Elastic Ordinary Shares in connection with the Merger (the “Elastic Merger and Share Issuance Approval Proposal”). Approval of the Elastic Merger and Share Issuance Approval Proposal requires a majority of the votes cast where more than one-third of the issued and outstanding shares are represented.

We cannot complete the Merger unless the Elastic shareholders approve the Elastic Merger and Share Issuance Approval Proposal. Your vote is very important, regardless of the number of shares you own. Whether or not you expect to attend the Extraordinary Meeting in person, please vote your shares as promptly as possible by:

 

  (1)

accessing the Internet website specified on your proxy card,

 

  (2)

calling the toll-free number specified on your proxy card, or

 

  (3)

marking, signing, dating and returning all proxy cards that you receive in the postage-paid envelope provided,

so that your shares may be represented and voted at the Extraordinary Meeting.

On June 4, 2019, after careful consideration, the Elastic board of directors (the “Elastic Board” or the “Board”) approved the Merger Agreement and the issuance of Elastic Ordinary Shares to Endgame securityholders in connection with the Merger (the “Elastic Share Issuance”) and determined that the Merger Agreement and the transactions contemplated thereby, including the Merger and the Elastic Share Issuance, are advisable and fair to, and in the best interests of, Elastic and its stakeholders. The Elastic Board accordingly recommends that the Elastic shareholders vote “FOR” the Elastic Merger and Share Issuance Approval Proposal.

 

 

The obligations of Elastic and Endgame to complete the Merger are subject to the satisfaction or waiver of conditions set forth in the Merger Agreement. More information about Elastic, Endgame and the Merger is contained in the enclosed proxy statement/prospectus. ELASTIC ENCOURAGES YOU TO READ THE ENTIRE ENCLOSED PROXY STATEMENT/PROSPECTUS CAREFULLY, INCLUDING THE SECTION ENTITLED “RISK FACTORSBEGINNING ON PAGE 14.

Sincerely,

Shay Banon

Executive Director, Chief Executive Officer and Chairman

Elastic N.V.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE MERGER OR THE SECURITIES TO BE ISSUED IN CONNECTION WITH THE MERGER OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE DISCLOSURE IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The date of the enclosed proxy statement/prospectus is [                ], 2019, and it is first being mailed or otherwise delivered to the shareholders of Elastic on or about [                ], 2019.


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LOGO

ELASTIC N.V.

800 West El Camino Real, Suite 350

Mountain View, California 94040

NOTICE OF EXTRAORDINARY GENERAL MEETING OF SHAREHOLDERS

TO BE HELD ON [                ], 2019

Dear Shareholders of Elastic N.V.:

We are pleased to invite you to attend an extraordinary general meeting of shareholders of Elastic N.V., a public company with limited liability (naamloze vennootschap) incorporated under the laws of the Netherlands (“Elastic”), which will be held at [                ] on [                ], 2019 at [                ], CET (the “Extraordinary Meeting”), for the following purposes:

 

   

Opening and announcements (discussion item);

 

   

to consider and vote on a proposal to approve the resolution of the Elastic Board that Elastic shall (i) enter into the Agreement and Plan of Reorganization, dated as of June 5, 2019 (the “Merger Agreement”), among Elastic, Endgame, Inc. (“Endgame”), Avengers Acquisition Corp. (“Merger Sub”), a wholly owned subsidiary of Elastic, and Shareholder Representative Services LLC (the “Securityholder Representative”), pursuant to which, subject to the terms and conditions thereof, Merger Sub will merge with and into Endgame the (“Merger”), with Endgame surviving the Merger as a wholly owned subsidiary of Elastic, a copy of which is attached as Annex A to the proxy statement/prospectus accompanying this notice, and (ii) approve the transactions contemplated by the Merger Agreement, including the Merger and the issuance of Elastic Ordinary Shares, 0.01 par value per share (the “Elastic Ordinary Shares”), to the securityholders of Endgame pursuant to the Merger (the “Elastic Share Issuance” and such proposal, the “Elastic Merger and Share Issuance Approval Proposal”) (voting item); and

 

   

Closing of the meeting (discussion item).

Elastic will transact no other business at the Extraordinary Meeting except such business as may properly be brought before the Extraordinary Meeting or any reconvention thereof. Please refer to the attached proxy statement/prospectus for further information with respect to the business to be transacted at the Extraordinary Meeting.

The record date is set at the close of business on [], 2019 Eastern Time (“ET”) (“Record Date”) and, therefore, only Elastic’s shareholders of record at the close of business on the Record Date (each, a “Registered Shareholder”) are entitled to receive this notice (this “Notice”) and to vote at the Extraordinary Meeting.

If you intend to attend the Extraordinary Meeting in person, you must notify Elastic by submitting your name and the number of registered shares to Elastic at the following e-mail address, [email protected], by 8:00 PM ET on [], 2019. Please read this proxy statement/prospectus carefully to ensure that you have proper evidence of share ownership as of the Record Date, as we will not be able to accommodate guests without such evidence at the Extraordinary Meeting.


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The Elastic Board (1) determined that the Merger Agreement and the transactions contemplated thereby, including the Merger and the Elastic Share Issuance, are fair to, advisable and in the best interests of Elastic and its stakeholders, (2) approved the Merger Agreement and the transactions contemplated thereby and (3) resolved to recommend that Elastic shareholders vote for the approval of the resolution of the Board that Elastic shall enter into the Merger Agreement and the transactions contemplated thereby, including the Merger and the Elastic Share Issuance.

The Elastic Board recommends that Elastic shareholders vote “FOR” the Elastic Merger and Share Issuance Approval Proposal.

We have opted to provide our materials pursuant to the full set delivery option in connection with the Extraordinary Meeting. Under the full set delivery option, a company delivers all proxy materials to its shareholders. The approximate date on which the proxy statement/prospectus and proxy card are intended to be first sent or given to Elastic’s Shareholders (each a “Shareholder”, and collectively, the “Shareholders”) is [], 2019. This delivery can be by mail or, if a shareholder has previously agreed, by e-mail. In addition to delivering proxy materials to shareholders, Elastic must also post all proxy materials on a publicly-accessible website and provide information to Shareholders about how to access that website. Accordingly, you should have received our proxy materials by mail or, if you previously agreed, by e-mail. These proxy materials include this Notice of Extraordinary General Meeting of Shareholders, proxy statement/prospectus, and proxy card. These materials are available free of charge on our website at ir.elastic.co and at www.proxyvote.com.

Your vote is important regardless of the number of Elastic Ordinary Shares that you own. If you do not plan on attending the Extraordinary Meeting and if you are a Registered Shareholder, please vote via the Internet or, if you are a holder of shares in street name, please submit the voting instruction form you receive from your broker or nominee as soon as possible so your shares can be voted at the meeting. You may submit your voting instruction form by mail. If you are a Registered Shareholder, you may also vote by telephone or by submitting a proxy card by mail. If you are a Beneficial Owner, you will receive instructions from your broker or other nominee explaining how to vote your shares, and you may also have the choice of instructing the record holder as to the voting of your shares over the Internet or by telephone. Follow the instructions on the voting instruction form you receive from your broker or nominee. You do not need to affix postage to the enclosed reply envelope if you mail it within the United States. If you attend the Extraordinary Meeting, you may withdraw your proxy and vote your shares personally.

All shareholders are extended an invitation to attend the Extraordinary Meeting.

If you have any questions concerning this proxy statement/prospectus, would like additional copies of this proxy statement/prospectus or need help voting your Elastic Ordinary Shares, please contact our Investor Relations department at +1 (650) 695-1055 or [email protected]

Thank you for your ongoing support of Elastic.

The Board of Directors of Elastic N.V.

 


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FUTURE SHAREHOLDER PROPOSALS

Elastic will hold an annual general meeting of shareholders (“Annual Meeting”) in 2019 regardless of the outcome of the Extraordinary Meeting, or whether or not it has been held. The deadline has passed for submitting a proposal to be raised at the Annual Meeting. You may submit proposals, including recommendations of director candidates, for consideration at the Annual Meeting of shareholders to be held in 2020 (the “2020 AGM”), as follows:

For inclusion in Elastic’s proxy materials—Shareholders are eligible to present proper proposals for inclusion in Elastic’s proxy statement and for consideration at the 2020 AGM by submitting their proposals in writing to Elastic’s Corporate Secretary in a timely manner. Because Elastic is a Dutch public limited liability company whose shares are traded on a U.S. securities exchange, both U.S. and Dutch rules and time frames apply if shareholders wish to submit a proposal for consideration by Elastic shareholders at the 2020 AGM.

Under Dutch law and Elastic’s articles of association, if a shareholder is interested in submitting a proposed agenda item or a proposed resolution within the authority of shareholders to be presented at the 2020 AGM, the shareholder must fulfill the requirements set forth in Dutch law and Elastic’s articles of association, including satisfying both of the following criteria:

 

   

Elastic must receive the proposed agenda item (supported by reasons) or proposed resolution in writing (excluding e-mail and other forms of electronic communication) no later than 60 days before the date of the 2020 AGM (which date has not yet been declared by the Elastic Board); and

 

   

the number of shares held by the shareholder, or group of shareholders, submitting the proposed agenda item or proposed resolution must equal at least 3% of Elastic’s issued share capital.

In addition to the above requirements, shareholder proposals must be received by Elastic’s Corporate Secretary no later than May 10, 2020 and must otherwise have complied with the requirements of Rule 14a-8 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), in order to be included in the proxy statement for the 2020 AGM.

To be brought at an Annual Meeting—In addition, you can find in Elastic’s articles of association an advance notice procedure for shareholders who wish to present certain matters at an Annual Meeting.

An item requested in writing by one or more shareholders and/or other persons entitled to attend the Annual Meeting solely or jointly representing at least the percentage of the issued share capital as required by law shall be included in the notice of the meeting or announced in the same manner, if Elastic has received the request, including the reasons, no later than on the day prescribed by law. However, the Elastic Board has the right not to place proposals from persons mentioned above on the agenda if the Elastic Board judges them to be evidently not in the interests of Elastic.

Complete details regarding all requirements that must be met are found in our articles of association. You can obtain a copy of the relevant articles of association provisions by writing to Elastic’s Corporate Secretary at our principal executive offices at Elastic N.V., 800 West El Camino Real, Suite 350, Mountain View, California 94040 or by accessing Elastic’s filings on the SEC’s website at www.sec.gov. All notices of proposals by shareholders, whether or not requested for inclusion in Elastic’s proxy materials, should be sent to Elastic’s Corporate Secretary at our principal executive offices.


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ABOUT THIS PROXY STATEMENT/PROSPECTUS

This proxy statement/prospectus, which forms part of a registration statement on Form S-4 filed with the U.S. Securities and Exchange Commission (the “SEC”) by Elastic (File No. 333-            ), constitutes a prospectus of Elastic under Section 5 of the Securities Act of 1933, as amended (the “Securities Act”), with respect to the Elastic Ordinary Shares to be issued to Endgame securityholders and certain of Endgame’s employees pursuant to the Merger Agreement. This proxy statement/prospectus also constitutes a proxy statement for Elastic under Section 14(a) of the Exchange Act. It also constitutes a notice of meeting with respect to the Extraordinary Meeting of Elastic shareholders.

You should rely only on the information contained in this proxy statement/prospectus. No one has been authorized to provide you with information that is different from that contained in this proxy statement/prospectus. This proxy statement/prospectus is dated [                ], 2019, and you should assume that the information contained in this proxy statement/prospectus is accurate only as of such date. Neither our mailing of this proxy statement/prospectus to Elastic shareholders, nor the issuance by Elastic of Elastic Ordinary Shares in connection with the Merger, will create any implication to the contrary.

This proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction in which or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction. Information contained in this proxy statement/prospectus regarding Elastic has been provided by Elastic, and information contained in this proxy statement/prospectus regarding Endgame has been provided by Endgame.

Elastic shareholders should not construe the contents of this proxy statement/prospectus as legal, tax or financial advice. Elastic shareholders should consult with their own legal, tax, financial or other professional advisors. All summaries of, and references to, the agreements governing the terms of the transactions described in this proxy statement/prospectus are qualified by the full copies of and complete text of such agreements in the forms attached hereto as annexes, which are available on the Electronic Data Gathering Analysis and Retrieval System (“EDGAR”) of the SEC website at www.sec.gov. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES TO BE ISSUED IN CONNECTION WITH THE MERGER OR DETERMINED IF THIS PROXY STATEMENT/PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

Unless otherwise indicated or as the context otherwise requires, references in this proxy statement/prospectus to:

Combined Company” refers collectively to Elastic and Endgame, following completion of the Merger;

Elastic,” “Acquiror,” “we,” “our” and “us” refers to Elastic N.V., a public company with limited liability (naamloze vennootschap) incorporated under the laws of the Netherlands, as applicable, and its subsidiaries;

Elastic Ordinary Shares” refers to the ordinary shares of Elastic, par value 0.01 per share;

Endgame” refers to Endgame, Inc., a Delaware corporation, and, as applicable, its subsidiaries;

Endgame Capital Stock” refers to the Series A Preferred Stock, the Series A-1 Preferred Stock, the Series A-2 Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock, the Common Stock, and any other shares of capital stock, if any, of Endgame, taken together;

 


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General Meeting” refers to the general meeting of shareholders of Elastic.

Merger” refers to the merger of Merger Sub with and into Endgame, with Endgame surviving the Merger, as contemplated by the Merger Agreement;

Merger Agreement” refers to the Agreement and Plan of Reorganization, dated June 5, 2019, among Elastic, Merger Sub, Endgame, and the Securityholder Representative; and

Merger Sub” refers to Avengers Acquisition Corp., a Delaware corporation and wholly owned subsidiary of Elastic.

 

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TABLE OF CONTENTS

 

     Pages  

QUESTIONS AND ANSWERS

     ii  

SUMMARY

     1  

SELECTED HISTORICAL SUMMARY CONSOLIDATED FINANCIAL DATA OF ELASTIC

     6  

SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

     9  

COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE FINANCIAL DATA

     11  

COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION

     12  

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     13  

RISK FACTORS

     14  

THE EXTRAORDINARY MEETING OF SHAREHOLDERS

     71  

INFORMATION ABOUT THE COMPANIES

     75  

THE MERGER

     80  

THE MERGER AGREEMENT

     95  

THE SUPPORT AGREEMENTS

     125  

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES

     127  

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

     131  

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

     133  

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

     134  

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

     135  

COMPARISON OF THE RIGHTS OF HOLDERS OF ELASTIC ORDINARY SHARES AND HOLDERS OF ENDGAME CAPITAL STOCK

     144  

DESCRIPTION OF ELASTIC ORDINARY SHARES

     166  

SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT/DIRECTORS OF ELASTIC

     176  

STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT/DIRECTORS OF ENDGAME

     179  

APPRAISAL RIGHTS

     182  

BUSINESS

     183  

PROPERTY

     198  

LEGAL PROCEEDINGS

     198  

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

     199  

ELASTIC N.V. SELECTED FINANCIAL DATA

     201  

ELASTIC MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     204  

ENDGAME MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     232  

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

     244  

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     244  

MANAGEMENT

     245  

EXECUTIVE COMPENSATION

     254  

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     262  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     263  

OTHER MATTERS

     264  

HOUSEHOLDING OF PROXY MATERIALS

     264  

LEGAL MATTERS

     265  

EXPERTS

     265  

WHERE YOU CAN FIND MORE INFORMATION

     265  

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA OF ELASTIC N.V.

     F-1  

FINANCIAL STATEMENTS OF ENDGAME

     F-44  

 

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QUESTIONS AND ANSWERS

The following section provides brief answers to certain questions that you may have regarding the Merger Agreement and the proposed Merger. Please note that this section does not address all issues that may be important to you as an Elastic shareholder. Accordingly, you should carefully read this entire proxy statement/prospectus, including each of the Annexes.

 

Q:

Why am I receiving this proxy statement/prospectus?

 

A:

You are receiving these proxy materials because you were a shareholder of record or beneficial owner of Elastic N.V. (the “Company,” “Elastic,” “we,” “us” or “our”) as of the close of business on [], 2019 (the “Record Date”) for an extraordinary general meeting of shareholders of Elastic to be held on [], 2019 (the “Extraordinary Meeting”).

Please refer to the question entitled “What is the difference between holding shares as a shareholder of record or as a beneficial owner?” below for important details regarding different forms of share ownership.

This proxy statement/prospectus contains important information about the Elastic Merger and Share Issuance Approval Proposal and the Extraordinary Meeting, and you should read it carefully and in its entirety. The enclosed voting materials allow you to vote your Elastic Ordinary Shares without attending the Extraordinary Meeting. Your vote is important. We encourage you to vote as soon as possible. These proxy materials are being distributed to you on or about [], 2019.

 

Q:

Why is Elastic pursuing this acquisition? Why is it good for Elastic’s users?

 

A:

Joining forces with Endgame combines powerful search technology with a powerful endpoint security product. Together, we will be able to offer users an integrated product that we believe will offer endpoint security and greater visibility across their environment.

Endpoint agents provide a critical source of security data. As Elastic makes investments in security information and event management (“SIEM”) technology, a portion of the investment relates to agent-based technology. We have been working on expanding to collect additional security-oriented data, including data from hosts, in the Elastic Common Schema. Endgame’s endpoint product advances that objective. It has built-in, “raw” security data collection capabilities. With the data stored in a powerful search engine like Elasticsearch, combined with Kibana’s real-time visualization, security users gain access to an advanced level of capabilities to help protect their organizations from attacks.

Endpoint protection, detection, and response (EPP + EDR) is a natural extension of Elastic’s security and agent efforts. On top of raw security data that is the foundation of SIEM, EDR and EPP are critical to any company’s security posture.

The Elastic Stack is used for threat hunting by companies across the world, utilizing our ability to quickly search across vast amounts of data. We believe the ability to both bring another layer of data, as well as expand threat hunting to the endpoint directly, is an important value proposition of the combined products.

Endpoint agents are a natural extension of features in our product line. We have been developing agent-based technology in our Beats product for years now, with agents ranging from network packet capture, to logging, to metrics, and to security (audit). Endgame’s endpoint agents fit nicely into this paradigm of agents shipping data as part of the Elastic Stack and its architecture.

We have also started to see our Beats agents being used beyond just server-side machines, including being installed on a variety of endpoints, including workstations. Endgame’s endpoint

 

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product is purpose-built to run on a variety of endpoints, such as Windows, Mac, Linux, and Solaris devices. Using Beats, this will form a foundation to combine endpoint data into Elasticsearch.

Endgame has also developed a powerful language in EQL (Event Query Language), that can be executed on the endpoint, with its results stored in Elasticsearch.

Endgame also adds an experienced team in the security domain with over 100 technical resources and security experts that complement Elastic’s current security efforts.

 

Q:

Can I attend the Extraordinary Meeting?

 

A:

You may attend the Extraordinary Meeting if, on the Record Date, you were a shareholder of record or a beneficial owner. If you would like to attend the Extraordinary Meeting in person, you must notify Elastic by submitting your name and number of registered Elastic Ordinary Shares to Elastic’s e-mail address, [email protected], by 8:00 PM ET on [], 2019. You will be asked to show photo identification and the following:

 

   

If you are a shareholder of record, your paper proxy card that includes your name, or admission ticket that you received with a paper proxy card or that you obtained from our shareholder voting site at www.proxyvote.com; or

 

   

If you are a beneficial owner, the voting instruction card you received from your broker, bank or other intermediary, or a printed statement from such organization or online access to your brokerage or other account, showing your share ownership on the Record Date.

We will not be able to accommodate guests without proper evidence of share ownership as of the Record Date at the Extraordinary Meeting, including guests of our shareholders.

The meeting will begin promptly at [ p.m.] CET / [ p.m.] ET, and you should leave ample time for the check-in procedures.

 

Q:

What percentage of Elastic Ordinary Shares will Endgame securityholders own following the Merger?

 

A:

Based on the estimates as of [], 2019, the Record Date, and subject to any exercise of outstanding options, Elastic estimates that, upon completion of the Merger, former Endgame securityholders will own between approximately []% and []% of Elastic Ordinary Shares.

 

Q:

Where is the Extraordinary Meeting?

 

A:

The Extraordinary Meeting will be held at []. Shareholders may request directions to the Extraordinary Meeting by contacting Investor Relations at 800 West El Camino Real, Suite 350, Mountain View, California 94040, by telephone number +1(650) 695-1055, or by e-mail, [email protected]

 

Q:

Who is entitled to vote at the Extraordinary Meeting?

 

A:

You may vote your Elastic Ordinary Shares if you owned your shares at the close of business on the Record Date. You may cast one vote for each Elastic Ordinary Share held by you as of the Record Date on all matters presented. As of [], 2019, we had [] ordinary shares issued and outstanding. See the questions entitled “How can I vote my shares in person at the Extraordinary Meeting?” and “How can I vote my shares without attending the Extraordinary Meeting?” below for additional details.

 

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Q:

What is the difference between holding shares as a shareholder of record or as a beneficial owner?

 

A:

You are the “shareholder of record” of any shares that are registered directly in your name with Elastic’s transfer agent, Computershare Trust Company, N.A. We have sent the proxy statement/prospectus and proxy card directly to you if you are a shareholder of record. As a shareholder of record, you may grant your voting proxy directly to Elastic or to a third party, or vote in person at the Extraordinary Meeting.

You are the “beneficial owner” of any shares (which are considered to be held in “street name”) that are held on your behalf in a brokerage account or by a bank or another intermediary that is the shareholder of record for those shares. If you are a beneficial owner, you did not receive proxy materials directly from Elastic, but your broker, bank or other intermediary forwarded you a proxy statement and voting instruction card for directing that organization how to vote your shares. You may also attend the Extraordinary Meeting, but because a beneficial owner is not a shareholder of record, you may not vote in person at the Extraordinary Meeting unless you obtain a “legal proxy” from the organization that holds your shares, giving you the right to vote the shares at the Extraordinary Meeting.

 

Q:

How can I vote my shares in person at the Extraordinary Meeting?

 

A:

You may vote shares for which you are the shareholder of record in person at the Extraordinary Meeting. You may vote shares you hold beneficially in street name in person at the Extraordinary Meeting only if you obtain a “legal proxy” from the broker, bank or other intermediary that holds your shares, giving you the right to vote the shares. Even if you plan to attend the Extraordinary Meeting, we recommend that you also direct the voting of your shares as described below in the question entitled “How can I vote my shares without attending the Extraordinary Meeting?” so that your vote will be counted even if you later decide not to attend the Extraordinary Meeting.

 

Q:

How can I vote my shares without attending the Extraordinary Meeting?

 

A:

Whether you hold shares as a shareholder of record or a beneficial owner, you may direct how your shares are voted without attending the Extraordinary Meeting, by the following means:

By Internet—Shareholders of record with Internet access may direct how their shares are voted by following the “Vote by Internet” instructions on the proxy card until [] ET on [], 2019/[] CET on [], 2019. If you are a beneficial owner of shares held in street name, please check the voting instructions in the voting instruction card provided by your broker, bank or other intermediary for Internet voting availability.

By telephone—Shareholders of record who live in the United States or Canada may submit proxies by telephone by following the “Vote by Telephone” instructions on the proxy card until [] p.m. ET on [], 2019. If you are a beneficial owner of shares held in street name, please check the voting instructions in the voting instruction card provided by your broker, bank or other intermediary for telephone voting availability.

By mail—If you elect to vote by mail, please complete, sign and date the proxy card where indicated and return it in the prepaid envelope included with the proxy card. Proxy cards submitted by mail must be received by the time of the meeting in order for your shares to be voted. If you are a beneficial owner of shares held in street name, you may vote by mail by following the instructions for voting by mail in the voting instruction card provided by your broker, bank or other intermediary.

 

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Q:

What proposal will be voted on at the Extraordinary Meeting?

 

A:

At the Extraordinary Meeting, the Elastic shareholders will be asked to consider and vote on the proposal to approve the resolution of the board that Elastic shall (i) enter into the Merger Agreement and (ii) approve the transactions contemplated by the Merger Agreement, including the Merger and issuance of Elastic Ordinary Shares (the “Elastic Share Issuance”) in connection with the Merger (the “Elastic Merger and Share Issuance Approval Proposal”);

Elastic will transact no other business at the Extraordinary Meeting except such business as may properly be brought before the Extraordinary Meeting or any reconvention thereof.

 

Q:

How does the Elastic board of directors recommend that I vote?

 

A:

After careful consideration, the Elastic Board approved the Merger Agreement and the Elastic Share Issuance and determined that the Merger Agreement and the transactions contemplated thereby, including the Merger and the Elastic Share Issuance, are fair to, advisable and in the best interests of Elastic and its stakeholders.

The Elastic Board recommends that Elastic shareholders vote “FOR” the Elastic Merger and Share Issuance Approval Proposal.

 

Q:

How many shares must be present or represented to conduct business at the Extraordinary Meeting?

 

A:

The shareholders of record of at least one-third of the shares entitled to vote at the Extraordinary Meeting must either (1) be present in person at the Extraordinary Meeting or (2) have properly submitted a proxy in order to constitute a quorum at the Extraordinary Meeting. Approval of the Elastic Merger and Share Issuance Approval Proposal requires a simple majority of the votes cast where more than one-third of the issued and outstanding shares are represented.

 

Q:

What is the voting requirement to approve the proposal?

 

A:

All shares entitled to vote and that are voted in person at the Extraordinary Meeting will be counted, and all Elastic Ordinary Shares represented by properly executed and unrevoked proxies received prior to the Extraordinary Meeting will be voted at the Extraordinary Meeting as indicated in such proxies. Approval of the Elastic Merger and Share Issuance Approval Proposal requires a simple majority of the votes cast where more than one-third of the issued and outstanding shares are represented.

 

Q:

What will happen if I fail to vote or vote to abstain from voting?

 

A:

If you are the shareholder of record and you fail to vote or abstain from voting, it will have no effect on the Elastic Merger and Share Issuance Approval Proposal, assuming a quorum is present.

If you are a beneficial owner and you fail to provide the organization that is the shareholder of record for your shares with voting instructions, you will not have discretion to vote for the Elastic Merger and Share Issuance Proposal. If you fail to provide voting instructions to the organization or instruct the organization to vote your shares to abstain from voting, it will have no effect on the Elastic Merger and Share Issuance Approval Proposal, assuming a quorum is present.

 

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Q:

What will happen if I submit a proxy but do not specify how my shares are to be voted?

 

A:

If you are the shareholder of record and you submit a proxy, but you do not provide voting instructions, your shares will be voted as recommended by the Elastic Board.

If you are a beneficial owner and you do not provide the organization that is the shareholder of record for your shares with voting instructions, you will not have discretion to vote for the Elastic Merger and Share Issuance Proposal.

 

Q:

What is the effect of a broker non-vote?

 

A:

A broker non-vote occurs when a broker, bank or other intermediary that is otherwise counted as present or represented by proxy does not receive voting instructions from the beneficial owner and does not have the discretion to vote the shares. A broker non-vote will be counted for purposes of calculating whether a quorum is present at the Extraordinary Meeting but will not be counted for purposes of determining the number of votes present in person or represented by proxy and entitled to vote with respect to a particular proposal as to which that broker non-vote occurs. Thus, a broker non-vote will not impact our ability to obtain a quorum for the Extraordinary Meeting and will not otherwise affect the outcome of the Elastic Merger and Share Issuance Approval Proposal.

 

Q:

What does it mean if I receive multiple proxy cards?

 

A:

Your shares may be registered in more than one account, such as brokerage accounts and 401(k) accounts. It is important that you complete, sign, date and return each proxy card or voting instruction form you receive or vote using the telephone or the Internet as described in the instructions included with your proxy card(s) or voting instruction form(s).

 

Q:

Can I change my vote?

 

A:

If you are the shareholder of record, you may change your vote (1) by submitting a new proxy bearing a later date (which automatically revokes the earlier proxy) using any of the voting methods described above in the question entitled “How can I vote my shares without attending the Extraordinary Meeting?,” (2) by providing a written notice of revocation to Elastic’s Corporate Secretary at Elastic N.V., 800 West El Camino Real, Suite 350, Mountain View, California 94040 prior to your shares being voted, or (3) by attending the Extraordinary Meeting and voting in person, which will supersede any proxy previously submitted by you. However, merely attending the meeting will not cause your previously granted proxy to be revoked unless you specifically request it.

If you are a beneficial owner of shares held in street name, you may generally change your vote by (1) submitting new voting instructions to your broker, bank or other intermediary or (2) if you have obtained a legal proxy from the organization that holds your shares giving you the right to vote your shares, by attending the Extraordinary Meeting and voting in person. However, please consult that organization for any specific rules it may have regarding your ability to change your voting instructions.

 

Q:

What should I do if I receive more than one proxy card, voting instruction card from my broker, bank or other intermediary, or set of proxy materials?

 

A:

You may receive more than one proxy card, voting instruction card from your broker, bank or other intermediary or set of proxy materials. For example, if you are a beneficial owner with shares in more than one brokerage account, you may receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a shareholder of record and your shares are registered in more than one name, you will receive more than one proxy card. Please

 

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  complete, sign, date and return each proxy card or voting instruction card that you receive, or follow the voting instructions on such proxy card or voting instruction card you receive, to ensure that all your shares are voted.

 

Q:

Is my vote confidential?

 

A:

Proxy instructions, ballots and voting tabulations that identify individual shareholders are handled in a manner that protects your voting privacy. Your vote will not be disclosed either within Elastic or to third parties, except: (1) as necessary for applicable legal requirements, (2) to allow for the tabulation and certification of the votes, and (3) to facilitate a successful proxy solicitation. Occasionally, shareholders provide written comments on their proxy cards, which may be forwarded to Elastic management.

 

Q:

Who is the inspector of election?

 

A:

The inspector of election will be Broadridge Financial Solutions, Inc.

 

Q:

Where can I find the voting results of the Extraordinary Meeting?

 

A:

We will publish final voting results in our Current Report on Form 8-K, which will be filed with the SEC and made available on its website at www.sec.gov within four business days of the Extraordinary Meeting.

 

Q:

What are the conditions to completion of the Merger?

 

A:

In addition to the approval of the Elastic Merger and Share Issuance Approval Proposal by the Elastic shareholders, completion of the Merger is subject to the satisfaction of a number of other conditions, including approval of the Merger by the stockholders of Endgame, regulatory clearance and execution and delivery of various ancillary agreements by Endgame and certain securityholders of Endgame. For additional information on the regulatory clearance required to complete the Merger, see “The Merger—Regulatory Approvals Required for the Merger” beginning on page 92. For additional information on the conditions to completion of the Merger, see “The Merger Agreement—Conditions to the Completion of the Merger” beginning on page 112.

 

Q:

What happens if the Merger is not completed?

 

A:

If the Merger is not completed, Endgame securityholders and certain of its employees will not receive any consideration for their shares. Instead, Endgame and Elastic will remain independent companies. Under certain circumstances, Elastic may be required to pay Endgame a termination fee of $3.51 million in accordance with the Merger Agreement. Under other circumstances, Elastic may be required to pay Endgame an extension fee in accordance with the Merger Agreement. The termination fee and extension fee are described in more detail in the section entitled “The Merger Agreement—Expenses and Termination Fees” beginning on page 117.

 

Q:

What are the material U.S. federal income tax consequences of the Merger to U.S. holders of Endgame Capital Stock?

 

A:

Elastic and Endgame intend for the Merger to qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”). If the Merger qualifies as a “reorganization” within the meaning of Section 368(a) of the Code, U.S. holders (as defined under “Material U.S. Federal Income Tax Consequences”) of Endgame Capital Stock will not recognize any gain (except with respect to the par value of the Elastic Ordinary Shares

 

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  received and such U.S. holder’s pro rata share of the expense fund) or loss for U.S. federal income tax purposes upon the exchange of shares of Endgame Capital Stock for Elastic Ordinary Shares in the Merger.

Please carefully review the information set forth in the section entitled “Material U.S. Federal Income Tax Consequences” beginning on page 126 for a more complete description of the material U.S. federal income tax consequences of the Merger. The tax consequences to you of the Merger will depend on your particular facts and circumstances. Please consult your own tax advisors as to the specific tax consequences to you of the Merger.

 

Q:

When do you expect the Merger to be completed?

 

A:

Elastic and Endgame hope to complete the Merger as soon as reasonably practicable and are working to complete the Merger in the third quarter of Elastic’s fiscal year ending April 30, 2020. However, the Merger is subject to regulatory clearances and other conditions, and it is possible that factors outside the control of both companies could result in the Merger being completed at a later time, or not at all. We cannot presently determine the length of time between the Extraordinary Meeting and the completion of the Merger.

 

Q:

Are there any risks in the Merger or Elastic Share Issuance that I should consider?

 

A:

Yes. There are risks associated with all business combinations, including the Merger and the related Elastic Share Issuance. These risks are discussed in more detail in the section entitled “Risk Factors” beginning on page 14.

 

Q:

Who will bear the cost of soliciting votes for the Extraordinary Meeting?

 

A:

Elastic will pay the entire cost of preparing, assembling, printing, mailing and distributing these proxy materials and soliciting votes. In addition to the use of the mail, proxies may be solicited by officers and directors and regular employees of Elastic, some of whom may be considered participants in the solicitation, without additional remuneration, by personal interview, telephone, facsimile or otherwise. Elastic may also request brokerage firms, nominees, custodians and fiduciaries to forward proxy materials to the beneficial owners of shares held of record on the Record Date and will provide customary reimbursement to such firms for the cost of forwarding these materials.

 

Q:

What is householding and how does it affect me?

 

A:

The SEC permits companies that provide advance notice and follow certain procedures to send a single set of proxy materials to any household at which two or more shareholders of record reside, unless contrary instructions have been received. In such cases, each shareholder of record continues to receive a separate set of proxy materials. Certain brokerage firms may have instituted householding for beneficial owners. If your family has multiple accounts holding Elastic Ordinary Shares, you may have already received householding notification from your broker. Please contact your broker directly if you have any questions or require additional copies of this proxy statement. The broker will arrange for delivery of a separate copy of this proxy statement promptly upon your written or oral request. You may decide at any time to revoke your decision to household, and thereby receive multiple copies.

 

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Q:

Who can help answer my questions?

 

A:

Please contact our Investor Relations department by calling +1(650) 695-1055 or by writing to Elastic N.V., 800 West El Camino Real, Suite 350, Mountain View, California 94040, Attention: Investor Relations or e-mail [email protected] If you have questions about the Elastic Merger and Share Issuance Approval Proposal or the information contained in this proxy statement/prospectus, or desire additional copies of this proxy statement/prospectus, or if you are a shareholder of record and desire additional proxy cards, please contact our Investor Relations Department.

 

 

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SUMMARY

This summary highlights selected information included in this proxy statement/prospectus. You should carefully read this entire proxy statement/prospectus and its Annexes and the other documents referred to in this proxy statement/prospectus, because the information in this section may not provide all of the information that might be important to you in determining how to vote. Additional important information about Elastic is also contained in the Annexes to this proxy statement/prospectus. Each item in this summary includes a page reference directing you to a more complete description of that item.

Information About the Companies (Page 75)

Elastic N.V.

Elastic N.V.

800 West El Camino Real, Suite 350

Mountain View, California 94040

Phone: (650) 458-2620

Elastic N.V., a Dutch public company with limited liability (naamloze vennootschap), is a search company. Elastic was founded to bring the power of search to a broad range of business and consumer use cases. Elastic’s products enable our users and customers to instantly find relevant information and insights in large amounts of data. Elastic offers the Elastic Stack (previously known as the ELK Stack), a powerful set of software products that ingest and store data from any source, and in any format, and perform search, analysis, and visualization in milliseconds or less. The Elastic Stack is designed for direct use by developers to power a variety of use cases. Elastic also offers software solutions built on the Elastic Stack that address a wide variety of use cases. The Elastic Stack and Elastic’s solutions are designed to run on premises, in public or private clouds, or in hybrid environments.

Elastic’s Ordinary Shares are listed on the NYSE under the symbol “ESTC.”

Endgame, Inc.

Endgame, Inc.

3101 Wilson Boulevard, Suite 500

Arlington, Virginia 22201

Phone: (703) 650-1250

Endgame is a security company that offers an endpoint protection platform designed to empower security operators of varied skill levels to prevent, detect, and respond to advanced cyberattacks.

Merger Sub

Avengers Acquisition Corp.

800 West El Camino Real, Suite 350

Mountain View, California 94040

Phone: (650) 458-2620

Avengers Acquisition Corp., a wholly owned subsidiary of Elastic, is a Delaware corporation that was formed on June 3, 2019 for the purpose of effecting the Merger. At the effective time of the



 

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Merger, Merger Sub will be merged with and into Endgame, with Endgame surviving as a wholly owned subsidiary of Elastic. Merger Sub has not conducted any activities other than those incidental to its formation and the matters contemplated by the Merger Agreement in connection with the Merger.

The Merger and the Merger Agreement (Pages 80 and 95, respectively)

The terms and conditions of the Merger are set forth in the Merger Agreement, a copy of which is attached as Annex A to this proxy statement/prospectus. Elastic encourages you to read the entire Merger Agreement carefully because it is the principal legal document governing the Merger and the Elastic Share Issuance. For more information on the Merger Agreement, see “The Merger Agreement” beginning on page 94.

Structure of the Merger (Page 80)

At the effective time of the Merger, Merger Sub will merge with and into Endgame, the separate corporate existence of Merger Sub will cease, and Endgame will continue as the surviving corporation in the Merger and as a wholly owned subsidiary of Elastic.

Merger Consideration (Page 80)

In the Merger, each outstanding share of Endgame Capital Stock, subject to certain exceptions, will be converted into the right to receive (i) such number of Elastic Ordinary Shares as required pursuant to the terms of the Merger Agreement and Endgame’s charter in respect of such shares of Endgame Capital Stock, (ii) the par value of such Elastic Ordinary Shares, (iii) a portion of the Securityholder Representative’s expense fund, which will be deposited with the Securityholder Representative and (iv) the contingent right to receive such party’s share of any Elastic Ordinary Shares released from the escrow fund pursuant to the terms of the Merger Agreement. Elastic will also assume all outstanding in-the-money Endgame options and issue a number of Elastic Ordinary Shares with a value equivalent to the amount due under certain outstanding retention bonus awards and certain convertible notes of Endgame.

Elastic’s Reasons for the Merger and Elastic Share Issuance; Recommendation of the Elastic Board of Directors (Page 83)

On June 4, 2019, the Elastic Board (1) determined that the Merger Agreement and the transactions contemplated thereby, including the Merger and the Elastic Share Issuance, are fair to, advisable and in the best interests of Elastic and its stakeholders, (2) approved the Merger Agreement and the transactions contemplated thereby and (3) resolved to recommend that Elastic shareholders vote for the approval and adoption of the Merger Agreement and the transactions contemplated thereby, including the Merger and the Elastic Share Issuance.

The Elastic Board recommends that Elastic shareholders vote “FOR” the Elastic Merger and Share Issuance Approval Proposal.

For the factors considered by the Elastic Board in reaching its decision to approve the Merger Agreement, see “The Merger—Elastic’s Reasons for the Merger and Elastic Share Issuance; Recommendation of the Elastic Board of Directors” on page 83.

The Extraordinary Meeting; Required Vote (Page 72)

The Extraordinary Meeting will be held at [                ], on [                ], 2019, at [                ] CET/[                ] ET, unless reconvened for a later date or time. At the Extraordinary Meeting, Elastic



 

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shareholders will be asked to consider and vote on the Elastic Merger and Share Issuance Approval Proposal.

You may vote at the Extraordinary Meeting if you owned Elastic Ordinary Shares at the close of business on [], 2019, the Record Date. As of the close of business on the Record Date, there were [] shares of Elastic Ordinary Shares outstanding and entitled to vote. You may cast one vote for each ordinary share of Elastic that you owned as of the close of business on the Record Date.

As of the close of business on the Record Date, approximately []% of the outstanding Elastic Ordinary Shares were held by Elastic’s directors and executive officers and their affiliates. We currently expect that Elastic’s directors and executive officers will vote their shares in favor of the above-listed proposals.

Completion of the Merger is conditioned on approval of the Elastic Merger and Share Issuance Approval Proposal. Approval of the Elastic Merger and Share Issuance Approval Proposal requires a simple majority of the votes cast where more than one-third of the issued and outstanding shares are represented.

Regulatory Approvals Required for the Merger (Page 92)

The Merger is subject to review, and if applicable, investigation by the Committee on Foreign Investment in the United States (“CFIUS”). The Merger is also subject to clearance by CFIUS without unresolved national security concerns with respect to the transactions contemplated by the Merger. Additionally, the Merger is subject to entry into an agreement with the Defense Counterintelligence and Security Agency (“DCSA”) in connection with the Merger and the other transactions contemplated in connection with the Merger. Elastic and Endgame have filed a joint voluntary notice to CFIUS seeking clearance of the Merger and the other transactions contemplated in connection with the Merger. Elastic and Endgame have also entered into discussions with DCSA regarding DCSA approvals. See “Regulatory Approvals Required for the Merger.”

Conditions to the Completion of the Merger (Page 112)

The completion of the Merger is subject to the satisfaction of a number of other conditions, including approval of the Merger by the shareholders of Elastic, approval of the Merger by the stockholders of Endgame, regulatory clearance and execution and delivery of various ancillary agreements by Endgame and certain securityholders of Endgame.

We cannot be certain when, or if, the conditions to the Merger will be satisfied or waived, or that the Merger will be completed.

Termination of the Merger Agreement (Page 115)

The Merger Agreement may be terminated at any time prior to the effective time of the Merger, whether before or after receipt of the requisite stockholder approvals, under the following circumstances:

 

   

by mutual written consent of Elastic and Endgame;

 

   

if the Endgame stockholders fail to approve the Merger;

 

   

if the Elastic shareholders fail to approve the Merger;



 

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if the Merger is not consummated by December 31, 2019;

 

   

if any Law or final and non-appealable Order shall be in effect which has the effect of making the Merger illegal or otherwise prohibits prevents consummation of the Merger;

 

   

in the event of a CFIUS Turndown or DCSA Turndown;

 

   

in the event of an Acquiror Rejected CFIUS Condition or Acquiror Rejected DCSA Condition; or

 

   

if the other party breaches or fails to perform any of its covenants or agreements in the Merger Agreement.

Appraisal Rights

Holders of Elastic Ordinary Shares are not entitled to appraisal rights in connection with the merger. Endgame’s stockholders are entitled to appraisal rights in connection with the merger under Delaware law.

For more information please see the section titled “Appraisal Rights” beginning on page 182.

Expenses and Termination Fees (Page 117)

Generally, each party will pay all fees and expenses incurred by it in connection with the Merger and the other transactions and agreements contemplated by the Merger Agreement. However, Elastic will be obligated to pay a termination fee of $3.51 million in cash to Endgame under certain circumstances. See “The Merger Agreement—Expenses and Termination Fees” for a more complete discussion for the circumstances under which termination fees will be required to be paid.

Support Agreements (Page 125)

Concurrently with the execution of the Merger Agreement, certain shareholders of Elastic and stockholders of Endgame entered into support agreements, pursuant to which, among other things, such holders agreed that they will vote their Elastic Ordinary Shares and shares of Endgame Capital Stock, respectively, in favor of the Merger.

Accounting Treatment of the Merger (Page 94)

Elastic prepares its financial statements in accordance with U.S. GAAP. The Merger will be accounted for in accordance with Accounting Standards Codification Topic 805, Business Combinations. The purchase price will be allocated to the fair values of assets acquired and liabilities assumed. Any excess purchase price after this allocation will be assigned to goodwill. Determining the fair value of assets acquired and liabilities assumed requires management to use significant judgment and estimates, including the selection of valuation methodologies, estimates of future revenue and cash flows, discount rates and selection of comparable companies. Under the acquisition method of accounting, goodwill is not amortized but is tested for impairment at least annually, or more frequently if circumstances indicate potential impairment.

Material U.S. Federal Income Tax Consequences of the Merger (Page 127)

Elastic and Endgame intend for the Merger to qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”). If the Merger qualifies as a “reorganization” within the meaning of Section 368(a) of the Code, U.S. holders (as defined under



 

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Material U.S. Federal Income Tax Consequences”) of Endgame Capital Stock will not recognize any gain (except with respect to the par value of the Elastic Ordinary Shares received and such U.S. holder’s pro rata share of the expense fund) or loss for U.S. federal income tax purposes upon the exchange of shares of Endgame Capital Stock for Elastic Ordinary Shares in the Merger.

Please carefully review the information set forth in the section entitled “Material U.S. Federal Income Tax Consequences” beginning on page 127 for a more complete description of the material U.S. federal income tax consequences of the Merger.

The tax consequences to you of the Merger will depend on your particular facts and circumstances. Please consult your own tax advisors as to the specific tax consequences to you of the Merger.

Comparison of the Rights of Holders of Elastic Ordinary Shares and Holders of Endgame Capital Stock (Page 144)

Endgame securityholders receiving the merger consideration will have different rights once they become shareholders of Elastic due to differences between the governing corporate documents of Elastic and Endgame. See “Comparison of the Rights of Holders of Elastic Ordinary Shares and Holders of Endgame Capital Stock.



 

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SELECTED HISTORICAL SUMMARY CONSOLIDATED FINANCIAL DATA OF ELASTIC

The following tables present selected historical consolidated summary financial data for Elastic, as of and for each of the fiscal years of Elastic ended April 30, 2019, 2018 and 2017. The historical consolidated statements of operations data set forth with respect to fiscal years ended April 30, 2019, 2018 and 2017, and the consolidated balance sheet data as of April 30, 2019 and 2018, have been derived from our audited consolidated financial statements that are included elsewhere in this proxy statement/prospectus, and have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The information set forth below is not necessarily indicative of future results and should be read together with the other information contained in our consolidated financial statements and related notes included elsewhere in this prospectus and the sections titled “Elastic N.V. Selected Financial Data” and “Elastic’s Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Consolidated Statement of Operations:

 

     Year Ended April 30,  
     2019     2018     2017  
     (in thousands)  

Revenue

      

License—self-managed

   $ 39,474     $ 25,759     $ 14,503  

Subscription—self-managed and SaaS

     208,780       123,623       65,243  
  

 

 

   

 

 

   

 

 

 

Total subscription revenue

     248,254       149,382       79,746  

Professional services

     23,399       10,553       8,431  
  

 

 

   

 

 

   

 

 

 

Total revenue

     271,653       159,935       88,177  
  

 

 

   

 

 

   

 

 

 

Cost of revenue(1)(2)(3)

      

Cost of license—self-managed

     387       387       55  

Cost of subscription—self-managed and SaaS

     53,560       27,920       13,161  
  

 

 

   

 

 

   

 

 

 

Total cost of revenue—subscription

     53,947       28,307       13,216  

Cost of professional services

     24,063       12,433       6,629  
  

 

 

   

 

 

   

 

 

 

Total cost of revenue

     78,010       40,740       19,845  
  

 

 

   

 

 

   

 

 

 

Gross profit

     193,643       119,195       68,332  
  

 

 

   

 

 

   

 

 

 

Operating expenses(1)(2)(3)(4)

      

Research and development

     101,167       55,641       32,601  

Sales and marketing

     147,296       82,606       56,612  

General and administrative

     46,536       28,942       26,291  
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     294,999       167,189       115,504  
  

 

 

   

 

 

   

 

 

 

Operating loss(1)(2)(3)(4)

     (101,356     (47,994     (47,172

Other income (expense), net

     3,441       (1,357     (583
  

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (97,915     (49,351     (47,755

Provision for income taxes

     4,388       3,376       4,213  
  

 

 

   

 

 

   

 

 

 

Net loss

   $ (102,303   $ (52,727   $ (51,968
  

 

 

   

 

 

   

 

 

 

Net loss per share attributable to ordinary shareholders, basic and diluted

   $ (1.86   $ (1.65   $ (1.71
  

 

 

   

 

 

   

 

 

 

Weighted-average shares used to compute net loss per share attributable to ordinary shareholders, basic and diluted

     54,893,365       32,033,792       30,359,419  
  

 

 

   

 

 

   

 

 

 


 

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(1) 

Includes stock-based compensation expense as follows:

 

     Year Ended April 30,  
     2019      2018      2017  
     (in thousands)  

Cost of revenue

        

Cost of subscription—self managed and SaaS

   $ 3,383      $ 699      $ 268  

Cost of professional services

     1,208        329        98  

Research and development

     16,100        5,045        3,302  

Sales and marketing

     11,996        3,560        3,420  

General and administrative

     7,255        3,109        11,798  
  

 

 

    

 

 

    

 

 

 

Total stock-based compensation expense

   $ 39,942      $ 12,742      $ 18,886  
  

 

 

    

 

 

    

 

 

 

 

(2) 

Includes employer payroll taxes on employee stock transactions as follows (information for years prior to fiscal year 2019 is not meaningful):

 

     Year Ended April 30,  
     2019      2018      2017  
     (in thousands)  

Cost of revenue

        

Cost of subscription—self managed and SaaS

   $ 28      $         —      $         —  

Cost of professional services

     10                

Research and development

     939                

Sales and marketing

     747                

General and administrative

     90                
  

 

 

    

 

 

    

 

 

 

Total stock-based compensation expense

   $ 1,814      $      $  
  

 

 

    

 

 

    

 

 

 

 

(3) 

Includes amortization of acquired intangibles as follows:

 

     Year Ended April 30,  
     2019      2018      2017  
     (in thousands)  

Cost of revenue

        

Cost of license—self-managed

   $ 387      $ 387      $ 55  

Cost of subscription—self-managed and SaaS

     2,421        1,521        404  

Sales and marketing

     148        119        70  
  

 

 

    

 

 

    

 

 

 

Total amortization of acquired intangibles

   $ 2,956      $ 2,027      $ 529  
  

 

 

    

 

 

    

 

 

 

 

(4) 

Includes acquisition-related expenses as follows:

 

     Year Ended April 30,  
     2019      2018      2017  
     (in thousands)  

Research and development

   $ 689      $ 655      $  

General and administrative

     259        608        235  
  

 

 

    

 

 

    

 

 

 

Total acquisition-related expenses

   $ 948      $ 1,263      $ 235  
  

 

 

    

 

 

    

 

 

 


 

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Consolidated Balance Sheet Data:

 

     As of April 30,  
     2019     2018  
     (in thousands)  

Cash and cash equivalents

   $ 298,000     $ 50,941  

Working capital

   $ 226,061     $ 7,116  

Total assets

   $ 485,738     $ 183,013  

Deferred revenue, current and non-current

   $ 170,666     $ 102,561  

Redeemable convertible preference shares

   $     $ 200,921  

Accumulated deficit

   $ (317,077   $ (214,774

Total shareholders’ equity (deficit)

   $ 263,012     $ (153,529


 

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SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following table sets forth selected unaudited pro forma condensed combined financial information giving effect to the Merger of Elastic and Endgame. The unaudited pro forma condensed combined statement of operations has been prepared as if the Merger had been consummated on May 1, 2018, and the unaudited pro forma condensed combined balance sheet has been prepared as if the Merger had been consummated on April 30, 2019. Elastic and Endgame have different fiscal year ends, with Elastic’s fiscal year-end being April 30 and Endgame’s fiscal year-end being December 31. Because the year-ends are in excess of 93 days different, Endgame’s financial statements are required to be adjusted to a period within 93 days of Elastic’s fiscal year end. For the purposes of preparing the unaudited pro forma condensed combined statement of operations for the year ended April 30, 2019, Endgame’s unaudited condensed consolidated statement of operations for the twelve months ended March 31, 2019 was derived by subtracting the historical unaudited condensed consolidated statement of operations for the three months ended March 31, 2018 from the audited consolidated statement of operations for the fiscal year ended December 31, 2018, and by including Endgame’s historical unaudited condensed consolidated statement of operations for the three months ended March 31, 2019. The unaudited pro forma condensed combined balance sheet as of April 30, 2019, combines the historical consolidated balance sheet of Elastic as of April 30, 2019, and historical unaudited condensed consolidated balance sheet of Endgame as of March 31, 2019.

The unaudited pro forma condensed combined statement of operations includes adjustments which are preliminary and may be revised. The final determination of the purchase price and the purchase price allocation, upon the completion of the Merger, will be based on Endgame’s net assets acquired as of that date and will depend on several factors that cannot be predicted with certainty at this time. There can be no assurance that such revisions will not result in material changes. In addition, the unaudited pro forma condensed combined financial information does not reflect any anticipated synergies, detrimental effects, operating efficiencies or cost savings that may result from the Merger that may occur prior to, or after, completion of the Merger or any acquisition and integration costs that may be incurred. The information presented below should be read in conjunction with the accompanying notes to the unaudited pro forma condensed combined financial information; the separate historical audited consolidated financial statements of Elastic as of and for the year ended April 30, 2019, included elsewhere in this proxy statement/prospectus; the separate historical audited consolidated financial statements of Endgame as of and for the year ended December 31, 2018, included elsewhere in this proxy statement/prospectus; and the separate historical unaudited consolidated financial statements of Endgame for the three months ended March 31, 2019, and March 31, 2018, included elsewhere in this proxy statement/prospectus. See “Unaudited Pro Forma Condensed Combined Financial Information” for more information. The unaudited pro forma condensed combined financial data are not necessarily indicative of results that actually would have occurred or that may occur in the future had the Merger been completed on the dates indicated.



 

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     Historical
12 Months Ended
       
     April 30, 2019
Elastic
    March 31, 2019
Endgame
    Pro Forma
Combined
 
     (in thousands, except per share data)  

Condensed Statement of Operations Data:

      

Revenues

   $ 271,653     $ 20,980     $ 291,407  

Cost of revenue

   $ 78,010     $ 2,875     $ 86,687  

Operating expenses

   $ 294,999     $ 38,612     $ 337,686  

Loss from operations

   $ (101,356   $ (20,507   $ (132,966

Net loss

   $ (102,303   $ (21,416   $ (130,878

Net loss per ordinary share

   $ (1.86   $ (2.08   $ (2.30

Condensed Balance Sheet Data:

      

Cash and cash equivalents

   $ 298,000     $ 5,289     $ 281,191  

Total assets

   $ 485,738     $ 13,937     $ 724,302  

Total liabilities

   $ 222,726     $ 51,499     $ 264,914  

Total shareholders’ (deficit) equity / stockholders’ (deficit) equity

   $ 263,012     $ (137,060   $ 459,388  


 

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COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE FINANCIAL DATA

The following tables set forth Elastic’s and Endgame’s historical per share data for the year ended April 30, 2019 and March 31, 2019, respectively, and unaudited pro forma combined per share data for the year ended April 30, 2019. This information should be read together with the consolidated financial statements and related notes of Elastic and Endgame included elsewhere in this proxy statement/prospectus and with the unaudited pro forma condensed combined financial information included in the section entitled “Unaudited Pro Forma Condensed Combined Financial Information” beginning on page 131 of this proxy statement/prospectus. The pro forma information is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the Merger had been completed as of the beginning of the periods presented, nor is it necessarily indicative of the future operating results or financial position of the combined company.

 

(In thousands, except for per share data)

   Year Ended
April 30, 2019
 

Condensed Combined Statement of Operations Data:

  

Revenue

   $ 291,407  

Net loss

   $ (130,878

Net loss per share

  

Basic

   $ (2.30

Diluted

   $ (2.30

 

(In thousands)

   Year Ended
April 30, 2019
 

Condensed Combined Balance Sheet Data:

  

Cash and cash equivalents

   $ 281,191  

Total assets

   $ 724,302  

Long term debt

      

Total shareholders’ equity

   $ 459,388  

 

ELASTIC HISTORICAL DATA

   Year Ended
April 30, 2019
 

Basic net loss per share

   $ (1.86

Diluted net loss per share

   $ (1.86

Book value per share (at period end)

   $ 4.79  

 

ENDGAME HISTORICAL DATA

   Year Ended
March 31, 2019
 

Basic net loss per share

   $ (2.08

Diluted net loss per share

   $ (2.08

Book value per share (at period end)

   $ (13.29

 

ELASTIC UNAUDITED PRO FORMA COMBINED DATA

   Year Ended
April 30, 2019
 

Basic net loss per share

   $ (2.30

Diluted net loss per share

   $ (2.30

Book value per share (at period end)

   $ 8.06  

 

ENDGAME UNAUDITED PRO FORMA EQUIVALENT DATA1

   Year Ended
April 30, 2019
 

Basic net loss per share

   $ (0.04

Diluted net loss per share

   $ (0.04

Book value per share (at period end)

   $ 0.13  

 

1

The pro forma equivalent per share amounts were calculated by multiplying the pro forma combined amounts by the Stock Award Exchange Ratio.



 

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COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION

Elastic Ordinary Shares are listed on the NYSE under the symbol “ESTC”.

There is no established trading market for Endgame Capital Stock.

Elastic shareholders and Endgame securityholders are advised to obtain current market quotations for Elastic Ordinary Shares. The market price of Elastic Ordinary Shares will fluctuate between the date of this proxy statement/prospectus and the date of completion of the Merger. No assurance can be given concerning the market price of Elastic Ordinary Shares before or after the effective time of the Merger. Changes in the market price of Elastic Ordinary Shares prior to the completion of the Merger will affect the market value of the merger consideration that Endgame securityholders will receive upon completion of the Merger.



 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This proxy statement/prospectus contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements in this proxy statement/prospectus that are not historical facts are hereby identified as “forward-looking statements” for the purpose of the safe harbor provided by Section 21E of the Exchange Act, and Section 27A of the Securities Act. These forward-looking statements, including, without limitation, those relating to Elastic’s results of operations, wherever they occur in this proxy statement/prospectus, are necessarily estimates reflecting the best judgment of the management of Elastic and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. These forward-looking statements should, therefore, be considered in light of various important factors, including those set forth in this proxy statement/prospectus.

The words “believe,” “may,” “will,” “potentially,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “should,” “project,” “plan,” “expect,” “estimate” and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements. These forward-looking statements are found at various places throughout this proxy statement/prospectus. Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include those set forth in the section entitled “Risk Factors” beginning on page 14.



 

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RISK FACTORS

In addition to the other information contained in this proxy statement/prospectus, including the matters addressed under the caption “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 13 of this proxy statement/prospectus, Elastic shareholders should carefully consider the following risks in deciding whether to vote for the approval of the Elastic Merger and Share Issuance Approval Proposal. You should carefully read this entire proxy statement/prospectus and its Annexes.

Risks Related to the Merger

Because the value of Elastic Ordinary Shares issuable in connection with the Merger is subject to a collar, the number of Elastic Ordinary Shares to be received by Endgame securityholders in connection with the Merger cannot be determined.

Each share of Elastic Ordinary Shares to be issued in the Merger will be valued at an amount equal to the volume weighted average price per share rounded to four decimal places of the Elastic Ordinary Shares on the NYSE for the 20 consecutive trading days ending with the complete trading day ending five trading days prior to the date upon which the Merger is consummated. Notwithstanding the foregoing, in no event shall an Elastic Ordinary Share be valued at more than $98.55 per share or less than $68.49 per share. As a result of such determination and such collar, the number of Elastic Ordinary Shares received in the Merger may not reflect the value of Elastic Ordinary Shares as traded on the NYSE at the time of consummation of the Merger. Changes in the trading price of Elastic Ordinary Shares may result from a variety of factors, including, among others, general market and economic conditions, changes in Elastic’s business, operations and prospects, market assessment of the likelihood that the Merger will be completed as anticipated or at all and regulatory considerations. Many of these factors are beyond Elastic’s control. As a result of any such changes in stock price, the market value of the Elastic Ordinary Shares at the time that the Merger is completed could vary significantly from the value of such shares immediately prior to the public announcement of the Merger, on the date of this proxy statement/prospectus or on the date on which Endgame securityholders actually receive Elastic Ordinary Shares issued in connection with the Merger. Accordingly, as of the date of this proxy statement/prospectus, the exact number of Elastic Ordinary Shares issuable upon consummation of the Merger to Endgame securityholders cannot be determined.

The ability of Elastic and Endgame to complete the Merger is subject to a number of conditions, including the clearance by CFIUS and the entry into an agreement with DCSA, which may impose conditions that could have an adverse effect on Elastic or Endgame or could delay or cause us to abandon the Merger.

Completion of the Merger is subject to a number of conditions that must be fulfilled, including, among others, the conditions that (i) the Elastic Merger and Share Issuance Approval Proposal be approved by the affirmative vote of the holders of a majority of the total votes of Elastic Ordinary Shares cast in person or by proxy at the Extraordinary Meeting, where at least one-third of the issued and outstanding shares are represented, pursuant to the terms of the Merger Agreement; (ii) the adoption of the Merger Agreement and the approval of the Merger by the requisite Endgame stockholders; (iii) the clearance by CFIUS; and (iv) the entry into an agreement with DCSA. In addition, if the Merger is not completed by December 31, 2019, either Elastic or Endgame may choose not to proceed with the Merger, and the parties can mutually decide to terminate the Merger Agreement at any time prior to the consummation of the Merger, before or after stockholder approval. In addition, Elastic or Endgame may elect to terminate the Merger Agreement in certain other circumstances. See “The Merger Agreement—Conditions to the Completion of the Merger” beginning on page 112 and “The Merger Agreement—Termination of the Merger Agreement” beginning on page 115 for a fuller

 

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description of these circumstances. These conditions and circumstances may impose conditions that could have an adverse effect on Elastic or Endgame or could delay or cause us to abandon the Merger.

Any delay in completing the Merger may reduce or eliminate the expected benefits from the transaction.

The Merger is subject to a number of conditions beyond Elastic’s and Endgame’s control that may prevent, delay or otherwise materially adversely affect its completion. Elastic and Endgame cannot predict whether and when these other conditions will be satisfied. There can be no assurance that Elastic, Endgame or both parties will waive any condition to closing that is not satisfied. Furthermore, the requirements for obtaining the required clearances and approvals and the time required to satisfy any other conditions to the closing could delay the completion of the Merger for a significant period of time or prevent it from occurring. Any delay in completing the Merger could cause Elastic not to realize some or all of the benefits that it expects to achieve if the Merger is successfully completed within the currently expected timeframe. See “What are the Conditions to Completion of the Merger” beginning on page vii.

Failure to complete the Merger could negatively impact the future business and financial results of Elastic and Endgame and the stock price of Elastic.

If the Merger is not completed, the ongoing businesses of Elastic or Endgame may be adversely affected and Elastic and Endgame will be subject to several risks, including the following:

 

   

Elastic, being required, under certain circumstances, to pay a termination fee of $3.51 million to Endgame (see “The Merger Agreement–Expenses and Termination Fees” beginning on page 117);

 

   

each of Elastic and Endgame having to pay certain costs relating to the proposed Merger, such as legal, accounting, financial advisor, filing, printing and mailing fees without receiving the anticipated benefits of the Merger;

 

   

under the Merger Agreement, each of Elastic and Endgame being subject to certain restrictions on or other obligations with respect to the conduct of its business prior to consummation of the Merger or termination of the Merger Agreement, which may adversely affect its ability to execute certain business strategies; and

 

   

the focus of management of each company on the Merger prior to consummation of the Merger or termination of the Merger Agreement instead of on pursuing other opportunities that may be beneficial to each company.

In addition, if the Merger is not completed, Elastic and/or Endgame may experience negative reactions from the financial markets and from their respective customers and employees. Elastic and/or Endgame could also be subject to litigation related to any failure to complete the Merger or to enforcement proceedings commenced against Elastic or Endgame to perform their respective obligations under the Merger Agreement. If the Merger is not completed, Elastic and Endgame cannot assure their respective stockholders that these risks will not materialize or will not materially affect the business and financial results of Elastic and Endgame or the trading price of Elastic Ordinary Shares.

The Merger will involve substantial costs.

Elastic and Endgame have incurred and expect to continue to incur substantial costs and expenses relating directly to the Merger and the Elastic Share Issuance, including but not limited to professional fees and expenses, fees and costs relating to regulatory filings and notices, SEC filing

 

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fees, printing and mailing costs and other transaction-related costs, fees and expenses. If the Merger is not completed, Elastic and Endgame will have incurred substantial expenses for which no ultimate benefit will have been received by either company.

The pendency of the Merger and related uncertainty could adversely affect the relationships of Elastic and Endgame with employees, customers, commercial partners, financing parties and other third parties.

Uncertainty about the effect of the Merger on employees, customers, commercial partners and other third parties may have an adverse effect on Elastic and Endgame. These uncertainties may cause customers, suppliers, commercial partners, financing parties and others that deal with Elastic or Endgame to seek to change, delay or defer decisions with respect to existing or future business relationships. Retention, hiring and motivation of certain current and prospective employees by Elastic or Endgame may be challenging while the Merger is pending, as they may experience uncertainty about their future roles with Elastic or Endgame. If key employees, customers, commercial partners, financing parties and other third parties terminate or change, or seek to terminate or change, their existing relationships with Elastic or Endgame, Elastic’s business or Endgame’s business, and the Combined Company’s business as a result, could be harmed.

The consummation of the Merger may permit counterparties to other agreements with Endgame to terminate those agreements.

Endgame is party to certain agreements that give the counterparties to such agreements, including investors and commercial partners, certain rights, including notice, consent and other rights in connection with “change of control” transactions or otherwise, that may give rise to a default by Endgame under the agreements or may give rise to other rights of the counterparty, such as the right to terminate the agreement. Under certain of these agreements, the Merger may constitute a “change of control” or otherwise give rise to consent, termination rights or other rights, which the counterparties may assert. If the counterparties do claim a default of the agreements by Endgame, terminate the agreements, or assert other rights in connection with the Merger, such actions may adversely affect business and operations of Elastic and the value of Elastic Ordinary Shares following the Merger.

Until the completion of the Merger or the termination of the Merger Agreement in accordance with its terms, Endgame is prohibited from entering into certain transactions and taking certain actions that might otherwise be beneficial to Endgame and its stockholders.

Until the Merger is completed, the Merger Agreement restricts Endgame from taking specified actions without the consent of the other party, and requires Endgame to operate in the ordinary course of business consistent with past practices. Endgame is subject to a number of customary interim operating covenants relating to, among other things, its capital expenditures, incurrence of indebtedness, entry into or amendment of certain types of agreements, equity grants and changes in employee compensation. These restrictions may prevent Endgame from engaging in activities that would otherwise benefit its businesses or pursuing attractive business opportunities that may arise prior to the completion of the Merger. See “The Merger Agreement—Conduct of Business” beginning on page 106 for a description of the restrictive covenants applicable to Endgame.

Sales of substantial amounts of Elastic shares in the open market by former Endgame securityholders could depress its stock price.

Elastic Ordinary Shares that are issued to Endgame securityholders, including those shares issued upon the exercise of outstanding stock options, will be freely tradable without restrictions or further registration under the Securities Act. If the Merger is completed and if former Endgame

 

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securityholders sell substantial amounts of Elastic Ordinary Shares in the public market following consummation of the Merger, the market price of Elastic Ordinary Shares may decrease, and this may be accentuated by the relatively small public float of Elastic Ordinary Shares on the NYSE.

Risks Related to the Business of the Combined Company Following the Merger

Following the Merger, the Combined Company may be unable to integrate successfully the businesses and products of Elastic and Endgame and realize the anticipated benefits of the Merger or those benefits may take longer to realize than expected.

The Merger involves the combination of two companies which currently operate as independent companies. Following the Merger, the Combined Company will be required to devote significant management attention and resources to integrating its business practices and operations. The Combined Company may fail to realize some or all of the anticipated benefits of the Merger or may not realize within the anticipated time frame if the integration process takes longer than expected or is costlier than expected. Potential difficulties the Combined Company may encounter in the integration process include the following:

 

   

the inability to successfully combine the businesses and product offerings of Elastic and Endgame in a manner that permits the Combined Company to achieve the synergies anticipated to result from the Merger, which would result in the anticipated benefits of the Merger not being realized partly or wholly in the time frame currently anticipated or at all;

 

   

lost sales and customers as a result of certain customers of either of the two companies deciding not to do business with the Combined Company;

 

   

integrating personnel from the two companies;

 

   

creation of uniform standards, controls, procedures, policies and information systems;

 

   

potential unknown liabilities and unforeseen increased expenses, delays or regulatory conditions associated with the Merger; and

 

   

performance shortfalls at one or both of the two companies as a result of the diversion of management’s attention caused by completing the Merger and integrating the companies’ operations.

In addition, Elastic and Endgame have operated and, until the completion of the Merger, will continue to operate, independently. It is possible that the integration process could result in the diversion of each company’s management’s attention, the disruption or interruption of, or the loss of momentum in, each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies, any of which could adversely affect our ability to maintain relationships with customers, suppliers and employees or our ability to achieve the anticipated benefits of the Merger, or could reduce the earnings or otherwise adversely affect the business and financial results of the Combined Company.

Activities undertaken during the pendency of the Merger to complete the Merger and the other transactions contemplated by the Merger Agreement may divert management attention and resources.

If the efforts and actions required of Elastic and Endgame in order to consummate the Merger and the other transactions contemplated by the Merger Agreement are more difficult, costly or time consuming than expected, such efforts and actions could result in the diversion of each company’s management’s attention and resources or the disruption or interruption of, or the loss of momentum in, each company’s ongoing businesses, which could adversely affect their business and financial results.

 

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Current Endgame securityholders will have a substantially reduced ownership and voting interest in the Combined Company after the Merger and, as a result, would not be expected to exercise significant influence over the Combined Company’s management.

Current Elastic shareholders have the right to vote in the election of the Elastic Board and other matters affecting Elastic. Current Endgame stockholders have the right to vote in the election of the board of directors of Endgame (“Endgame Board”) and on other matters affecting Endgame. Immediately after the Merger is completed, it is expected that current Elastic shareholders will own between approximately 96.5% and 97.5% of the Elastic Ordinary Shares and current Endgame securityholders will own between approximately 3.5% and 2.5% of the outstanding Elastic Ordinary Shares, based on the number of Elastic Ordinary Shares outstanding as of June 30, 2019.

As a result of the Merger, current Endgame securityholders would not be expected to exercise significant influence on the Combined Company’s management and policies as compared to the influence that they now have on the management and policies of Endgame.

The unaudited pro forma condensed combined financial data for Elastic included in this proxy statement/prospectus are preliminary, and Elastic’s actual financial position and operations after the Merger may differ materially from the unaudited pro forma financial data included in this proxy statement/prospectus.

The unaudited pro forma financial data for Elastic included in this proxy statement/prospectus are presented for illustrative purposes only and is not necessarily indicative of what Elastic’s actual financial position or operations would have been had the Merger been completed at the times assumed for purposes of preparing such unaudited pro forma financial data. Elastic’s actual results and financial position after the Merger may differ materially and adversely from the unaudited pro forma financial data included in this proxy statement/prospectus. The unaudited pro forma condensed combined financial information reflects adjustments, which are based upon preliminary estimates, to record the Endgame identifiable assets acquired and liabilities assumed at fair value and the resulting goodwill. The purchase price allocation reflected in this document is preliminary, and final allocation of the purchase price will be based upon the actual purchase price and the fair value of the assets and liabilities of Endgame as of the date of the completion of the Merger. Further, the Combined Company expects to recognize a significant amount of additional goodwill in the Merger. The goodwill will be subject to annual impairment assessments and a material charge may be necessary if the results of operations and cash flows are unable to support the goodwill subsequent to the Merger. For more information see “Unaudited Pro Forma Condensed Combined Financial Information” beginning on page 130.

The Combined Company’s future results will suffer if it does not effectively manage its expanded operations following the Merger.

Following the Merger, the size and scope of operations of the business of the Combined Company will increase beyond the current size and scope of operations of either Elastic’s or Endgame’s current businesses. In addition, Elastic may continue to expand its size and operations through additional acquisitions or other strategic transactions. Elastic’s future success depends, in part, upon its ability to manage its expanded business, which may pose substantial challenges for management, including challenges related to the management and monitoring of new operations and associated increased costs and complexity. There can be no assurances that Elastic will be successful or that it will realize the expected economies of scale, synergies and other benefits currently anticipated from the Merger or anticipated from any additional acquisitions or strategic transactions that Elastic may undertake in the future.

 

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Elastic is expected to incur expenses related to the integration of Elastic and Endgame.

Elastic is expected to incur certain expenses in connection with the integration of the business, policies, procedures, operations, technologies and systems of Endgame with those of Elastic. There are a number of systems that must be integrated, including management information, purchasing, administrative, accounting and finance, sales, marketing, billing, payroll and benefits, installation, engineering, infrastructure and regulatory compliance, among others. While Elastic has assumed that a certain level of expenses would be incurred, there are a number of factors beyond its control that could affect the total amount or the timing of all of the expected integration expenses. Moreover, many of the expenses that will be incurred are, by their nature, difficult to estimate accurately at the present time. These integration expenses likely will result in Elastic taking significant charges against earnings following the completion of the Merger, but the amount and timing of such charges are uncertain at present, and if such charges are greater than expected, they could offset the cost synergies that Elastic expects to achieve from the Merger.

The trading price of Elastic Ordinary Shares is likely to continue to be volatile.

The trading price of Elastic Ordinary Shares has been highly volatile and could continue to be subject to wide fluctuations in response to various factors, many of which are beyond Elastic’s control. Elastic Ordinary Shares have experienced an intra-day trading high of $104.10 per share and a low of $58.55 per share since Elastic’s IPO, and this volatility may be accentuated by the relatively small public float of Elastic Ordinary Shares on the NYSE. The stock market in general, and the market for technology companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors may seriously affect the market price of companies’ stock, including Elastic’s, regardless of actual operating performance.

The Elastic Ordinary Shares to be received by Endgame stockholders as a result of the Merger will have different rights from the shares of Endgame Capital Stock currently held by Endgame stockholders.

Upon completion of the Merger, Endgame stockholders will become Elastic shareholders and their rights as shareholders will be governed by Elastic’s articles of association. The rights associated with Elastic Ordinary Shares are different from the rights associated with Endgame Capital Stock, and afford former holders of Endgame preferred stock, who will receive Elastic Ordinary Shares upon the completion of the Merger, significantly fewer rights, preferences and privileges than they were afforded under Endgame’s charter documents. See “Comparison of the Rights of Holders of Elastic Ordinary Shares and Holders of Endgame Capital Stock” beginning on page 144 for a discussion of the different rights associated with Elastic Ordinary Shares.

Risks Related to Elastic’s Business and Industry

Our business and operations have experienced rapid growth, and if we do not appropriately manage future growth, if any, or are unable to improve our systems and processes, our business, financial condition, results of operations, and prospects will be adversely affected.

We have experienced rapid growth and increased demand for our offerings. Our employee headcount and number of customers have increased significantly, and we expect to continue to grow our headcount significantly over the next year. For example, our total number of customers has grown from over 2,800 as of April 30, 2017 to over 5,000 as of April 30, 2018 and to over 8,100 as of April 30, 2019. The growth and expansion of our business and offerings places a continuous significant strain on our management, operational, and financial resources. In addition, as customers adopt our

 

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technology for an increasing number of use cases, we have had to support more complex commercial relationships. We must continue to improve and expand our information technology and financial infrastructure, our operating and administrative systems, and our relationships with various partners and other third parties, and our ability to manage headcount and processes in an efficient manner to manage our growth to date and any future growth effectively.

We may not be able to sustain the diversity and pace of improvements to our offerings successfully or implement systems, processes, and controls in an efficient or timely manner or in a manner that does not negatively affect our results of operations. Our failure to improve our systems, processes, and controls, or their failure to operate in the intended manner, may result in our inability to manage the growth of our business and to forecast our revenue, expenses, and earnings accurately, or to prevent losses.

As we expand our business and operate as a public company, we may find it difficult to maintain our corporate culture while managing our employee growth. Any failure to manage our anticipated growth and related organizational changes in a manner that preserves our culture could negatively impact future growth and achievement of our business objectives. Additionally, our productivity and the quality of our offerings may be adversely affected if we do not integrate and train our new employees quickly and effectively. Failure to manage any future growth effectively could result in increased costs, negatively affect our customers’ satisfaction with our offerings, and harm our results of operations.

We have a history of losses and may not be able to achieve profitability or positive cash flows on a consistent basis. If we cannot achieve profitability or positive cash flows, our business, financial condition, and results of operations may suffer.

We have incurred losses in each year since our incorporation. We incurred a net loss of $102.3 million, $52.7 million and $52.0 million in the years ended April 30, 2019, 2018 and 2017, respectively. As a result, we had an accumulated deficit of $317.1 million as of April 30, 2019. We anticipate that our operating expenses will increase substantially in the foreseeable future as we continue to enhance our offerings, broaden our customer base, expand our sales and marketing activities, expand our operations, hire additional employees, and continue to develop our technology. These efforts may prove more expensive than we currently anticipate, and we may not succeed in increasing our revenue sufficiently, or at all, to offset these higher expenses. Revenue growth may slow or revenue may decline for a number of possible reasons, including slowing demand for our offerings or increasing competition. Any failure to increase our revenue as we grow our business could prevent us from achieving profitability or positive cash flow at all or on a consistent basis, which would cause our business, financial condition, and results of operations to suffer.

We may not be able to compete successfully against current and future competitors.

The market for our products is highly competitive, quickly evolving, and subject to rapid changes in technology. We believe that our ability to compete depends upon many factors both within and beyond our control, including the following:

 

   

product capabilities, including speed, scale, and relevance, with which to power search experiences;

 

   

an extensible product “stack” that enables developers to build a wide variety of solutions;

 

   

powerful and flexible technology that can manage a broad variety and large volume of data;

 

   

ease of deployment and ease of use;

 

   

ability to address a variety of evolving customer needs and use cases;

 

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strength of sales and marketing efforts;

 

   

flexible deployment model across on-premises, cloud, or hybrid environments;

 

   

productized solutions engineered to be rapidly adopted to address specific applications;

 

   

mindshare with developers and IT executives;

 

   

adoption of products by many types of users (developers, architects, DevOps personnel, IT professionals, security analysts, and departmental and organizational leaders);

 

   

enterprise-grade technology that is secure and reliable;

 

   

size of customer base and level of user adoption;

 

   

quality of training, consulting, and customer support;

 

   

brand awareness and reputation; and

 

   

low total cost of ownership.

We face competition from both established and emerging competitors. Our current primary competitors generally fall into the following categories:

 

   

For our app search, site search, and enterprise search solutions: incumbent offerings such as Solr (open source offering), search tools including Google Custom Search Engine (an advertisement-based site search tool with limited user controls), Google Site Search and Google Search Appliance (both of which Google has declared to be end-of-life and stopped selling), and enterprise search tools including Endeca (acquired by Oracle), FAST (acquired by Microsoft), and Autonomy (acquired by HP and now offered by Micro Focus).

 

   

For our logging and security analytics solutions: point solutions including Splunk and ArcSight SIEM (offered by Micro Focus).

 

   

For our metrics, APM and business analytics solutions: software vendors with specific solutions to analyze metrics, typically with Internet of Things, or IoT, data, APM data, and business analytics data.

 

   

Certain cloud infrastructure providers, including Amazon Web Services, that offer SaaS products based on Elastic’s open source components. These offerings are not supported by Elastic and come without any of Elastic’s proprietary features, whether free or paid.

Some of our current and potential competitors have longer operating histories, significantly greater financial, marketing and other resources and larger customer bases than we do. These factors may allow our competitors to respond more quickly than we can to new or emerging technologies and changes in customer preferences. These competitors may engage in more extensive research and development efforts, undertake more far-reaching marketing campaigns, and adopt more aggressive pricing policies which may allow them to build larger customer bases than we have. New start-up companies that innovate and large competitors that are making significant investments in research and development may develop similar offerings that compete with our offerings or that achieve greater market acceptance than our offerings. This could attract customers away from our offerings and reduce our market share. If we are unable to anticipate or react to these competitive challenges, our competitive position would weaken, which would adversely affect our business and results of operations.

Our limited operating history makes it difficult to evaluate our current business and prospects and may increase the risks associated with your investment.

We were founded in 2012. Our limited operating history makes it difficult to evaluate our current business and our future prospects, including our ability to plan for and model future growth. We have

 

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encountered and will continue to encounter risks and difficulties frequently experienced by rapidly growing companies in constantly evolving industries, including the risks described in this proxy statement/prospectus. If we do not address these risks successfully, our business and results of operations will be adversely affected, and the market price of our ordinary shares could decline.

Further, we have limited historical financial data and we operate in a rapidly evolving market. As such, any predictions about our future revenue and expenses may not be as accurate as they would be if we had a longer operating history or operated in a more predictable market.

If we are not able to keep pace with technological and competitive developments, our business will be harmed.

The market for search technologies is subject to rapid technological change, evolving industry standards, and changing regulations, as well as changing customer needs, requirements and preferences. Our success depends upon our ability to enhance existing products, expand the use cases of our products, respond to changing customer needs, requirements and preferences, and develop and introduce in a timely manner new offerings that keep pace with technological and competitive developments. We have in the past experienced delays in releasing new products, deployment options and product enhancements and may experience similar delays in the future. As a result, in the past, some of our customers deferred purchasing our products until the next upgrade was released. Future delays or problems in the installation or implementation of our new releases may cause customers to forgo purchases of our products and purchase those of our competitors instead.

Additionally, the success of new product introductions depends on a number of factors including, but not limited to, timely and successful product development, market acceptance, our ability to manage the risks associated with new product releases, the availability of software components for new products, the effective management of development and other spending in connection with anticipated demand for new products, the availability of newly developed products, and the risk that new products may have bugs, errors, or other defects or deficiencies in the early stages of introduction. We have in the past experienced bugs, errors, or other defects or deficiencies in new products and product updates and may have similar experiences in the future. Furthermore, our ability to increase the usage of our products depends, in part, on the development of new use cases for our products, which is typically driven by our developer community and may be outside of our control. We also have invested, and may continue to invest, in the acquisition of complementary businesses, technologies, services, products and other assets that expand the products that we can offer our customers. We may make these investments without being certain that they will result in products or enhancements that will be accepted by existing or prospective customers. Additionally, even if we are able to develop new products and product enhancements, we cannot ensure that they will achieve market acceptance. If we are unable to successfully enhance our existing products to meet evolving customer requirements, increase adoption and usage of our products, develop new products, or if our efforts to increase the usage of our products are more expensive than we expect, then our business, results of operations and financial condition would be adversely affected.

The markets for some of our products are new, unproven and evolving, and our future success depends on the growth and expansion of these markets and our ability to adapt and respond effectively to evolving markets.

The markets for certain of our products, such as our security analytics and APM solutions, are relatively new, rapidly evolving and unproven. Accordingly, it is difficult to predict customer adoption and renewals for these products, customers’ demand for these products, the size, growth rate, expansion, and longevity of these markets, the entry of competitive products, or the success of existing competitive products. Our ability to penetrate these new and evolving markets depends on a number of

 

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factors, including the cost, performance, and perceived value associated with our products. If these markets do not continue to grow as expected, or if we are unable to anticipate or react to changes in these markets, our competitive position would weaken, which would adversely affect our business and results of operations.

Our operating results are likely to fluctuate from quarter to quarter, which could adversely affect the trading price of our ordinary shares.

Our results of operations, including our revenue, cost of revenue, gross margin, operating expenses, cash flow and deferred revenue, have fluctuated from quarter-to-quarter in the past and may continue to vary significantly in the future so that period-to-period comparisons of our results of operations may not be meaningful. Accordingly, our financial results in any one quarter should not be relied upon as indicative of future performance. Our quarterly financial results may fluctuate as a result of a variety of factors, many of which are outside of our control, may be difficult to predict, and may or may not fully reflect the underlying performance of our business. Factors that may cause fluctuations in our quarterly financial results include:

 

   

our ability to attract and retain new customers;

 

   

the loss of existing customers;

 

   

customer renewal rates;

 

   

our ability to successfully expand our business in the U.S. and internationally;

 

   

our ability to foster an ecosystem of developers and users to expand the use cases of our products;

 

   

our ability to gain new partners and retain existing partners;

 

   

fluctuations in the growth rate of the overall market that our products address;

 

   

fluctuations in the mix of our revenue, which may impact our gross margins and operating income;

 

   

the amount and timing of operating expenses related to the maintenance and expansion of our business and operations, including investments in sales and marketing, research and development and general and administrative resources;

 

   

network outages or performance degradation of Elastic Cloud;

 

   

breaches of, or failures relating to, security, privacy, or data protection;

 

   

general economic, industry and market conditions;

 

   

increases or decreases in the number of elements of our subscriptions or pricing changes upon any renewals of customer agreements;

 

   

changes in our pricing policies or those of our competitors;

 

   

the budgeting cycles and purchasing practices of customers;

 

   

decisions by potential customers to purchase alternative solutions;

 

   

decisions by potential customers to develop in-house solutions as alternatives to our products;

 

   

insolvency or credit difficulties confronting our customers, which could adversely affect their ability to purchase or pay for our offerings;

 

   

our ability to collect timely on invoices or receivables;

 

   

delays in our ability to fulfill our customers’ orders;

 

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the cost and potential outcomes of future litigation or other disputes;

 

   

future accounting pronouncements or changes in our accounting policies;

 

   

our overall effective tax rate, including impacts caused by any reorganization in our corporate tax structure and any new legislation or regulatory developments;

 

   

fluctuations in stock-based compensation expense;

 

   

fluctuations in foreign currency exchange rates;

 

   

the timing and success of new offerings introduced by us or our competitors or any other change in the competitive dynamics of our industry, including consolidation among competitors, customers or partners;

 

   

the timing of expenses related to the development or acquisition of technologies or businesses and potential future charges for impairment of goodwill from acquired companies; and

 

   

other risk factors described in this proxy statement/prospectus.

The impact of one or more of the foregoing or other factors may cause our operating results to vary significantly. Such fluctuations could cause us to fail to meet the expectations of investors or securities analysts, which could cause the trading price of our ordinary shares to fall substantially, and we could face costly lawsuits, including securities class action suits.

If we are unable to increase sales of our subscriptions to new customers, sell additional subscriptions to our existing customers, or expand the value of our existing customers’ subscriptions, our future revenue and results of operations will be harmed.

We offer certain features of our products as open source software with no payment required, and also offer some of our proprietary features with no payment required. Customers purchase subscriptions in order to gain access to additional functionality and support. Our future success depends on our ability to sell our subscriptions to new customers and to expand the deployment of our offerings with existing customers by selling paid subscriptions to our existing users and expanding the value and number of existing customers’ subscriptions. Our ability to sell new subscriptions depends on a number of factors, including the prices of our offerings, the prices of products offered by our competitors, and the budgets of our customers. In addition, a significant aspect of our sales and marketing focus is to expand deployments within existing customers. The rate at which our customers purchase additional subscriptions and expand the value of existing subscriptions depends on a number of factors, including customers’ level of satisfaction with our offerings, the nature and size of the deployments, the desire to address additional use cases, and the perceived need for additional features, as well as general economic conditions. We rely in large part on our customers to identify new use cases for our products in order to expand such deployments and grow our business. If our customers do not recognize the potential of our offerings, our business would be materially and adversely affected. If our efforts to sell subscriptions to new customers and to expand deployments at existing customers are not successful, our total revenue and revenue growth rate may decline and our business will suffer.

If our existing customers do not renew their subscriptions, it could have an adverse effect on our business and results of operations.

We expect to derive a significant portion of our revenue from renewals of existing subscriptions. Our customers have no contractual obligation to renew their subscriptions after the completion of their subscription term. Our subscriptions for self-managed deployments typically range from one to three years, while many of our Elastic Cloud customers purchase subscriptions either on a month-to-month basis or on a committed contract of at least one year in duration.

 

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Our customers’ renewal rates may decline or fluctuate as a result of a number of factors, including their satisfaction with our products and our customer support, our products’ ability to integrate with new and changing technologies, the frequency and severity of product outages, our product uptime or latency, and the pricing of our, or competing, products. If our customers renew their subscriptions, they may renew for shorter subscription terms or on other terms that are less economically beneficial to us. We may not accurately predict future renewal trends. If our customers do not renew their subscriptions, or renew on less favorable terms, our revenue may grow more slowly than expected or decline and our Net Expansion Rate may decline.

Because of the rights accorded to third parties under open source software licenses, there are limited technological barriers to entry into the markets in which we compete and it may be relatively easy for competitors, some of whom may have greater resources than we have, to enter our markets and compete with us.

Anyone may obtain access to the source code for our open source features and then redistribute it (either in a modified or unmodified form) and use it to compete in our markets. Additionally, we make the source code of our proprietary features for the Elastic Stack available, which may enable others to compete more effectively. Such competition can develop without the degree of overhead and lead time required by traditional proprietary software companies, due to the permissions allowed under open source licensing. It is possible for competitors to develop their own software, including software based on our products, potentially reducing the demand for our products and putting pricing pressure on our subscriptions. For example, Amazon offers some of our open source features as part of its Amazon Web Services offering. As such, Amazon competes with us for potential customers, and while Amazon cannot provide our proprietary software, the pricing of Amazon’s offerings may limit our ability to adjust the price of our products. We cannot guarantee that we will be able to compete successfully against current and future competitors or that competitive pressure or the availability of new open source software will not result in price reductions, reduced operating margins and loss of market share, any one of which could harm our business, financial condition, results of operations and cash flows.

If we do not effectively expand and train our sales force, we may be unable to add new customers, increase sales to existing customers or expand the value of our existing customers’ subscriptions and our business will be adversely affected.

We depend on our sales force to obtain new customers and to drive additional sales to existing customers by selling them new subscriptions and expanding the value of their existing subscriptions. We believe that there is significant competition for sales personnel, including sales representatives, sales managers, and sales engineers, with the skills and technical knowledge that we require. Our ability to achieve significant revenue growth will depend, in large part, on our success in recruiting, training and retaining sufficient numbers of sales personnel to support our growth. New hires require significant training and may take significant time before they achieve full productivity. Our recent hires and planned hires may not become productive as quickly as we expect, and we may be unable to hire or retain sufficient numbers of qualified individuals in the markets where we do business or plan to do business. In addition, particularly if we continue to grow rapidly, a large percentage of our sales force will have relatively little experience working with us, our subscriptions, and our business model, and Endgame’s existing sales force is small and our existing salesforce will have no experience selling Endgame’s endpoint security products. If we are unable to hire and train sufficient numbers of effective sales personnel, our sales personnel do not reach significant levels of productivity in a timely manner, or our sales personnel are not successful in obtaining new customers or increasing sales to our existing customer base, our business will be harmed.

 

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Our ability to increase sales of our offerings is highly dependent on the quality of our customer support, and our failure to offer high quality support would have an adverse effect on our business, reputation and results of operations.

After our products are deployed within our customers’ IT environments, our customers depend on our technical support services to resolve issues relating to our products. If we do not succeed in helping our customers quickly resolve post-deployment issues or provide effective ongoing support and education on our products, our ability to sell additional subscriptions to existing customers or expand the value of existing customers’ subscriptions would be adversely affected and our reputation with potential customers could be damaged. Many larger enterprise and government entity customers have more complex IT environments and require higher levels of support than smaller customers. If we fail to meet the requirements of these enterprise customers, it may be more difficult to grow sales with them.

Additionally, it can take several months to recruit, hire, and train qualified technical support employees. We may not be able to hire such resources fast enough to keep up with demand, particularly if the sales of our offerings exceed our internal forecasts. To the extent that we are unsuccessful in hiring, training, and retaining adequate support resources, our ability to provide adequate and timely support to our customers, and our customers’ satisfaction with our offerings, will be adversely affected. Our failure to provide and maintain high-quality support services would have an adverse effect on our business, financial condition, and results of operations.

We rely significantly on revenue from subscriptions and, because we recognize a significant portion of the revenue from subscriptions over the term of the relevant subscription period, downturns or upturns in sales are not immediately reflected in full in our results of operations.

Subscription revenue accounts for the substantial majority of our revenue, comprising 91%, 93% and 90% of total revenue in the years ended April 30, 2019, 2018 and 2017, respectively. We recognize a significant portion of our subscription revenue monthly over the term of the relevant time period. As a result, much of the subscription revenue we report each fiscal quarter is the recognition of deferred revenue from subscription contracts entered into during previous fiscal quarters. Consequently, a decline in new or renewed subscriptions in any one fiscal quarter will not be fully or immediately reflected in revenue in that fiscal quarter and will negatively affect our revenue in future fiscal quarters. Accordingly, the effect of significant downturns in new or renewed sales of our subscriptions is not reflected in full in our results of operations until future periods.

A real or perceived defect, security vulnerability, error, or performance failure in our software could cause us to lose revenue, damage our reputation, and expose us to liability.

Our products are inherently complex and, despite extensive testing and quality control, have in the past and may in the future contain defects or errors, especially when first introduced, or not perform as contemplated. These defects, security vulnerabilities, errors or performance failures could cause damage to our reputation, loss of customers or revenue, product returns, order cancellations, service terminations, or lack of market acceptance of our software. As the use of our products, including products that were recently acquired or developed, expands to more sensitive, secure, or mission critical uses by our customers, we may be subject to increased scrutiny, potential reputational risk, or potential liability should our software fail to perform as contemplated in such deployments. We have in the past and may in the future need to issue corrective releases of our software to fix these defects, errors or performance failures, which could require us to allocate significant research and development and customer support resources to address these problems.

Any limitation of liability provisions that may be contained in our customer and partner agreements may not be effective as a result of existing or future applicable law or unfavorable judicial

 

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decisions. The sale and support of our products entail the risk of liability claims, which could be substantial in light of the use of our products in enterprise-wide environments. In addition, our insurance against this liability may not be adequate to cover a potential claim.

Incorrect implementation or use of, or our customers’ failure to update, our software could result in customer dissatisfaction and negatively affect our business, operations, financial results, and growth prospects.

Our products are often operated in large scale, complex IT environments. Our customers and some partners require training and experience in the proper use of and the benefits that can be derived from our products to maximize their potential. If our customers do not implement, update or use our products correctly or as intended, inadequate performance and/or security vulnerabilities may result. Because our customers rely on our software to manage a wide range of operations, the incorrect implementation, use of, or our customers’ failure to update, our software or our failure to train customers on how to use our software productively may result in customer dissatisfaction, negative publicity and may adversely affect our reputation and brand. Failure by us to effectively provide training and implementation services to our customers could result in lost opportunities for follow-on sales to these customers and decrease subscriptions by new customers, and adversely affect our business and growth prospects.

If third parties offer inadequate or defective implementations of our open source software, our reputation could be harmed.

Certain cloud infrastructure providers, including Amazon Web Services, provide SaaS offerings based on open source components of the Elastic Stack, using the names of those open source components in marketing such offerings. These offerings are not supported by us and come without any of our proprietary features. We do not control how these third parties may use or offer our open source technology. These third parties could inadequately or incorrectly implement our open source technology, or fail to update such technology in light of changing technological or security requirements, which could result in real or perceived defects, security vulnerabilities, errors, or performance failures with respect to their open source offerings. Users, customers, and potential customers could confuse these third party products with our own products, and attribute such defects, security vulnerabilities, errors, or performance failures to our products. Any damage to our reputation and brand from defective implementations of our open source software could result in lost sales and lack of market acceptance of our products and could adversely affect our business and growth prospects.

We rely on traditional web search engines to direct traffic to our website. If our website fails to rank prominently in unpaid search results, traffic to our website could decline and our business would be adversely affected.

Our success depends in part on our ability to attract users through unpaid Internet search results on traditional web search engines, such as Google. The number of users we attract to our website from search engines is due in large part to how and where our website ranks in unpaid search results. These rankings can be affected by a number of factors, many of which are not in our direct control, and they may change frequently. For example, a search engine may change its ranking algorithms, methodologies or design layouts. As a result, links to our website may not be prominent enough to drive traffic to our website, and we may not know how or otherwise be in a position to influence the results. Any reduction in the number of users directed to our website could reduce our revenue or require us to increase our customer acquisition expenditures.

 

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If our security measures are breached or unauthorized access to private or proprietary data is otherwise obtained, our software may be perceived as not being secure, customers may reduce the use of or stop using our products, and we may incur significant liabilities.

Any security breach, including those resulting from a cybersecurity attack, phishing attack, or any unauthorized access, unauthorized usage, virus or similar breach or disruption could result in the loss of confidential information, damage to our reputation, litigation, regulatory investigations or other liabilities. These attacks may come from individual hackers, criminal groups, and state-sponsored organizations. If our security measures are breached as a result of third-party action, employee error, defect or bug in our products, malfeasance or otherwise and, as a result, someone obtains unauthorized access to our confidential information or personal information or the confidential information or personal information of our customers, our reputation may be damaged, our business may suffer and we could incur significant liability. Even the perception of inadequate security may damage our reputation and negatively impact our ability to win new customers and retain existing customers. Further, we could be required to expend significant capital and other resources to address any data security incident or breach.

In addition, many of our customers may use our software for processing their sensitive and proprietary information, including business strategies, financial and operational data, personal or identifying information and other related data. As a result, unauthorized access or use of this data could result in the loss, compromise, corruption or destruction of our customers’ sensitive and proprietary information and lead to litigation, regulatory investigations and claims, indemnity obligations, and other liabilities. We have implemented administrative, technical and physical measures designed to protect the integrity of customer information and prevent data loss, misappropriation and other security breaches and incidents and may incur significant costs in connection with the implementation of additional preventative measures in the future.

We engage third-party vendors and service providers to store and otherwise process some of our and our customers’ data, including sensitive and personal information. Our vendors and service providers may also be the targets of cyberattacks, malicious software, phishing schemes, and fraud. Our ability to monitor our vendors and service providers’ data security is limited, and, in any event, third parties may be able to circumvent those security measures, resulting in the unauthorized access to, misuse, disclosure, loss or destruction of our and our customers’ data, including sensitive and personal information.

Techniques used to sabotage or obtain unauthorized access to systems or networks are constantly evolving and, in some instances, are not identified until launched against a target. We and our service providers may be unable to anticipate these techniques, react in a timely manner, or implement adequate preventative measures.

Further, we cannot assure that any limitations of liability provisions in our customer and user agreements, contracts with third-party vendors and service providers or other contracts would be enforceable or adequate or would otherwise protect us from any liabilities or damages with respect to any particular claim relating to a security breach or other security-related matter. We also cannot be sure that our existing insurance coverage will continue to be available on acceptable terms or will be available in sufficient amounts to cover claims related to a security incident or breach, or that the insurer will not deny coverage as to any future claim. The successful assertion of claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, including our financial condition, operating results, and reputation.

 

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Interruptions or performance problems associated with our technology and infrastructure, and our reliance on technologies from third parties, may adversely affect our business operations and financial results.

We rely on third-party cloud platforms to host our cloud offerings. If we experience an interruption in service for any reason, our cloud offerings would similarly be interrupted. An interruption in our services to our customers could cause our customers’ internal and consumer-facing applications to not function properly, which could have a material adverse effect on our business, results of operations, customer relationships and reputation.

In addition, our website and internal technology infrastructure may experience performance issues due to a variety of factors, including infrastructure changes, human or software errors, website or third-party hosting disruptions, capacity constraints, technical failures, natural disasters or fraud or security attacks. Our use and distribution of open source software may increase this risk. If our website is unavailable or our users are unable to download our products or order subscriptions or services within a reasonable amount of time or at all, our business could be harmed. We expect to continue to make significant investments to maintain and improve website performance and to enable rapid releases of new features and applications for our products. To the extent that we do not effectively upgrade our systems as needed and continually develop our technology to accommodate actual and anticipated changes in technology, our business and results of operations may be harmed.

We also rely on cloud technologies from third parties in order to operate critical functions of our business, including financial management services, relationship management services and lead generation management services. If these services become unavailable due to extended outages or interruptions or because they are no longer available on commercially reasonable terms or prices, our expenses could increase, our ability to manage our finances could be interrupted, our processes for managing sales of our offerings and supporting our customers could be impaired, and our ability to generate and manage sales leads could be weakened until equivalent services, if available, are identified, obtained and implemented, any of which could harm our business and results of operations.

We depend on our executive officers and other key employees, and the loss of one or more of these employees or an inability to attract and retain highly skilled employees could harm our business.

Our future success depends, in part, on our ability to continue to attract and retain highly skilled personnel. The loss of the services of any of our key personnel, the inability to attract or retain qualified personnel, or delays in hiring required personnel, particularly in engineering and sales, may seriously harm our business, financial condition, and results of operations. Although we have entered into employment offer letters with our key personnel, their employment is for no specific duration and constitutes at-will employment. We are also substantially dependent on the continued service of our existing engineering personnel because of the complexity of our products.

Our future performance also depends on the continued services and continuing contributions of our senior management, particularly our Chief Executive Officer and Chairman, Shay Banon, to execute on our business plan and to identify and pursue new opportunities and product innovations. We do not maintain key person life insurance policies on any of our employees. The loss of services of senior management could significantly delay or prevent the achievement of our development and strategic objectives, which could adversely affect our business, financial condition, and results of operations.

Additionally, the industry in which we operate is generally characterized by significant competition for skilled personnel as well as high employee attrition. We may not be successful in attracting,

 

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integrating, or retaining qualified personnel to fulfill our current or future needs. Also, to the extent we hire personnel from competitors, we may be subject to allegations that they have been improperly solicited, that they have divulged proprietary or other confidential information, or that their former employers own their inventions or other work product.

If we are not able to maintain and enhance our brand, especially among developers, our business and operating results may be adversely affected.

We believe that developing and maintaining widespread awareness of our brand, especially with developers, is critical to achieving widespread acceptance of our software and attracting new users and customers. Brand promotion activities may not generate user or customer awareness or increase revenue, and even if they do, any increase in revenue may not offset the expenses we incur in building our brand. For instance, our continued focus and investment in Elastic{ON} and similar investments in our brand, user engagement, and customer engagement may not generate a sufficient financial return. If we fail to successfully promote and maintain our brand, we may fail to attract or retain users and customers necessary to realize a sufficient return on our brand-building efforts, or to achieve the widespread brand awareness that is critical for broad customer adoption of our products.

Our corporate culture has contributed to our success, and if we cannot maintain this culture as we grow, we could lose the innovation, creativity and entrepreneurial spirit we have worked to foster, which could harm our business.

We believe that our culture has been and will continue to be a key contributor to our success. We expect to continue to hire aggressively as we expand. If we do not continue to maintain our corporate culture as we grow, we may be unable to foster the innovation, creativity, and entrepreneurial spirit we believe we need to support our growth. Moreover, many of our existing employees may be able to receive significant proceeds from sales of our ordinary shares in the public markets, which could lead to employee attrition and disparities of wealth among our employees that adversely affects relations among employees and our culture in general. Our substantial anticipated headcount growth and our continued transition from a private company to a public company may result in a change to our corporate culture, which could harm our business.

We rely on channel partners to execute a portion of our sales; if our channel partners fail to perform, our ability to sell our solution will be more limited, and our results of operations could be harmed.

A portion of our revenue is generated by sales through our channel partners, especially to U.S. federal government customers and in certain international markets. We provide certain of our channel partners with specific training and programs to assist them in selling our offerings, but there can be no assurance that these steps will be effective. In addition, our channel partners may be unsuccessful in marketing and selling our offerings. If we are unable to develop and maintain effective sales incentive programs for our channel partners, we may not be able to incentivize these partners to sell our offerings to customers.

Some of these partners may also market, sell, and support offerings that are competitive with ours, may devote more resources to the marketing, sales, and support of such competitive offerings, may have incentives to promote our competitors’ offerings to the detriment of our own or may cease selling our offerings altogether. Our agreements with our channel partners typically have a duration of one to three years, and generally may be terminated for any reason by either party with advance notice prior to each renewal date. We cannot assure you that we will retain these channel partners or that we will be able to secure additional or replacement channel partners. The loss of one or more of our significant channel partners or a decline in the number or size of orders from any of them could harm

 

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our results of operations. In addition, many of our new channel partners require extensive training and may take several months or more to achieve productivity. Our channel partner sales structure could subject us to lawsuits, potential liability, and reputational harm if, for example, any of our channel partners misrepresents the functionality of our offerings to customers or violates laws or our or their corporate policies. If our channel partners are unsuccessful in fulfilling the orders for our offerings, or if we are unable to enter into arrangements with and retain high quality channel partners, our ability to sell our offerings and results of operations could be harmed.

If we are unable to maintain successful relationships with our partners, our business operations, financial results and growth prospects could be adversely affected.

We maintain partnership relationships with a variety of partners, including cloud providers, systems integrators, channel partners, referral partners, OEM and MSP partners, and technology partners, to jointly deliver offerings to our end customers and complement our broad community of users. In particular, we work with systems integrators and referral partners to market and sell our subscriptions.

Our agreements with our partners are generally non-exclusive, meaning our partners may offer customers the offerings of several different companies, including offerings that compete with ours, or may themselves be or become competitors. If our partners do not effectively market and sell our offerings, choose to use greater efforts to market and sell their own offerings or those of our competitors, or fail to meet the needs of our customers, our ability to grow our business and sell our offerings may be harmed. Our partners may cease marketing our offerings with limited or no notice and with little or no penalty. The loss of a substantial number of our partners, our possible inability to replace them, or the failure to recruit additional partners could harm our results of operations.

Our ability to achieve revenue growth in the future will depend in part on our success in maintaining successful relationships with our partners and in helping our partners enhance their ability to market and sell our subscriptions. If we are unable to maintain our relationships with these partners, our business, results of operations, financial condition or cash flows could be harmed.

The sales prices of our offerings may decrease, which may reduce our gross profits and adversely affect our financial results.

The sales prices for our offerings may decline for a variety of reasons, including competitive pricing pressures, discounts, anticipation of the introduction of new offerings, or promotional programs. For example, during the year ended April 30, 2019, we reduced prices for some of our Elastic Cloud offerings in conjunction with launching new offerings. Competition continues to increase in the market segments in which we participate, and we expect competition to further increase in the future, thereby leading to increased pricing pressures. Larger competitors with more diverse offerings may reduce the price of offerings that compete with ours or may bundle them with other offerings. Additionally, currency fluctuations in certain countries and regions may negatively impact actual prices that customers and channel partners are willing to pay in those countries and regions. Any decrease in the sales prices for our offerings, without a corresponding decrease in costs or increase in volume, would adversely impact our gross profit. Gross profit could also be adversely impacted by a shift in mix of our subscriptions from self-managed to our cloud offering, which has a lower gross margin, as well as any increase in our mix of professional services relative to subscriptions. We cannot assure you that we will be able to maintain our prices and gross profits at levels that will allow us to achieve and maintain profitability.

 

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We expect our revenue mix to vary over time, which could harm our gross margin and operating results.

We expect our revenue mix to vary over time due to a number of factors, including the mix of our subscriptions for self-managed and our cloud offerings, and our professional services revenue. Due to the differing revenue recognition policies applicable to our subscriptions and professional services, shifts in our business mix from quarter to quarter could produce substantial variation in revenue recognized. Further, our gross margins and operating results could be harmed by changes in revenue mix and costs, together with numerous other factors, including entry into new markets or growth in lower margin markets; entry into markets with different pricing and cost structures; pricing discounts; and increased price competition. Any one of these factors or the cumulative effects of certain of these factors may result in significant fluctuations in our gross margin and operating results. This variability and unpredictability could result in our failure to meet internal expectations or those of securities analysts or investors for a particular period. If we fail to meet or exceed such expectations for these or any other reasons, the market price of our ordinary shares could decline.

The length of our sales cycle can be unpredictable, particularly with respect to sales through our channel partners or sales to large customers, and our sales efforts may require considerable time and expense.

Our results of operations may fluctuate, in part, because of the length and variability of the sales cycle of our subscriptions and the difficulty in making short-term adjustments to our operating expenses. Our results of operations depend in part on sales to large customers and increasing sales to existing customers. The length of our sales cycle, from initial contact with our sales team to contractually committing to our subscriptions can vary substantially from customer to customer based on deal complexity as well as whether a sale is made directly by us or through a channel partner. Our sales cycle can extend to more than a year for some customers. It is difficult to predict exactly when, or even if, we will make a sale to a potential customer or if we can increase sales to our existing customers. As a result, large individual sales have, in some cases, occurred in quarters subsequent to those we anticipated, or have not occurred at all. The loss or delay of one or more large transactions in a quarter could affect our cash flows and results of operations for that quarter and for future quarters. Because a substantial proportion of our expenses are relatively fixed in the short term, our results of operations will suffer if revenue falls below our expectations in a particular quarter, which could cause the price of our ordinary shares to decline.

Failure to protect our proprietary technology and intellectual property rights could substantially harm our business and results of operations.

Our success depends to a significant degree on our ability to protect our proprietary technology, methodologies, know-how and brand. We rely on a combination of trademarks, copyrights, patents, contractual restrictions, and other intellectual property laws and confidentiality procedures to establish and protect our proprietary rights. However, the steps we take to protect our intellectual property rights may be inadequate. We will not be able to protect our intellectual property rights if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property rights. If we fail to protect our intellectual property rights adequately, our competitors may gain access to our proprietary technology and our business may be harmed. In addition, defending our intellectual property rights might entail significant expense. Any patents, trademarks, or other intellectual property rights that we have or may obtain may be challenged by others or invalidated through administrative process or litigation. As of April 30, 2019, we had 7 issued U.S. patents, 32 pending U.S. patent applications, and 8 pending non-U.S. filings, including 7 patent cooperation treaty patent applications. There can be no assurance that our patent applications will result in issued patents. Even if we continue to seek patent protection in the future, we may be unable to obtain further patent protection for our technology. In

 

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addition, any patents issued in the future may not provide us with competitive advantages, or may be successfully challenged by third parties. Furthermore, legal standards relating to the validity, enforceability, and scope of protection of intellectual property rights are uncertain. Despite our precautions, it may be possible for unauthorized third parties to copy our products and use information that we regard as proprietary to create offerings that compete with ours. Effective patent, trademark, copyright, and trade secret protection may not be available to us in every country in which our products are available. We may be unable to prevent third parties from acquiring domain names or trademarks that are similar to, infringe upon, or diminish the value of our trademarks and other proprietary rights. The laws of some countries may not be as protective of intellectual property rights as those in the United States, and mechanisms for enforcement of intellectual property rights may be inadequate. As we expand our international activities, our exposure to unauthorized copying and use of our products and proprietary information will likely increase. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our intellectual property.

We enter into confidentiality and invention assignment agreements with our employees and consultants and enter into confidentiality agreements with other parties. No assurance can be given that these agreements will be effective in controlling access to and distribution of our proprietary information. Further, these agreements may not prevent our competitors from independently developing technologies that are substantially equivalent or superior to our products.

In order to protect our intellectual property rights, we may be required to spend significant resources to monitor and protect our intellectual property rights. Litigation may be necessary in the future to enforce our intellectual property rights and to protect our trade secrets. Litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming, and distracting to management, and could result in the impairment or loss of portions of our intellectual property. Further, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims, and countersuits attacking the validity and enforceability of our intellectual property rights. Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our management’s attention and resources, could delay further sales or the implementation of our products, impair the functionality of our products, delay introductions of new products, result in our substituting inferior or more costly technologies into our products, or injure our reputation.

We could incur substantial costs as a result of any claim of infringement, misappropriation or violation of another party’s intellectual property rights.

In recent years, there has been significant litigation involving patents and other intellectual property rights in the software industry. Companies providing software are increasingly bringing and becoming subject to suits alleging infringement, misappropriation or violation of proprietary rights, particularly patent rights, and to the extent we gain greater market visibility, we face a higher risk of being the subject of intellectual property infringement, misappropriation or violation claims. We do not currently have a large patent portfolio, which could prevent us from deterring patent infringement claims through our own patent portfolio, and our competitors and others may now and in the future have significantly larger and more mature patent portfolios than we have. The risk of patent litigation has been amplified by the increase in the number of a type of patent holder, which we refer to as a non-practicing entity, whose sole or principal business is to assert such claims and against whom our own intellectual property portfolio may provide little deterrent value. We could incur substantial costs in prosecuting or defending any intellectual property litigation. If we sue to enforce our rights or are sued by a third party that claims that our products infringe, misappropriate or violate their rights, the litigation could be expensive and could divert our management resources.

 

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Any intellectual property litigation to which we might become a party, or for which we are required to provide indemnification, may require us to do one or more of the following:

 

   

cease selling or using products that incorporate the intellectual property rights that we allegedly infringe, misappropriate or violate;

 

   

make substantial payments for legal fees, settlement payments or other costs or damages;

 

   

obtain a license, which may not be available on reasonable terms or at all, to sell or use the relevant technology; or

 

   

redesign the allegedly infringing products to avoid infringement, misappropriation or violation, which could be costly, time-consuming or impossible.

If we are required to make substantial payments or undertake any of the other actions noted above as a result of any intellectual property infringement, misappropriation or violation claims against us or any obligation to indemnify our customers for such claims, such payments or actions could harm our business.

Indemnity provisions in various agreements potentially expose us to substantial liability for intellectual property infringement, misappropriation, violation and other losses.

Our agreements with customers and other third parties may include indemnification provisions under which we agree to indemnify them for losses suffered or incurred as a result of claims of intellectual property infringement, misappropriation or violation, damages caused by us to property or persons, or other liabilities relating to or arising from our software, services or other contractual obligations. Large indemnity payments could harm our business, results of operations and financial condition. Although we normally contractually limit our liability with respect to such indemnity obligations, we may still incur substantial liability related to them. Any dispute with a customer with respect to such obligations could have adverse effects on our relationship with that customer and other existing customers and new customers and harm our business and results of operations.

Our use of open source software could negatively affect our ability to sell our products and subject us to possible litigation.

Our technologies incorporate open source software, and we expect to continue to incorporate open source software in our products in the future. Few of the licenses applicable to open source software have been interpreted by courts, and there is a risk that these licenses could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to commercialize our products. Moreover, we cannot assure you that we have not incorporated additional open source software in our software in a manner that is inconsistent with the terms of the applicable license or our current policies and procedures. If we fail to comply with these licenses, we may be subject to certain requirements, including requirements that we offer our solutions that incorporate the open source software for no cost, that we make available source code for modifications or derivative works we create based upon, incorporating or using the open source software and that we license such modifications or derivative works under the terms of applicable open source licenses. If an author or other third party that distributes such open source software were to allege that we had not complied with the conditions of one or more of these licenses, we could be required to incur significant legal expenses defending against such allegations and could be subject to significant damages, enjoined from the sale of our products that contained the open source software and required to comply with onerous conditions or restrictions on these products, which could disrupt the distribution and sale of these products. In addition, there have been claims challenging the ownership rights in open source software against companies that incorporate open source software into their products, and the licensors of such open source software provide no warranties or indemnities with respect to such

 

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claims. In any of these events, we and our customers could be required to seek licenses from third parties in order to continue offering our products, and to re-engineer our products or discontinue the sale of our products in the event re-engineering cannot be accomplished on a timely basis. We and our customers may also be subject to suits by parties claiming infringement, misappropriation or violation due to the reliance by our solutions on certain open source software, and such litigation could be costly for us to defend or subject us to an injunction. Some open source projects have known vulnerabilities and architectural instabilities and as provided on an “as-is” basis which, if not properly addressed, could negatively affect the performance of our product. Any of the foregoing could require us to devote additional research and development resources to re-engineer our solutions, could result in customer dissatisfaction, and may adversely affect our business, results of operations and financial condition.

One of our marketing strategies is to offer open source and free trials of our products, and we may not be able to realize the benefits of this strategy.

We are dependent upon lead generation strategies, including offering open source and free trials of our products, to generate sales opportunities. These strategies may not be successful in continuing to generate sufficient sales opportunities necessary to increase our revenue. Many users never convert from the open source or free trials to the paid versions of our products. To the extent that users do not become, or we are unable to successfully attract, paying customers, we will not realize the intended benefits of these marketing strategies and our ability to grow our revenue will be adversely affected.

Our software development and licensing model could be negatively impacted if the Apache License, Version 2.0 is not enforceable.

Important components of our software have been provided under the Apache License 2.0. This license states that any work of authorship licensed under it, and any derivative work thereof, may be reproduced and distributed provided that certain conditions are met. It is possible that a court would hold this license to be unenforceable or that someone could assert a claim for proprietary rights in a program developed and distributed under it. Any ruling by a court that this license is not enforceable, or that open source components of our products may not be reproduced or distributed, may negatively impact our distribution or development of all or a portion of our products.

In connection with the operation of our business, we may collect, store, transfer and otherwise process certain personal data and personally identifiable information. As a result, our business is subject to a variety of government and industry regulations, as well as other obligations, related to privacy, data protection and information security.

Privacy, data protection and information security have become significant issues in various jurisdictions where we offer our products. The regulatory frameworks for privacy, data protection and information security issues worldwide are rapidly evolving and are likely to remain uncertain for the foreseeable future. Federal, state, or non-U.S. government bodies or agencies have in the past adopted, and may in the future adopt, new laws and regulations or may make amendments to existing laws and regulations affecting data protection, data privacy and/or information security and/or regulating the use of the Internet as a commercial medium. For example, the California Consumer Privacy Act (the “CCPA”), which provides new data privacy rights for California residents, is expected to take effect on January 1, 2020. The CCPA provides for civil penalties, as well as a private right of action, for violations, which may increase our compliance costs and potential liability. The CCPA was amended in September 2018, and it is anticipated that it may be amended again before it goes into effect. Other states also are considering or have enacted privacy legislation that is similar to the CCPA. Many obligations under the CCPA and these other laws and legislative proposals remain uncertain, and we cannot fully predict their impact on our business. Industry organizations also regularly adopt and advocate for new standards in these areas. If we fail to comply with any of these

 

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laws or standards, we may be subject to investigations, enforcement actions, civil litigation, fines and other penalties, all of which may generate negative publicity and have a negative impact on our business.

In the United States, we may be subject to investigation and/or enforcement actions brought by federal agencies and state attorneys general and consumer protection agencies. We publicly post policies and other documentation regarding our practices concerning the processing, use and disclosure of personally identifiable information. Although we endeavor to comply with our published policies and documentation, we may at times fail to do so or be alleged to have failed to do so. The publication of our privacy policy and other documentation that provide promises and assurances about privacy and security can subject us to potential state and federal action if they are found to be deceptive, unfair, or misrepresentative of our actual practices.

Internationally, most jurisdictions in which we operate have established their own data security, privacy and data protection legal frameworks with which we or our customers must comply. Within the European Union, the European General Data Protection Regulation, or GDPR, became fully effective on May 25, 2018, and applies to the processing (which includes the collection and use) of certain personal data. As compared to previously-effective data protection law in the European Union, the GDPR imposes additional obligations and risk upon our business and increases substantially the penalties to which we could be subject in the event of any non-compliance. Administrative fines under the GDPR can amount up to 20 million Euros or four percent of the group’s annual global turnover, whichever is higher. We have incurred substantial expense in complying with the obligations imposed by the GDPR and we may be required to make significant changes in our business operations, all of which may adversely affect our revenue and our business overall. Additionally, because the GDPR’s standards have not been previously enforced against companies, we are unable to predict how they will be applied to us. Despite our efforts to attempt to comply with the GDPR, a regulator may determine that we have not done so and subject us to fines and public censure, which could harm our company.

Among other requirements, the GDPR regulates transfers of personal data subject to the GDPR to third countries that have not been found to provide adequate protection to such personal data, including the United States. We have undertaken certain efforts to conform transfers of personal data from the European Economic Area, or EEA, to the United States and other jurisdictions based on our understanding of current regulatory obligations and the guidance of data protection authorities. Despite this, we may be unsuccessful in establishing or maintaining conforming means of transferring such data from the EEA, in particular as a result of continued legal and legislative activity within the European Union that has challenged or called into question the legal basis for existing means of data transfers to countries that have not been found to provide adequate protection for personal data.

We may also experience hesitancy, reluctance, or refusal by European or multi-national customers to continue to use our products due to the potential risk exposure to such customers as a result of shifting business sentiment in the EEA regarding international data transfers and the data protection obligations imposed on them. We may find it necessary to establish systems to maintain personal data originating from the EEA in the EEA, which may involve substantial expense and may cause us to need to divert resources from other aspects of our business, all of which may adversely affect our business. We and our customers may face a risk of enforcement actions taken by European data protection authorities until the time, if any, that personal data transfers to us and by us from the EEA are legitimized under European law.

In June 2016, a referendum was passed in the United Kingdom to leave the European Union, commonly referred to as “Brexit.” This creates an uncertain political and economic environment in the United Kingdom and other European Union countries, even though the formal process for leaving the

 

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European Union may take years to complete. For example, a Data Protection Act that substantially implements the GDPR became law in the United Kingdom in May 2018. It remains unclear, however, how United Kingdom data protection laws or regulations will develop in the medium to longer term and how data transfers to and from the United Kingdom will be regulated. The full effect of Brexit is uncertain and depends on any agreements the United Kingdom may make to retain access to European Union markets. Consequently, no assurance can be given about the impact of the outcome and our business may be seriously harmed.

In addition to government regulation, privacy advocates and industry groups may propose new and different self-regulatory standards that may legally or contractually apply to us. One example of such a self-regulatory standard is the Payment Card Industry Data Security Standard, or PCI DSS, which relates to the processing of payment card information. In the event we fail to comply with the PCI DSS, fines and other penalties could result, and we may suffer reputational harm and damage to our business. Further, our customers may expect us to comply with more stringent privacy and data security requirements than those imposed by laws, regulations or self-regulatory requirements, and we may be obligated contractually to comply with additional or different standards relating to our handling or protection of data on or by our offerings. We also expect that there will continue to be changes in interpretations of existing laws and regulations, or new proposed laws, regulations, and other obligations concerning privacy, data protection and information security, which could impair our or our customers’ ability to collect, use or disclose information relating to consumers, which could decrease demand for our offerings, increase our costs and impair our ability to maintain and grow our customer base and increase our revenue.

Because the interpretation and application of many laws and regulations relating to privacy, data protection and information security, along with industry standards, are uncertain, it is possible that these laws may be interpreted and applied in a manner that is inconsistent with our existing data management practices or the features of our products, and we could face fines, lawsuits, regulatory investigations and other claims and penalties, and we could be required to fundamentally change our products or our business practices, which could have an adverse effect on our business. Any inability to adequately address privacy, data protection and data security concerns, even if unfounded, or any actual or perceived failure to comply with applicable privacy, data protection and information security laws, regulations and other obligations, could result in additional cost and liability to us, damage our reputation, inhibit sales and adversely affect our business. Furthermore, the costs of compliance with, and other burdens imposed by, the laws, regulations and policies that are applicable to the businesses of our customers may limit the use and adoption of, and reduce the overall demand for, our products. Privacy, data protection and information security concerns, whether valid or not valid, may inhibit market adoption of our products, particularly in certain industries and countries outside of the United States. If we are not able to adjust to changing laws, regulations and standards related to the Internet, our business may be harmed.

We may acquire other businesses which could require significant management attention, disrupt our business, dilute shareholder value and adversely affect our results of operations.

As part of our business strategy, we may acquire or make investments in complementary companies, products, or technologies. We have in the past acquired, and expect in the future to acquire, businesses that we believe will complement or augment our existing business (for example, our proposed acquisition of Endgame, Inc.). The identification of suitable acquisition candidates is difficult, and we may not be able to complete such acquisitions on favorable terms, if at all. If we do complete future acquisitions, we may not ultimately strengthen our competitive position or achieve our goals and business strategy, we may be subject to claims or liabilities assumed from an acquired company, product, or technology, and any acquisitions we complete could be viewed negatively by our customers, investors, and securities analysts. In addition, if we are unsuccessful at integrating future

 

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acquisitions, or the technologies associated with such acquisitions, into our company, the revenue and results of operations of the Combined Company could be adversely affected. Any integration process may require significant time and resources, which may disrupt our ongoing business and divert management’s attention, and we may not be able to manage the integration process successfully. We may not successfully evaluate or utilize the acquired technology or personnel, realize anticipated synergies from the acquisition, or accurately forecast the financial impact of an acquisition transaction and integration of such acquisition, including accounting charges. We may have to pay cash, incur debt, or issue equity or equity-linked securities to pay for any future acquisitions, each of which could adversely affect our financial condition or the market price of our ordinary shares. The sale of equity or issuance of equity-linked debt to finance any future acquisitions could result in dilution to our shareholders. The incurrence of indebtedness would result in increased fixed obligations and could also include covenants or other restrictions that would impede our ability to manage our operations. The occurrence of any of these risks could harm our business, results of operations, and financial condition.

Unfavorable conditions in our industry or the global economy or reductions in information technology spending could limit our ability to grow our business and negatively affect our results of operations.

Our results of operations may vary based on the impact of changes in our industry or the global economy on us or our customers. Current or future economic uncertainties or downturns could adversely affect our business and results of operations. Negative conditions in the general economy both in the United States and abroad, including conditions resulting from changes in gross domestic product growth, financial and credit market fluctuations, political turmoil, natural catastrophes, warfare and terrorist attacks on the United States, Europe, the Asia Pacific region or elsewhere, could cause a decrease in business investments by our customers and potential customers, including spending on information technology, and negatively affect the growth of our business. To the extent our offerings are perceived by customers and potential customers as discretionary, our revenue may be disproportionately affected by delays or reductions in general information technology spending. Also, customers may choose to develop in-house software as an alternative to using our products. Moreover, competitors may respond to market conditions by lowering prices. We cannot predict the timing, strength or duration of any economic slowdown, instability or recovery, generally or within any particular industry. If the economic conditions of the general economy or markets in which we operate do not improve, or worsen from present levels, our business, results of operations and financial condition could be adversely affected.

We are subject to governmental export and import controls that could impair our ability to compete in international markets or subject us to liability if we violate these controls.

Our software may be subject to U.S. export control laws and regulations including the Export Administration Regulations, or EAR, and trade and economic sanctions maintained by the Office of Foreign Assets Control, or OFAC. As such, an export license may be required to export or reexport our products to certain countries, end-users and end-uses. Because we incorporate encryption functionality into our products, we also are subject to certain U.S. export control laws that apply to encryption items. If we were to fail to comply with such U.S. export controls laws and regulations, U.S. economic sanctions, or other similar laws, we could be subject to both civil and criminal penalties, including substantial fines, possible incarceration for employees and managers for willful violations, and the possible loss of our export or import privileges. Obtaining the necessary export license for a particular sale or offering may not be possible and may be time-consuming and may result in the delay or loss of sales opportunities. Furthermore, U.S. export control laws and economic sanctions prohibit the export of products to certain U.S. embargoed or sanctioned countries, governments and persons, as well as for prohibited end-uses. Monitoring and ensuring compliance with these complex U.S. export

 

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control laws is particularly challenging because our offerings are widely distributed throughout the world and are available for download without registration. Even though we take precautions to ensure that we and our partners comply with all relevant export control laws and regulations, any failure by us or our partners to comply with such laws and regulations could have negative consequences for us, including reputational harm, government investigations and penalties.

In addition, various countries regulate the import of certain encryption technology, including through import permit and license requirements, and have enacted laws that could limit our ability to distribute our products or could limit our end-customers’ ability to implement our products in those countries. Changes in our products or changes in export and import regulations in such countries may create delays in the introduction of our products into international markets, prevent our end-customers with international operations from deploying our products globally or, in some cases, prevent or delay the export or import of our products to certain countries, governments or persons altogether. Any change in export or import laws or regulations, economic sanctions or related legislation, shift in the enforcement or scope of existing export, import or sanctions laws or regulations, or change in the countries, governments, persons, or technologies targeted by such export, import or sanctions laws or regulations, could result in decreased use of our products by, or in our decreased ability to export or sell our products to, existing or potential end-customers with international operations. Any decreased use of our products or limitation on our ability to export to or sell our products in international markets could adversely affect our business, financial condition and operating results.

Our international operations and expansion expose us to several risks.

As of April 30, 2019, we had customers located in over 100 countries, and our strategy is to continue to expand internationally. In addition, as a result of our strategy of leveraging a distributed workforce, as of April 30, 2019, we had employees located in over 35 countries. Our current international operations involve and future initiatives will involve a variety of risks, including:

 

   

unexpected changes in regulatory requirements, taxes, trade laws, tariffs, export quotas, custom duties or other trade restrictions;

 

   

different labor regulations, especially in the European Union, where labor laws are generally more advantageous to employees as compared to the United States, including deemed hourly wage and overtime regulations in these locations;

 

   

exposure to many stringent and potentially inconsistent laws and regulations relating to privacy, data protection and information security, particularly in the European Union;

 

   

changes in a specific country’s or region’s political or economic conditions;

 

   

risks resulting from changes in currency exchange rates;

 

   

challenges inherent to efficiently managing an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, benefits and compliance programs;

 

   

risks relating to the implementation of exchange controls, including restrictions promulgated by the OFAC, and other similar trade protection regulations and measures in the United States or in other jurisdictions;

 

   

reduced ability to timely collect amounts owed to us by our customers in countries where our recourse may be more limited;

 

   

limitations on our ability to reinvest earnings from operations derived from one country to fund the capital needs of our operations in other countries;

 

   

limited or unfavorable intellectual property protection; and

 

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exposure to liabilities under anti-corruption and anti-money laundering laws, including the U.S. Foreign Corrupt Practices Act of 1977, as amended, and similar applicable laws and regulations in other jurisdictions.

If we are unable to address these difficulties and challenges or other problems encountered in connection with our international operations and expansion, we might incur unanticipated liabilities or we might otherwise suffer harm to our business generally.

If we are not successful in sustaining and expanding our international business, we may incur additional losses and our revenue growth could be harmed.

Our future results depend, in part, on our ability to sustain and expand our penetration of the international markets in which we currently operate and to expand into additional international markets. We depend on direct sales and our channel partner relationships to sell our offerings in international markets. Our ability to expand internationally will depend upon our ability to deliver functionality and foreign language translations that reflect the needs of the international clients that we target. Our ability to expand internationally involves various risks, including the need to invest significant resources in such expansion, and the possibility that returns on such investments will not be achieved in the near future or at all in these less familiar competitive environments. We may also choose to conduct our international business through other partnerships. If we are unable to identify partners or negotiate favorable terms, our international growth may be limited. In addition, we have incurred and may continue to incur significant expenses in advance of generating material revenue as we attempt to establish our presence in particular international markets.

Our failure to raise additional capital or generate the significant capital necessary to expand our operations and invest in new offerings could reduce our ability to compete and could harm our business.

We expect that our existing cash and cash equivalents will be sufficient to meet our anticipated cash needs for at least the next twelve months. After that, we may need to raise additional funds, and we may not be able to obtain additional debt or equity financing on favorable terms, if at all. If we raise additional equity financing, our shareholders may experience significant dilution of their ownership interests and the per share value of our ordinary shares could decline. Furthermore, if we engage in debt financing, the holders of debt would have priority over the holders of our ordinary shares, and we may be required to accept terms that restrict our ability to incur additional indebtedness. We may also be required to take other actions that would otherwise be in the interests of the debt holders and force us to maintain specified liquidity or other ratios, any of which could harm our business, results of operations, and financial condition. If we need additional capital and cannot raise it on acceptable terms, we may not be able to, among other things:

 

   

develop or enhance our products;

 

   

continue to expand our sales and marketing and research and development organizations;

 

   

acquire complementary technologies, products or businesses;

 

   

expand operations in the United States or internationally;

 

   

hire, train, and retain employees; or

 

   

respond to competitive pressures or unanticipated working capital requirements.

Our failure to have sufficient capital to do any of these things could harm our business, financial condition, and results of operations.

 

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Failure to comply with anti-bribery, anti-corruption, and anti-money laundering laws could subject us to penalties and other adverse consequences.

We are subject to the Foreign Corrupt Practices Act, or FCPA, the U.K. Bribery Act and other anti-corruption, anti-bribery and anti-money laundering laws in various jurisdictions both domestic and abroad. We leverage third parties, including channel partners, to sell our offerings and conduct our business abroad. We and our third-party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities and may be held liable for the corrupt or other illegal activities of these third-party business partners and intermediaries, our employees, representatives, contractors, partners, and agents, even if we do not explicitly authorize such activities. While we have policies and procedure to address compliance with such laws, we cannot assure you that all of our employees and agents will not take actions in violation of our policies and applicable law, for which we may be ultimately held responsible. Any violation of the FCPA or other applicable anti-bribery, anti-corruption laws, and anti-money laundering laws could result in whistleblower complaints, adverse media coverage, investigations, loss of export privileges, severe criminal or civil sanctions, or suspension or debarment from U.S. government contracts, all of which may have an adverse effect on our reputation, business, operating results and prospects.

A portion of our revenue is generated by sales to government entities, which are subject to a number of challenges and risks.

Sales to government entities are subject to a number of risks. Selling to government entities can be highly competitive, expensive, and time-consuming, often requiring significant upfront time and expense without any assurance that these efforts will generate a sale. Government certification requirements for products like ours may change, thereby restricting our ability to sell into the U.S. federal government, U.S. state government, or non-U.S. government sectors until we have attained the revised certification. Government demand and payment for our offerings may be affected by public sector budgetary cycles and funding authorizations, with funding reductions or delays adversely affecting public sector demand for our offerings.

Additionally, we rely on certain partners to provide technical support services to certain of our government entity customers to resolve any issues relating to our products. If our partners do not effectively assist our government entity customers in deploying our products, succeed in helping our government entity customers quickly resolve post-deployment issues, or provide effective ongoing support, our ability to sell additional offerings to new and existing government entity customers would be adversely affected and our reputation could be damaged.

Government entities may have statutory, contractual, or other legal rights to terminate contracts with us or our channel partners for convenience or due to a default, and any such termination may adversely affect our future results of operations. Governments routinely investigate and audit government contractors’ administrative processes, and any unfavorable audit could result in the government refusing to continue buying our subscriptions, a reduction of revenue, or fines or civil or criminal liability if the audit uncovers improper or illegal activities, which could adversely affect our results of operations in a material way.

Unanticipated changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could expose us to greater than anticipated tax liabilities.

Our income tax obligations are based in part on our corporate structure and intercompany arrangements, including the manner in which we develop, value, and use our intellectual property and the valuations of our intercompany transactions. The tax laws applicable to our business, including the laws of the Netherlands, the United States and other jurisdictions, are subject to interpretation and

 

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certain jurisdictions may aggressively interpret their laws in an effort to raise additional tax revenue. The taxing authorities of the jurisdictions in which we operate may challenge our methodologies for valuing developed technology or intercompany arrangements, which could increase our worldwide effective tax rate and harm our financial position and results of operations. It is possible that tax authorities may disagree with certain positions we have taken and any adverse outcome of such a review or audit could have a negative effect on our financial position and results of operations. Further, the determination of our worldwide provision for income taxes and other tax liabilities requires significant judgment by management, and there are transactions where the ultimate tax determination is uncertain. Although we believe that our estimates are reasonable, the ultimate tax outcome may differ from the amounts recorded in our consolidated financial statements and may materially affect our financial results in the period or periods for which such determination is made.

Our corporate structure and intercompany arrangements are subject to the tax laws of various jurisdictions, and we could be obligated to pay additional taxes, which would harm our results of operations.

Based on our current corporate structure, we may be subject to taxation in several jurisdictions around the world with increasingly complex tax laws, the application of which can be uncertain. The amount of taxes we pay in these jurisdictions could increase substantially as a result of changes in the applicable tax principles, including increased tax rates, new tax laws or revised interpretations of existing tax laws and precedents. In the United States, legislation enacted in December 2017 commonly referred to as the Tax Cuts and Jobs Act introduced a number of changes to U.S. federal income tax laws, the impact of which is uncertain. In addition, the authorities in the jurisdictions in which we operate could review our tax returns or require us to file tax returns in jurisdictions in which we are not currently filing, and could impose additional tax, interest and penalties. These authorities could also claim that various withholding requirements apply to us or our subsidiaries, assert that benefits of tax treaties are not available to us or our subsidiaries, or challenge our methodologies for valuing developed technology or intercompany arrangements, including our transfer pricing. The relevant taxing authorities may determine that the manner in which we operate our business does not achieve the intended tax consequences. If such a disagreement was to occur, and our position was not sustained, we could be required to pay additional taxes, and interest and penalties. Any increase in the amount of taxes we pay or that are imposed on us could increase our worldwide effective tax rate and harm our business and results of operations.

Our ability to use our net operating loss carryforwards to offset future taxable income may be subject to certain limitations.

As of April 30, 2019 and 2018, we had net operating loss carryforwards in various jurisdictions of $485.7 million and $223.0 million, respectively, which may be utilized against future income taxes. Limitations imposed by the applicable jurisdictions on our ability to utilize net operating loss carryforwards could cause income taxes to be paid earlier than would be paid if such limitations were not in effect and could cause such net operating loss carryforwards to expire unused, in each case reducing or eliminating the benefit of such net operating loss carryforwards. Furthermore, we may not be able to generate sufficient taxable income to utilize our net operating loss carryforwards before they expire. If any of these events occur, we may not derive some or all of the expected benefits from our net operating loss carryforwards.

Catastrophic events, or man-made problems such as terrorism, may disrupt our business.

A significant natural disaster, such as an earthquake, fire, flood, or significant power outage could have an adverse impact on our business, results of operations, and financial condition. We have a number of our employees and executive officers located in the San Francisco Bay Area, a region

 

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known for seismic activity. In the event our or our partners abilities are hindered by any of the events discussed above, sales could be delayed, resulting in missed financial targets for a particular quarter. In addition, acts of terrorism and other geo-political unrest could cause disruptions in our business or the business of our partners, customers or the economy as a whole. Any disruption in the business of our partners or customers that affects sales in a given fiscal quarter could have a significant adverse impact on our quarterly results for that and future quarters. All of the aforementioned risks may be further increased if our disaster recovery plans prove to be inadequate.

We are exposed to fluctuations in currency exchange rates, which could negatively affect our financial condition and results of operations.

A portion of our subscriptions are generated and operating expenses are incurred outside the United States and denominated in foreign currencies and are subject to fluctuations due to changes in foreign currency exchange rates. The strengthening of the U.S. dollar increases the real cost of our offerings to our customers outside of the United States, leading to delays in the purchase of our offerings and the lengthening of our sales cycle. If the U.S. dollar continues to strengthen, this could adversely affect our financial condition and results of operations. In addition, increased international sales in the future, including through our channel partners, may result in greater foreign currency denominated sales, increasing our foreign currency risk. Moreover, operating expenses incurred outside the United States and denominated in foreign currencies are increasing and are subject to fluctuations due to changes in foreign currency exchange rates. If we are not able to successfully hedge against the risks associated with currency fluctuations, our financial condition and results of operations could be adversely affected. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedging transactions may be limited and we may not be able to successfully hedge our exposure, which could adversely affect our financial condition and results of operations.

If our estimates or judgments relating to our critical accounting policies are based on assumptions that change or prove to be incorrect, our results of operations could fall below expectations of securities analysts and investors, resulting in a decline in the trading price of our ordinary shares.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in “Elastic Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this proxy statement/prospectus, the results of which form the basis for making judgments about the carrying values of assets, liabilities, equity, revenue, and expenses that are not readily apparent from other sources. Our results of operations may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below our publicly announced guidance or the expectations of securities analysts and investors, resulting in a decline in the market price of our ordinary shares. Significant assumptions and estimates used in preparing our consolidated financial statements include those related to revenue recognition, measurement of stock-based compensation expense, accounting of intangible assets, goodwill impairment test, and accounting for income taxes including deferred tax assets and liabilities.

 

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Risks Related to Endgame’s Business and Industry

Endgame has incurred significant operating losses since inception and may not be able to achieve profitability.

Endgame has incurred net losses since its inception in October 2010. For the years ended December 31, 2017 and 2018, and for the three months ended March 31, 2019, Endgame had net losses of $30.3 million, $19.9 million and $5.9 million, respectively. As of March 31, 2019, Endgame had an accumulated deficit of $152.1 million. To date, Endgame has financed its operations primarily through private placements of its equity securities, certain debt-related financing arrangements and from sales of its products. Endgame has devoted substantially all of its resources to the acquisition of products, the research and development of products and sales and marketing activities. Endgame’s ability to generate sufficient revenue from its existing products, and to transition to profitability and generate consistent positive cash flows is uncertain. Endgame may need to raise additional funds in the future, and such funds may not be available on a timely basis, or at all. Endgame expects that its operating expenses may increase as it continues to build its commercial infrastructure, develop, enhance and commercialize its products and incur additional costs associated with integrating with Elastic, a public company. As a result, Endgame may incur operating losses for the foreseeable future and may never achieve profitability.

Endgame’s future operating results may fluctuate significantly, Endgame has recently transitioned its business model and its recent operating results may not be a good indication of its future performance.

On March 10, 2017, as part of a strategic shift of Endgame’s business plans, Endgame sold substantially all of its assets and certain liabilities of its Federal Services Business to Accenture Federal Services, LLC. The Federal Services Business was approximately 76% of Endgame’s assets as of December 31, 2016 and generated revenue of approximately 85% of Endgame’s total revenue for the year ended December 31, 2016.

Since Endgame’s sale of its Federal Services Business, Endgame has experienced a period of rapid growth in its headcount and operations. Endgame has also significantly increased the size of its customer base over the last few years. Endgame anticipates that it will continue to significantly expand its operations and headcount in the near term. Endgame’s growth has placed, and future growth will place, a significant strain on its management, administrative, operational and financial infrastructure. Endgame’s success will depend in part on its ability to manage this growth effectively. To manage the expected growth of operations and personnel, Endgame will need to continue to improve its operational, financial and management controls and its reporting systems and procedures. Failure to effectively manage its growth could result in difficulty or delays in deploying the Endgame platform to customers, declines in quality or customer satisfaction, increases in costs, difficulties in introducing new features or other operational difficulties. Any of these difficulties could adversely impact its business performance and results of operations.

Endgame’s strategic shift followed by its rapid growth makes it difficult to evaluate its future prospects. Endgame’s ability to forecast its future operating results is subject to a number of uncertainties, including its ability to plan for and model future growth. If Endgame’s assumptions regarding these uncertainties, which it uses to plan its business, are incorrect or change in reaction to changes in its markets, or if Endgame does not address these risks successfully, its operating and financial results could differ materially from its expectations and its business could suffer.

 

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If Endgame is unable to sustain its revenue growth rate, it may not achieve or maintain profitability in the future.

Endgame has experienced revenue growth with revenue of $5.2 million and $19.8 million in 2017 and 2018, respectively. Although Endgame has experienced rapid revenue growth the past two years, it may not continue to grow as rapidly in the future and its revenue growth rates may decline. Any success that Endgame may experience in the future will depend in large part on its ability to, among other things:

 

   

successfully integrate with Elastic;

 

   

maintain and expand its customer base;

 

   

increase revenue from existing customers through increased or broader use of its platform within their organizations;

 

   

further penetrate the existing industry verticals that Endgame serves and expand into other industry verticals;

 

   

improve the performance and capabilities of its platform through research and development;

 

   

continue to successfully expand its business domestically and internationally; and

 

   

successfully compete with other companies.

If Endgame is unable to maintain consistent revenue or revenue growth, it may be difficult to achieve and maintain profitability. You should not rely on Endgame’s revenue for any prior quarterly or annual periods as any indication of its future revenue or revenue growth.

Endgame may not be able to scale its business quickly enough to meet its customers’ growing needs, and if it is not able to grow efficiently, its operating results could be harmed.

As usage of the Endgame platform grows, Endgame may need to devote additional resources to improving its software architecture, integrating with third-party systems, and maintaining infrastructure performance. In addition, Endgame will need to appropriately scale its internal business, including its professional services organization and operations, to serve its growing customer base, particularly as its customer base expands over time. Any failure of or delay in these efforts could cause impaired system performance and reduced customer satisfaction. These issues could reduce the attractiveness of the Endgame platform to customers, resulting in decreased sales to new customers, lower renewal rates by existing customers, or result in the issuance of service credits, or requested refunds, which could hurt Endgame’s revenue growth and reputation. Even if Endgame is able to upgrade its systems and expand its staff, any such expansion will be expensive and complex, requiring management time and attention. Endgame could also face inefficiencies or operational failures as a result of its efforts to scale its infrastructure and integrate its infrastructure and processes with Elastic. Moreover, there are inherent risks associated with upgrading, improving and expanding Endgame’s information technology systems, as well as integrating its information technology systems with Elastic’s information technology systems. Endgame cannot be sure that the expansion and improvements to and integration of its infrastructure and systems will be fully or effectively implemented on a timely basis, if at all. These efforts may reduce revenue and margins and adversely impact Endgame’s financial results.

If Endgame is unable to further penetrate its existing industry verticals or expand its customer base, Endgame’s revenue may not grow and its operating results may be harmed.

Currently, a significant majority of Endgame’s revenue is derived from the U.S. federal government, and from companies in the health care, financial services and information technology industries. Endgame is investing substantial resources to expand and train its sales force to enable it to

 

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better understand these industry verticals and drive sales to customers in these industry verticals, but there can be no assurance that these investments will be successful. Further, an important part of Endgame’s strategy is to expand its customer base in a wide variety of industries. Endgame has less experience in some industries and its expansion may require it to grow its expertise in certain areas and add sales and support personnel possessing familiarity with the relevant industries. There may be competitors in these verticals that may be entrenched and difficult to dislodge. As a result of these and other factors, Endgame’s efforts to expand its customer base may be expensive and may not succeed, and Endgame therefore may be unable to grow its revenue. If Endgame fails to further penetrate its existing industry verticals or expand its customer base, Endgame may be unable to grow its revenue and its operating results may be harmed.

Endgame’s sales cycles can be long and unpredictable, and its sales efforts require considerable time and expense.

Endgame’s revenue recognition is difficult to predict because of the length and unpredictability of the sales cycle for the Endgame platform, particularly with respect to large organizations and government entities. Customers often view the subscription to the Endgame platform as a significant strategic decision and, as a result, frequently require considerable time to evaluate, test and qualify the Endgame platform prior to entering into or expanding a relationship with Endgame. Large enterprises and government entities in particular often undertake a significant evaluation process that further lengthens Endgame’s sales cycle.

Endgame’s direct sales team develops relationships with its customers, and works with its channel partners on account penetration, account coordination, sales and overall market development. Endgame spends substantial time and resources on its sales efforts without any assurance that its efforts will produce a sale. Security solution purchases are frequently subject to budget constraints, multiple approvals and unanticipated administrative, processing and other delays. As a result, it is difficult to predict whether and when a sale will be completed. The failure of Endgame’s efforts to secure sales after investing resources in a lengthy sales process could adversely affect its business and results of operations.

Endgame faces intense competition and could lose market share to its competitors, which could adversely affect its business, financial condition, and results of operations.

The market for security and IT operations solutions is intensely competitive, fragmented, and characterized by rapid changes in technology, customer requirements, industry standards, increasingly sophisticated attackers, and by frequent introductions of new or improved products to combat security threats. Endgame expects to continue to face intense competition from current competitors, as well as from new entrants into the market. If Endgame is unable to anticipate or react to these challenges, its competitive position could weaken, and it could experience a decline in revenue or reduced revenue growth, and loss of market share that would adversely affect its business, financial condition, and results of operations. Endgame’s ability to compete effectively depends upon numerous factors, many of which are beyond its control, including, but not limited to:

 

   

product capabilities, including performance and reliability, of the Endgame platform and features compared to those of its competitors;

 

   

its ability, and the ability of its competitors, to improve existing products, services, and features, or to develop new ones to address evolving customer needs;

 

   

its ability to attract, retain, and motivate talented employees;

 

   

its ability to establish and maintain relationships with channel partners;

 

   

the strength of its sales and marketing efforts; and

 

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acquisitions or consolidation within its industry, which may result in more formidable competitors.

Endgame’s competitors include the following by general category:

 

   

Next-generation endpoint security companies that are moving towards addressing the converged prevention, detection and response market, including CrowdStrike Holdings, Inc., BlackBerry Cylance and Carbon Black, Inc;

 

   

Incumbent antivirus solution vendors, including McAfee, LLC and Symantec Corporation; and

 

   

Network security providers who offer endpoint solutions that are ancillary to their core business, such as Palo Alto Networks, Inc., and FireEye, Inc.

Many of these competitors have greater financial, technical, marketing, sales, and other resources, greater name recognition, longer operating histories, and a larger base of customers than Endgame. They may be able to devote greater resources to the development, promotion, and sale of services than Endgame can, and they may offer lower pricing than Endgame. Further, they may have greater resources for research and development of new technologies, the provision of customer support, and the pursuit of acquisitions, or they may have other financial, technical, or other resource advantages. Endgame’s larger competitors have substantially broader and more diverse product and services offerings as well as routes to market, which may allow them to leverage their relationships based on other products or incorporate functionality into existing products to gain business in a manner that discourages users from purchasing the Endgame platform. Conditions in the market could change rapidly and significantly as a result of technological advancements, partnering or acquisitions by Endgame’s competitors or continuing market consolidation. Some of Endgame’s current or potential competitors have made or could make acquisitions of businesses or establish cooperative relationships that may allow them to offer more directly competitive and comprehensive solutions than were previously offered and adapt more quickly to new technologies and customer needs. These competitive pressures in the market or Endgame’s failure to compete effectively may result in price reductions, fewer orders, reduced revenue and gross margins, increased net losses and loss of market share. Further, many competitors that specialize in providing protection from a single type of security threat may be able to deliver these targeted security products to the market quicker than Endgame can or convince organizations that these limited products meet their needs. Even if there is significant demand for cloud-based security solutions like ours, if Endgame’s competitors include functionality that is, or is perceived to be, equivalent to or better than Endgame’s in legacy products that are already generally accepted as necessary components of an organization’s IT security architecture, Endgame may have difficulty increasing the market penetration of its platform. Furthermore, even if the functionality offered by other security and IT operations providers is different and more limited than the functionality of the Endgame platform, organizations may elect to accept such limited functionality in lieu of adding products from additional vendors like Endgame. If Endgame is unable to compete successfully, or if competing successfully requires Endgame to take aggressive pricing or other actions, its business, financial condition, and results of operations would be adversely affected.

Endgame derives a material portion of its revenue from a limited number of customers, and the loss of one or more of these customers could adversely impact Endgame’s business, results of operations and financial condition.

Endgame’s customer base is concentrated. For example, during the year ended December 31, 2018, revenue from Endgame’s top two customers, both of which are U.S. federal government agencies, represented 78% of total revenue for the year ended December 31, 2018. If Endgame were to lose one or more of its significant customers, its revenue may significantly decline. In addition, revenue from significant customers may vary from period to period depending on the timing of

 

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renewing existing agreements or entering into new agreements. The loss of one or more of Endgame’s significant customers could adversely affect its business, results of operations and financial condition.

A portion of Endgame’s revenue is generated from subscriptions sold to governmental entities and heavily regulated organizations, which are subject to a number of challenges and risks.

A significant portion of Endgame’s revenue is generated from subscriptions sold to governmental entities in the United States. Additionally, many of Endgame’s current and prospective customers, such as those in the health care and financial services industries, are highly regulated and may be required to comply with more stringent regulations in connection with subscribing to and implementing the Endgame platform. Selling subscriptions to these entities can be highly competitive, expensive and time-consuming, often requiring significant upfront time and expense without any assurance that Endgame will successfully complete a sale. Governmental demand and payment for the Endgame platform may also be impacted by public sector budgetary cycles and funding authorizations, with funding reductions or delays adversely affecting public sector demand for the Endgame platform.

Further, governmental and highly regulated entities often require contract terms that differ from Endgame’s standard arrangements, including terms that can lead to those customers obtaining broader rights in Endgame products than would be standard. Governmental and highly regulated entities, impose compliance requirements that are complicated, require preferential pricing or “most favored nation” terms and conditions or are otherwise time-consuming and expensive to satisfy. In the United States, applicable federal contracting regulations change frequently. If Endgame undertakes to meet special standards or requirements and does not meet them, Endgame could be subject to significant liability from its customers or regulators. Even if Endgame does meet these special standards or requirements, the additional costs associated with providing the Endgame platform to government and highly regulated customers could harm its operating results. Moreover, changes in the underlying statutory and regulatory conditions that affect these types of customers could harm Endgame’s ability to efficiently provide them access to the Endgame platform and to grow or maintain its customer base. In addition, engaging in sales activities to foreign governments introduces additional compliance risks specific to the Foreign Corrupt Practices Act, the U.K. Bribery Act and other similar statutory requirements prohibiting bribery and corruption in the jurisdictions in which Endgame operates.

As a cybersecurity provider, Endgame has been, and expects to continue to be, a target of cyberattacks. If Endgame internal networks, systems, or data are or are perceived to have been compromised, its reputation may be damaged and its financial results may be negatively affected.

As a provider of security solutions, Endgame may in the past have been, and may in the future be, specifically targeted for attacks intended to circumvent its security capabilities or to exploit the Endgame platform as an entry point into customers’ endpoints, networks, or systems. Endgame is also susceptible to inadvertent compromises of its systems and data, including those arising from process, coding, or human errors. A successful attack or other incident that compromises Endgame’s or its customers’ data or results in an interruption of service could have a significant negative effect on its operations, reputation, financial resources, and the value of its intellectual property. Endgame cannot assure you that any of its efforts to manage this risk, including adoption of a comprehensive incident response plan and process for detecting, mitigating, and investigating security incidents that it regularly tests through table-top exercises, testing of its security protocols through additional techniques, such as penetration testing, debriefing after security incidents, to improve its security and responses, and regular briefing of its directors and officers on its cybersecurity risks, preparedness, and management, will be effective in protecting it from such attacks.

 

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It is virtually impossible for any enterprise, including Endgame to entirely eliminate the risk of such compromises, interruptions in service, or other security incidents affecting its internal systems or data. Organizations are subject to a wide variety of attacks on their networks, systems, and endpoints, and techniques used to sabotage or to obtain unauthorized access to networks in which data is stored or through which data is transmitted change frequently. Furthermore, employee error or malicious activity could compromise Endgame’s systems. As a result, Endgame may be unable to anticipate these techniques or implement adequate measures to prevent an intrusion into its networks, which could result in unauthorized access to customer data, intellectual property including access to its source code, and information about vulnerabilities in its product, which in turn, could reduce the effectiveness of its solutions, or lead to cyberattacks or other intrusions of its customers’ networks, litigation, governmental audits and investigations and significant legal fees, could damage its relationships with existing customers and could have a negative effect on its ability to attract and retain new customers. Endgame has expended, and anticipates continuing to expend, significant amounts and resources in an effort to prevent security breaches and other security incidents impacting its systems and data. Since its business is focused on providing reliable security services to its customers, Endgame believes that an actual or perceived security incident affecting, its internal systems or data or data of its customers would be especially detrimental to its reputation, customer confidence in its solution, and its business.

In addition, while Endgame maintains insurance policies that may cover certain liabilities in connection with a cybersecurity incident, Endgame cannot be certain that insurance coverage will be adequate for liabilities actually incurred, that insurance will continue to be available to it on commercially reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against it that exceed available insurance coverage, or the occurrence of changes in its insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on its business, including its financial condition, results of operation and reputation.

The converged endpoint security market is new and evolving, and may not grow as expected.

Endgame believes its future success will depend in large part on the growth, if any, in the market for endpoint security products. This market is new and evolving, and as such, it is difficult to predict important market trends, including its potential growth, if any. To date, enterprise and corporate cyber security budgets have allocated a majority of dollars to prevention-centric threat protection solutions, such as network, endpoint and web security products designed to stop threats from penetrating corporate networks. Organizations that use these security products may be satisfied with such existing security products and, as a result, these organizations may not adopt Endgame’s solutions in addition to, or in lieu of, security products they currently use.

Further, sophisticated cyber attackers are skilled at adapting to new technologies and developing new methods of gaining access to organizations’ sensitive business data, and changes in the nature of advanced cyber threats could result in a shift in IT budgets away from products such as ours. In addition, while recent high visibility attacks on prominent enterprises and governments have increased market awareness of the problem of cyber attacks, if cyber attacks were to decline, or enterprises or governments perceived that the general level of cyber attacks has declined, Endgame’s ability to attract new customers and expand its sales to existing customers could be materially and adversely affected. If products such as the Endgame platform are not viewed by organizations as necessary, or if customers do not recognize the benefit of such products as a critical element of an effective cyber security strategy, Endgame’s revenue may not grow as quickly as expected, or may decline.

In addition, it is difficult to predict customer adoption and retention rates, customer demand for Endgame’s products, the size and growth rate of the market for next-generation endpoint security, the

 

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entry of competitive products or the success of existing competitive products. Any expansion in the market depends on a number of factors, including the cost, performance and perceived value associated with Endgame’s products and those of its competitors. If these products do not achieve widespread adoption or there is a reduction in demand for products in the market caused by a lack of customer acceptance, technological challenges, competing technologies, products, decreases in corporate spending, weakening economic conditions or otherwise, it could result in reduced customer orders, early terminations, reduced customer retention rates or decreased revenue, any of which would adversely affect Endgame’s business operations and financial results.

If Endgame’s products fail or are perceived to fail to prevent or detect cyber attacks, or if its products contain undetected errors or defects, its brand and reputation could be harmed, which could have an adverse effect on its business and results of operations.

If Endgame’s products fail or are perceived to fail to prevent or detect cyber attacks in its customers’ endpoints, or if its products fail to identify and respond to new and increasingly complex methods of cyber attacks, its business and reputation may suffer. There is no guarantee that Endgame’s products will prevent or detect all cyber attacks, especially in light of the rapidly changing security landscape to which it must respond.

Endgame’s products, which are complex, may also contain undetected errors or defects. Endgame expects that these errors or defects may be found from time to time in the future in new or enhanced products after commercial release. Defects may cause its products to be vulnerable to attacks, cause them to fail to prevent or detect cyber attacks. Any errors, defects, disruptions in service or other performance problems with its products may damage Endgame’s customers’ business and could hurt its reputation. If its products fail to prevent or detect cyber attacks for any reason, Endgame may incur significant costs, the attention of its key personnel could be diverted, its customers may delay or withhold payment or elect not to renew or other significant customer relations problems may arise.

Endgame may also be subject to liability claims for damages related to errors or defects in its products. A material liability claim or other occurrence that harms its reputation or decreases market acceptance of its products may harm its business and operating results. Although Endgame has limitation of liability provisions in many of its customer contracts and in its terms and conditions of sale, they may not fully or effectively protect it from claims as a result of federal, state, or local laws or ordinances, or unfavorable judicial decisions in the U.S. or other countries. Endgame maintains insurance to protect against certain claims associated with the use of its products, but its insurance coverage may not adequately cover any claim asserted against us. In addition, even claims that ultimately are unsuccessful could result in expenditure of funds in litigation, divert management’s time and other resources, and harm Endgame’s business and reputation.

Endgame relies on channel partners, such as managed security service providers, incident response firms and value-added resellers, to generate a significant portion of its revenue. If Endgame fails to maintain successful relationships with its channel partners, or if its channel partners fail to perform, its ability to market, sell and distribute its products will be limited, and Endgame’s business, financial position and results of operations will be harmed.

In addition to its direct sales force, Endgame relies on its channel partners to sell its products. A majority of its revenue is generated by its channel partners, including managed service security providers, incident response firms and value-added resellers. Endgame expects to continue to generate sales to new and existing customers through its channel partners as a part of its growth strategy.

 

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Endgame provides its sales channel partners with specific training and programs to assist them in selling its products, but there can be no assurance that these steps will be effective. In addition, its channel partners may be unsuccessful in marketing, selling and supporting Endgame’s products. If Endgame is unable to develop and maintain effective sales incentive programs for its third-party channel partners, it may not be able to incentivize these partners to sell its products to customers and, in particular, to large enterprises. Endgame’s agreements with channel partners are generally non-exclusive and these partners may also market, sell and support products that are competitive with it and may devote more resources to the marketing, sales and support of such competitive products. These partners may have incentives to promote a competitor’s product to the detriment of Endgame’s or may cease selling Endgame’s products altogether. Endgame’s channel partners may cease or deemphasize the marketing of its products with limited or no notice and with little or no penalty. Endgame’s agreements with its channel partners may generally be terminated for any reason by either party with advance notice prior to each annual renewal date. Endgame cannot be certain that it will retain these channel partners or that it will be able to secure additional or replacement channel partners. The loss of one or more of its significant channel partners or a decline in the number or size of orders from them could harm Endgame’s operating results. In addition, any new sales channel partner requires extensive training and may take several months or more to achieve productivity. Endgame channel partner sales structure could subject it to lawsuits, potential liability and reputational harm if, for example, any of its channel partners misrepresent the functionality of Endgame’s products, subscriptions or services to customers or violate laws or corporate policies.

If the general level of advanced cyber attacks declines, or is perceived by its current or potential customers to have declined, Endgame’s business could be harmed.

Endgame’s business is substantially dependent on enterprises and governments recognizing that advanced cyber attacks are pervasive and are not effectively prevented by legacy security products. High visibility attacks on prominent enterprises and governments have increased market awareness of the problem of advanced cyber attacks and help to provide an impetus for enterprises and governments to devote resources to protecting against advanced cyber attacks, such as testing Endgame’s products, purchasing them and broadly deploying them within their organizations. If advanced cyber attacks were to decline, or enterprises or governments perceived that the general level of advanced cyber attacks has declined, Endgame’s ability to attract new customers and expand sales of its products to existing customers could be materially and adversely affected. A reduction in the threat landscape could increase Endgame’s sales cycles and harm its business, results of operations and financial condition.

Endgame may need to reduce or change its pricing model to remain competitive.

Endgame generally sells its products on a subscription basis. Endgame expects that it may need to change its pricing from time to time. As competitors introduce new products that compete with Endgame’s products or reduce their prices, Endgame may be unable to attract new customers or retain existing customers based on its historical pricing. Endgame also must determine the appropriate price to enable it to compete effectively internationally. Moreover, enterprises may demand substantial price discounts as part of the negotiation of sales contracts. As a result, Endgame may be required or choose to reduce its prices or change its pricing model, which could adversely affect its business, operating results and financial condition.

Defects or disruptions in the rollout of the Endgame platform updates or enhancements could diminish demand for the Endgame platform, adversely affect Endgame’s reputation and subject Endgame to substantial liability.

Like many software companies, Endgame provides frequent incremental releases of software updates and functional enhancements to its platform. Despite extensive pre-release testing, such new

 

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versions may contain undetected errors when first introduced or released. Endgame has, from time to time, found errors in its software, and new errors in its existing software may be detected in the future. Since Endgame’s customers use the Endgame platform for important aspects of their business, any errors, defects, disruptions in the Endgame platform or other performance problems with Endgame’s solution could hurt Endgame’s reputation and may damage its customers’ businesses. If that occurs, Endgame customers may delay or withhold payment to it, elect not to renew, or make warranty claims or other claims against Endgame, and Endgame could lose future sales. The occurrence of any of these events could result in an increase in Endgame’s bad debt expense, an increase in collection cycles for accounts receivable, decreased future revenue and earnings, require Endgame to increase its warranty provisions or incur the risk or expense of litigation.

If governments or their agencies reduce their demand for the Endgame platform, Endgame’s business may suffer. Moreover, if Endgame fails to comply with government contracting regulations, Endgame could suffer a loss of revenue or incur price adjustments or other penalties.

Changes in governmental budget priorities could adversely affect Endgame’s business. U.S. agencies have purchased Endgame’s platform directly from Endgame. When the government changes budget priorities, Endgame’s subscription sales to government agencies and government-funded customers may be affected. Demand and payment for Endgame’s subscriptions and its customers’ products may be affected by public sector budgetary cycles or funding authorizations. Funding reductions or delays could negatively impact demand for the Endgame platform. If government funding is discontinued or significantly reduced, Endgame’s business could be materially adversely affected.

A material portion of Endgame’s revenue is derived from contracts with agencies of the U.S. government and subcontracts with its prime contractors. As a result, Endgame is subject to federal contracting regulations, including the Federal Acquisition Regulation, or the FAR, system. The FAR system governs, among other things, U.S. government contract pricing, including determination of the costs incurred by Endgame in the performance of its U.S. government contracts. Additionally, under the FAR system, the U.S. government is entitled, for years after final payment on certain negotiated contracts, to examine all of Endgame’s cost records with respect to such contracts and to seek a downward adjustment to the price of the contract if it determines that Endgame failed to furnish complete, accurate and current cost or pricing data in connection with the negotiation of the price of the contract.

In connection with Endgame’s U.S. government contracts, Endgame is also subject to government audits and review and approval of its policies, procedures and internal controls for compliance with contract terms, procurement regulations and applicable laws. In certain circumstances, if Endgame does not comply with the terms of a contract or with regulations or statutes, Endgame could be subject to contract termination or downward contract price adjustments or refund obligations, could be assessed civil or criminal penalties or could be debarred or suspended from obtaining future contracts for a specified period of time. Any such termination, adjustment, sanction, debarment or suspension could have an adverse effect on Endgame’s business.

Endgame’s business could be adversely affected if its customers are not satisfied with the deployment services Endgame provides.

The success of Endgame’s business depends on its customers’ satisfaction with the Endgame platform, the support that Endgame provides for its platform and the professional services that it provides to help its customers deploy and maintain the Endgame platform. If a customer is not satisfied with the quality of work performed by Endgame or the implementation of the Endgame platform, Endgame could incur additional costs to address the deficiency, which would diminish the profitability

 

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of the customer relationship. Further, a customer’s dissatisfaction with Endgame’s services could adversely affect the customer’s renewal or expansion of existing licenses. In addition, negative publicity related to Endgame’s customer relationships, regardless of accuracy, may further damage Endgame’s business by affecting its ability to compete for new business with actual and prospective customers.

Endgame is substantially dependent upon customer renewals, the addition of new customers and the continued growth of its subscription revenue.

Endgame derives, and expects to increasingly derive in the future, a substantial portion of its revenue from the sale of software subscriptions. The market for Endgame’s platform is still evolving, and competitive dynamics may cause pricing levels to change as the market matures and as existing and new market participants introduce new types of solutions and different approaches to enable customers to address their needs. As a result, Endgame may be forced to reduce the prices it charges for software and may be required to offer terms less favorable to Endgame for new and renewing agreements.

In order for Endgame to improve its operating results, it is important that its customers renew their subscriptions with Endgame when their initial term expires. In general, Endgame’s customers have no renewal obligation after their initial term expires, and Endgame cannot assure you that it will be able to renew subscriptions with any of its customers at the same or higher contract value.

Further, while Endgame offers access to the Endgame platform primarily through multi-year subscription agreements, some agreements may have shorter durations. Additionally, some of Endgame’s contracts limit the amount it can increase prices from period to period, or include pricing guarantees. If Endgame’s customers do not renew their agreements, terminate their agreements or renew their agreements on terms less favorable to Endgame, Endgame’s revenue may decline and Endgame’s operating results would likely be harmed as a result.

Endgame relies on the performance of highly skilled personnel, including senior management and engineering, professional services, sales and technology professionals; if Endgame is unable to retain or motivate key personnel or hire, retain and motivate qualified personnel, Endgame’s business would be harmed.

Endgame believes its success has depended, and continues to depend, on the efforts and talents of its senior management team, and its highly skilled team members, including its sales personnel, professional services personnel and software engineers. From time to time, there may be changes in Endgame’s senior management team resulting from the termination or departure of its executive officers and key employees. Endgame’s senior management and key employees are employed on an at-will basis, which means that they could terminate their employment with Endgame at any time. The loss of any of Endgame’s senior management or key employees, could adversely affect Endgame’s ability to build on the efforts they have undertaken and to execute Endgame’s business plan, and Endgame may not be able to find adequate replacements. Endgame cannot ensure that it will be able to retain the services of any members of its senior management or other key employees.

Endgame’s ability to successfully pursue its growth strategy also depends on its ability to attract, motivate and retain its personnel. Competition for well-qualified employees in all aspects of Endgame’s business, including sales personnel, professional services personnel and software engineers, is intense. Endgame’s recruiting efforts focus on elite universities and its primary recruiting competition are well-known, high-paying firms. Endgame’s continued ability to compete effectively depends on its ability to attract new employees and to retain and motivate existing employees. If Endgame does not succeed in attracting well-qualified employees or retaining and motivating existing employees, Endgame’s business would be adversely affected.

 

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Failure to effectively develop and expand Endgame’s sales and marketing capabilities could harm its ability to increase its customer base and achieve broader market acceptance of its solution.

Endgame’s ability to increase its customer base and achieve broader market acceptance of the Endgame platform will depend to a significant extent on its ability to expand its sales and marketing operations. Endgame plans to continue expanding its sales force and third-party strategic sales partners; however, there is no assurance that Endgame will be successful in attracting and retaining talented sales personnel or strategic partners or that any new sales personnel or strategic partners will be able to achieve productivity in a reasonable period of time or at all. Endgame also plans to dedicate significant resources to sales and marketing programs, including through electronic marketing campaigns and trade event sponsorship and participation. All of these efforts will require Endgame to invest significant financial and other resources and its business will be harmed if its efforts do not generate a correspondingly significant increase in revenue.

If Endgame is not able to maintain and enhance its brand, Endgame’s business and operating results may be adversely affected.

Endgame believes that developing and maintaining widespread awareness of its brand in a cost-effective manner is critical to achieving widespread acceptance of the Endgame platform and attracting new customers. Brand promotion activities may not generate customer awareness or increase revenue and, even if they do, any increase in revenue may not offset the expenses Endgame incurs in building its brand. If Endgame fails to successfully promote and maintain its brand, or incurs substantial expenses, Endgame may fail to attract or retain customers necessary to realize a sufficient return on its brand-building efforts, or to achieve the widespread brand awareness that is critical for broad customer adoption of the Endgame platform.

Endgame relies upon Amazon Web Services to operate its cloud offering; any disruption of or interference with its use of Amazon Web Services would adversely affect its business, results of operations and financial condition.

Endgame outsources a significant portion of the infrastructure relating to its cloud offering of the Endgame platform to Amazon Web Services, or AWS, which hosts the Endgame platform on Endgame customers’ behalf. Customers of Endgame’s cloud offering need to be able to access the Endgame platform at any time, without interruption or degradation of performance, and Endgame provides them with service level commitments with respect to uptime. AWS runs its own platform that Endgame accesses, and Endgame is, therefore, vulnerable to service interruptions at AWS. Endgame may experience interruptions, delays and outages in service and availability from time to time as a result of problems with Endgame’s AWS provided infrastructure. Lack of availability of Endgame’s AWS infrastructure could be due to a number of potential causes including technical failures, natural disasters, fraud or security attacks that Endgame cannot predict or prevent. Such outages could lead to the triggering of Endgame’s service level agreements and the issuance of credits to Endgame’s cloud offering customers, which may impact Endgame’s operating results.

In addition, if the security of the AWS infrastructure is compromised or believed to have been compromised, Endgame’s business, results of operations and financial condition could be adversely affected. It is possible that Endgame’s customers and potential customers would hold it accountable for any breach of security affecting the AWS infrastructure and Endgame may incur significant liability from those customers and from third parties with respect to any breach affecting AWS systems. Because Endgame’s agreement with AWS limits AWS’s liability for damages, Endgame may not be able to recover a material portion of Endgame’s liabilities to its customers and third parties from AWS. Customers and potential customers may refuse to do business with Endgame because of the

 

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perceived or actual failure of its cloud offering as hosted by AWS and Endgame’s operating results could be harmed.

If any of its arrangements with AWS are terminated, Endgame expects that it could receive similar services from other third parties; however, if any of its arrangements with AWS are terminated, Endgame could experience interruptions on the Endgame platform and in its ability to make the Endgame platform available to customers, as well as delays and additional expenses in arranging alternative cloud infrastructure services.

If the Endgame platform fails to perform properly, Endgame’s reputation could be adversely affected, Endgame’s market share could decline and Endgame could be subject to liability claims.

The Endgame platform is inherently complex and may contain material defects or errors. Any defects in functionality or that cause interruptions in the availability of the Endgame platform could result in:

 

   

loss or delayed market acceptance and sales;

 

   

breach of warranty claims;

 

   

sales credits or refunds for prepaid amounts related to unused subscription services;

 

   

loss of customers;

 

   

diversion of development and support resources; and/or

 

   

injury to Endgame’s reputation.

The costs incurred in correcting any material defects or errors might be substantial and could adversely affect Endgame’s operating results.

If Endgame suffers extended periods of unavailability for the Endgame platform, Endgame may be contractually obligated to refund customers for prepaid amounts or Endgame could face contract terminations. Endgame’s revenue could be significantly affected if it suffers unscheduled downtime that exceeds the allowed downtimes under its agreements with its customers.

Because of the large amount of data that Endgame collects and manages, it is possible that hardware failures or errors in Endgame’s systems could result in data loss or corruption, or cause the information that Endgame collects to be incomplete or contain inaccuracies that its customers regard as significant. Furthermore, the availability or performance of the Endgame platform could be adversely affected by a number of factors, including customers’ inability to access the internet, the failure of its network or software systems, security breaches or variability in user traffic for Endgame services. For example, Endgame’s cloud offering customers access the Endgame platform through their internet service providers. If a customer’s service provider fails to provide sufficient capacity to support the Endgame platform or otherwise experiences service outages, such failure could interrupt Endgame customers’ access to the Endgame platform, adversely affect their perception of the Endgame platform’s reliability and reduce Endgame’s revenue. In addition to potential liability, if Endgame experiences interruptions in the availability of its cloud offering, Endgame’s reputation could be adversely affected and it could lose customers.

If Endgame fails to offer high-quality support, Endgame’s business and reputation would suffer.

Endgame customers rely on Endgame’s personnel for support of the Endgame platform. High-quality support is important for the renewal of agreements with existing customers. The importance of

 

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high-quality support will increase as Endgame expands its business and pursues new customers. If Endgame does not help its customers quickly resolve issues and provide effective ongoing support, Endgame’s ability to sell new software to existing and new customers would suffer and its reputation with existing or potential customers would be harmed.

Endgame employs third-party licensed software for use in or with its software, and the inability to maintain these licenses or errors in the software Endgame license could result in increased costs, or reduced service levels, which would adversely affect Endgame’s business.

Endgame’s software incorporates third-party software obtained under licenses from other companies. Endgame anticipates that it will continue to rely on such third-party software and development tools from third parties in the future. Although Endgame believes that there are commercially reasonable alternatives to the third-party software it currently licenses, including open source software, this may not always be the case, or it may be difficult or costly to migrate to other third-party software. Endgame’s use of additional or alternative third-party software would require it to enter into license agreements with third parties. In addition, integration of the third-party software used in Endgame’s software with new third-party software may require significant work and require substantial investment of time and resources. Also, any undetected errors or defects in third-party software could prevent the deployment or impair the functionality of Endgame software, delay new updates or enhancements to the Endgame platform, result in a failure of the Endgame platform and injure Endgame’s reputation.

Portions of the Endgame platform utilize open source software, and any failure to comply with the terms of one or more of these open source licenses could negatively affect Endgame’s business.

Endgame’s software contains software licensed to it by third parties under so-called “open source” licenses. From time to time, there have been claims against companies that distribute or use open source software in their products and services, asserting that such open source software infringes the claimants’ intellectual property rights. Endgame could be subject to suits by parties claiming that what Endgame believes to be licensed open source software infringes their intellectual property rights. Use and distribution of open source software may entail greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or other contractual protections regarding infringement claims or the quality of the code. In addition, certain open source licenses require that source code for software programs that are subject to the license be made available to the public and that any modifications or derivative works to such open source software continue to be licensed under the same terms.

Although Endgame monitors its use of open source software in an effort both to comply with the terms of the applicable open source licenses and to avoid subjecting its software to conditions Endgame does not intend, the terms of many open source licenses have not been interpreted by U.S. courts, and there is a risk that these licenses could be construed in a way that could impose unanticipated conditions or restrictions on Endgame’s ability to commercialize the Endgame platform. By the terms of certain open source licenses, Endgame could be required to release the source code of its software and to make its software available under open source licenses, if Endgame combines or distributes its software with open source software in a certain manner. In the event that portions of its software is determined to be subject to an open source license, Endgame could be required to publicly release the affected portions of its source code, re-engineer all, or a portion of, that software or otherwise be limited in the licensing of its software, each of which could reduce or eliminate the value of the Endgame platform. Many of the risks associated with usage of open source software cannot be eliminated, and could negatively affect Endgame’s business, results of operations and financial condition.

 

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Catastrophic events may disrupt Endgame’s business.

Endgame’s corporate headquarters are located in Arlington, Virginia. The area around Washington, D.C. could be subjected to terrorist attacks. Additionally, Endgame relies on its network and third-party infrastructure and enterprise applications, internal technology systems and its website for its development, marketing, operational support, hosted services and sales activities. In the event of a major hurricane, earthquake or catastrophic event such as fire, power loss, telecommunications failure, cyberattack, war or terrorist attack, Endgame may be unable to continue its operations and may endure system interruptions, reputational harm, delays in its software development, lengthy interruptions in its services, breaches of data security and loss of critical data, all of which could have an adverse effect on Endgame’s future operating results.

If the estimates or judgments relating to Endgame’s critical accounting policies prove to be incorrect, Endgame’s results of operations could be adversely affected.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Endgame bases its estimates on historical experience and on various other assumptions that Endgame believes to be reasonable under the circumstances, as provided in “Endgame Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities and equity, and the amount of revenue and expenses that are not readily apparent from other sources. Significant assumptions and estimates used in preparing Endgame’s consolidated financial statements include those related to revenue recognition, income taxes and the related valuation allowance and stock-based compensation. Endgame’s results of operations may be adversely affected if its assumptions change or if actual circumstances differ from those in its assumptions, which could cause its results of operations to fall below the expectations of securities analysts and investors.

Adverse economic conditions may negatively impact Endgame’s business.

Endgame’s business depends on the overall demand for enterprise software and on the economic health of its current and prospective customers. If economic conditions in United States and other prospective markets for the Endgame platform deteriorate, many customers may delay or reduce their information technology spending. This could result in reductions in sales of the Endgame platform, a decrease in Endgame renewal rates, longer sales cycles, reductions in subscription duration and value, slower adoption of new technologies and increased price competition. Any of these events would likely have an adverse effect on Endgame’s business, operating results and financial position.

Risks Related to Government Regulation, Data Collection, Intellectual Property and Litigation

Failure to comply with governmental laws and regulations could harm Endgame’s business.

Endgame’s business is subject to regulation by various federal, state, local and foreign governments. In certain jurisdictions, these regulatory requirements may be more stringent than those

 

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in the United States. Noncompliance with applicable regulations or requirements could subject Endgame to investigations, sanctions, mandatory product recalls, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties, injunctions or other collateral consequences. If any governmental sanctions are imposed, or if Endgame does not prevail in any possible civil or criminal litigation, Endgame’s business, results of operations, and financial condition could be materially adversely affected. In addition, responding to any action will likely result in a significant diversion of management’s attention and resources and an increase in professional fees. Enforcement actions and sanctions could harm Endgame’s business, reputation, results of operations and financial condition.

Any failure to protect Endgame’s proprietary technology and intellectual property rights could substantially harm its business and operating results.

Endgame’s success and ability to compete depend in part on its ability to protect its proprietary technology and intellectual property. To safeguard these rights, Endgame relies on a combination of patent, trademark, copyright and trade secret laws and contractual protections in the United States and other jurisdictions, all of which provide only limited protection and may not now or in the future provide us with a competitive advantage.

As of June 5, 2019, Endgame had two issued patents relating to the Endgame platform and 11 patent applications pending in the United States relating to the Endgame platform. Endgame cannot assure you that any patents will issue from any patent applications, that patents that issue from such applications will give Endgame the protection that Endgame seeks or that any such patents will not be challenged, invalidated or circumvented. Any patents that may issue in the future from Endgame’s pending or future patent applications may not provide sufficiently broad protection and may not be enforceable in actions against alleged infringers. Obtaining and enforcing software patents in the United States is becoming increasingly challenging. Any patents Endgame has obtained or may obtain in the future may be found to be invalid or unenforceable in light of recent and future changes in the law. Endgame has registered the “Endgame” name and logo in the United States. Endgame has registrations and/or pending applications for additional marks in the United States; however, Endgame cannot assure you that any future trademark registrations will be issued for pending or future applications or that any registered trademarks will be enforceable or provide adequate protection of Endgame’s proprietary rights. Endgame also licenses software from third parties for integration into the Endgame platform, including open source software and other software available on commercially reasonable terms. Endgame cannot assure you that such third parties will maintain such software or continue to make it available.

In order to protect Endgame’s unpatented proprietary technologies and processes, Endgame relies on trade secret laws and confidentiality and invention assignment agreements with its employees, consultants, strategic partners, vendors and others. Also, despite Endgame’s efforts to protect its proprietary technology and trade secrets, unauthorized parties may attempt to misappropriate, copy, reverse engineer or otherwise obtain and use them. In addition, others may independently discover Endgame’s trade secrets, in which case Endgame would not be able to assert trade secret rights, or develop similar technologies and processes. Further, the contractual provisions that Endgame enters into may not prevent unauthorized use or disclosure of its proprietary technology or intellectual property rights and may not provide an adequate remedy in the event of unauthorized use or disclosure of its proprietary technology or intellectual property rights. Moreover, policing unauthorized use of Endgame’s technologies, trade secrets and intellectual property is difficult, expensive and time-consuming, particularly in foreign countries where the laws may not be as protective of intellectual property rights as those in the United States and where mechanisms for enforcement of intellectual property rights may be weak. To the extent that Endgame expands its activities outside of the United States, Endgame’s exposure to unauthorized copying and use of its

 

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platform and proprietary information may increase. Endgame may be unable to determine the extent of any unauthorized use or infringement of the Endgame platform, technologies or intellectual property rights.

There can be no assurance that the steps that Endgame takes will be adequate to protect its proprietary technology and intellectual property, that others will not develop or patent similar or superior technologies, products or services, or that its trademarks, patents, and other intellectual property will not be challenged, invalidated or circumvented by others. Furthermore, effective trademark, patent, copyright, and trade secret protection may not be available in every country in which Endgame software is available or where Endgame has employees or independent contractors. In addition, the legal standards relating to the validity, enforceability, and scope of protection of intellectual property rights in internet and software-related industries are uncertain and still evolving.

In order to protect its intellectual property rights, Endgame may be required to spend significant resources to monitor and protect these rights. Litigation brought to protect and enforce Endgame’s intellectual property rights could be costly, time-consuming and distracting to management and could result in the impairment or loss of portions of its intellectual property. Furthermore, Endgame’s efforts to enforce its intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of its intellectual property rights. Endgame’s failure to secure, protect and enforce its intellectual property rights could seriously adversely affect its brand and adversely impact its business.

Endgame may be subject to intellectual property rights claims by third parties, which are extremely costly to defend, could require Endgame to pay significant damages and could limit Endgame’s ability to use certain technologies.

Companies in the software and technology industries, including some of its current and potential competitors, own significant numbers of patents, copyrights, trademarks and trade secrets and frequently enter into litigation based on allegations of infringement or other violations of intellectual property rights. In addition, many of these companies have the capability to dedicate substantially greater resources to enforce their intellectual property rights and to defend claims that may be brought against them. The litigation may involve patent holding companies or other adverse patent owners that have no relevant product revenue and against which Endgame’s patents may therefore provide little or no deterrence. Endgame may be subject to claims that it has misappropriated, misused, or infringed other parties’ intellectual property rights, and, to the extent Endgame gains greater market visibility or faces increasing competition, Endgame faces a higher risk of being the subject of intellectual property infringement claims, which is not uncommon with respect to enterprise software companies. In addition, Endgame may be subject to claims that employees or contractors, or Endgame, have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of Endgame’s competitors or other parties. To the extent that intellectual property claims are made against Endgame’s customers based on their usage of Endgame technology, Endgame may have certain obligations to indemnify and defend such customers from those claims. The term of Endgame’s contractual indemnity provisions often survives termination or expiration of the applicable agreement. Large indemnity payments, defense costs or damage claims from contractual breach could harm Endgame’s business, results of operations and financial condition.

There may be third-party intellectual property rights, including issued or pending patents that cover significant aspects of Endgame’s technologies or business methods. Any intellectual property claims, with or without merit, could be very time-consuming, could be expensive to settle or litigate, could divert Endgame management’s attention and other resources and could result in adverse publicity. These claims could also subject Endgame to making substantial payments for legal fees, settlement payments, and other costs or damages, potentially including treble damages if Endgame is

 

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found to have willfully infringed patents or copyrights. These claims could also result in Endgame having to stop making, selling, offering for sale, or using technology found to be in violation of a third party’s rights. Endgame might be required to seek a license for the third-party intellectual property rights, which may not be available on reasonable terms or at all. Even if a license is available to Endgame, it may be required to pay significant upfront fees, milestones or royalties, which would increase its operating expenses. Moreover, to the extent Endgame only has a license to any intellectual property used in the Endgame platform, there may be no guarantee of continued access to such intellectual property, including on reasonable terms. As a result, Endgame may be required to develop alternative non-infringing technology, which could require significant effort and expense. If a third party is able to obtain an injunction preventing Endgame from accessing such third-party intellectual property rights, or if Endgame cannot license or develop technology for any infringing aspect of its business, Endgame would be forced to limit or stop sales of its software or cease business activities covered by such intellectual property, and may be unable to compete effectively. Any of these results would adversely affect Endgame’s business, results of operations, financial condition and cash flows.

Changes in laws and regulations related to the internet or changes in the internet infrastructure itself may diminish the demand for the Endgame platform, and could have a negative impact on Endgame’s business.

The future success of Endgame’s business, and particularly its cloud offering, depends upon the continued use of the internet as a primary medium for commerce, communication and business applications. Federal, state or foreign government bodies or agencies have in the past adopted, and may in the future adopt, laws or regulations affecting the use of the internet as a commercial medium. Changes in these laws or regulations could require Endgame to modify the Endgame platform in order to comply with these changes. In addition, government agencies or private organizations may begin to impose taxes, fees or other charges for accessing the internet or commerce conducted via the internet. These laws or charges could limit the growth of internet-related commerce or communications generally, resulting in reductions in the demand for internet-based solutions such as the Endgame platform.

In addition, the use of the internet as a business tool could be adversely affected due to delays in the development or adoption of new standards and protocols to handle increased demands of internet activity, security, reliability, cost, ease of use, accessibility, and quality of service. The performance of the internet and its acceptance as a business tool have been adversely affected by “viruses,” “worms” and similar malicious programs and the internet has experienced a variety of outages and other delays as a result of damage to portions of its infrastructure. If the use of the internet is adversely affected by these issues, demand for the Endgame platform could suffer.

Endgame’s operating results may be negatively affected if it is required to pay additional state sales tax, value added, or other transaction taxes, and Endgame could be subject to liability with respect to all or a portion of past or future sales.

Endgame currently collects and remits sales and use, value added and other transaction taxes in certain of the jurisdictions where Endgame does business based on its assessment of the amount of taxes owed by it in such jurisdictions. However, in some jurisdictions in which Endgame does business, Endgame does not believe that it owes such taxes, and therefore it currently does not collect and remit such taxes in those jurisdictions or record contingent tax liabilities in respect of those jurisdictions.

Further, due to uncertainty in the application and interpretation of applicable tax laws in various jurisdictions, Endgame may be exposed to sales and use, value added or other transaction tax liability. A successful assertion that Endgame is required to pay additional taxes in connection with sales of the

 

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Endgame platform, or the imposition of new laws or regulations requiring the payment of additional taxes, would create increased costs and administrative burdens for Endgame. If Endgame is subject to additional taxes and determines to offset such increased costs by collecting and remitting sales taxes from its customers, or otherwise passing those costs through to its customers, companies may be discouraged from using the Endgame platform. Any increased tax burden may decrease Endgame’s ability or willingness to compete in relatively burdensome tax jurisdictions, result in substantial tax liabilities related to past sales or otherwise harm its business and operating results.

Endgame’s ability to use net operating losses to offset future taxable income may be subject to certain limitations.

As of December 31, 2018, Endgame had federal and state net operating loss carryforwards, or NOLs, of $143,719,114. Net operating loss carryforwards generated prior to 2018 expire at various times beginning in 2022. A lack of future taxable income would adversely affect Endgame’s ability to utilize these NOLs before they expire. Under the provisions of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code, substantial changes in its ownership may limit the amount of pre-change NOLs that can be utilized annually in the future to offset taxable income. Section 382 of the Internal Revenue Code, or Section 382, imposes limitations on a company’s ability to use NOLs if a company experiences a more-than-50-percent ownership change over a three-year testing period. The proposed merger with Elastic would be a more-than-50-percent ownership change for this purpose and may impair Endgame’s ability to use its NOLs prior to expiration, even if Endgame achieves profitability.

Endgame is subject to anti-corruption laws with respect to its domestic and international operations and non-compliance with such laws can subject Endgame to criminal and/or civil liability and materially harm its business.

Endgame is subject to the U.S. Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the United Kingdom Bribery Act 2010, and other anti-corruption laws in countries in which Endgame conducts activities. Anti-corruption laws are interpreted broadly and prohibit Endgame from authorizing, offering, or providing, directly or indirectly, improper payments or benefits to recipients in the public or private sector. Endgame uses third-party law firms, accountants, and other representatives for regulatory compliance, sales, and other purposes in several countries. Endgame can be held liable for the corrupt or other illegal activities of these third-party representatives, its employees, contractors, and other agents, even if Endgame does not explicitly authorize such activities. In addition, although Endgame has implemented policies and procedures to ensure compliance with anti-corruption laws, there can be no assurance that all of its employees, representatives, contractors, or agents will comply with these laws at all times. Noncompliance with these laws could subject Endgame to whistleblower complaints, investigations, sanctions, settlements, prosecution, other enforcement actions, disgorgement of profits, significant fines, damages, other civil and criminal penalties or injunctions, suspension and/or debarment from contracting with certain persons, the loss of export privileges, reputational harm, adverse media coverage, and other collateral consequences. If any subpoenas or investigations are launched, or governmental or other sanctions are imposed, or if Endgame does not prevail in any possible civil or criminal litigation, Endgame’s business, results of operations and financial condition could be materially harmed. In addition, responding to any action will likely result in a materially significant diversion of management’s attention and resources and significant defense costs and other professional fees. Enforcement actions and sanctions could further harm its business, results of operations, and financial condition. Moreover, as an issuer of securities, Endgame is also subject to the accounting and internal controls provisions of the FCPA. These provisions require Endgame to maintain accurate books and records and a system of internal controls sufficient to detect and prevent corrupt conduct. Failure to abide by these provisions may have an adverse effect on Endgame’s business, operations or financial condition.

 

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Endgame is subject to governmental export and import controls and economic and trade sanctions that could impair its ability to conduct business in international markets and subject it to liability if Endgame is not in compliance with applicable laws and regulations.

The United States and other countries maintain and administer export and import laws and regulations, including various economic and trade sanctions including those administered by the Office of Foreign Assets Control, or OFAC, which apply to Endgame’s business. Endgame is required to comply with these laws and regulations. If Endgame fails to comply with such laws and regulations, it and certain of its employees could be subject to substantial civil or criminal penalties, including the possible loss of export or import privileges; fines, which may be imposed on Endgame and responsible employees or managers; and, in extreme cases, the incarceration of responsible employees or managers.

Changes in the Endgame platform, or changes in applicable export or import laws and regulations may create delays in the introduction and sale of the Endgame platform in international markets or, in some cases, prevent the export or import of the Endgame platform to certain countries, governments or persons altogether. Any change in export or import laws and regulations or economic or trade sanctions, shift in the enforcement or scope of existing laws and regulations, or change in the countries, governments, persons or technologies targeted by such laws and regulations could also result in decreased use of the Endgame platform, or in Endgame’s decreased ability to export or sell its platform to existing or potential customers. Any decreased use of the Endgame platform limitation on Endgame’s ability to export or sell the Endgame platform would likely adversely affect its business, financial condition, and results of operations.

Endgame incorporates encryption technology into the Endgame platform. Encryption products may be exported outside of the United States only with the required export authorization, including by license, license exception or other appropriate government authorization. Obtaining the necessary export license or other authorization for a particular sale may be time-consuming and may result in the delay or loss of sales opportunities. In addition, various countries regulate the import of certain encryption technology, including import permitting and licensing requirements, and have enacted laws that could limit Endgame’s ability to distribute its products or could limit its customers’ ability to implement its products in those countries. Although Endgame takes precautions to prevent its products from being provided in violation of such laws, Endgame’s products may have been in the past, and could in the future be, provided inadvertently in violation of such laws, despite the precautions Endgame takes. Governmental regulation of encryption technology and regulation of imports or exports, or Endgame’s failure to obtain required import or export approval for its products, could harm Endgame’s international sales and adversely affect its revenues.

Moreover, U.S. export control laws and economic sanctions programs prohibit the provision of services to countries, governments and persons that are subject to U.S. economic embargoes and trade sanctions. Even though Endgame takes precautions to prevent its platform from being used by U.S. sanctions targets, the Endgame platform could be used by a sanctioned person or in an embargoed country despite such precautions. Any such shipment could have negative consequences, including government investigations, penalties and reputational harm.

If the Endgame platform fails to function in a manner that allows its customers to operate in compliance with regulations and/or industry standards, Endgame’s revenue and operating results could be harmed.

Governmental and other customers may require the Endgame platform to comply with certain privacy, security and other certifications and standards. The cloud implementation of the Endgame platform holds various security certifications from government agencies and industry organizations,

 

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including the Federal Risk and Authorization Management Program compliance, and meets the Payment Card Industry Data Security Standard and the United States Health Insurance Portability and Accountability Act standard. Governments and industry organizations may adopt new laws, regulations or requirements, or make changes to existing laws or regulations, that could impact the demand for, or value of, the Endgame platform. If Endgame fails to maintain its current security certifications and/or to continue to meet security standards, or if Endgame is unable to adapt the Endgame platform to changing legal and regulatory standards or other requirements in a timely manner, Endgame customers may lose confidence in the Endgame platform and Endgame’s business could be negatively impacted.

Endgame’s business could be adversely affected if its employees cannot obtain and maintain required security clearances or Endgame cannot maintain its facility security clearance.

If and when awarded, certain U.S. government contracts require Endgame’s employees to maintain various levels of security clearances, and Endgame would be required to maintain its facility security clearance, to comply with Department of Defense, or DoD, requirements. The DoD has strict security clearance requirements for personnel who work on classified programs. Obtaining and maintaining security clearances for employees involves a lengthy process, and it is difficult to identify, recruit and retain employees who already hold security clearances. If Endgame’s employees are unable to obtain security clearances in a timely manner, or at all, or if Endgame’s employees who hold security clearances are unable to maintain their clearances or terminate employment with Endgame, then a customer requiring classified work could terminate an existing contract or decide not to renew the contract upon its expiration. To the extent Endgame is not able to maintain its facility security clearance, Endgame may not be able to bid on or win new classified contracts. Classified contracts accounted for 39% of its revenue generated in the year ended December 31, 2018.

Risks Related to Ownership of Elastic Ordinary Shares

The market price for our ordinary shares has been and is likely to continue to be volatile or may decline regardless of our operating performance.

The stock markets, and securities of technology companies in particular, have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many technology companies. Stock prices of many technology companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, shareholders have instituted securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business and adversely affect our business. The market price of our ordinary shares may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:

 

   

actual or anticipated changes or fluctuations in our operating results;

 

   

the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections;

 

   

announcements by us or our competitors of new offerings or new or terminated significant contracts, commercial relationships or capital commitments;

 

   

industry or financial analyst or investor reaction to our press releases, other public announcements, and filings with the SEC;

 

   

rumors and market speculation involving us or other companies in our industry;

 

   

future sales or expected future sales of our ordinary shares;

 

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investor perceptions of us and the industries in which we operate;

 

   

price and volume fluctuations in the overall stock market from time to time;

 

   

changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular;

 

   

failure of industry or financial analysts to maintain coverage of us, changes in financial estimates by any analysts who follow our company, or our failure to meet these estimates or the expectations of investors;

 

   

actual or anticipated developments in our business or our competitors’ businesses or the competitive landscape generally;

 

   

litigation involving us, our industry or both, or investigations by regulators into our operations or those of our competitors;

 

   

developments or disputes concerning our intellectual property rights or our solutions, or third-party proprietary rights;

 

   

announced or completed acquisitions of businesses or technologies by us or our competitors;

 

   

breaches of, or failures relating to, security, privacy or data protection;

 

   

new laws or regulations or new interpretations of existing laws or regulations applicable to our business;

 

   

any major changes in our management or our board of directors, particularly with respect to Mr. Banon;

 

   

general economic conditions and slow or negative growth of our markets; and

 

   

other events or factors, including those resulting from war, incidents of terrorism or responses to these events.

The concentration of our share ownership with insiders will likely limit your ability to influence corporate matters, including the ability to influence the outcome of director elections and other matters requiring shareholder approval.

Our executive officers, directors, current 5% or greater shareholders and affiliated entities together beneficially owned approximately 45% of our ordinary shares outstanding as of June 30, 2019. As a result, these shareholders, acting together, will have control over most matters that require approval by our shareholders, including matters such as adoption of the financial statements, declarations of dividends, the appointment and dismissal of directors, capital increases, amendment to our articles of associations and approval of significant corporate transactions. Corporate action might be taken even if other shareholders oppose them. This concentration of ownership might also have the effect of delaying or preventing a change of control of us that other shareholders may view as beneficial.

In addition, four of our non-executive directors are affiliated with a holder of greater than 5% of our ordinary shares.

The issuance of additional shares in connection with financings, acquisitions, investments, our share incentive plans or otherwise will dilute all other shareholders.

Our articles of association authorize us to issue up to 165 million ordinary shares and up to 165 million preference shares with such rights and preferences as included in our articles of association. Our 2018 Extraordinary Meeting has empowered our board of directors to issue ordinary

 

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shares and preference shares up to our authorized share capital for a period of five years from October 10, 2018. Subject to compliance with applicable rules and regulations, we may issue ordinary shares or securities convertible into ordinary shares from time to time in connection with a financing, acquisition, investment, our share incentive plans or otherwise. Any such issuance could result in substantial dilution to our existing shareholders unless pre-emptive rights exist and cause the market price of our ordinary shares to decline.

Certain holders of our ordinary shares may not be able to exercise pre-emptive rights and as a result may experience substantial dilution upon future issuances of ordinary shares.

Holders of our ordinary shares in principle have a pro rata pre-emptive right with respect to any issue of ordinary shares or the granting of rights to subscribe for ordinary shares, unless Dutch law or our articles of association state otherwise or unless explicitly provided otherwise in a resolution by the General Meeting, or—if authorized by the annual General Meeting or an extraordinary General Meeting by a resolution of our board of directors. Our 2018 Extraordinary Meeting has empowered our board of directors, to limit or exclude pre-emptive rights on ordinary shares for a period of five years from October 10, 2018, which could cause existing shareholders to experience substantial dilution of their interest in us.

Pre-emptive rights do not exist with respect to the issue of preference shares and holders of preference shares, if any, have no pre-emptive right to acquire newly issued ordinary shares. Also, pre-emptive rights do not exist with respect to the issue of shares or grant of rights to subscribe for shares to employees of Elastic or contributions in kind.

Sales of substantial amounts of our ordinary shares in the public markets, or the perception that they might occur, could reduce the price that our ordinary shares might otherwise attain.

Sales of a substantial number of shares of our ordinary shares in the public market, particularly sales by our directors, executive officers and significant shareholders, or the perception that these sales could occur, could adversely affect the market price of our ordinary shares and may make it more difficult for you to sell your ordinary shares at a time and price that you deem appropriate.

In addition, holders of an aggregate of approximately 42,665,555 ordinary shares, based on shares outstanding as of April 30, 2019, are entitled to rights with respect to registration of these shares under the Securities Act pursuant to our amended and restated investors’ rights agreement. If these holders of our ordinary shares, by exercising their registration rights, sell a large number of shares, they could adversely affect the market price for our ordinary shares. We have also registered the offer and sale of all ordinary shares that we may issue under our equity compensation plan.

Certain anti-takeover provisions in our articles of association and under Dutch law may prevent or could make an acquisition of our company more difficult, limit attempts by our shareholders to replace or remove members of our board of directors and may adversely affect the market price of our ordinary shares.

Our articles of association contain provisions that could delay or prevent a change in control of our company. These provisions could also make it difficult for shareholders to appoint directors that are not nominated by the current members of our board of directors or take other corporate actions, including effecting changes in our management. These provisions include:

 

   

the staggered three-year terms of the members of our board of directors, as a result of which only approximately one-third of the members of our board of directors may be subject to election in any one year;

 

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a provision that the members of our board of directors may only be removed by a General Meeting by a two-thirds majority of votes cast representing at least 50% of our issued share capital if such removal is not proposed by our board of directors;

 

   

a provision that the members of our board of directors may only be appointed upon binding nomination of the board of directors, which can only be overruled with two-thirds majority of votes cast representing at least 50% of our issued share capital;

 

   

the inclusion of a class of preference shares in our authorized share capital that may be issued by our board of directors, in such a manner as to dilute the interest of shareholders, including any potential acquirer or activist shareholder, in order to delay or discourage any potential unsolicited offer or shareholder activism;

 

   

requirements that certain matters, including an amendment of our articles of association, may only be brought to our shareholders for a vote upon a proposal by our board of directors; and

 

   

minimum shareholding thresholds, based on nominal value, for shareholders to call General Meetings of our Shareholders or to add items to the agenda for those meetings.

We are subject to the Dutch Corporate Governance Code but do not comply with all the suggested governance provisions of the Dutch Corporate Governance Code. This may affect your rights as a shareholder.

As a Dutch company we are subject to the Dutch Corporate Governance Code, or DCGC. The DCGC contains both principles and suggested governance provisions for management boards, supervisory boards, shareholders and general meetings, financial reporting, auditors, disclosure, compliance and enforcement standards. The DCGC is based on a “comply or explain” principle. Accordingly, public companies are required to disclose in their annual reports, filed in the Netherlands, whether they comply with the suggested governance provisions of the DCGC. If they do not comply with those provisions (e.g., because of a conflicting requirement), the company is required to give the reasons for such noncompliance. The DCGC applies to all Dutch companies listed on a government-recognized stock exchange, whether in the Netherlands or elsewhere, including the NYSE. The principles and suggested governance provisions apply to our board of directors (in relation to role and composition, conflicts of interest and independency requirements, board committees and remuneration), shareholders and the General Meeting (for example, regarding anti-takeover protection and our obligations to provide information to our shareholders) and financial reporting (such as external auditor and internal audit requirements). We comply with all applicable provisions of the DCGC except where such provisions conflict with U.S. exchange listing requirements or with market practices in the United States or the Netherlands. This may affect your rights as a shareholder and you may not have the same level of protection as a shareholder in a Dutch company that fully complies with the suggested governance provisions of the DCGC.

We do not intend to pay dividends in the foreseeable future. As a result, your ability to achieve a return on your investment will depend on appreciation in the price of our ordinary shares.

We have never declared or paid any cash dividends on our shares. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any dividends on our ordinary shares in the foreseeable future. Were this position to change, payment of future dividends may be made only if our equity exceeds the amount of the paid-in and called-up part of the issued share capital, increased by the reserves required to be maintained by Dutch law or by our articles of association. Accordingly, investors must rely on sales of their ordinary shares after price appreciation, which may never occur, as the only way to realize any future gains on their investments.

 

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If industry or financial analysts do not publish research or reports about our business, or if they issue inaccurate or unfavorable research regarding our ordinary shares, our share price and trading volume could decline.

The trading market for our ordinary shares is influenced by the research and reports that industry or financial analysts publish about us or our business. We do not control these analysts, or the content and opinions included in their reports. As a new public company, we may be slow to attract research coverage and the analysts who publish information about our ordinary shares will have had relatively little experience with our company, which could affect their ability to accurately forecast our results and make it more likely that we fail to meet their estimates. In the event we obtain industry or financial analyst coverage, if any of the analysts who cover us issues an inaccurate or unfavorable opinion regarding our company, our stock price would likely decline. In addition, the stock prices of many companies in the technology industry have declined significantly after those companies have failed to meet, or significantly exceed, the financial guidance publicly announced by the companies or the expectations of analysts. If our financial results fail to meet, or significantly exceed, our announced guidance or the expectations of analysts or public investors, analysts could downgrade our ordinary shares or publish unfavorable research about us. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, our visibility in the financial markets could decrease, which in turn could cause our stock price or trading volume to decline.

We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our ordinary shares less attractive to investors.

For so long as we remain an “emerging growth company” as defined in the JOBS Act, we may take advantage of certain exemptions from various requirements that are applicable to public companies that are not “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We may take advantage of these exemptions until we are no longer an emerging growth company. We would cease to be an emerging growth company upon the earliest to occur of: (i) the first fiscal year following the fifth anniversary of our initial public offering; (ii) the first fiscal year after our annual gross revenue is $1.07 billion or more; (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; or (iv) as of the end of any fiscal year after the first anniversary of our initial public offering in which the market value of our ordinary shares held by non-affiliates exceeded $700.0 million as of the end of the second quarter of that fiscal year. We cannot predict if investors will find our ordinary shares less attractive because we may rely on these exemptions. If some investors find our ordinary shares less attractive as a result, there may be a less active trading market for our ordinary shares and our stock price may be more volatile.

The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members.

As a public company, we are subject to the reporting and corporate governance requirements of the Exchange Act, the listing requirements of the NYSE and other applicable securities rules and regulations, including the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources, particularly after we are no longer an “emerging growth company” as defined in the JOBS Act. Among other things, the Exchange Act requires that we file annual, quarterly

 

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and current reports with respect to our business and results of operations and maintain effective disclosure controls and procedures and internal control over financial reporting. In order to improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could harm our business, financial condition, results of operations and prospects. Although we have already hired additional personnel to help comply with these requirements, we may need to further expand our legal and finance departments in the future, which will increase our costs and expenses.

In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time-consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expense and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies, regulatory authorities may initiate legal proceedings against us and our business and prospects may be harmed. As a result of disclosure of information in the filings required of a public company and in this proxy statement/prospectus, our business and financial condition will become more visible, which may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business, financial condition, results of operations and prospects could be materially 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 materially harm our business, financial condition, results of operations and prospects.

If we fail to establish or maintain an effective system of internal controls, we may be unable to accurately report our financial results or prevent fraud, and investor confidence and the market price of our ordinary shares may, therefore, be adversely affected.

As a public company in the United States, we are required to maintain internal control over financial reporting and to report any material weaknesses in such internal control. In addition, beginning with our annual report for the year ending April 30, 2020, we will be required to furnish a report by management on the effectiveness of our internal control over financial reporting pursuant to Section 404. We are in the process of designing, implementing, and testing the internal control over financial reporting required to comply with these obligations. This process is time-consuming, costly, and complicated. In addition, our independent registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting beginning with our annual report following the date on which we are no longer an “emerging growth company”, which may be up to five fiscal years following the date of our initial public offering. If we identify material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting are effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting when required, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our ordinary shares may be adversely affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the SEC, or other regulatory authorities, which could require additional financial and management resources.

 

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Claims of U.S. civil liabilities may not be enforceable against us.

We are incorporated under the laws of the Netherlands and substantial portions of our assets are located outside of the United States. In addition, one member of our board of directors and certain experts named herein reside outside the United States. As a result, it may be difficult for investors to effect service of process within the United States upon us or such other persons residing outside the United States, or to enforce outside the United States judgments obtained against such persons in U.S. courts in any action, including actions predicated upon the civil liability provisions of the U.S. federal securities laws. In addition, it may be difficult for investors to enforce, in original actions brought in courts in jurisdictions located outside the United States, rights predicated upon the U.S. federal securities laws.

There is no treaty between the United States and the Netherlands for the mutual recognition and enforcement of judgments (other than arbitration awards) in civil and commercial matters. Therefore, a final judgment rendered by any federal or state court in the United States based on civil liability, whether or not predicated solely upon the U.S. federal securities laws, would not be enforceable in the Netherlands unless the underlying claim is re-litigated before a Dutch court of competent jurisdiction. In such proceedings, however, a Dutch court may be expected to recognize the binding effect of a judgment of a federal or state court in the United States without re-examination of the substantive matters adjudicated thereby, if (i) the jurisdiction of the U.S. federal or state court has been based on internationally accepted principles of private international law, (ii) that judgment resulted from legal proceedings compatible with Dutch notions of due process, (iii) that judgment does not contravene public policy of the Netherlands and (iv) that judgment is not incompatible with (x) an earlier judgment of a Dutch court between the same parties, or (y) an earlier judgment of a foreign court between the same parties in a dispute regarding the same subject and based on the same cause, if that earlier foreign judgment is recognizable in the Netherlands.

Based on the foregoing, there can be no assurance that U.S. investors will be able to enforce against us or members of our board of directors, officers or certain experts named herein who are residents of the Netherlands or countries other than the United States any judgments obtained in U.S. courts in civil and commercial matters, including judgments under the U.S. federal securities laws.

In addition, there can be no assurance that a Dutch court would impose civil liability on us, the members of our board of directors, our officers or certain experts named herein in an original action predicated solely upon the U.S. federal securities laws brought in a court of competent jurisdiction in the Netherlands against us or such members, officers or experts, respectively.

U.S. holders of our ordinary shares may suffer adverse tax consequences if we are characterized as a passive foreign investment company.

A non-U.S. corporation will generally be considered a passive foreign investment company, or PFIC, for U.S. federal income tax purposes, in any taxable year if either (1) at least 75% of its gross income for such year is passive income or (2) at least 50% of the value of its assets (based on an average of the quarterly values of the assets during such year) is attributable to assets that produce or are held for the production of passive income. For purposes of the PFIC asset test, the value of our assets will generally be determined by reference to our market capitalization. However, if we are considered to be a “controlled foreign corporation,” or CFC, that is not “publicly traded” for purposes of the PFIC rules during a tested period, the value of our assets will generally be determined by reference to our adjusted bases in our assets during such tested period. Due in part to changes in the CFC attribution rules as part of the Tax Cuts and Jobs Act, we may have been a CFC prior to our IPO. However, based on our past and current projections of our income and assets, we do not expect to be a PFIC for the current taxable year or for the foreseeable future. Nevertheless, a separate factual

 

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determination as to whether we are or have become a PFIC must be made each year (after the close of such year). Since our projections may differ from our actual business results and our market capitalization and value of our assets may fluctuate, we cannot assure you that we will not be or become a PFIC in the current taxable year or any future taxable year. If we are a PFIC for any taxable year during which a U.S. holder (as defined in “Material U.S. Federal Income Tax Considerations”) holds our ordinary shares, the U.S. holder may be subject to adverse tax consequences. Each U.S. holder is strongly urged to consult its tax advisor regarding the application of these rules and the availability of any potential elections.

If a U.S. holder is treated as owning at least 10% of our ordinary shares, such holder may be subject to adverse U.S. federal income tax consequences.

If a U.S. holder is treated as owning (directly, indirectly, or constructively) at least 10% of the value or voting power of our ordinary shares, such holder may be treated as a “United States shareholder” with respect to each “controlled foreign corporation” in our group (if any). Under changes implemented by the Tax Cuts and Jobs Act, because our group includes one or more U.S. subsidiaries, certain of our non-U.S. subsidiaries could be treated as controlled foreign corporations (regardless of whether we are treated as a controlled foreign corporation). A United States shareholder of a controlled foreign corporation may be required to report annually and include in its U.S. taxable income its pro rata share of “Subpart F income,” “global intangible low-taxed income,” and investments in U.S. property by controlled foreign corporations, regardless of whether we make any distributions. An individual that is a United States shareholder with respect to a controlled foreign corporation generally would not be allowed certain tax deductions or foreign tax credits that would be allowed to a United States shareholder that is a U.S. corporation. We cannot provide any assurances that we will assist investors in determining whether any of our non-U.S. subsidiaries is treated as a controlled foreign corporation or whether any investor is treated as a United States shareholder with respect to any such controlled foreign corporation or furnish to any investor who may be a United States shareholder information that may be necessary to comply with the aforementioned reporting and tax paying obligations. Failure to comply with these reporting obligations may subject a U.S. holder who is a United States shareholder to significant monetary penalties and may prevent from starting the statute of limitations with respect to such holder’s U.S. federal income tax return for the year for which reporting was due. A U.S. holder should consult its advisors regarding the potential application of these rules to an investment in our ordinary shares.

We may not be able to make distributions or repurchase shares without subjecting our shareholders to Dutch withholding tax.

Dutch dividend withholding tax may be levied on dividends and similar distributions made by us to our shareholders at the statutory rate of 15%. If dividend distributions are structured as a repayment of capital or a repurchase of shares, Dutch withholding tax may still be due at 15%. Such repayment of capital or repurchase of shares will be exempt from dividend withholding tax only in limited circumstances.

 

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THE EXTRAORDINARY MEETING OF SHAREHOLDERS

Date, Time and Place of the Extraordinary Meeting

The Extraordinary Meeting will be held at [                ], on [                ], 2019 at [                ], CET.

Purpose of the Extraordinary Meeting

At the Extraordinary Meeting, Elastic shareholders will be asked to consider and vote on the Elastic Merger and Share Issuance Approval Proposal.

Recommendation of the Elastic Board of Directors

On June 4, 2019, after careful consideration, the Elastic Board approved the Merger Agreement and the Elastic Share Issuance and determined that the Merger Agreement and the transactions contemplated thereby, including the Merger and the Elastic Share Issuance, are advisable and fair to, and in the best interests of, Elastic and its stakeholders.

The Elastic Board accordingly recommends that the Elastic shareholders vote “FOR” the Elastic Merger and Share Issuance Approval Proposal.

Elastic Record Date; Shareholders Entitled to Vote

Only shareholders of record of Elastic Ordinary Shares at the close of business on [], 2019, the Record Date, will be entitled to notice of, and to vote at, the Extraordinary Meeting or any reconvention thereof. A list of shareholders of record entitled to vote at the Extraordinary Meeting will be available beginning two business days after notice of the Extraordinary Meeting is given, and continuing through the Extraordinary Meeting, at our executive offices and principal place of business at 800 West El Camino Real, Suite 350, Mountain View, California 94040 for inspection by shareholders during ordinary business hours for any purpose germane to the Extraordinary Meeting. The list will also be available at the Extraordinary Meeting for examination by any shareholders of record present at the Extraordinary Meeting.

As of the close of business on the Record Date, there were outstanding a total of [] Elastic Ordinary Shares entitled to vote at the Extraordinary Meeting. As of the close of business on the Record Date, approximately []% of the outstanding Elastic Ordinary Shares were held by Elastic directors and executive officers and their affiliates. We currently expect that Elastic’s directors and executive officers will vote their shares in favor of the above-listed proposals.

Quorum

Shareholders who hold at least one-third of the outstanding Elastic Ordinary Shares as of the close of business on the Record Date and who are entitled to vote must be present or represented by proxy in order to constitute a quorum for the transaction of business at the Extraordinary Meeting. Elastic Ordinary Shares represented at the Extraordinary Meeting and entitled to vote but not voted, including shares for which a shareholder directs an “abstention” from voting and broker non-votes (shares held by banks, brokerage firms or nominees that are present in person or by proxy at the Extraordinary Meeting but with respect to which the broker or other shareholder of record is not instructed by the beneficial owner of such shares how to vote on a particular proposal and the broker does not have discretionary voting power on such proposal), if any, will be counted as present for purposes of establishing a quorum. Elastic Ordinary Shares held in treasury will not be included in the calculation of the number of Elastic Ordinary Shares represented at the meeting for purposes of determining whether a quorum is present.

 

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Required Vote

All shares entitled to vote and that are voted in person at the Extraordinary Meeting will be counted, and all shares represented by properly executed and unrevoked proxies received prior to the Extraordinary Meeting will be voted at the Extraordinary Meeting as indicated in such proxies. Approval of the Elastic Merger and Share Issuance Approval Proposal requires a majority of the votes cast where more than one-third of the issued and outstanding shares are represented.

Abstentions and Broker Non-Votes

If you are an Elastic shareholder and fail to vote or fail to instruct your broker or nominee to vote, or vote to abstain from voting, it will have no effect on the Elastic Merger and Share Issuance Approval Proposal, assuming a quorum is present.

Voting on Proxies; Incomplete Proxies

A proxy card is enclosed for your use. Elastic requests that you follow the instructions contained on the proxy card and vote via the Internet, by telephone, or mail, sign and date the accompanying proxy and return it promptly in the enclosed postage-paid envelope. When the accompanying proxy is returned properly executed, the Elastic Ordinary Shares represented by it will be voted at the Extraordinary Meeting or any reconvention thereof in accordance with the instructions contained in the proxy.

If a proxy is returned without an indication as to how the Elastic Ordinary Shares represented are to be voted with regard to a particular proposal, the Elastic Ordinary Shares represented by the proxy will be voted as recommended by the Elastic Board. At the date hereof, management has no knowledge of any business that will be presented for consideration at the Extraordinary Meeting and which would be required to be set forth in this proxy statement/prospectus or the related proxy card other than the matters set forth in the Notice of Extraordinary Meeting of Shareholders. If any other matter is properly presented at the Extraordinary Meeting for consideration, it is intended that the persons named in the enclosed form of proxy and acting thereunder will vote in accordance with their best judgment on such matter.

Your vote is important. Accordingly, please vote today following the instructions contained on the enclosed proxy card whether or not you plan to attend the Extraordinary Meeting in person.

Shares Held in “Street Name”

If you hold your shares in a stock brokerage account or if your shares are held by a bank or nominee (that is, in “street name”), your broker, bank, trust company or other nominee cannot vote your shares on “non-routine” matters without instructions from you. You should instruct your broker, bank, trust company or other nominee as to how to vote your shares, following the directions from your broker, bank, trust company or other nominee provided to you. Please check the voting form used by

 

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your broker, bank, trust company or other nominee. If you do not provide your broker, bank, trust company or other nominee with instructions on how to vote your shares, your broker, bank, trust company or other nominee may not vote your shares, which will have no effect on the Elastic Merger and Share Issuance Approval Proposal, in each case, assuming a quorum is present.

Please note that you may not vote shares held in street name by returning a proxy card directly to us or by voting in person at the Extraordinary Meeting unless you provide a “legal proxy,” which you must obtain from your broker, bank, trust company or other nominee.

Revocability of Proxies and Changes to an Elastic Shareholder’s Vote

You have the power to revoke your proxy at any time before your proxy is voted at the Extraordinary Meeting. You can revoke your proxy in one of three ways:

 

   

you can send a signed notice of revocation;

 

   

you can grant a new, valid proxy bearing a later date (including by telephone or through the Internet); or

 

   

if you are a holder of record, you can attend the Extraordinary Meeting and vote in person, which will automatically cancel any proxy previously given, or you can revoke your proxy in person, but your attendance alone will not revoke any proxy that you have previously given.

If you choose either of the first two methods, your notice of revocation or your new proxy must be received by Elastic’s Corporate Secretary at Elastic N.V., 800 West El Camino Real, Suite 350, Mountain View, California 94040, no later than the beginning of the Extraordinary Meeting. If your shares are held in “street name” by your bank or broker, you should contact your broker to change your vote or revoke your proxy.

Solicitation of Proxies

In accordance with the Merger Agreement, the cost of proxy solicitation for the Extraordinary Meeting will be borne by Elastic. In addition to the use of the mail, proxies may be solicited by officers and directors and regular employees of Elastic, some of whom may be considered participants in the solicitation, without additional remuneration, by personal interview, telephone, facsimile or otherwise. Elastic will also request brokerage firms, nominees, custodians and fiduciaries to forward proxy materials to the beneficial owners of shares held of record on the record date and will provide customary reimbursement to such firms for the cost of forwarding these materials.

Attending the Extraordinary Meeting of Shareholders

You may attend the Extraordinary Meeting if, on the Record Date, you were a shareholder of record or a beneficial owner. If you would like to attend the Extraordinary Meeting in person, you must notify Elastic by submitting your name and number of registered shares to the Elastic’s e-mail address [email protected] by 8:00 PM ET on [], 2019. You will be asked to show photo identification and the following:

 

   

If you are a shareholder of record, your paper proxy card that includes your name, or admission ticket that you received with a paper proxy card or that you obtained from our shareholder voting site at www.proxyvote.com; or

 

   

If you are a beneficial owner, the voting instruction card you received from your broker, bank or other intermediary, or a printed statement from such organization or online access to your brokerage or other account, showing your stock ownership on the Record Date.

 

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We will not be able to accommodate guests without proper evidence of share ownership as of the Record Date at the Extraordinary Meeting, including guests of our shareholders.

The meeting will begin promptly at [] ET, and you should leave ample time for the check-in procedures.

Assistance

If you need assistance in completing your proxy card or have questions regarding the Extraordinary Meeting, please contact Investor Relations at 800 West El Camino Real, Suite 350, Mountain View, California 94040, by telephone number +1 (650) 695-1055, or e-mail, [email protected]

 

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INFORMATION ABOUT THE COMPANIES

Elastic N.V.

Elastic N.V.

800 West El Camino Real, Suite 350

Mountain View, California 94040

Phone: (650) 458-2620

Elastic N.V., a Dutch public limited liability company (naamloze vennootschap), is a search company. Elastic was founded to bring the power of search to a broad range of business and consumer use cases. Elastic’s products enable our users and customers to instantly find relevant information and insights in large amounts of data. Elastic offers the Elastic Stack (previously known as the ELK Stack), a powerful set of software products that ingest and store data from any source, and in any format, and perform search, analysis, and visualization in milliseconds or less. The Elastic Stack is designed for direct use by developers to power a variety of use cases. Elastic also offers software solutions built on the Elastic Stack that address a wide variety of use cases. The Elastic Stack and Elastic’s solutions are designed to run on premises, in public or private clouds, or in hybrid environments.

Elastic’s Ordinary Shares are listed on the NYSE under the symbol “ESTC.”

See “Business”, “Legal Proceedings,” “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities”, “Elastic N.V. Selected Financial Data”, “Elastic Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Changes in and Disagreements with Accountants on Accounting and Financial Disclosure,” “Quantitative and Qualitative Disclosures About Market Risk” for more information regarding Elastic.

Endgame, Inc.

Endgame, Inc.

3101 Wilson Boulevard, Suite 500

Arlington, Virginia 22201

Phone: (703) 650-1250

Overview

Endgame is a security company that offers an endpoint protection platform designed to empower security operators of varied skill levels to prevent, detect, and respond to advanced cyberattacks.

Endgame’s mission is to protect the world’s data from attack. To achieve this goal, Endgame has focused its efforts on protecting its customers at the endpoint (including servers, desktops, laptops, and virtual machines). Endpoints are often the key targets of adversaries, as an organization’s sensitive data often resides at the endpoint, operators perform critical tasks at the endpoint, and endpoints provide an interface where attackers can target humans through phishing, ransomware, social engineering and other methods. Moreover, as enterprises become more distributed, workers become more mobile, and regulations increasingly emphasize the importance of data localization, we believe that organizations must invest in protection at the endpoint to complement firewall and other network-based protections to secure their data.

Endgame has built an advanced platform that works to stop adversaries at the endpoint. Using machine learning technology, Endgame enables security operators of varied skill levels to stop a wide

 

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range of attacks, from ransomware to phishing and targeted attacks. Endgame accomplishes this through a single, autonomous agent that is managed by a single user interface and security operations tier.

Endgame offers several deployment alternatives, including cloud, on-premises, and hybrid options which are designed to meet the compliance and operational requirements of complex and distributed organizations. In addition, Endgame protects endpoints across Windows, Mac, Linux, and Solaris operating systems with no compromises in visibility or response.

Since Endgame began selling its endpoint protection platform late in 2016, its revenue and customer base have grown rapidly, and Endgame customers now include large commercial and governmental enterprises.

Endgame History / Corporate Background

Endgame was founded in 2008 and is incorporated in Delaware with headquarters in Arlington, Virginia.

Until 2016, Endgame’s primary business was the development and delivery of professional services and customized software to U.S. government agencies. In 2016, Endgame began the development and marketing of an enterprise-scale endpoint protection platform that was the predecessor to the product that it sells today.

In 2017, as a result of changing market conditions and the success associated with the development and sale of the endpoint protection platform, Endgame elected to divest the entirety of its legacy professional services business to Accenture Federal Services, LLC. This transaction allowed Endgame to focus its efforts solely on the development, marketing and sale of the endpoint protection platform.

Since this transition, revenue and customer count have grown quickly. Endgame’s revenues were $19.8 million for the year ended December 31, 2018, compared to $5.2 million for the year ended December 31, 2017, an increase of $14.6 million, or 279%. Endgame’s revenues were $5.8 million in the three months ended March 31, 2019 compared to $4.6 million in the three months ended March 31, 2018, an increase of $1.2 million, or 26%. This increase in revenues was primarily due to the addition of new customers. The licensed customer base increased from 28 at the end of 2017 to 87 at the end of 2018. As of March 31, 2019, Endgame had 103 licensed customers.

In the years ended December 31, 2018 and December 31, 2017, Endgame incurred net losses of $20.0 million and $30.3 million, respectively, and its operating cash flow was negative $17.9 million and $5.4 million respectively. Endgame has continued to incur net losses with negative operating cash flow since then.

Strategy and Market Opportunity

As the world has increasingly moved to cloud-based and encrypted communications, we believe network-based protections have reduced visibility and control over enterprise attacks. We believe an effective security program must include the endpoint to prevent the execution of malware, to prevent adversaries from taking control, or to prevent insiders from inadvertently or intentionally exposing an organization to data loss or damage.

Historically, antivirus providers followed a file-based approach to protection, which entails actions such as stopping bad files from running, stopping unwanted applications, and trying to prevent

 

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malware from gaining unauthorized access to a machine or a network. Today, there are several advanced tactics that attackers use. MITRE ATT&CK is a globally-accessible knowledge base of adversary tactics and techniques based on real-world observations. The MITRE ATT&CK knowledge base is used as a foundation for the development of specific threat models and methodologies in the private sector, in government, and in the cybersecurity product and service community. The MITRE ATT&CK matrix describes 12 types of adversarial tactics. We believe that attackers, or adversaries, have the advantage over organizations that do not protect against a variety of adversarial tactics.

Endgame has built its product to focus on several adversarial tactics and the full lifecycle of the attack. Endgame sees endpoint protection as a combination of tools that offer prevention, detection and response capabilities. Specifically, the Endgame platform is designed to block attacks that are known to be bad right now, and to detect, contain and respond to the attacks that may be discovered to be harmful in the future. Endgame extends this capability by including additional capabilities like threat hunting and incident response in its base platform.

Endgame’s platform is purpose-built for the converged prevention, detection and response market opportunity in endpoint security. The Endgame platform is built from the ground-up as one product with a single agent and sold as one product without add-ons and upsells.

The benefit of one product addressing all three problems is that customers can build operational workflows and processes faster, helping security teams discover threats faster and make confident and accurate investigation decisions, leading to more efficient resolution of security incidents.

Product

Endgame’s product is the Endgame endpoint protection platform. The platform delivers key pieces of functionality, all in a single, lightweight and autonomous agent:

 

   

Prevention based upon next-generation antivirus technology such as adversary behaviors and machine learning;

 

   

Detection and response, powered by intelligent automation and an intuitive, user-focused interface; and

 

   

An architecture and operations platform that offers high configurability and broad operating system coverage, and that is built for today’s hybrid enterprises.

Prevention

Endpoint prevention tools are designed to automatically stop adversary activity. The Endgame platform provides for on-line and off-line protection against exploits, phishing, malware, ransomware, fileless attacks, and goes beyond malware to detect and block attack techniques at the endpoint.

Specific components of Endgame’s prevention functionality include prevention models, malware prevention, phishing prevention, ransomware behavioral prevention, kernel behavior prevention, exploit prevention and fileless attack prevention.

Detection and Response

Endgame includes protection techniques covering the MITRE ATT&CK matrix. A single interface provides all administration and agent management and is designed to streamline incident response and hunt operations. Endgame streamlines advanced capabilities such as endpoint detection and

 

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response, incident response, and threat hunting with a user experience and workflow that is designed by security researchers, and solves real-world use cases encountered by security operations professionals. Endgame’s role-based administration integrates intelligent automation with Artemis, a natural-language understanding user interface.

Specific components in Endgame’s detection and response functionality include, among others, a natural-language understanding chatbot called Artemis, an attack visualization tool called Resolver, an event query language, customization features, and runtime analytics.

Architecture and Operations

The Endgame platform has implemented a single host agent for prevention, detection and response, managed by a security operations tier, and backed by cloud-driven services. This architecture brings an integrated, three-tiered approach to protection, including:

 

   

Endgame Agent, which is a single, lightweight and tamper-resistant agent that can operate autonomously, including when disconnected.

 

   

Endgame Operations Platform, which provides an interface for agent management and administration and all detection and response workflows, including incident response and hunt operations.

 

   

Endgame Global, which delivers a common interface and access to all event data and contextual information across even the most complex organizations.

Competition

The endpoint security market is large and competitive. Endgame expects competition to increase in the future from both established competitors and new market entrants. Current competitors include:

 

   

Next-generation endpoint security companies that are moving towards addressing the converged prevention, detection and response market, including CrowdStrike Holdings, Inc., BlackBerry Cylance and Carbon Black, Inc;

 

   

Incumbent antivirus solution vendors, including McAfee, LLC and Symantec Corporation; and

 

   

Network security providers who offer endpoint solutions that are ancillary to their core business, such as Palo Alto Networks, Inc., and FireEye, Inc.

Further, companies that address other aspects of security may offer competing products or alternative approaches to securing an organization against cyberattacks.

Sales and Marketing

Endgame markets its platform to customers in a variety of industries. Endgame has seen particularly strong adoption among U.S. government customers. The majority of Endgame’s revenue for the year ended December 31, 2018 came from a small number of U.S. government customers.

A number of Endgame transactions are facilitated through channel partners, including resellers, managed security service providers, and incident response / compromise assessment providers. In particular, the majority of international sales are carried out through channel partners. Endgame has recently commenced international sales expansion, and currently has customers in seven countries: United States, Canada, United Kingdom, Germany, Italy, Qatar, and UAE.

 

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Intellectual Property

Endgame has significant know-how and proprietary technology, upon which its business depends. To protect its know-how and proprietary technology, Endgame relies on trade secret laws, patents, copyrights, trademarks and confidentiality agreements and contracts with employees, consultants and other parties.

Endgame has been issued two U.S. patents which expire in 2033 and 2037, and has 11 pending U.S. patent applications, and 6 corresponding international patents and/or patent applications.

Employees and Locations

As of March 31, 2019, Endgame had 141 employees, with offices in Arlington, Virginia and San Francisco, California.

Endgame has never paid or declared any cash dividends on Endgame Capital Stock. Regardless of whether the Merger occurs or does not occur, Endgame does not anticipate paying any cash dividends on Endgame Capital Stock in the foreseeable future, and Endgame intends to retain all available funds and any future earnings to fund the development and expansion of its business.

Merger Sub

Avengers Acquisition Corp.

800 West El Camino Real, Suite 350

Mountain View, California 94040

Phone: (650) 458-2620

Avengers Acquisition Corp., a wholly owned subsidiary of Elastic, is a Delaware corporation that was formed on June 3, 2019 for the purpose of effecting the Merger. Upon completion of the Merger, Merger Sub will be merged with and into Endgame, with Endgame surviving as a wholly owned subsidiary of Elastic. Merger Sub has not conducted any activities other than those incidental to its formation and the matters contemplated by the Merger Agreement in connection with the Merger.

 

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THE MERGER

This discussion of the Merger is qualified in its entirety by reference to the Merger Agreement, which is attached to this proxy statement/prospectus as Annex A and is incorporated by reference into this proxy statement/prospectus. This summary does not purport to be complete and may not contain all of the information about the Merger that is important to you. You should read the entire Merger Agreement carefully as it is the legal document that governs the Merger. This section is not intended to provide you with any factual information about Elastic or Endgame. Such information can be found elsewhere in this proxy statement/prospectus and in the public filings Elastic makes with the SEC.

Structure of the Merger

At the effective time of the Merger, Merger Sub, a wholly owned subsidiary of Elastic formed to effect the Merger, will merge with and into Endgame. Endgame will be the surviving corporation in the Merger and will thereby become a wholly owned subsidiary of Elastic.

Merger Consideration

In the Merger, each outstanding share of Endgame Capital Stock (other than shares owned by Endgame, which will be cancelled, and dissenting shares, which will be subject to the results of the applicable appraisal proceeding) will be converted into the right to receive (i) such number of Elastic Ordinary Shares as required pursuant to the terms of the Merger Agreement and Endgame’s Charter in respect of such shares of Endgame Capital Stock, (ii) the par value of such Elastic Ordinary Shares which amount shall not be paid but shall be set off against the corresponding obligation to pay such par value of each Elastic Ordinary Share to Elastic, (iii) a portion of the Securityholder Representative’s expense fund, which will be deposited with the Securityholder Representative and (iv) the contingent right to receive such party’s share of any Elastic Ordinary Shares released from the escrow fund pursuant to the terms of the Merger Agreement. Elastic will also assume all outstanding in-the-money Endgame options and issue a number of Elastic Ordinary Shares with a value equivalent to the amount due under certain outstanding retention bonus awards.

Background of the Merger

Over the past several years, Elastic and Endgame have had periodic commercial-related discussions in connection with potential opportunities between the two companies. This activity began in 2013 when members of the Endgame team began training on Elasticsearch software and ultimately resulted in the use of the open source Elasticsearch software within the Endgame product. Aside from training and development support, these discussions did not result in a commercial license between the two companies.

Endgame’s Board and management periodically consider various strategic and other opportunities available to Endgame to enhance stockholder value, taking into consideration Endgame’s performance, competitive dynamics, macroeconomic developments and industry trends. These reviews have included discussions as to whether the continued execution of Endgame’s strategy as a standalone company or a sale to a third party offer the best avenue to enhance stockholder value.

Over the past several years, Endgame has periodically received unsolicited inquiries regarding a potential strategic transaction involving the company. In some cases, preliminary discussions regarding a potential transaction or partnership were held, but in each case Endgame and its board of directors determined that it was in the best interests of the company and its stockholders at the time to continue operating as standalone company and to continue executing on its business plan.

 

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In late-2018 and early-2019, Endgame’s Board and management determined that it would be in the best interests of the company and its stockholders to evaluate the pursuit of certain strategic transactions. In January and February 2019, at the direction of the Endgame Board, Endgame management interviewed several internationally-recognized financial advisors to assist the company in evaluating and carrying out a capital raise and market check associated a potential sale of the company. In March 2019, Allen & Company (“Allen”), acting as financial advisors to Endgame, contacted Shay Banon, CEO of Elastic, to inform of a potential sale process. Prior to that conversation, none of the discussions between representatives of Elastic and Endgame involved the possibility of an acquisition of Endgame. This contact resulted in a meeting between company executives on April 3, 2019 at Elastic’s office in Mountain View, CA.

On April 4, 2019, Gregory Tademoto, VP of Business Development at Elastic contacted Nathaniel Fick, CEO of Endgame, to express Elastic’s interest in exploring a potential transaction. Following the call, Gregory Tademoto sent a mutual nondisclosure agreement to Nathaniel Fick so the parties could begin discussions and engage in preliminary diligence in connection with a potential transaction. On April 9, 2019, Elastic and Endgame entered into the mutual nondisclosure agreement related to a possible negotiated transaction between Elastic and Endgame.

On April 12, 2019, Messrs. Banon and Tademoto and other representatives of Elastic met with Mr. Fick and other members of Endgame management at Endgame’s headquarters. The parties engaged in various information exchanges regarding their respective businesses, products, technology and operations for the purpose of analyzing the benefits of a potential acquisition transaction.

Between April 12, 2019 and April 26, 2019, Mr. Fick, Joann O’Connell, SVP Strategy of Endgame, and Mark Snell, CFO of Endgame, had numerous calls and email correspondence with Mr. Tademoto and other representatives of Elastic to review Endgame’s business, products, technology, operations, and financial information and the parties engaged in related diligence efforts.

On April 26, 2019, Messrs. Tademoto and Mr. Fick engaged in further discussions regarding a potential acquisition, but no offer or formal indication of interest was made at such time. After discussion, Nathaniel Fick and Gregory Tademoto agreed that an in-person meeting between representatives of Elastic and Endgame would be helpful for Elastic to further understand Endgame’s products, technology and the benefits of a potential acquisition.

Between May 1, 2019 and May 3, 2019, Messrs. Banon and Tademoto met with Messrs. Fick and Snell and Ms. O’connell and other members of Endgame’s management at Endgame’s headquarters. Endgame provided Elastic with further information regarding Endgame’s products, technology and operations for the purpose of assisting Elastic with further analyzing the benefits of a potential acquisition transaction.

On May 12, 2019, Mr. Banon delivered a verbal indication of interest to Mr. Fick that Elastic acquire 100% of the outstanding shares of capital stock of Endgame for total consideration of $234 million (inclusive of estimated indebtedness). The purchase price would be paid in Elastic Ordinary Shares and repayment of outstanding Endgame debt.

From May 12, 2019 to May 21, 2019, Mr. Banon had multiple calls with Mr. Fick and Thomas Noonan, a board member of Endgame, to further discuss and clarify the terms of Elastic’s offer.

On May 18, 2019, the Endgame Board met to further discuss the offer. After considering the directors’ fiduciary duties and the process for evaluating and considering Elastic’s proposal and potential alternatives, the Endgame Board unanimously authorized Endgame management and its advisors to commence negotiation of a definitive agreement and of other key terms associated with the offer.

 

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On May 21, 2019 Mr. Fick indicated to Mr. Banon that the general terms of Elastic’s previously communicated indication of interest would be acceptable to Elastic, subject to clarification of certain transaction terms concerning, among other things, the treatment of Endgame equity awards and various risk allocation terms. Also on May 21, 2019, a representative of Elastic delivered to representatives of Endgame a draft exclusivity agreement.

From May 21, 2019 through May 30, 2019, Elastic and Endgame continued to negotiate the terms of the potential transaction.

On May 23, 2019, a representative of Wilson Sonsini Goodrich & Rosati, P.C. (“Wilson Sonsini”), Elastic’s outside legal counsel, delivered to Cooley LLP (“Cooley”), Endgame’s outside legal counsel, a due diligence list.

Also on May 23, 2019, a representative of Cooley delivered to representatives of Wilson Sonsini a summary of certain proposed terms for the potential transaction that Endgame wished to discuss in connection with the proposed transaction, including with respect to the valuation of Elastic shares to be issued in the transaction, the treatment of Endgame equity awards, closing conditions, termiantion provisions, and various risk allocation terms.

On May 24, 2019, Endgame provided certain representatives of Elastic and Wilson Sonsini with access to a virtual data room containing various materials. Throughout the negotiation period, the parties continued to engage in various information exchanges in connection with the potential tranaction.

On May 24, 2019, the Elastic Board held a special meeting during which, among other things, certain members of the Elastic management team provided a summary of, the members of the Elastic Board discussed, the discussions with Endgame and the potential benefits and risks of a potential transaction with Elastic.

Also on May 24, 2019, representatives of Elastic, Wilson Sonsini, Endgame, and Cooley engaged in a discussion concerning proposed terms for the potential transaction, including those raised by the Endgame’s summary of proposed terms.

On May 28, 2019, the Endgame Board conducted a meeting to review and accept Elastic’s proposal and approve completion of the exclusivity and non-solicitation agreement.

Between May 28, 2019 and May 30, 2019, representatives of Endgame held a number of lengthy management meetings in Arlington, VA and by conference call with various representatives of Elastic, during which in-depth financial, technological, legal and other due diligence was conducted.

On May 29, 2019, a representative of Wilson Sonsini sent a draft of a proposed definitive Merger Agreement to representatives of Cooley.

On May 30, 2019, Elastic and Endgame entered into an exclusivity and non-solicitation agreement with Elastic providing for exclusive negotiations for a 20-day period.

On May 31, 2019, Wilson Sonsini sent an initial draft of a form support agreement pursuant to which certain of Endgame’s executive officers and all directors and their affiliated funds would agree in their respective capacities as stockholders of Endgame, among other things, to vote in favor of the proposed transaction with Elastic and against any potential competing proposal. Over the next several days, representatives of Cooley and Wilson Sonsini exchanged drafts of the form of support agreement.

 

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On June 1, 2019, representatives of Cooley provided a revised draft of the definitive Merger Agreement to representatives of Wilson Sonsini. Between June 1, 2019 and June 4, 2019, representatives of Wilson Sonsini and representatives of Cooley exchanged drafts of the Merger Agreement and ancillary transaction documents and, together with representatives of Elastic and Endgame, held various telephonic discussions to progress negotiations between the parties on transaction terms, including the structure of the transaction, the calculation of the Elastic trading price and terms of the proposed collar mechanism, the scope of representations and warranties, certain closing conditions, the amount of the termination fee and events that would trigger its payment, and certain indemnification provisions.

On June 4, 2019, the Elastic Board held a special meeting and (1) determined that the Merger Agreement and the transactions contemplated thereby, including the Merger and the Elastic Share Issuance, are fair to, advisable and in the best interests of Elastic and its stakeholders, (2) approved the Merger Agreement and the transactions contemplated thereby, and (3) resolved to recommend that Elastic shareholders vote for the approval of the resolution of the Board that Elastic shall enter into the Merger Agreement and the transactions contemplated thereby, including the Merger and the Elastic Share Issuance.

Beginning on June 4, 2019 and into June 5, 2019, the Endgame Board held a special meeting to consider approving the proposed Merger. Representatives of Allen made a presentation regarding the process that had resulted in the proposed merger and summarized the key terms of the proposed Merger, including the structure, aggregate value, potential price adjustments, the pricing collar mechanism, closing conditions, the overall expected timing for stockholder and regulatory approval of the proposed Merger, and the expected closing timeline. Representatives of Cooley made a presentation regarding the key legal terms of the transaction and reviewed with the Endgame Board their fiduciary duties overall and in the context of the proposed merger. Following discussion among the Endgame Board, Endgame management, Allen and Cooley, the Endgame Board approved the terms of the Merger Agreement and the transactions contemplated thereby.

Following these meetings, on June 5, 2019, Elastic and Endgame signed the definitive Merger Agreement. Contemporaneoulsy with the execution and delivery of the Merger Agreement, Elastic and certain of Endgame’s executive officers and all directors and their affiliated funds entered into the Endgame Support Agreement and certain of Elastic’s officers and directors and their affilated funds entered into the Elastic Support Agreement. On the same day, Elastic issued a press release announcing the transaction.

Elastic’s Reasons for the Merger and Elastic Share Issuance; Recommendation of the Elastic Board of Directors

In reaching its decision to approve the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, Elastic Board consulted with Elastic’s management, as well as Elastic’s legal advisors, and considered a number of factors, including the following factors which it viewed as supporting its decision to approve the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement (not in any relative order of importance):

 

   

the Elastic Board and management’s familiarity with the business operations, strategy, earnings and prospects of Endgame and the scope and results of the due diligence investigation of Endgame conducted by Elastic;

 

   

the strength of Endgame’s management team and engineering team, and the potential benefits and detriments of combining the workforces of the two companies;

 

   

the commonality and harmony between go-to-market models and strategies and product roadmaps between the two companies and related factors;

 

   

the view that the Merger will generate cost savings and improvements;

 

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the recommendations of Elastic’s management team, including with respect to integration of and future plans for Endgame and its products and businesses;

 

   

the comprehensive terms and conditions of the Merger Agreement and the transactions contemplated therein, including the representations, warranties, covenants, indemnities, closing conditions and termination provisions;

 

   

the amount and form of consideration to be paid in the Merger and the other financial terms of the Merger, including the manner in which each Elastic Ordinary Share is valued for purposes of determining the consideration payable in the Merger and the resulting number of shares anticipated to be issued in connection with the transaction, including the collar provision;

 

   

the likelihood that the Merger will be completed on a timely basis, including the likelihood that the transaction will receive all necessary regulatory approvals;

 

   

the entry into the support agreements by certain of Endgame’s directors, officers and largest stockholders, whose shares in the aggregate represented over 66% of the voting power of all outstanding Endgame Capital Stock as of June 5, 2019;

 

   

the entry into the support agreements by certain of Elastic’s directors, officers and largest shareholders, whose shares in the aggregate represent approximately 56% of the voting power of all outstanding Elastic shares as of June 5, 2019; and

 

   

the trends and competitive developments in the industry and the range of strategic alternatives available to Elastic.

The Elastic Board also considered a variety of uncertainties and risks and other potentially negative factors concerning the Merger, including the following (not in any relative order of importance):

 

   

the risk that the potential benefits of the Merger may not be fully or even partially achieved, or may not be achieved within the expected timeframe;

 

   

costs associated with the Merger and the other transactions contemplated by the Merger Agreement;

 

   

the regulatory risk associated with the Merger, including the likelihood and degree to which a governmental authority may require mitigation measures to approve the Merger;

 

   

the risk that the transactions contemplated by the Merger Agreement may not be consummated despite the parties’ efforts or that the closing of the transactions may be unduly delayed;

 

   

the risks associated with the occurrence of events which may materially and adversely affect the operations or financial condition of Endgame and its subsidiaries, which may not entitle Elastic to terminate the Merger Agreement;

 

   

the risks associated with the challenges and difficulties relating to integrating the operations of the two companies;

 

   

the risk that the Elastic shareholders or Endgame stockholders might fail to approve the Merger;

 

   

the risks associated with the effects of general competitive, economic, political, and market conditions, including fluctuations in the trading price of Elastic Ordinary Shares;

 

   

the risks associated with the complexity of the product integration;

 

   

the risks associated with the success and adoption of the integrated offerings in the marketplace;

 

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the risk of diverting Elastic’s management focus and resources from other strategic opportunities and from operational matters while working to implement the acquisition of Endgame; and

 

   

various other risks associated with the acquisition and the business of Endgame, some of which are described under the section entitled “Risk Factors.”

The Elastic Board concluded that the potential negative factors associated with the acquisition were outweighed by the potential benefits of completing the Merger. Accordingly, the Elastic Board approved the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement.

The foregoing discussion of the information and factors considered by the Elastic Board is not intended to be exhaustive, but includes the material positive and negative factors considered. The Elastic Board did not undertake to make any specific determination as to whether any factor, or any particular aspect of any factor, supported or did not support its ultimate determination. The Elastic Board based its determination on the totality of the information presented.

This explanation of Elastic’s reasons for the Merger and other information presented in this section is forward-looking in nature and should be read in light of the sections entitled “Risk Factors” beginning on page 14 and “Cautionary Statement Regarding Forward-Looking Statements” on page 13.

Endgame’s Reasons for the Merger

In the course of reaching its decision to approve the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, the Endgame Board consulted with its senior management, financial advisor and legal counsel, reviewed a significant amount of information and considered a number of factors, including, among others:

 

   

Endgame’s historical performance and its business and financial prospects, as well as risks of continuing to operate as an independent company;

 

   

the greater financial, human and other resources that would be available to support Endgame’s business when combined with Elastic following the Merger relative to the resources available to Endgame if it continued to operate as an independent company;

 

   

the potential to provide its current stockholders with greater liquidity by owning stock in a public company as well as the opportunity for its current stockholders to continue to participate in the growth of Endgame and Elastic through continued ownership of Elastic Ordinary Shares;

 

   

the significant investments that would need to be made by Endgame to substantially scale its business, the potential for successfully raising additional capital to fund such growth, and the ownership dilution and potential terms associated with such financing activity;

 

   

the implications of competitors’ growth and greater financial and other resources as compared to Endgame and Endgame’s overall competitive position in the market;

 

   

the terms and conditions of the Merger Agreement, including, without limitation, the following:

 

   

the value of the Elastic Ordinary Shares to be received by Endgame securityholders in the Merger, including the parameters and potential impact of the collar mechanism;

 

   

the expectation that the Merger will be treated as a reorganization for U.S. federal income tax purposes, with the result that the Endgame securityholders will generally not recognize taxable gain or loss for U.S. federal income tax purposes upon the exchange of Endgame Capital Stock for Elastic Ordinary Shares pursuant to the Merger;

 

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the limited number and nature of the conditions of the obligation of Elastic to consummate the Merger, and the likelihood that such conditions would be met;

 

   

the Support Agreements to be delivered by stockholders of each of Elastic and Endgame in connection with execution of the Merger Agreement;

 

   

the belief that the other terms of the Merger Agreement, including the parties’ representations, warranties and covenants, and the conditions to their respective obligations, were reasonable for a transaction of this nature;

 

   

the registration of the Elastic Ordinary Shares issuable in the Merger to Endgame securityholders, resulting in the Shares freely tradable for Endgame securityholders; and

 

   

the likelihood that the Merger will be consummated on a timely basis.

The Endgame Board also considered a number of uncertainties and risks in its deliberations concerning the Merger and the other transactions contemplated by the Merger Agreement including the following:

 

   

the possibility that the Merger might not be completed on a timely basis or at all, and the potential adverse effect of the public announcement of entering into the Merger Agreement on the business and reputation of Endgame, and the ability of Endgame to obtain financing in the future in the event the Merger were not completed;

 

   

the expenses to be incurred in connection with the Merger and related administrative challenges associated with combining the companies;

 

   

the additional public company expenses and obligations that Endgame’s business will be subject to following the Merger that it has not previously been subject to;

 

   

the risk that the Merger Agreement’s collar mechanism provides only limited downside protection to Endgame stockholders for decreases in the trading price of Elastic Ordinary Shares prior to Closing, and the limited history and volatility of the trading market for Elastic Ordinary Shares; and

 

   

various other risks associated with the combined organization and the Merger, including the risks described in the section titled “Risk Factors” in this prospectus/proxy statement.

Endgame’s Board of Directors concluded that the potential uncertainties and risks associated with the proposed Merger were outweighed by the potential benefits of completing the Merger. Accordingly, the Endgame Board approved the Merger Agreement, the Merger and the other transactions contemplated thereby.

The foregoing discussion of the information and factors considered by the Endgame Board is not intended to be exhaustive, but includes the material positive and negative factors considered by the Board. The Endgame Board did not make any specific determination as to the relative importance of any particular factor or factors in coming to it decision to approve the Merger Agreement and the Merger, but based its determination on the totality of the information presented.

Interests of Elastic’s Directors and Executive Officers in the Merger

In considering the recommendations of the Elastic Board with respect to the Merger, Elastic’s shareholders should be aware that certain of the directors and executive officers of Elastic have certain interests, including their shareholdings in Elastic, in the Merger. The Elastic Board was aware of these interests and considered them, among other matters, in approving the Merger Agreement, and in making its recommendations that Elastic’s shareholders adopt the Merger Agreement. The Elastic

 

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Board also ultimately determined that the Merger Agreement and the transactions contemplated thereby, including the Merger and the Elastic Share Issuance, was fair to, advisable and in the best interests of Elastic and its shareholders. See “The Merger—Background of the Merger” and “The Merger—Elastic’s Reasons for the Merger and Elastic Share Issuance; Recommendation of the Elastic Board of Directors” beginning on pages 80 and 83, respectively.

Interests of Endgame’s Directors and Executive Officers in the Merger

Certain members of the Endgame Board and certain executive officers of Endgame may have interests in the Merger that may be different from, or in addition to, the interests of Endgame’s stockholders. Each of the Elastic board of directors and the Endgame Board was aware of these interests and considered them, among other matters, in approving the Merger Agreement, and in making its recommendations that Elastic’s shareholders adopt the Merger Agreement.

Capital Stock Ownership Interests

Certain of Endgame’s directors and executive officers or entities affiliated with them currently hold shares of Endgame Capital Stock, which such shares of Endgame Capital Stock will be converted into Elastic Ordinary Shares at the effective time of the Merger pursuant to the terms of the Merger Agreement. The table below sets forth for each Endgame director, executive officers and entities affiliated with them, their ownership of Endgame Capital Stock as of June 30, 2019, assuming the conversion of all Endgame preferred stock into Endgame common stock and their anticipated ownership of Endgame common stock immediately prior to the closing of the Merger, assuming the conversion of all Endgame preferred stock into Endgame common stock.

 

Directors and Executive Officers

   Number of
Shares of
Common Stock
as of June 30,
2019
     Number of
Shares of
Common Stock
Immediately
Prior to the
Closing of the
Merger
 

Executive Officers

     

Nathaniel C. Fick

             

Matt Bruening

             

Jamie Butler

             

Mark Snell

             

Donald Saelinger

             

Jonathan Brody

             

Frederick T. Hensley

             

Non-Employee Directors

     

David Cowan(1)

     12,231,708        12,231,708  

Christopher Darby

             

Arun Gupta(2)

     11,913,922        11,913,922  

Shelley Leibowitz

     163,234        163,234  

Lt. General Kenneth A. Minihan, USAF (Ret.)(3)

     5,917,313        5,917,313  

Thomas E. Noonan(4)

     3,029,963        3,029,963  

 

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Directors and Executive Officers

   Number of
Shares of
Common Stock
as of June 30,
2019
     Number of
Shares of
Common Stock
Immediately
Prior to the
Closing of the
Merger
 

Affiliates of Directors of Endgame

     

Entities affiliated with Bessemer Venture Partners(1)

     12,231,708        12,231,708  

Entities affiliated with Columbia Capital(2)

     11,913,922        11,913,922  

Entities affiliated with Paladin Capital Group(3)

     5,917,313        5,917,313  

Technology Operators Fund I, L.P(4)

     2,713,967        2,713,967  

Lyman Hall Trust, dated 12/27/12(4)

     315,996        315,996  

 

(1)

Consists of (i) 6,605,121 shares of common stock held of record by BVP VII Special Opportunity Fund L.P. (“BVP SOF”), (ii) 3,914,147 shares of common stock held of record by Bessemer Venture Partners VII L.P. (“BVP VII”), and (iii) 1,712,440 shares of common stock held of record by Bessemer Venture Partners VII Institutional L.P. (together with BVP SOF and BVP VII, the “BVP Entities”). Deer VII & Co. L.P. is the general partner of the BVP Entities. Deer VII & Co. Ltd. is the general partner of Deer VII & Co. L.P. Robert P. Goodman, J. Edmund Colloton, David Cowan, Jeremy Levine, Byron Deeter and Robert M. Stavis are the directors of Deer VII & Co. Ltd. and hold the voting and dispositive power for the BVP Entities. Investment and voting decisions with respect to the shares held by the BVP Entities are made by the directors of Deer VII & Co. Ltd. acting as an investment committee. David Cowan disclaims beneficial ownership of the securities held by the BVP Entities, except to the extent of his pecuniary interest therein.

(2)

Consists of (i) 7,429,510 shares of common stock held of record by Columbia Capital Equity Partners V (QP), L.P. (“Columbia V QP”), (ii) 2,588,834 shares of common stock held of record by Columbia Capital Equity Partners V (Non-US), L.P. (“Columbia V Non-US”), (iii) 1,848,930 shares of common stock held of record by Columbia Capital Equity Partners V (Co-Invest), L.P. (“Columbia V Co-Invest”), and (iv) 46,648 shares of common stock held of record by Columbia Capital Employee Investors V, L.P. (Co-Invest) (“Columbia Employee V”, and together with Columbia V QP, Columbia V Non-US, and Columbia V Co-Invest, the “Columbia Entities”). Columbia Capital Equity Partners V, L.P. is the general partner of Columbia V QP, Columbia V Non-US, and Columbia V Co-Invest. Columbia Capital V, LLC is the general partner of Columbia Capital Equity Partners V, L.P. and Columbia Employee V. James B. Fleming, Jr. and John T. Siegel, Jr. jointly control Columbia Capital V, LLC and as a result, they exercise voting and dispositive power for the Columbia Entities. Arun Gupta disclaims beneficial ownership of the securities held by the Columbia Entities, except to the extent of his pecuniary interest therein. The address for each of these entities is c/o Columbia Capital, 204 South Union Street, Alexandria, VA 22314.

(3)

Consists of (i) 1,972,790 shares held of record by Paladin III, L.P. (“Paladin III”), (ii) 1,143,539 shares held of record by Paladin III (Cayman Islands), L.P., (“Paladin III Cayman”), (iii) 1,665,022 shares held of record by Paladin III (NY City), L.P. (“Paladin III NY City”), (iv) 567,981 shares held of record by Paladin III (HR), L.P., (“Paladin III HR”), and (v) 567,981 shares held of record by Paladin III (CA), L.P., (“Paladin III CA”, and together with Paladin III, Paladin III NY City, Paladin III Cayman and Paladin HR, the “Paladin Funds”). Paladin Holdings III, L.P. is the general partner of Paladin III, Paladin III NY City, Paladin III HR and Paladin III CA. Paladin Holdings III (Cayman Islands), L.P. is the general partner of Paladin III Cayman. The Investment Committee of the Paladin Funds, led by Michael Steed as its Chairman, may be deemed to have voting and dispositive power over the shares held of record by the Paladin Funds. Lt. General (Ret.) Kenneth A. Minihan disclaims beneficial ownership of the securities held by the Paladin Funds, except to the extent of his pecuniary interest therein.

 

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(4)

Consists of (i) 2,385,980 shares of common stock held of record directly by Mr. Noonan, (ii) 327,987 shares of common stock held of record by Technology Operators Fund I, L.P (“TechOperators Fund I”), and (iii) 315,996 shares of common stock held of record by Lyman Hall Trust, dated 12/27/12, for which Mr. Noonan serves as trustee. Technology Operators Fund I G.P., LLC is the general partner of TechOperators Fund I. Mr. Noonan is an operating partner of Technology Operators Fund I, G.P., LLC and shares voting and investment control over the shares held by TechOperators Fund I.

Stock Options

Certain of Endgame’s directors and executive officers currently hold options, subject to vesting, to purchase shares of Endgame common stock. At the effective time of the Merger, each Endgame option that is an In-the-Money Company Option, whether vested or unvested, that is outstanding and unexercised will be assumed by Elastic and will continue to have, and be subject to the same terms and conditions set forth in the applicable Plan and the option agreement relating thereto (including with respect to the vesting thereof), as in effect immediately prior to the effective time of the Merger, except that such assumed Endgame option shall be exercisable for that number of whole Elastic Ordinary Shares as determined pursuant to the terms of the Merger Agreement. At the effective time of the Merger, each Endgame option that is an Out-of-the-Money Company Option (if any) shall be terminated and cancelled without any consideration therefor. For additional information on the treatment of Endgame options, see “The Merger AgreementTreatment of Company Stock Options”. The table below sets forth certain information with respect to such Endgame options, as of June 30, 2019, without giving effect to (i) the conversion and assumption of the Endgame options at the effective time of the Merger pursuant to the terms of the Merger Agreement and (ii) whether each such option will be an In-the-Money Company Option or an Out-of-the-Money Company Option at the effective time of the Merger.

 

Option holder Name

   Grant Date      Expiration
Date
     Exercise
Price ($)
     Number of
Shares of
Common
Stock
Underlying
Option as of
June 30, 2019
     Number of
Vested
Shares of
Common
Stock
Underlying
Option as of
June 30, 2019
 

Jonathan Brody

     8/20/2014        8/19/2024        0.20        420,100        420,100  
     3/5/2015        3/4/2025        0.89        100,429        100,429  
     1/24/2018        1/23/2028        1.10        50,000        18,750  
     1/16/2019        1/15/2029        1.23        50,000        5,208  

Matt Bruening

     11/8/2017        11/7/2027        1.10        545,000        238,437  

James Butler

     3/5/2015        3/4/2025        0.89        867,549        867,549  
     8/1/2017        7/31/2027        1.10        500,000        133,348  

Christopher Darby

     10/17/2012        10/16/2022        0.38        100,000        100,000  
     10/17/2012        10/16/2022        0.38        66,900        66,900  
     10/17/2012        10/16/2022        0.38        315,000        315,000  
     3/29/2013        3/28/2023        0.19        357,069        357,069  
     1/30/2015        1/29/2025        0.89        202,089        202,089  
     1/16/2019        1/15/2029        1.23        100,000        10,416  

Nathaniel C. Fick

     10/17/2012        10/16/2022        0.38        1,575,000        1,575,000  
     3/29/2013        3/28/2023        0.19        621,158        621,158  
     1/30/2015        1/29/2025        0.89        730,000        730,000  
     3/6/2017        3/5/2027        1.03        1,400,000        787,500  

 

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Option holder Name

   Grant Date      Expiration
Date
     Exercise
Price ($)
     Number of
Shares of
Common
Stock
Underlying
Option as of
June 30, 2019
     Number of
Vested
Shares of
Common
Stock
Underlying
Option as of
June 30, 2019
 

Frederick T. Hensley

     10/17/2012        10/16/2022        0.38        15,000        15,000  
     10/17/2012        10/16/2022        0.38        15,000        15,000  
     1/30/2013        1/29/2023        0.38        30,000        30,000  
     3/29/2013        3/28/2023        0.19        44,458        44,458  
     10/22/2014        10/21/2024        0.20        10,000        10,000  
     1/30/2015        1/29/2025        0.89        80,000        80,000  
     1/27/2016        1/26/2026        0.92        50,000        42,708  
     1/25/2017        1/24/2027        1.03        60,000        36,250  
     1/16/2019        1/15/2029        1.23        25,000        2,604  

Shelley Leibowitz

     11/6/2013        11/5/2023        0.19        7,500        7,500  
     1/30/2015        1/29/2025        0.89        7,500        7,500  
     7/20/2016        7/19/2026        1.07        7,500        7,500  
     1/25/2017        1/24/2027        1.03        7,500        7,500  
     3/6/2018        3/5/2028        1.10        110,000        45,833  

Donald Saelinger

     1/25/2017        1/24/2027        1.03        350,000        226,041  
     11/8/2017        11/7/2027        1.10        50,000        20,833  
     1/16/2019        1/15/2029        1.23        328,577        34,226  

Mark Snell

     10/17/2012        10/16/2022        0.38        265,681        265,681  
     3/29/2013        3/28/2023        0.19        154,804        154,804  
     1/30/2015        1/29/2025        0.89        200,000        200,000  
     1/25/2017        1/24/2027        1.03        200,000        120,833  
     1/24/2018        1/23/2028        1.10        100,000        20,833  
     1/16/2019        1/15/2029        1.23        25,000        2,604  

Convertible Notes

Affiliates of certain of Endgame’s directors and executive officers are the holders of Convertible Promissory Notes issued by Endgame on April 30, 2019. Pursuant to the terms of the Convertible Promissory Notes and the Merger Agreement, at the effective time of the Merger, each Convertible Promissory Note shall be repaid in full and cancelled pursuant to the issuance to the holder of such note that number of Elastic Ordinary Shares as is equal to the quotient obtained by dividing: (x) the sum of (i) the outstanding principal amount of the Convertible Promissory Note plus any unpaid accrued interest on the original principal, plus (ii) a repayment premium equal to 100% of the sum of (A) the outstanding principal amount of the Convertible Promissory Note and (B) any unpaid accrued interest on the original principal, by (y) the Elastic Share Price. The Convertible Promissory Notes accrue simple interest at a rate of 6.0% per annum, computed on the basis of a year of 365 days for the actual number of days elapsed. The table below sets forth certain information with respect to the Endgame Convertible Promissory Notes as of June 30, 2019.

 

     Principal
Amount of
Convertible
Promissory
Note
     Accrued
Interest as of

June 30, 2019
 

Entities affiliated with Bessemer Venture Partners

     

BVP VII Special Opportunity Fund L.P.

   $ 541,903.00      $ 5,433.88  

Bessemer Venture Partners VII, L.P.

   $ 321,128.00      $ 3,220.08  

Bessemer Venture Partners VII Institutional L.P.

   $ 140,493.00      $ 1,408.78  

 

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     Principal
Amount of
Convertible
Promissory
Note
     Accrued
Interest as of

June 30, 2019
 

Entities affiliated with Columbia Capital

     

Columbia Capital Equity Partners V (QP), L.P.

   $ 626,328.00      $ 6,280.44  

Columbia Capital Equity Partners V (Non-US), L.P.

   $ 218,246.00      $ 2,188.44  

Columbia Capital Equity Partners V (Co-Invest), L.P.

   $ 132,878.00      $ 1,332.43  

Entities affiliated with Paladin Capital Group

     

Paladin III, L.P.

   $ 161,854.00      $ 1,622.98  

Paladin III, (Cayman Islands), L.P.

   $ 93,819.00      $ 940.77  

Paladin III (NY City), L.P.

   $ 136,603.00      $ 1,369.78  

Paladin III (HR), L.P.

   $ 46,599.00      $ 467.27  

Paladin III (CA), L.P.

   $ 46,599.00      $ 467.27  

Technology Operators Fund I, L.P.

   $ 26,909.00      $ 269.83  

Retention Bonus Pool Awards

In May 2019, the Endgame Board and stockholders approved the Endgame, Inc. Retention Bonus Plan (as amended in June 2019, the “Retention Bonus Plan”). Pursuant to the Retention Bonus Plan, certain of Endgame’s directors and executive officers are entitled to receive a Retention Bonus Pool Award (as defined below in “The Merger Agreement”) in an amount equal to (a) the Retention Bonus Pool Amount (as defined below in “The Merger Agreement”), multiplied by (b) the percentage set forth opposite such director or executive officer’s name in the table below (the “Applicable Retention Bonus Percentage”), minus (ii) an amount equal to the aggregate value of all shares of Endgame common stock held by such director or executive officer and all vested Endgame options that are In-the-Money Company Options (as defined below in “The Merger Agreement”), in each case, as of immediately prior to the effective time of the Merger. Such amount will be payable to the participants in the Retention Bonus Pool in that number of whole Elastic Ordinary Shares as determined pursuant to the terms of the Merger Agreement. For additional information on the treatment of Endgame options, see “The Merger Agreement—Treatment of Retention Bonus Pool Awards”.

 

Director and Executive Officer Retention Bonus Plan Participants

   Applicable
Retention Bonus
Percentage
 

Nathaniel C. Fick

     43.75

Christopher Darby

     12.50

James Butler

     13.53

Mark Snell

     10.22

Donald Saelinger

     7.52

Indemnification and Insurance

The Merger Agreement provides that, until the sixth anniversary of the closing of the Merger, Elastic shall (i) fulfill and honor the obligations of Endgame to its officers and directors of as immediately prior to the effective time of the Merger pursuant to indemnification agreements between Endgame and such officers and directors which are set forth on the disclosure schedule to the Merger Agreement and (ii) maintain in the charter or other organizational documents of the Surviving Corporation (as defined in the Merger Agreement) provisions for the indemnification, exculpation and the advancement of expenses of current Endgame directors and officers that are at least as favorable as the indemnification, exculpation and advancement of expenses provisions contained in Endgame’s Charter and Endgame’s Bylaws, and during such six-year period, such provisions shall not be repealed, amended or otherwise modified in any manner except as otherwise contemplated by the

 

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Merger Agreement or required by applicable Law. For additional information on the provisions for the indemnification, exculpation and the advancement of expenses contained in Endgame’s Charter and Endgame’s Bylaws, see “Comparison of the Rights of Holders of Elastic Ordinary Shares and Holders of Endgame Capital Stock.”

The Merger Agreement also provides that Endgame shall purchase a “tail” directors’ and officers’ liability policy for the benefit of Endgame’s directors and officers, and Elastic shall not cancel any such fully prepaid “tail” directors’ and officers’ liability insurance policy.

Merger-Related Compensation for Elastic’s Named Executive Officers

The rules promulgated by the SEC under Section 14A of the Exchange Act generally require companies to seek a non-binding advisory vote from stockholders with respect to certain compensation that will or may become payable to their named executive officers in connection with a Merger. Elastic is not seeking this non-binding, advisory vote from its shareholders because none of Elastic’s named executive officers are entitled to any such Merger-related compensation that would otherwise require such a vote. For information regarding the interests of Elastic’s named executive officers in the Merger, see “The Merger–Interests of Elastic’s Directors and Executive Officers in the Merger.”

Indemnification of Endgame Directors and Officers; Directors’ and Officers’ Insurance

Pursuant to the Merger Agreement, for a period of six years from the effective time of the Merger, Endgame (as the surviving corporation of the Merger) will fulfill and honor in all respects (i) the obligations of Endgame to its directors and officers as of immediately prior to the effective time of the Merger pursuant to any indemnification agreements between Endgame and such parties and (ii) exculpation, indemnification and advancement of expenses provisions of Endgame’s and its subsidiaries’ articles of incorporation and bylaws or other organizational documents as least as favorable as in effect immediately prior to the effective time of the Merger. Additionally, Endgame will purchase a “tail” directors’ and officers’ liability insurance policy covering the six-year period from and after the effective time of the Merger which contains coverage terms comparable to or better than Endgame’s then existing coverage.

Regulatory Approvals Required for the Merger

The Merger is subject to review, and if applicable, investigation by CFIUS under the Defense Production Act of 1950, as amended. Further, the Merger is also subject to clearance by CFIUS without unresolved national security concerns with respect to the transactions contemplated by the Merger (“CFIUS Approval”). We cannot assure you that we will receive such CFIUS Approval, or what mitigation measures CFIUS may require or impose before granting CFIUS Approval, or the impact of such mitigation measures on Elastic’s business.

Additionally, the Merger is subject to the execution and delivery of either (i) a commitment letter, or (ii) an approved foreign ownership, control or influence mitigation agreement and, as necessary, associated ancillary plans and policies, in either case, by and among DCSA, Elastic and Endgame Systems, LLC (a wholly-owned subsidiary of Endgame), that sets forth the terms of the mitigation to be required by DCSA in connection with the Merger and the other transactions contemplated in connection with the Merger (“DCSA Approval”). We cannot assure you that we will receive such DCSA Approval, or, if we do receive DCSA Approval, what mitigation measures DCSA may impose or the impact of such mitigation measures on Elastic’s business.

 

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Exchange of Shares in the Merger

Computershare Inc., a national banking association, or another exchange agent selected by Elastic (the “Exchange Agent”), will manage the exchange of Endgame securities and other rights for the merger consideration. Pursuant to the Merger Agreement, at the effective time of the Merger, each issued and outstanding share of Endgame Capital Stock (other than shares owned by Endgame as treasury stock, which will be cancelled, and dissenting shares, which will be subject to the results of the applicable appraisal proceeding) will be automatically converted into the right to receive (i) such number of Elastic Ordinary Shares as required pursuant to the terms of the Merger Agreement and Endgame’s Charter in respect of such shares of Endgame Capital Stock, (ii) the par value of such Elastic Ordinary Shares which amount shall not be paid but shall be set-off against the corresponding obligation to pay such par value of each Elastic Ordinary Share to Elastic, (iii) a portion of the Securityholder Representative’s expense fund, which will be deposited with the Securityholder Representative and (iv) the contingent right to receive such party’s share of any Elastic Ordinary Shares released from the escrow fund pursuant to the terms of the Merger Agreement.

No later than five business days after the effective time of the Merger, Elastic will cause the Exchange Agent to mail to each Endgame securityholder a letter of transmittal. The letter will include instructions explaining the procedure for surrendering Endgame securities in exchange for Elastic Ordinary Shares comprising the merger consideration.

Upon the surrender of Endgame securities for cancellation to the Exchange Agent together with a properly completed letter of transmittal and any necessary accompanying documents, Endgame securityholders will receive the consideration set forth above. The right to receive the par value of each Elastic Ordinary Share in cash shall be set-off against the corresponding obligation to pay such par value of each Elastic Ordinary Share to Elastic.

After the effective time of the Merger, Endgame securities will no longer be outstanding, will automatically be cancelled and will cease to exist and certificates that previously represented shares of Endgame Capital Stock will represent only the right to receive the merger consideration as set forth in the Merger Agreement. Until Endgame securityholders have surrendered their securities to the Exchange Agent for exchange, those holders will not receive dividends or distributions declared, if any, or made with respect to Elastic Ordinary Shares with a record date after the effective time of the Merger. However, upon the surrender of their Endgame securities, such holders will receive the amount of dividends or other distributions, if any, with respect to Elastic Ordinary Shares paid with a record date after the effective time of the Merger.

After the effective time of the Merger, Endgame will not register any transfers of the shares of Endgame Capital Stock that were outstanding immediately prior to the effective time of the Merger. After the effective time of the Merger, if certificates formerly representing shares of Endgame are presented to Elastic or the Exchange Agent, they will be cancelled and exchanged for the merger consideration.

Listing of Elastic Ordinary Shares

Under the Merger Agreement, Elastic will cause the Elastic Ordinary Shares to be issued in the Merger to be approved for listing on NYSE, subject to official notice of issuance. It is a condition to the completion of the Merger that the registration statement on Form S-4 which this proxy statement/prospectus forms a part shall have become effective in accordance with the provisions of the Securities Act, and shall not be subject to any stop order or pending litigation seeking a stop order with respect to the registration statement.

 

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Accounting Treatment of the Merger

Elastic prepares its financial statements in accordance with U.S. GAAP. The Merger will be accounted for in accordance with Accounting Standards Codification Topic 805, Business Combinations. The purchase price will be allocated to the fair values of assets acquired and liabilities assumed. Any excess purchase price after this allocation will be assigned to goodwill. Determining the fair value of assets acquired and liabilities assumed requires management to use significant judgment and estimates, including the selection of valuation methodologies, estimates of future revenue and cash flows, discount rates and selection of comparable companies. Under the acquisition method of accounting, goodwill is not amortized but is tested for impairment at least annually, or more frequently if circumstances indicate potential impairment.

 

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THE MERGER AGREEMENT

This section describes certain terms of the Merger Agreement. The description in this section and elsewhere in this proxy statement/prospectus is qualified in its entirety by reference to the complete text of the Merger Agreement, a copy of which is attached as Annex A and is incorporated by reference into this proxy statement/prospectus. This summary does not purport to be complete and may not provide all of the information about the Merger Agreement that might be important to you in determining how to vote. We urge you to read the Merger Agreement carefully and in its entirety. Capitalized terms not otherwise defined herein will have the meanings ascribed to them in the Merger Agreement.

Explanatory Note Regarding the Merger Agreement

In reviewing the Merger Agreement and this summary, please remember that they have been included to provide you with information regarding the terms of the Merger Agreement and are not intended to provide any other factual information about Elastic, Endgame or any of their subsidiaries. The Merger Agreement contains representations and warranties and covenants by each of the parties to the Merger Agreement, which are summarized below. These representations and warranties have been made solely for the benefit of the other parties to the Merger Agreement and:

 

   

were not intended as statements of fact, but rather as a way of allocating risk to one of the parties if those statements prove to be inaccurate;

 

   

have been qualified by certain confidential disclosures that were made to the other party in connection with the negotiation of the Merger Agreement, which disclosures are not reflected in the Merger Agreement; and

 

   

may apply standards of materiality in a way that is different from what may be viewed as material by you or other investors.

Moreover, information concerning the subject matter of the representations and warranties in the Merger Agreement and described below may have changed since the date of the Merger Agreement and subsequent developments or new information qualifying a representation or warranty may have been included in this proxy statement/prospectus. Accordingly, the representations and warranties and other provisions of the Merger Agreement should not be read alone, but instead should be read together with the information provided elsewhere in this proxy statement/prospectus.

Terms of the Merger

The Merger Agreement provides that, on the terms and subject to the conditions in the Merger Agreement, and in accordance with the Delaware General Corporate Law (the DGCL”) at the effective time of the Merger, Merger Sub will merge with and into Endgame, the separate corporate existence of Merger Sub will cease and Endgame will continue as the surviving corporation in the Merger and as a direct wholly owned subsidiary of Elastic.

Completion of the Merger

Unless the parties agree otherwise, the closing of the Merger will take place on a date specified by Endgame and Elastic, but no later than the second business day after all closing conditions have been satisfied or waived (other than those conditions that by their nature are to be satisfied at the closing, but subject to the satisfaction or waiver (if permissible under the Merger Agreement) of those conditions at the Closing), but if the closing of the Merger were to occur within the fourteen (14) day

 

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period prior to the last day of Elastic’s fiscal year or the last day of any other fiscal quarter of Elastic, at Elastic’s election in its sole and absolute discretion, the closing of the Merger shall take place on the first (1st) Business Day of the immediately succeeding fiscal quarter, subject to the satisfaction or waiver (if permissible under the Merger Agreement) of the conditions to the Merger. The Merger will be effective at the time that the parties file a certificate of merger with the Secretary of State of the State of Delaware, unless the parties agree in writing to a later time for the completion of the Merger and specify that time in the certificate of merger.

We currently expect to close the Merger in the third quarter of Elastic’s fiscal year 2020, subject to receipt of required stockholder approvals and regulatory clearances and the satisfaction or waiver of the other conditions to the Merger described below, but we cannot guarantee when or if the Merger will be completed.

Treatment of Endgame Capital Stock

Endgame Series D Preferred Stock.    At the effective time of the Merger, each share of Endgame Series D Preferred Stock (excluding (A) Cancelled Shares, which shall be cancelled without any consideration paid therefor, and (B) Dissenting Shares, which shall be subject to the results of the applicable appraisal proceeding) that is issued and outstanding as of immediately prior to effective time of the Merger shall be cancelled and converted automatically into the right to receive, upon the terms and conditions set forth in Section 1.3 of the Merger Agreement and throughout the Merger Agreement (including the establishment of the Indemnity Escrow Fund (as defined below) pursuant to Section 2.3(c) of the Merger Agreement, the indemnification provisions set forth in Article IX of the Merger Agreement, and delivery of the Exchange Documents in the manner provided in Section 2.3(b) of the Merger Agreement): (1) a number of Elastic Ordinary Shares equal to the quotient obtained by dividing (x) the sum of (i) the Per Series D Liquidation Preference, plus (ii) the Per Share Closing Participation Amount, by (y) the Elastic Share Price; (2) a contingent right to receive the Per Share Adjustment Consideration; (3) an amount in cash, without interest, equal to the Per Share Expense Contribution (which shall be deposited with the Securityholder Representative in accordance with, and subject to the terms of Section 2.3(d) of the Merger Agreement); and (4) subject to Section 1.3(g) of the Merger Agreement, an amount in cash, without interest, equal to (i) the Euro Par Value, multiplied by (ii) the number of Elastic Ordinary Shares issuable in respect of such share of Endgame Series D Preferred Stock pursuant the foregoing clauses (1) and (2). For a summary of Elastic’s Ordinary Shares, see “Description of Elastic Ordinary Shares” beginning on page 166.

Endgame Series C Preferred Stock.    At the effective time of the Merger, each share of Endgame Series C Preferred Stock (excluding (A) Cancelled Shares, which shall be cancelled without any consideration paid therefor, and (B) Dissenting Shares, which shall be subject to the results of the applicable appraisal proceeding ) that is issued and outstanding as of immediately prior to the effective time of the Merger shall be cancelled and converted automatically into the right to receive, upon the terms and conditions set forth in Section 1.3 of the Merger Agreement and throughout the Merger Agreement (including the establishment of the Indemnity Escrow Fund pursuant to Section 2.3(c) of the Merger Agreement, the indemnification provisions set forth in Article IX of the Merger Agreement, and delivery of the Exchange Documents in the manner provided in Section 2.3(b) of the Merger Agreement): (1) a number of Elastic Ordinary Shares equal to the quotient obtained by dividing (x) the sum of (i) the Per Series C Liquidation Preference, plus (ii) the Per Share Closing Participation Amount, by (y) the Elastic Share Price; (2) a contingent right to receive the Per Share Adjustment Consideration; (3) an amount in cash, without interest, equal to the Per Share Expense Contribution (which shall be deposited with the Securityholder Representative in accordance with, and subject to the terms of Section 2.3(d) of the Merger Agreement); and (4) subject to Section 1.3(g) of the Merger Agreement, an amount in cash, without interest, equal to (i) the Euro Par Value, multiplied by (ii) the

 

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number of Elastic Ordinary Shares issuable in respect of such share of Endgame Series C Preferred Stock pursuant the foregoing clauses (1) and (2).

Endgame Series B Preferred Stock.    At the effective time of the Merger, each share of Endgame Series B Preferred Stock (excluding (A) Cancelled Shares, which shall be cancelled without any consideration paid therefor, and (B) Dissenting Shares, which shall be subject to the results of the applicable appraisal proceeding ) that is issued and outstanding as of immediately prior to the effective time of the Merger shall be cancelled and converted automatically into the right to receive, upon the terms and conditions set forth in Section 1.3 of the Merger Agreement and throughout the Merger Agreement (including the establishment of the Indemnity Escrow Fund pursuant to Section 2.3(c) of the Merger Agreement, the indemnification provisions set forth in Article IX of the Merger Agreement, and delivery of the Exchange Documents in the manner provided in Section 2.3(b) of the Merger Agreement): (1) a number of Elastic Ordinary Shares equal to the quotient obtained by dividing (x) the sum of (i) the Per Series B Liquidation Preference, plus (ii) the Per Share Closing Participation Amount by (y) the Elastic Share Price; (2) a contingent right to receive the Per Share Adjustment Consideration; (3) an amount in cash, without interest, equal to the Per Share Expense Contribution (which shall be deposited with the Securityholder Representative in accordance with, and subject to the terms of Section 2.3(d) of the Merger Agreement); and (4) subject to Section 1.3(g) of the Merger Agreement, an amount in cash, without interest, equal to (i) the Euro Par Value, multiplied by (ii) the number of Elastic Ordinary Shares issuable in respect of such share of Endgame Series B Preferred Stock pursuant the foregoing clauses (1) and (2).

Endgame Series A-2 Preferred Stock.    At the effective time of the Merger, each share of Endgame Series A-2 Preferred Stock (excluding (A) Cancelled Shares, which shall be cancelled without any consideration paid therefor, and (B) Dissenting Shares, which shall be subject to the results of the applicable appraisal proceeding ) that is issued and outstanding as of immediately prior to the effective time of the Merger shall be cancelled and converted automatically into the right to receive, upon the terms and conditions set forth in Section 1.3 of the Merger Agreement and throughout the Merger Agreement (including the establishment of the Indemnity Escrow Fund pursuant to Section 2.3(c), the indemnification provisions set forth in Article IX of the Merger Agreement, and delivery of the Exchange Documents in the manner provided in Section 2.3(b) of the Merger Agreement): (1) a number of Elastic Ordinary Shares equal to the quotient obtained by dividing (x) the sum of (i) the Per Series A-2 Liquidation Preference, plus (ii) the Per Share Closing Participation Amount, by (y) the Elastic Share Price; (2) a contingent right to receive the Per Share Adjustment Consideration; (3) an amount in cash, without interest, equal to the Per Share Expense Contribution (which shall be deposited with the Securityholder Representative in accordance with, and subject to the terms of Section 2.3(d) of the Merger Agreement); and (4) subject to Section 1.3(g) of the Merger Agreement, an amount in cash, without interest, equal to (i) the Euro Par Value, multiplied by (ii) the number of Elastic Ordinary Shares issuable in respect of such share of Endgame Series A-2 Preferred Stock pursuant the foregoing clauses (1) and (2).

Endgame Series A-1 Preferred Stock.    At the effective time of the Merger, each share of Endgame Series A-1 Preferred Stock (excluding (A) Cancelled Shares, which shall be cancelled without any consideration paid therefor, and (B) Dissenting Shares, which shall be subject to the results of the applicable appraisal proceeding ) that is issued and outstanding as of immediately prior to the effective time of the Merger shall be cancelled and converted automatically into the right to receive, upon the terms and conditions set forth in Section 1.3 of the Merger Agreement and throughout the Merger Agreement (including the establishment of the Indemnity Escrow Fund pursuant to Section 2.3(c) of the Merger Agreement, the indemnification provisions set forth in Article IX of the Merger Agreement, and delivery of the Exchange Documents in the manner provided in Section 2.3(b) of the Merger Agreement): (1) a number of Elastic Ordinary Shares equal to the quotient obtained by dividing (x) the sum of (i) the Per Series A-1 Liquidation Preference, plus (ii) the Per Share Closing

 

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Participation Amount, by (y) the Endgame Share Price; (2) a contingent right to receive the Per Share Adjustment Consideration; (3) an amount in cash, without interest, equal to the Per Share Expense Contribution (which shall be deposited with the Securityholder Representative in accordance with, and subject to the terms of Section 2.3(d) of the Merger Agreement); and (4) an amount in cash, without interest, equal to (i) the Euro Par Value, multiplied by (ii) the number of Elastic Ordinary Shares issuable in respect of such share of Endgame Series A-1 Preferred Stock pursuant the foregoing clauses (1) and (2).

Endgame Series A Preferred Stock.    At the effective time of the Merger, each share of Endgame Series A Preferred Stock (excluding (A) Cancelled Shares, which shall be cancelled without any consideration paid therefor, and (B) Dissenting Shares, which shall be subject to results of the applicable appraisal proceeding ) that is issued and outstanding as of immediately prior to the effective time of the Merger shall be cancelled and converted automatically into the right to receive, upon the terms and conditions set forth in Section 1.3 of the Merger Agreement and throughout the Merger Agreement (including the establishment of the Indemnity Escrow Fund pursuant to Section 2.3(c) of the Merger Agreement, the indemnification provisions set forth in Article IX of the Merger Agreement, and delivery of the Exchange Documents in the manner provided in Section 2.3(b) of the Merger Agreement): (1) a number of Elastic Ordinary Shares equal to the quotient obtained by dividing (x) the sum of (i) the Per Series A Liquidation Preference, plus (ii) the Per Share Closing Participation Amount, by (y) the Elastic Share Price; (2) a contingent right to receive the Per Share Adjustment Consideration; (3) an amount in cash, without interest, equal to the Per Share Expense Contribution (which shall be deposited with the Securityholder Representative in accordance with, and subject to the terms of Section 2.3(d) of the Merger Agreement); and (4) subject to Section 1.3(g) of the Merger Agreement, an amount in cash, without interest, equal to (i) the Euro Par Value, multiplied by (ii) the number of Elastic Ordinary Shares issuable in respect of such share of Endgame Series A Preferred Stock pursuant the foregoing clauses (1) and (2).

Endgame Common Stock.    At the effective time of the Merger, each share of Endgame Common Stock (excluding (A) Cancelled Shares, which shall cancelled without any consideration paid therefor, and (B) Dissenting Shares, which shall be subject to the results of the applicable appraisal proceeding) that is issued and outstanding as of immediately prior to the effective time of the Merger shall be cancelled and converted automatically into the right to receive, upon the terms and conditions set forth in Section 1.3 of the Merger Agreement and throughout the Merger Agreement (including the establishment of the Indemnity Escrow Fund pursuant to Section 2.3(c) of the Merger Agreement, the indemnification provisions set forth in Article IX of the Merger Agreement, and delivery of the Exchange Documents in the manner provided in Section 2.3(b) of the Merger Agreement): (1) a number of Elastic Ordinary Shares equal to the quotient obtained by dividing (x) the Per Share Closing Participation Amount, by (y) the Endgame Share Price; (2) a contingent right to receive the Per Share Adjustment Consideration; (3) an amount in cash, without interest, equal to the Per Share Expense Contribution (which shall be deposited with the Securityholder Representative in accordance with, and subject to the terms of Section 2.3(d) of the Merger Agreement); and (4) subject to Section1.3(g) of the Merger Agreement, an amount in cash, without interest, equal to (i) the Euro Par Value, multiplied by (ii) the number of Elastic Ordinary Shares issuable in respect of such share of Endgame Series A Preferred Stock pursuant the foregoing clauses (1) and (2).

Unless otherwise indicated or as the context otherwise requires, references in this proxy statement/prospectus to:

Elastic Share Price” means (i) if the Elastic Closing VWAP is equal to or less than $68.49 (the “Floor Price”), then the Floor Price, (ii) if the Elastic Closing VWAP is greater than the Floor Price and less than $98.55 (the “Cap Price”), then the Elastic Closing VWAP, or (iii) if the Elastic Closing VWAP is equal to or greater than the Cap Price, then the Cap Price.

 

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Elastic Closing VWAP” means an amount equal to the volume weighted average price per share rounded to four decimal places (with amounts 0.00005 and above rounded up) of the Elastic Ordinary Shares on the NYSE for the twenty (20) consecutive trading days ending with the complete trading day ending five (5) trading days prior to the Closing Date.

Euro Par Value” means the Euro par value amount of an Elastic Ordinary Share (which, as of the date of the execution of the Merger Agreement, is 0.01 per share).

Per Series A Liquidation Preference” means, with respect to a share of Endgame Series A Preferred Stock, the sum of (i) $1.6938, plus (ii) any declared but unpaid dividends on such share of Company Series A Preferred Stock.

Per Series A-1 Liquidation Preference” means, with respect to a share of Endgame Series A-1 Preferred Stock, the sum of (i) $1.6938, plus (ii) any declared but unpaid dividends on such share of Company Series A-1 Preferred Stock.

Per Series A-2 Liquidation Preference” means, with respect to a share of Endgame Series A-2 Preferred Stock, the sum of (i) $1.6938, plus (ii) any declared but unpaid dividends on such share of Company Series A-2 Preferred Stock.

Per Series B Liquidation Preference” means, with respect to a share of Endgame Series B Preferred Stock, the sum of (i) $1.9367, plus (ii) any declared but unpaid dividends on such share of Company Series B Preferred Stock.

Per Series C Liquidation Preference” means, with respect to a share of Endgame Series C Preferred Stock, the sum of (i) $4.4479, plus (ii) any declared but unpaid dividends on such share of Company Series C Preferred Stock.

Per Series D Liquidation Preference” means, with respect to a share of Endgame Series D Preferred Stock, the sum of (i) $6.3352, plus (ii) any declared but unpaid dividends on such share of Company Series D Preferred Stock.

Per Share Adjustment Consideration” means a number of shares of Elastic Ordinary Shares equal to the quotient obtained by dividing (i) the quotient obtained by dividing (a) the Final Net Working Capital Surplus (if any), by (b) the Stock and Warrant Share Number, by (ii) the Elastic Share Price.

Per Share Closing Participation Amount” means an amount equal to (i) the product obtained by multiplying (a) the Per Share Residual Amount, by (b) the Applicable Conversion, minus (ii) the Per Share Expense Contribution.

Per Share Expense Contribution” means an amount equal to the quotient obtained by dividing (i) the Expense Fund Amount, by (ii) the Stock and Warrant Share Number.

Per Share Residual Amount” means an amount equal to the quotient obtained by dividing (i) the sum of (a) the Residual Consideration, plus (b) the aggregate exercise price of (x) all Endgame Options that are In-the-Money-Endgame Options, and (y) all Endgame Warrants that are In-the-Money Endgame Warrants, by (ii) the Total Share Number.

Residual Consideration” means that amount equal to (i) the Total Closing Consideration, minus (ii) the Aggregate Liquidation Preference, minus (iii) the aggregate Retention Bonus Pool Award Value of all Retention Bonus Pool Awards.

 

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Total Closing Consideration” means, without duplication, an amount equal to (i) $234,000,000, less (ii) Closing Indebtedness, plus (iii) Closing Cash, less (iv) Third Party Expenses (not including any Third Party Expenses to the extent paid by Endgame prior to the Closing), less (v) the Tax Amount, plus (vi) the Estimated Closing Net Working Capital Adjustment Amount.

Treatment of Endgame Stock Options

In-the-Money Endgame Options.    At the effective time of the Merger, each Endgame Option that is an In-the-Money Endgame Option, whether vested or unvested, that is outstanding and unexercised will be assumed by Elastic and will continue to have, and be subject to the same terms and conditions set forth in the applicable Plan and the option agreement relating thereto (including with respect to the vesting thereof), as in effect immediately prior to the effective time of the Merger, except that such assumed Endgame Option shall be exercisable (A) for that number of whole Elastic Ordinary Shares determined by multiplying the number of shares of Endgame Common Stock subject to such Endgame Option immediately before the effective time of the Merger by the Stock Award Exchange Ratio, and (B) at an exercise price per Elastic Ordinary Share equal to the exercise price per share of such Endgame Option, as applicable immediately prior to the effective time of the Merger, divided by the Stock Award Exchange Ratio (rounded up to the nearest whole cent) (an “Assumed Endgame Option”); provided, however, that in the case of any Assumed Endgame Option that qualifies immediately prior to the effective time of the Merger as an incentive stock option for U.S. Tax purposes by reason of its qualification under Section 422 of the Code, at and following the effective time of the Merger, it will constitute a nonstatutory stock option for U.S. Tax purposes. Notwithstanding anything herein to the contrary, (x) if the foregoing calculation results in an Assumed Endgame Option being exercisable for a fraction of an Elastic Ordinary Share, then the number of Elastic Ordinary Shares subject to such option will be rounded down to the nearest whole number of shares, and (y) if an Assumed Endgame Option is scheduled to vest a fraction of an Elastic Ordinary Share during any vesting period, the number of Elastic Ordinary Shares to vest during such vesting period shall be rounded down to the nearest whole number of shares and the aggregate number of Elastic Ordinary Shares resulting from such fractional rounding will be added to the last vesting period of such Assumed Endgame Option (rounded down to the nearest whole number of shares).

Out-of-the-Money Endgame Options.    At the effective time of the Merger, each Out-of-the-Money Endgame Option (if any) shall be terminated and cancelled without any consideration therefor.

Unless otherwise indicated or as the context otherwise requires, references in this proxy statement/prospectus to:

Endgame Options” means all issued and outstanding options (including commitments to grant options) to purchase or otherwise acquire Endgame Common Stock (whether or not vested) held by any person, including, but not limited to, stock options granted under the Plan.

In-the-Money Endgame Option” means each Endgame Option having a per share exercise price equal to or less than the Per Share Residual Amount.

Stock Award Exchange Ratio” means a fraction (i) the numerator of which is the Per Share Residual Amount and (ii) the denominator of which is the Elastic Share Price.

Treatment of Endgame Warrants

Endgame Series D Preferred Warrants.    At the effective time of the Merger, each outstanding and unexercised Endgame Series D Preferred Warrant that is an In-the-Money Endgame Series D

 

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Preferred Warrant shall be terminated and cancelled and, subject to the terms and conditions set forth in Section 1.3 of the Merger Agreement and throughout the Merger Agreement (including the establishment of the Indemnity Escrow Fund pursuant to Section 2.3(c) of the Merger Agreement, the indemnification provisions set forth in Article IX of the Merger Agreement, and delivery of the Exchange Documents pursuant to Section 2.3(b) of the Merger Agreement), be converted into the right to receive with respect to each share issuable upon exercise in full of such Endgame Series D Preferred Warrant: (1) a number of Elastic Ordinary Shares equal to the quotient obtained by dividing (x) the excess of the sum of (i) the Per Series D Liquidation Preference, plus (ii) the Per Share Closing Participation Amount, over the per share exercise price of such Endgame Series D Preferred Warrant, by (y) the Elastic Share Price; (2) a contingent right to receive the Per Share Adjustment Consideration; (3) an amount in cash, without interest, equal to the Per Share Expense Contribution (which shall be deposited with the Securityholder Representative in accordance with, and subject to the terms of Section 2.3(d) of the Merger Agreement); and (4) subject to Section 1.3(g) of the Merger Agreement, an amount in cash, without interest, equal to (i) the Euro Par Value, multiplied by (ii) the number of Elastic Ordinary Shares issuable in respect of such share of Endgame Series D Preferred Warrants pursuant the foregoing clauses (1) and (2).

Endgame Series C Preferred Warrants.    At the effective time of the Merger, each outstanding and unexercised Endgame Series C Preferred Warrant that is an In-the-Money Endgame Series C Preferred Warrant shall be terminated and cancelled and, subject to the terms and conditions set forth in Section 1.3 of the Merger Agreement and throughout the Merger Agreement (including the establishment of the Indemnity Escrow Fund pursuant to Section 2.3(c) of the Merger Agreement, the indemnification provisions set forth in Article IX of the Merger Agreement, and delivery of the Exchange Documents pursuant to Section 2.3(b) of the Merger Agreement), be converted into the right to receive with respect to each share issuable upon exercise in full of such Endgame Series C Preferred Warrant: (1) a number of Elastic Ordinary Shares equal to the quotient obtained by dividing (x) the excess of the sum of (i) the Per Series C Liquidation Preference, plus (ii) the Per Share Closing Participation Amount, over the per share exercise price of such Endgame Series C Preferred Warrant, by (y) the Elastic Share Price; (2) a contingent right to receive the Per Share Adjustment Consideration; (3) an amount in cash, without interest, equal to the Per Share Expense Contribution (which shall be deposited with the Securityholder Representative in accordance with, and subject to the terms of Section 2.3(d) of the Merger Agreement); and (4) subject to Section 1.3(g) of the Merger Agreement, an amount in cash, without interest, equal to (i) the Euro Par Value, multiplied by (ii) the number of Elastic Ordinary Shares issuable in respect of such share of Endgame Series C Preferred Warrants pursuant the foregoing clauses (1) and (2).

Endgame Series A Preferred Warrants.    At the effective time of the Merger, each outstanding and unexercised Endgame Series A Preferred Warrant that is an In-the-Money Endgame Series A Preferred Warrant shall be terminated and cancelled and, subject to the terms and conditions set forth in Section 1.3 of the Merger Agreement and throughout the Merger Agreement (including the establishment of the Indemnity Escrow Fund pursuant to Section 2.3(c) of the Merger Agreement, the indemnification provisions set forth in Article IX of the Merger Agreement, and delivery of the Exchange Documents pursuant to Section 2.3(b) of the Merger Agreement), be converted into the right to receive with respect to each share issuable upon exercise in full of such Endgame Series A Preferred Warrant: (1) a number of Elastic Ordinary Shares equal to the quotient obtained by dividing (x) the excess of the sum of (i) the Per Series A Liquidation Preference, plus (ii) the Per Share Closing Participation Amount, over the per share exercise price of such Endgame Series A Preferred Warrant, by (y) the Elastic Share Price; (2) a contingent right to receive the Per Share Adjustment Consideration; (3) an amount in cash, without interest, equal to the Per Share Expense Contribution (which shall be deposited with the Securityholder Representative in accordance with, and subject to the terms of Section 2.3(d) of the Merger Agreement); and (4) subject to Section 1.3(g) of the Merger Agreement, an amount in cash, without interest, equal to (i) the Euro Par Value, multiplied by (ii) the number of

 

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Elastic Ordinary Shares issuable in respect of such share of Endgame Series A Preferred Warrants pursuant the foregoing clauses (1) and (2).

Out-of-the-Money Endgame Warrants.    At the effective time of the Merger, each Out-of-the-Money Endgame Warrant shall be terminated and cancelled without any consideration therefor.

Unless otherwise indicated or as the context otherwise requires, references in this proxy statement/prospectus to:

Endgame Series A Preferred Warrants” means any warrant to purchase or otherwise acquire shares of Endgame Series A Preferred Stock.

Endgame Series C Preferred Warrants” means any warrant to purchase or otherwise acquire shares of Endgame Series C Preferred Stock.

Endgame Series D Preferred Warrants” means any warrant to purchase or otherwise acquire shares of Endgame Series D Preferred Stock.

In-the-Money Endgame Warrant” means (i) each Endgame Series A Preferred Warrant having a per share exercise price equal to or less than the sum of (a) Per Series A Share Liquidation Preference, plus (b) the Per Share Closing Participation Amount, (ii) each Endgame Series C Preferred Warrant having a per share exercise price equal to or less than the sum of (a) Per Series C Share Liquidation Preference, plus (b) the Per Share Closing Participation Amount, and (iii) each Endgame Series D Preferred Warrant having a per share exercise price equal to or less than the sum of (a) Per Series D Share Liquidation Preference, plus (b) the Per Share Closing Participation Amount.

Treatment of Retention Bonus Pool Awards

At the effective time of the Merger, each Retention Bonus Pool Award outstanding as of immediately prior to the effective time of the Merger shall be terminated and converted automatically into the right to receive, upon the terms and conditions set forth in Section 1.3 of the Merger Agreement and throughout the Merger Agreement (including the establishment of the Indemnity Escrow Fund pursuant to Section 2.3(c) of the Merger Agreement, the indemnification provisions set forth in Article IX of the Merger Agreement, and delivery of the Exchange Documents in the manner provided in Section 2.3(b) of the Merger Agreement): (1) a number of Elastic Ordinary Shares equal to the quotient obtained by dividing (x) the Retention Bonus Pool Award Value of such Retention Bonus Pool Award, by (y) the Elastic Share Price; and (2) subject to Section 1.3(g) of the Merger Agreement, an amount in cash, without interest, equal to (i) the Euro Par Value, multiplied by (ii) the number of Elastic Ordinary Shares issuable in respect of such Retention Bonus Pool Award pursuant the foregoing clause (1).

Unless otherwise indicated or as the context otherwise requires, references in this proxy statement/prospectus to:

Retention Bonus Pool Amount” means an amount equal to (A) $600,000, plus (B) an amount equal to (i) eight percent, multiplied by, (ii) that amount equal to (a) the Total Closing Consideration, minus (b) that amount equal to the Per Share Residual Amount, multiplied by (y) the maximum aggregate number of shares of Endgame Common Stock issuable upon full exercise, exchange or conversion of all unvested Endgame Options that are In-the-Money Endgame Options that are outstanding immediately prior to the effective time of the Merger, plus (c) the aggregate Closing Indebtedness payable in respect of Endgame Convertible Notes.

 

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Retention Bonus Pool Award” means a Retention Bonus under the Company’s Retention Bonus Plan, as amended.

Retention Bonus Pool Award Value” means, with respect to a Retention Bonus Pool Award, (i) an amount equal to (a) the Retention Bonus Pool Amount, multiplied by (b) the percentage corresponding to the Retention Bonus Pool Participant entitled to such Retention Bonus Pool Award, as set forth on a schedule to the Merger Agreement, minus (ii) an amount equal to the aggregate value of all shares of Company Common Stock held by such Retention Bonus Pool Participant and all vested Company Options that are In-the-Money Company Options, in each case, as of immediately prior to the effective time of the Merger (such value being determined in accordance with the conversion of such Company Securities pursuant to Section 1.3(b)(vii) and Section 1.3(c)(i)).

Net Working Capital Adjustment

Within ninety days after the Closing Date, Elastic will deliver to the Securityholder Representative a statement (the “Post-Closing Statement”) setting forth Elastic’s good faith calculation of (i) the Closing Net Working Capital Adjustment Amount and each of the components and subcomponents thereof, and (ii) proposed Closing Net Working Capital Surplus or proposed Closing Net Working Capital Shortfall, as applicable, and each of the components thereof. The Post-Closing Statement will become final and binding after thirty days following the delivery thereof, unless prior to the end of such thirty-day period the Securityholder Representative delivers to Elastic a written notice of disagreement (the “Notice of Disagreement”) whereby the Securityholder Representative and Elastic will have fifteen days to resolve in good faith any differences they may have with respect to the matters specified in the Notice of Disagreement. Any differences that are unresolved within this fifteen day period, will be submitted to a nationally recognized public accounting firm agreed upon in writing by the Securityholder Representative and Elastic to make a written determination as to each such disputed item and the amount so disputed, which determination shall be final and binding on the parties.

For purposes of the Merger Agreement, “Final Closing Net Working Capital Adjustment Amount” means the Closing Net Working Capital Adjustment Amount, as finally determined in accordance with Section 7.15 of the Merger Agreement. The parties agree that:

 

   

If the Final Closing Net Working Capital Adjustment Amount is less than the Estimated Closing Net Working Capital Adjustment Amount (the amount (if any) by which Final Closing Net Working Capital Adjustment Amount is less than the Estimated Closing Net Working Capital Adjustment Amount set forth in the Payment Spreadsheet and used to calculate the Total Closing Consideration, the “Closing Net Working Capital Shortfall”), then Elastic shall recover the Closing Net Working Capital Shortfall from the Indemnity Escrow Shares then-remaining in the Indemnity Escrow Fund, which shall be Elastic’s sole recourse in case of any Closing Net Working Capital Shortfall.

 

   

If the Final Closing Net Working Capital Adjustment Amount is greater than the Estimated Closing Net Working Capital Adjustment Amount (the amount (if any) by which Final Closing Net Working Capital Adjustment Amount is greater than the Estimated Closing Net Working Capital Adjustment Amount set forth in the Payment Spreadsheet and used to calculate the Total Closing Consideration, the “Closing Net Working Capital Surplus”), then Elastic shall issue to the Indemnifying Parties that number of Elastic Ordinary Shares equal to the quotient obtained by dividing (A) the Closing Net Working Capital Surplus, by (B) the Elastic Share Price, rounded down to the nearest whole number of shares, with each Indemnifying Party to receive that number of shares contemplated by Section 1.3 of the Merger Agreement.

 

   

If the Final Closing Net Working Capital Adjustment Amount is equal to the Estimated Closing Net Working Capital Adjustment Amount, then there shall be no adjustments or further obligations.

 

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Representations and Warranties

The Merger Agreement contains representations and warranties made by Elastic and Merger Sub to Endgame and by Endgame to Elastic and Merger Sub. Certain of the representations and warranties made by Endgame in the Merger Agreement are subject to materiality or Endgame Material Adverse Effect qualifications (that is, they will not be deemed to be untrue or incorrect unless their failure to be true or correct is material or would result in an Endgame Material Adverse Effect (as defined below)). In addition, certain of the representations and warranties made by Endgame in the Merger Agreement are subject to knowledge qualifications, which means that those representations and warranties would not be deemed untrue or incorrect as a result of matters of which certain officers of the party making the representation did not have knowledge, assuming due inquiry.

The Merger Agreement provides that a “Endgame Material Adverse Effect” means any effect, individually or when taken together with all other effects that have occurred prior to the date of determination of the occurrence of such effect, that is or is reasonably likely to be materially adverse to the business, assets (including intangible assets), liabilities, or financial condition, of Endgame and its subsidiaries taken as a whole, other than, in each case, any effect resulting from or attributable to:

 

  a)

changes in general economic, financial market, business or geopolitical conditions;

 

  b)

general changes or developments in any of the industries in which Endgame and its subsidiaries operate;

 

  c)

changes following the date of the execution of the Merger Agreement in any Laws or legal, regulatory or political conditions or changes following the date of the execution of the Merger Agreement in GAAP or other applicable accounting standards, or the interpretation or enforcement thereof;

 

  d)

any act of God, any act of terrorism, war or other armed hostilities, any regional, national or international calamity or any other similar event;

 

  e)

any failure by Endgame to meet any projections, budgets or estimates of revenue or earnings (it being understood that the facts giving rise to such failure may be taken into account in determining whether there has been an Endgame Material Adverse Effect (except to the extent otherwise provided in the Merger Agreement));

 

  f)

any announcement or pendency of the Merger Agreement and the transactions contemplated thereby (including (i) the identity of Elastic, (ii) the loss or departure of officers or other employees of Endgame or any of its subsidiaries, (iii) the termination or potential termination of (or the failure or potential failure to renew or enter into) any Contracts with customers, suppliers, distributors or other business partners, and (iv) any other negative development (or potential negative development) in Endgame’s relationships with any of its customers, suppliers, distributors or other business partners, in each case, of the foregoing clauses (i) through (iv), solely to the extent arising from any announcement or pendency of the Merger Agreement and the transactions contemplated thereby);

provided that such effects referenced in clauses (a) through (e) do not, individually or when taken together with all other such effects, have a disproportionate effect on Endgame and its subsidiaries.

In the Merger Agreement, Elastic and Merger Sub have made representations and warranties regarding, among other topics:

 

   

organization, standing and corporate power;

 

   

authority to enter into, execute, deliver and perform Elastic’s obligations under, and to consummate the transactions contemplated by, the Merger Agreement and any Related Agreements;

 

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consents, approvals or filings with any Governmental Entity required in connection with the transactions contemplated by the Merger Agreement and any Related Agreements (including the CFIUS Approval and the DCSA Approval);

 

   

capital structure, including the number of Elastic Ordinary Shares and equity-based awards outstanding or reserved for issuance under the Elastic equity plans;

 

   

documents filed with or furnished to the SEC by Elastic, financial statements, internal controls and accounting or auditing practices;

 

   

the absence of prior activities by Merger Sub; and

 

   

due authorization and valid issuance of Elastic Ordinary Shares.

In the Merger Agreement, Endgame has made representations and warranties regarding, among other topics:

 

   

organization, standing, corporate power, organizational documents and ownership of subsidiaries;

 

   

authority to enter into, execute, deliver and perform Endgame’s obligations under, and to consummate the transactions contemplated by, the Merger Agreement and any Related Agreement and the enforceability of the Merger Agreement against Endgame;

 

   

consents, approvals or filings with any Governmental Entity required in connection with the transactions contemplated by the Merger Agreement and any Related Agreement (including the CFIUS Approval and the DCSA Approval);

 

   

the absence of conflicts with, or violations of, organizational documents, applicable law and certain contracts as a result of Endgame’s entering into the Merger Agreement and any Related Agreement and consummating the Merger and the other transactions contemplated by the Merger Agreement and any Related Agreement;

 

   

capital structure, including the number of shares of Endgame Capital Stock, stock options and warrants outstanding or reserved for issuance, and all Indebtedness of Endgame and each of its subsidiaries;

 

   

financial statements and internal financial controls matters of Endgame and its subsidiaries;

 

   

the absence of undisclosed liabilities and off-balance-sheet arrangements;

 

   

the absence of an Endgame Material Adverse Effect on Endgame since December 31, 2018 and the conduct of business by Endgame in the ordinary course consistent with past practice in all material respects since April 30, 2019;

 

   

tax matters;

 

   

owned and leased real property;

 

   

intellectual property and data privacy matters;

 

   

material contracts;

 

   

employee benefit plan matters;

 

   

employment matters;

 

   

government authorizations;

 

   

absence of certain litigation and governmental orders;

 

   

insurance matters;

 

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compliance with applicable laws and permits;

 

   

government contracts and security clearances;

 

   

significant customers and suppliers;

 

   

the absence of certain affiliate transactions;

 

   

books and records of Endgame;

 

   

third party expenses of Endgame;

 

   

banking relationships; and

 

   

availability of certain contracts, documents and information.

Unless otherwise indicated or as the context otherwise requires, references in this proxy statement/prospectus to:

Related Agreements” means the Non-Disclosure Agreement, the Stockholder Written Consent, the Joinder Agreements, the Endgame Support Agreements, the Elastic Support Agreements, the 280G Waivers, the Warrant Cancellation Agreements, the Payoff Letters, the Escrow Agreement, and all other agreements and certificates entered into or otherwise delivered by on behalf of Endgame or any of the Securityholders in connection with the transactions contemplated herein.

Conduct of Business

Endgame has undertaken certain covenants in the Merger Agreement restricting the conduct of its business between the date of the Merger Agreement and the effective time of the Merger. In general, Endgame and its subsidiaries have agreed to conduct their businesses in the usual, regular and ordinary course and in substantially the same manner as heretofore conducted, pay all taxes of Endgame and its subsidiaries when due, pay or perform all other obligations of Endgame and its subsidiaries when due (including the timely withholding, collecting, remitting and payment of all taxes required under Law), and, to the extent consistent with such business, preserve intact the present business organizations of Endgame and its subsidiaries, keep available the services of the present Employees, preserve the assets (including intangible assets) and properties of Endgame and its subsidiaries and preserve the relationships of Endgame and its subsidiaries with customers, suppliers, distributors, licensors, licensees, and others having business dealings with them, all with the goal of preserving unimpaired the goodwill and ongoing businesses of Endgame and its subsidiaries at the effective time of the Merger.

In addition, between the date of the Merger Agreement and the effective time of the Merger, Endgame or any of its subsidiaries has agreed not to take any of the following actions without the prior written consent of Elastic (such consent not to be unreasonably withheld, conditioned, or delayed):

 

   

causing or permitting any modifications, amendments or changes to the Charter Documents or the organizational documents of any Subsidiary;

 

   

declaring, setting aside or paying dividends or making any other distributions (whether in cash, stock or property);

 

   

splitting, combining or reclassifying any of Endgame Capital Stock or the capital stock or other Equity Interest of any Subsidiary;

 

   

issuing or authorizing the issuance of any other securities in respect of, in lieu of or in substitution for shares of Endgame Capital Stock or the capital stock or other Equity Interest of any Subsidiary;

 

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repurchasing, redeeming or otherwise acquiring (directly or indirectly) shares of Endgame Capital Stock or the capital stock or other Equity Interest of any Subsidiary (or options, warrants or other rights convertible into, exercisable or exchangeable for Endgame Common Stock or the capital stock or other Equity Interest of any Subsidiary) (with certain exceptions);

 

   

issuing, granting, delivering or selling or authorizing or proposing the issuance, grant, delivery or sale of, or purchase or proposing the purchase of, any Endgame Capital Stock or equity-based awards (whether payable in cash, Endgame Securities or otherwise) or the capital stock or other Equity Interest of any Subsidiary or any securities convertible into, exercisable or exchangeable for, or subscriptions, rights, warrants or options to acquire, or other Contracts or commitments of any character obligating any of them to issue or purchase any such shares or other convertible securities, or amend, accelerate the vesting of, adjust or modify any Endgame Securities, except for the issuance of Endgame Capital Stock pursuant to the exercise of Endgame Options or Endgame Warrants outstanding as of the date of the execution of the Merger Agreement;

 

   

forming, or entering into any commitment to form, a subsidiary, or acquire, or entering into any commitment to acquire, an interest in any corporation, association, joint venture, partnership or other business entity or division thereof or any portion of the assets of the foregoing;

 

   

making or agreeing to make any capital expenditure or commitment exceeding $250,000 individually or $500,000 in the aggregate;

 

   

acquiring or agreeing to acquire or dispose of (i) any assets of any person (including Endgame or any Subsidiary), other than acquisitions of supplies or similar assets in the ordinary course of the business consistent with past practice or the disposal of non-material assets of Endgame or any of its subsidiaries in the ordinary course of business consistent with past practice, or (ii) any Equity Interest in any person (including any Subsidiary) or any business enterprise or division thereof;

 

   

(i) selling, divesting, licensing or assigning to any person or entering into any Contract to sell, divest, license or assign to any person any rights to any Company IPR (other than non-exclusive licenses pursuant to a Contract substantially in the form of a Standard Form IP Contract entered into in the ordinary course of business consistent with past practice); (ii) buying or licensing in any Technology or Intellectual Property Right of any third party (other than (i) Open Source Software or Shrink-Wrap Software), except in the ordinary course of Endgame’s business consistent with past practices but, in case of any material Technology or Intellectual Property Right, with prior written notice to Elastic; (iii) licensing any Company Products or Company IPR to third parties, except in the ordinary course of business consistent with past practice but, in case any such licenses are pursuant to a Contract that would have been a Material Contract if entered into prior to the date of the execution of the Merger Agreement and is not substantially in the form of a Standard Form IP Contract, with prior written notice to Elastic; (iv) entering into any distributor, reseller, sales representative, referral, marketing, or similar Contract, except in the ordinary course of Endgame’s business consistent with past practices but, in case of any such Contracts that are material to Endgame or any of its subsidiaries, with prior written notice to Elastic; (v) amending, modifying, or extending any Material Contract (other than Contracts substantially in the form of the applicable customer or end user Contracts for Company Product(s) (including reseller agreements)) that absent Section 3.13(b)(z) of the Merger Agreement would not otherwise constitute Material Contracts) for the license, sale, or other distribution of Company Products or Company IP (other than amendments, extensions, or modifications are entered into in the ordinary course of business consistent with past practice and which do not change pricing under such Contracts); (vi) entering into any Contract with respect to the development of any Technology or Intellectual Property Right on behalf of Endgame or any Subsidiary with a third party (other than Contracts

 

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with Employees in the form of the applicable Proprietary Information Agreement), except in the ordinary course of Endgame’s business consistent with past practices but, in case of any material Technology or Intellectual Property Right, with prior written notice to Elastic; (vii) changing pricing or royalties charged by Endgame or any Subsidiary to their respective distributors, resellers, sales representatives, customers or licensees, or the pricing or royalties set or charged by persons who have licensed Technology or Intellectual Property Rights to Endgame or any of its subsidiaries; or (viii) disclosing any Company Source Code to, or deposit in escrow any Company Source Code with, any third party other than its Employees who have entered into Contracts in the form of a Proprietary Information Agreement;

 

   

(i) incurring any Indebtedness, including by the issuance or sale of any debt securities, in excess of $500,000 in the aggregate, (ii) creating or permitting any Lien (other than Permitted Liens) over any material asset of Endgame or any Subsidiary, or (iii) amending the terms of any outstanding loan agreement or other Contract evidencing Indebtedness, except amending the Bridge Loan on substantially the same terms as those set forth in a letter agreement between the parties;

 

   

make any loan to any person (except for advances to employees for reasonable business travel and expenses in the ordinary course of business consistent with past practice), purchase debt securities of any person or guarantee any Indebtedness of any person (other than intercompany arrangements among Endgame and its subsidiaries entered into in the ordinary course of business consistent with past practice);

 

   

commencing or settling any Action or threat of any Action by or against Endgame or any Subsidiary or relating to any of their businesses, properties or assets;

 

   

paying, discharging, releasing, waiving or satisfying any material claims, rights or liabilities, other than the payment, discharge or satisfaction in the ordinary course of business consistent with past practice of liabilities reflected on the Current Balance Sheet or incurred in the ordinary course of business consistent with past practice after the Balance Sheet Date;

 

   

adopting or changing accounting methods or practices (including any change in depreciation or amortization policies or rates or any change to practices that would impact the methodology for recognizing revenue) other than as required by GAAP;

 

   

except as may be required by applicable Law (in which case Endgame or one of its subsidiaries, as applicable, shall notify Elastic prior to taking such action), making or changing any material election in respect of taxes, adopting or changing any accounting method in respect of taxes, waiving any right to a material tax refund or credit, settling any claim or assessment in respect of taxes, consenting to any extension or waiver of the limitation period applicable to any claim or assessment in respect of taxes, making or requesting any Tax ruling, entering into any Tax sharing or similar Contract or arrangement (other than customary commercial contracts entered into in the ordinary course of business the primary purpose of which is unrelated to Tax), entering into any transactions giving rise to deferred gain or loss outside the ordinary course of business, amending any Tax Return or filing any Tax Return except in accordance with Section 7.9(a) of the Merger Agreement;

 

   

except as required by Law, adopting, amending or terminating any Company Employee Plan, including any indemnification Contract or entering into or amending any employee Contract;

 

   

modifying or removing any Company Privacy Policy, publishing any new Company Privacy Policy, or announcing any modification, removal, or publication of any Company Privacy Policy;

 

   

(i) increasing or making any other change that would result in increased cost to Endgame with respect to the salary, wage rate, employment status, title or other compensation (including Company Security-based compensation, whether payable in cash, Company Securities or

 

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other property) payable or to become payable by Endgame or any Subsidiary to any Employee or (ii) hiring or engaging any person for service, demoting, terminating (other than for cause) or otherwise modifying the terms and conditions of the service or employment of any current Employee, or causing any Employee to resign from Endgame or otherwise terminating the services of any Employee (other than for cause), other than, subject to prior notice to Elastic, hiring or terminating employees in the ordinary course of business consistent with past practice in a manner not material to the business or operations of Endgame and its subsidiaries as a whole;

 

   

making any declaration, payment, commitment or obligation of any kind for the payment (whether in cash, Company Securities or otherwise) of any severance payment or other change in control payment, termination payment, bonus, special remuneration or other additional salary or compensation (including Company Security-based compensation) to any Employee, except payments made pursuant to certain specified employment agreements existing on the date of the execution of the Merger Agreement;

 

   

taking any action to accelerate or otherwise modify the terms of any of the outstanding Company Options, except modifying certain specified Endgame NSOs to permit the treatment of such Endgame NSOs as In-the-Money Endgame Options;

 

   

sending any communications (including electronic communications) to Employees regarding (i) the Merger Agreement or the transactions contemplated thereby that are inconsistent with the Merger Agreement or the transactions contemplated thereby, or (ii) the Offer Documents or any terms of employment with or service to Elastic or any of its affiliates;

 

   

canceling, amending (other than in connection with the addition of customers, distributors, resellers, licensees, suppliers, or vendors to such insurance policies from time to time in the ordinary course of business consistent with past practices), or failing to renew (on substantially similar terms) any insurance policy of Endgame or any Subsidiary;

 

   

(i) terminating, amending, extending, waiving, or modifying any Material Contract in a manner that would be material relative to Endgame’s or any Subsidiary’s businesses or operations, (ii) entering into any Contract which would have constituted a Material Contract had such Contract been entered into prior to the date of the execution of the Merger Agreement (other than Contracts substantially in the form of the applicable Standard Form IP Contract), except in the ordinary course of business consistent with past practice and with prior written notice to Elastic, or (iii) knowingly or willfully violate the terms of any Contract referenced in the foregoing clauses (i) or (ii);

 

   

entering into any Contract to purchase or sell any interest in real property, granting any security interest in any real property, entering into any lease, sublease, license or other occupancy Contract with respect to any real property or altering, amending, modifying, knowingly or willfully violating or terminating any of the terms of any Lease Agreements;

 

   

(i) other than in the ordinary course of business consistent with past practice, deferring payment of any accounts payable, commissions, or other liabilities of Endgame or any of its subsidiaries, (ii) providing for a reduction in fees or other amounts due to Endgame or any of its subsidiaries after the Closing, (iii) giving any discount, credits, accommodation or other concession, or otherwise taking action that would reasonably be expected to accelerate or induce the collection of any receivable or otherwise increase the cash or cash equivalents or other current assets of Endgame or any of its subsidiaries, including any sales of a Company Product (A) with payment terms longer than terms customarily offered for such Company Product in the ordinary course of business consistent with past practice, (B) at a greater discount from listed prices or with more credits or other monetary incentives than customarily offered for such Company Product, other than pursuant to a promotion of a nature previously

 

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used in the ordinary course of business consistent with past practice for such Company Product, (C) at a price that does not give effect to any general increase in the list price for such Company Product publicly announced prior to the Closing Date, (D) in a quantity or volume greater than the reasonable resale requirement of the particular customer, distributor or reseller, (E) in conjunction with other material benefits to the customer, distributor or reseller not previously offered in the ordinary course of business consistent with past practice to such customer, or (F) accelerating the timing of any new releases for Company Products, or (iv) taking any other action or omit to take any action with the primary intention of increasing the Total Closing Consideration; or

 

   

taking, committing, or agreeing in writing or otherwise to take or make, (i) any of the actions described above, or (ii) any other action or omission that would (A) prevent Endgame or any of its subsidiaries from performing, or cause Endgame or any of its subsidiaries not to perform, its covenants or agreements set forth in the Merger Agreement, or (B) cause or result in Endgame knowingly or willfully breaching or otherwise causing to be untrue or incorrect any of its representations and warranties contained in the Merger Agreement.

Unless otherwise indicated or as the context otherwise requires, references in this proxy statement/prospectus to:

Endgame Employee Plan” means any plan, fund, program, policy, practice, Contract, or other arrangement providing for compensation, severance, change of control, termination pay, deferred compensation, bonus, performance awards, incentive compensation, equity or equity-related awards, phantom stock or bonus awards, welfare benefits, retirement benefits, fringe benefits or other employee benefits or material remuneration of any kind, whether written, unwritten or otherwise, funded or unfunded, including each “employee benefit plan,” within the meaning of Section 3(3) of ERISA which is or has been maintained, contributed to, or required to be contributed to, by Endgame or any ERISA Affiliate for the benefit of any Employee, or with respect to which Endgame or any ERISA Affiliate has or may have any liability or obligation, including any International Employee Plan.

Employee” means any current or former employee, consultant, independent contractor, officer, director or other service provider of Endgame or any ERISA Affiliate.

ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

ERISA Affiliate” means each Subsidiary of Endgame and any other Person under common control with Endgame or any Subsidiary or that, together with Endgame, could be deemed a “single employer” within the meaning of Section 4001(b)(1) of ERISA or within the meaning of Section 414(b), (c), (m) or (o) of the Code, and the regulations issued thereunder.

Covenants and Agreements

The Merger Agreement contains certain other covenants and agreements, including covenants relating to:

 

   

cooperation between Elastic and Endgame in the joint preparation and filing of this proxy statement/prospectus and the convening of the Elastic Extraordinary Meeting and preparation and distribution of Endgame’s information statement and the solicitation of the Endgame stockholders to (i) adopt the Merger Agreement and (ii) approve the Merger and the other transactions contemplated by the Merger Agreement;

 

   

the submission to Endgame’s stockholders for approval any payments and/or benefits that may separately or in the aggregate, constitute “parachute payments” within the meaning of

 

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Section 280G of the Code and the regulations promulgated thereunder, such that such payments and benefits shall not be deemed to be “parachute payments” under Section 280G of the Code;

 

   

the use of reasonable best efforts by Endgame to cause each Indemnifying Party to execute and deliver to Endgame a Joinder Agreement;

 

   

the use of reasonable best efforts by Endgame to cause each Warrantholder to sign a Warrant Cancellation Agreement;

 

   

confidentiality and access by each party to certain information about the other party during the period prior to the effective time of the Merger, including notification of certain matters;

 

   

the use of each party’s reasonable best efforts to take certain actions in connection with required regulatory filings: first, to achieve CFIUS Approval provided, however, that Elastic shall not be obligated to accept any commercially unreasonable restriction or impairment on Elastic or Endgame, or their respective assets, products, services, business, operations, directors, officers, or employees, in order to obtain the CFIUS Approval, subject to certain further specific definitions of commercially reasonable terms; second, to achieve DCSA Approval, provided, however, Elastic’s reasonable best efforts shall not require, and in no event shall Elastic be required to effect, any material separation of product engineering personnel between the DCSA mitigated entity and parent company or replication or location of all product engineering personnel within the DCSA mitigated entity.

 

   

cooperation between Elastic and Endgame in connection with public announcements;

 

   

the use of reasonable best efforts by Elastic to cause the Elastic Ordinary Shares to be issued in the Merger to be approved for listing on NYSE;

 

   

Elastic’s obligations in connection with certain Endgame employee matters;

 

   

the use of reasonable best efforts by Endgame to send all notices to and obtain all consents, waivers and approvals of any third-party to any Material Contract as are required thereunder in connection with the Merger;

 

   

Endgame’s obligations to provide certain information with regards to Company Registered IP and Material Contracts;

 

   

the use of commercially reasonable efforts to cause the Merger to qualify, and the obligation to not take any action or cause any action to be taken which would reasonably be expected to prevent the merger from qualifying as a reorganization, within the meaning of Section 368(a) of the Code notwithstanding any application of Section 367(a)(1) of the Code, and certain other tax matters;

 

   

Elastic’s obligations to obtain payoff letters from each holder of Indebtedness of Endgame or any subsidiary;

 

   

Endgame’s obligations to obtain equity release agreements from each person to whom Company Options have been promised but not yet granted;

 

   

preparation and delivery by Endgame of the Closing Date Balance Sheet; and

 

   

preparation and delivery by Endgame of the Required Audited Financial Statements;

No Solicitation of Alternative Transactions

As of the execution of the Merger Agreement, Endgame, its affiliates and their respective representatives were required to immediately cease and cause to be terminated any such negotiations

 

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and discussions with third parties (other than Elastic and its representatives) regarding (i) any acquisition of all or any material portion of the business, properties, assets or technologies of Endgame or any of its subsidiaries, or any amount of equity interests of any subsidiary of Elastic, whether or not outstanding (in each case, other than in connection with the exercise or the conversion of existing Endgame securities in accordance with the Charter Documents), in any case whether by merger, consolidation, amalgamation, purchase of assets or stock, tender or exchange offer, license or otherwise (other than the sale of products and services in the ordinary course of business consistent with past practice or the licensing of Intellectual Property Rights in connection therewith), (ii) any joint venture or other strategic investment in or involving Endgame or any of its subsidiaries (other than pursuant to a commercial or strategic relationship in the ordinary course of business consistent with past practice), including any new debt, equity, or other financing or investment, or recapitalization of Endgame or any of its subsidiaries, or (iii) any similar transaction that is not in the ordinary course of business (each of the transactions described in the preceding clauses (i), (ii) and (iii) being referred to herein as an “Alternative Transaction”).

Prior to the Closing, Endgame shall not, nor shall Endgame permit any of its affiliates or its or their representatives to, directly or indirectly:

 

   

solicit, initiate, seek or knowingly encourage, promote, or support any inquiry, proposal or offer from, furnish any information regarding Endgame or any of its subsidiaries to, or participate in any discussions or negotiations with, any third party regarding, or in a manner intended or reasonably likely to facilitate, any Alternative Transaction;

 

   

disclose any information not customarily disclosed to any person concerning the business, properties, assets or technologies of Endgame or any of its subsidiaries, or afford to any person access to their respective properties, assets, technologies, books or records, not customarily afforded such access in a manner intended or reasonably likely to facilitate, any Alternative Transaction;

 

   

assist or cooperate with any person to make any inquiry, offer, proposal or indication of interest regarding any Alternative Transaction; or

 

   

enter into any contract with any person providing for an Alternative Transaction.

In the event that Endgame or any of its representatives shall receive, prior to the effective time of the Merger or the termination of the Merger Agreement, any inquiry offer, proposal or indication of interest regarding a potential Alternative Transaction, or any request for disclosure of information or access of the type referenced in the second bullet above, Endgame or such affiliate or representative shall promptly (and in any event within 24 hours) notify Elastic thereof, which notice shall include the identity of the party making any such inquiry, offer, proposal, indication of interest or request, and the specific terms of such inquiry, offer, proposal, indication or request, as the case may be (including a copy of any written material received from such third party related to such proposal).

Conditions to the Completion of the Merger

The obligations of each of Elastic and Endgame to effect the Merger are subject to the satisfaction or waiver of the following conditions:

 

   

the effectiveness of the Form S-4 in accordance with the provisions of the Securities Act, and absence of any stop order or pending litigation seeking a stop order with respect to the Form S-4;

 

   

obtaining the Elastic Requisite Shareholder Approval (see “The Extraordinary Meeting of Shareholders—Required Vote” beginning on page 72);

 

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obtaining the Endgame Requisite Stockholder Approval;

 

   

the termination or expiration of any applicable waiting period, if any, under the HSR Act and obtain CFIUS Approval and DCSA Approval (see “The Merger–Regulatory Approvals Required for the Merger” beginning on page 92);

 

   

the absence of any Law or Order (whether temporary, preliminary or permanent) that has the effect of making either of the Merger or any other transaction contemplated hereby illegal or otherwise prohibiting or preventing consummation of either of the Merger or any other transaction contemplated by the Merger Agreement in accordance with the terms thereof; and

 

   

the absence of any legal action pending or threatened against Elastic or any of its affiliates, or against Endgame or any of its affiliates, by any Governmental Entity arising out of, or in any way connected with, the Merger Agreement, the Merger or any other transactions contemplated thereby.

In addition, the obligations of Elastic and Merger Sub to effect the Merger are subject to the satisfaction or waiver of the following conditions:

 

   

performance and compliance in all material respects with each of Endgame’s covenants and obligations under the Merger Agreement required to be performed and complied with by Endgame prior to the Closing;

 

   

the Fundamental Representations (as defined below) that are not qualified by materiality being true and correct in all material respects on and as of the date of the execution of the Merger Agreement and being true and correct in all material respects on and as of the Closing Date as though such representations and warranties were made on and as of such date (other than such representations and warranties of Endgame made only as of a specified date, which shall be true and correct in all material respects as of such date);

 

   

the Fundamental Representations that are qualified by materiality being true and correct in all respects on and as of the date of the execution of the Merger Agreement and being true and correct in all respects on and as of the Closing Date as though such representations and warranties were made on and as of such date (other than such representations and warranties of Endgame made only as of a specified date, which shall be true and correct in all respects as of such date);

 

   

the representations and warranties of Endgame (other than the Fundamental Representations) being true and correct (without giving effect to any qualification as to materiality or Endgame Material Adverse Effect or similar qualification) in all respects on and as of the date of the execution of the Merger Agreement and being true and correct (without giving effect to any qualification as to materiality or Endgame Material Adverse Effect or similar qualification) in all respects on and as of the Closing Date as though such representations and warranties were made on and as of such date (other than such representations and warranties of Endgame made only as of a specified date, which shall be true and correct in all respects as of such date), except, where any failures of any such representations and warranties to be true and correct (without giving effect to any qualification as to materiality or Endgame Material Adverse Effect or similar qualification) has not had and would not reasonably be expected to have, individually or in the aggregate, an Endgame Material Adverse Effect;

 

   

the absence of an Endgame Material Adverse Effect since December 31, 2018 that is continuing;

 

   

the absence of stockholders of Endgame holding more than ten percent of the issued and outstanding shares of Endgame Capital Stock (on an as converted into Endgame Common Stock basis) have exercised appraisal or dissenters’ rights under applicable law, including

 

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Delaware law, in either case, with respect to the Merger and the other transactions contemplated by the Merger Agreement;

 

   

the receipt of an executed Joinder Agreement from each of the Indemnifying Parties that together represent an aggregate Pro Rata Portion greater than ninety percent;

 

   

obtaining either (i) the approval of the stockholders of Endgame of any “parachute payments” pursuant to Section 280G of the Code or (ii) the disapproval of the stockholders of Endgame of the payment of such “parachute payments”;

 

   

the Option Amendment Agreements executed by certain employees of Endgame remaining in full force and effect and not being revoked, rescinded, or otherwise repudiated by the respective signatories thereto;

 

   

the Key Employee Agreements executed by the Key Employees remaining in full force and effect and not being revoked, rescinded or otherwise repudiated by any such person. Additionally, none of the Key Employees (i) has terminated his or her employment with or services to Endgame (or one of its subsidiaries, as applicable) at or prior to the Closing or overtly expressed an intention or interest in, or taken action toward terminating his or her employment with or services to Endgame (or one of its subsidiaries, as applicable) at or prior to the Closing, or with Elastic (or one of its affiliates, as applicable) following the Closing, (ii) has satisfied Elastic’s employee customary background investigation and reference check, and (iii) is not prohibited by applicable Law from working in the jurisdiction in which such Employee is employed or engaged by Endgame (or one of its subsidiaries, as applicable) as of the date of the execution of the Merger Agreement;

 

   

the receipt of at least eighty percent of the employees of Endgame to whom Elastic or one of its affiliates delivers an offer letter (i) has executed an offer letter, which has not been revoked, rescinded or otherwise repudiated by any such Employee, (ii) has not terminated his or her employment with or services to Endgame (or one of its subsidiaries, as applicable) at or prior to the Closing or overtly expressed an intention or interest in, or taken action toward terminating his or her employment with or services to Endgame (or one of its subsidiaries, as applicable) at or prior to the Closing, or with Elastic (or one of its affiliates, as applicable) following the Closing, (iii) has satisfied Elastic’s customary employee background investigation, and (iv) is not prohibited by applicable Law from working in the jurisdiction in which such Employee is employed or engaged by Endgame (or one of its subsidiaries, as applicable) as of the date of the execution of the Merger Agreement;

 

   

the receipt of all necessary consents, waivers and approvals of parties to certain specified contracts as are required thereunder in connection with the Merger;

 

   

the receipt of evidence satisfactory to Elastic (acting reasonably) at least three Business Days prior to the Closing Date, that each person to whom Company Options have been promised but not yet granted, has duly executed and delivered an equity release agreement in a form acceptable to Elastic (acting reasonably);

 

   

the receipt of evidence that all of Endgame Convertible Notes shall be repaid by the issuance of Elastic Ordinary Shares (with each such share being valued at the Elastic Share Price);

 

   

the termination of any Endgame Employee Plans;

 

   

the receipt of all audited and unaudited financial statements of Endgame and its subsidiaries that are required to be filed on (or as an exhibit to) a Current Report on Form 8-K in connection with the Merger or with a registration statement filed by Elastic with the SEC, in each case, pursuant to applicable Law, including the rules and regulations of the SEC (including Regulation S-X and Rule 3-05 thereunder), including, for the avoidance of doubt, the Required Financial Statements (even if such financial statements are not required to be so filed prior to or at the Closing), but excluding any required pro forma financial statements; and

 

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the receipt of certain certificates from the Endgame, including an officer’s certificate, secretary’s certificate and a FIRPTA Certificate, covering customary matters.

Unless otherwise indicated or as the context otherwise requires, references in this proxy statement/prospectus to:

Key Employees” means the following persons, each of whom is a current member of Endgame’s management team:

 

  1.

Nathaniel Fick

 

  2.

James Butler

 

  3.

Anthony Meehan

 

  4.

Mark Dufresne

 

  5.

Michael Nichols

 

  6.

Sean Cunningham

Key Employee Agreements” means Elastic’s or an affiliate’s form offer letter, form Confidential Information and Inventions Assignment Agreement, and other customary employment-related agreements and documents, as executed by the Key Employees.

In addition, the obligations of Endgame to effect the Merger are subject to the satisfaction or waiver of the following conditions:

 

   

the performance and compliance in all material respects with each of Elastic’s and Merger Sub’s covenants and obligations under the Merger Agreement required to be performed and complied with by them prior to the Closing;

 

   

except as would not materially impair Elastic’s ability to consummate the Merger, the representations and warranties of Elastic being true and correct in all respects on the date they were made and being true and correct in all respects on and as of the Closing Date as though such representations and warranties were made on and as of such date (other than the representations and warranties of Elastic made only as of a specified date, which shall be true and correct in all respects as of such date);

 

   

the absence of an Elastic Material Adverse Effect since the date of the execution of the Merger Agreement that is continuing as of the Closing;

 

   

the issuance of Elastic Ordinary Shares in the Merger, including those Elastic Ordinary Shares issuable upon the exercise of Assumed Company Options, being approved for listing, subject to official notice of issuance, and absence of a trading halt issued by any Governmental Entity or the NYSE with respect to the Elastic Ordinary Shares; and

 

   

the receipt of Elastic’s officer’s certificate covering customary matters.

Termination of the Merger Agreement

The Merger Agreement may be terminated at any time prior to the effective time of the Merger, whether before or after receipt of the requisite stockholder approvals, under the following circumstances:

 

   

by mutual written consent of Elastic and Endgame;

 

   

by Elastic if the Endgame Requisite Stockholder Approval shall not have been obtained by Endgame and delivered to Elastic within two Business Days after the S-4 Effective Time;

 

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provided, however, that Elastic’s right to terminate the Merger Agreement in this manner shall expire after Endgame’s delivery of a valid Endgame Requisite Stockholder Approval; or

 

   

by either Elastic or Endgame:

 

   

if (i) the Elastic Shareholders’ Meeting (including each reconvention thereof) shall have been held and completed and Elastic’s shareholders shall have taken a final vote on the Merger Agreement, the Merger, and the issuance of the Elastic Ordinary Shares in the Merger, and (ii) the Merger Agreement, the Merger, and the issuance of the Elastic Ordinary Shares in the Merger shall not have been approved at the Elastic Shareholders’ Meeting (or any reconvention thereof) by the Shareholder Approval; provided, however, that the right to terminate the Merger Agreement in this manner shall not be available to Elastic where the failure to obtain the Requisite Shareholder Approval shall have been caused by an action or failure to act of Elastic and such action or failure to act constitutes a material breach by Elastic of the Merger Agreement;

 

   

if the Closing Date shall not have occurred by December 31, 2019 (the “End Date”); provided that if, on the End Date, all of the conditions set forth in Section 2.2 of the Merger Agreement, other than the conditions set forth in (i) Section 2.2(a)(iv)(A) of the Merger Agreement (the Antitrust Approval), Section 2.2(a)(iv)(B) of the Merger Agreement (the CFIUS Approval), or Section 2.2(a)(iv)(C) of the Merger Agreement (the DCSA Approval), (ii) Section 2.2(a)(v) of the Merger Agreement (No Legal Restraints) (to the extent such Law or Order preventing the consummation of the Merger is, or is issued by CFIUS or another Governmental Entity in respect of, Defense Production Act of 1950s (the “DPA”) or any similar Law or is, or is issued by a Governmental Entity in respect of, any Antitrust Law), or (iii) Section 2.2(a)(vi) of the Merger Agreement (No Litigation) (to the extent relating to the matters referenced in the foregoing clauses (i) or (ii)), and those conditions that by their nature are to be satisfied on the Closing Date (if such conditions would be satisfied or validly waived were the Closing Date to occur at such time), shall have been satisfied or waived, then Elastic shall have the right, at its sole discretion, upon (x) written notice to Endgame and (y) payment by wire transfer of immediately available funds to an account designated by Endgame in writing, an amount in cash equal to $1,400,000 (the “Extension Fee”) on such End Date, to extend the End Date for all purposes under the Merger Agreement by a period of one month (and the definition of “End Date” shall be deemed to be such extended date); provided, further, that such option to extend the End Date (and the resulting change in the definition of “End Date”) shall not be elected more than twice; provided, however, that the right to terminate the Merger Agreement in this manner shall not be available to any party whose action or failure to act has been a principal cause of or resulted in the failure of the Closing to occur on or before such date and such action or failure to act constitutes material breach of the Merger Agreement;

 

   

if any Law or final and non-appealable Order shall be in effect which has the effect of making the Merger illegal or otherwise prohibits prevents consummation of the Merger;

 

   

in the event that CFIUS notifies Elastic that CFIUS (A) has completed its review or investigation and has unresolved national security concerns, and (B) intends to send a report to the President of the United States requesting the President’s decision because it (i) recommends that the President act to suspend or prohibit the Merger, (ii) is unable to reach a decision on whether to recommend that the President suspend or prohibit the Merger or (iii) requests that the President make a determination with respect to the Merger (a “CFIUS Turndown”);

 

   

in the event that Elastic does not or is unable to take or accept an action, restriction, or condition required by CFIUS as a condition of obtaining CFIUS Approval (“Acquiror Rejected CFIUS Condition”);

 

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in the event that DCSA notifies Elastic and Endgame that it will not provide DCSA Approval or another applicable Governmental Entity approval related to national or industrial security regulation (“DCSA Turndown”) in the event that Elastic does not or is unable to take an action, restriction or condition required by DCSA or another Governmental Entity as a condition of obtaining DCSA Approval (“Acquiror Rejected DCSA Condition”); or

 

   

if the other party breaches or fails to perform any of its covenants or agreements in the Merger Agreement, or if the other party’s representations or warranties fail to be true and correct, in either case, such that the conditions to the terminating party’s obligations to complete the Merger would not then be satisfied and such breach is not cured by the breaching party within 20 days after receiving written notice from the terminating party; provided, however, that no cure period shall be required (i) for a breach or inaccuracy which by its nature cannot be cured or (ii) if any of the conditions to Closing in Section 2.2 of the Merger Agreement for the benefit of Endgame are incapable of being satisfied on or before the End Date; provided, further, that this right to terminate the Merger Agreement will not be available to a party in material breach of its obligations under the Merger Agreement.

If the Merger Agreement is validly terminated, the Merger Agreement will become void and have no effect, without any liability or obligation on the part of any party except in the case of Willful Breach of the Merger Agreement, any Related Agreement or in any certificate or other instruments delivered pursuant to the Merger Agreement prior to its termination. The provisions of the Merger Agreement relating to fees and expenses, effects of termination, exculpation and indemnification of the Securityholder Representative and the general provisions set forth in Article XI of the Merger Agreement, as well as the confidentiality agreement entered into between Elastic and Endgame, will continue in effect notwithstanding termination of the Merger Agreement.

Expenses and Termination Fees

Generally, each party shall pay all fees and expenses incurred by it in connection with the Merger and the other transactions and agreements contemplated by the Merger Agreement. However, Elastic will be obligated to pay a termination fee of $3.51 million in cash to Endgame if:

 

   

the Merger Agreement is terminated by Elastic or Endgame pursuant to Section 8.1(d) of the Merger Agreement if, at the time of such termination, all of the conditions set forth in Section 2.2 of the Merger Agreement, other than the conditions set forth in (x) Section 2.2(a)(iv)(B) of the Merger Agreement, or Section 2.2(a)(iv)(C) of the Merger Agreement, (y) Section 2.2(a)(v) of the Merger Agreement (to the extent such Law or Order preventing the consummation of the Merger is, or is issued by CFIUS or another Governmental Entity in respect of, the DPA or any similar Law), or (z) Section 2.2(a)(vi) of the Merger Agreement (to the extent relating to the matters referenced in the foregoing clauses (x) or (y), and those conditions that by their nature are to be satisfied on the Closing Date (if such conditions would be satisfied or validly waived were the Closing Date to occur at such time), shall have been satisfied or waived, and at the time of such termination there is no Endgame Breach;

 

   

the Merger Agreement is terminated by Elastic or Endgame pursuant to Section 8.1(e) of the Merger Agreement (to the extent such Law or Order preventing the consummation of the Merger is, or is issued by CFIUS or another Governmental Entity in respect of, the DPA or any similar Law), and at the time of such termination there is no Endgame Breach;

 

   

the Merger Agreement is terminated by Elastic or Endgame pursuant to Section 8.1(h) of the Merger Agreement, and at the time of such termination there is no Endgame Breach; or

 

   

the Merger Agreement is terminated by Elastic or Endgame pursuant to Section 8.1(i) of the Merger Agreement, and at the time of such termination there is no Endgame Breach.

 

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Securityholder Representative

Shareholder Representative Services LLC (“SRS”) has been appointed as the Securityholder Representative, which appointment was approved by the stockholders of Endgame by virtue of their execution and delivery of a Joinder Agreement, the adoption of the Merger Agreement and approval of the Merger, or the conversion of the Endgame securities into the right to receive the merger consideration, and participating in the Merger and receiving the benefits thereof. In such capacity as Securityholder Representative, SRS will serve as the lawful and exclusive representative, agent, proxy, and attorney-in-fact (with full power of substitution) for and on behalf of each of the securityholders of Endgame for all purposes in connection with the Merger Agreement and the agreements ancillary thereto and as provided in Article X of the Merger Agreement. SRS is referred to as the “Securityholder Representative” throughout this proxy statement/prospectus, when it is being referenced in its capacity as the Securityholder Representative.

Indemnification

Indemnifiable Matters

The Merger Agreement provides that each of the stockholders of Endgame, warrantholders of Endgame and retention bonus pool participants of Endgame as of immediately prior to the effective time of the Merger (the “Indemnifying Parties”) will severally, but not jointly, indemnify and hold harmless Elastic and its affiliates (including the Surviving Corporation) and its and their respective representatives (the “Indemnified Parties”) from and against all losses, liabilities, damages (excluding punitive or exemplary damages except to the extent awarded to a third party in any Action), deficiencies, taxes, costs, interest, awards, judgments, settlements, penalties and expenses, including attorneys’, consultants’, experts’ and other professionals’ fees and expenses (including in connection with investigation, defending against, prosecuting, or settling any of the foregoing) and court or arbitration costs (individually, a “Loss” and, collectively “Losses”), paid, incurred, suffered or sustained by the Indemnified Parties, or any of them (regardless of whether or not such Losses relate to any Third Party Claims (as defined below)) directly or indirectly resulting from, arising out of, or relating to any of the following:

 

  i.

(x) any breach of, or inaccuracy in, as of the execution and delivery of the Merger Agreement or as of the effective time of the Merger (as though made as of such time), any representation or warranty of Endgame contained in Article III of the Merger Agreement (other than the Fundamental Representations), or any breach of, or inaccuracy in, any representation or warranty in any certificate referenced in the Merger Agreement and delivered by Endgame pursuant hereto (other than concerning the Fundamental Representations), or (y) any Action by a third-party, including the investigation, defense, prosecution or settlement thereof, if an adverse judgment in connection with such Action could give the Indemnified Parties a claim for indemnification under clause (x) of this section (i);

 

  ii.

(x) any breach of, or inaccuracy in, as of the execution and delivery of the Merger Agreement or as of the effective time of the Merger (as though made as of such time), of any Fundamental Representation of Endgame, or any breach of, or inaccuracy in, any representation or warranty in any certificate referenced in the Merger Agreement and delivered by Endgame pursuant thereto (excluding the certificates referenced in Section 9.2(a)(i) of the Merger Agreement), or (y) any Action by a third-party, including the investigation, defense, prosecution, or settlement thereof, if an adverse judgment in connection with such Action could give the Indemnified Parties a claim for indemnification under clause (x) of this section (ii);

 

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  iii.

any breach of, default in, or failure by Endgame or the Securityholder Representative to perform or comply with any of its covenants or agreements set forth in the Merger Agreement (that in the case of Endgame, require performance at or prior to the effective time of the Merger);

 

  iv.

any inaccuracy in any information or calculations set forth in the Payment Spreadsheet, or the Statement of Expenses, including any inaccuracy in the calculation of, and any overstatement, or understatement or failure to include, in the Payment Spreadsheet the Total Closing Consideration (or any component thereof, including with respect to Closing Indebtedness, Closing Cash, Third Party Expenses or the Tax Amount);

 

  v.

any liabilities relating to or arising out of any “excess parachute payments” within the meaning of Section 280G of the Code;

 

  vi.

(x) any breach of fiduciary duty by any current or former director or officer of Endgame or any of Endgame’s subsidiaries, (y) any payment in respect of any Dissenting Shares in excess of the consideration that otherwise would have been payable in respect of such shares in accordance with the Merger Agreement, and any other Losses paid, incurred, suffered or sustained in respect of any Dissenting Shares, including all attorneys’ and consultants’ fees, costs and expenses and including any such fees, costs and expenses incurred in connection with investigating, defending against or settling any claim, action or proceeding in respect of Dissenting Shares, or (z) any Action by a third-party, including the investigation, defense, or prosecution, but not any settlement thereof, if an adverse judgment in connection with such Claim Action could give the Indemnified Parties a claim for indemnification under either clause (x) or (y) of this section (vi);

 

  vii.

any fraud in respect of a representation or warranty by Endgame set forth in Article III of the Merger Agreement, any certificate referenced in the Merger Agreement and delivered by Endgame pursuant hereto, or a covenant or agreement set forth in the Merger Agreement;

 

  viii.

any fraud committed by Endgame or any of its subsidiari