Okta(OKTA) - 2026 Q2 - Quarterly Results

I. The Derivative Matters This section details the history, mediation, and settlement rationale of derivative lawsuits against Okta, and defendants' denials of wrongdoing A. Procedural History of the Derivative Matters This section outlines the chronological filing and consolidation of multiple derivative actions against Okta, largely stayed pending a securities class action - The California Federal Action, initiated in late 2022, was consolidated in February 2023 and stayed pending a related Securities Class Action, with plaintiffs reviewing nearly 2,000 pages of confidential documents[7][8][12] - The Delaware Federal Actions (April 2023, January 2024) were stayed pending the Securities Class Action, involving production of nearly 2,000 pages of confidential company documents[14][15][16] - The Delaware Chancery Action (June-October 2024) was consolidated in November 2024 and stayed pending the Securities Class Action, after production of nearly 2,000 pages of documents[19][20][21] - Demanding Stockholders served litigation and Section 220 demands, resulting in 1,174 pages of confidential company documents produced to Shumacher[24][25] B. Mediation Settling Parties engaged in extensive mediation, leading to agreements on corporate governance reforms and attorneys' fees - An initial full-day, in-person mediation session was held on March 25, 2024, in New York City, facilitated by David Murphy, Esq[27] - Defendants produced 511 pages of documents, and plaintiffs submitted detailed mediation statements with proposed reforms for internal controls and corporate governance[28] - An agreement in principle on settlement terms, including corporate governance reforms, was reached on December 12, 2024, with an MOU signed on January 10, 2025[34] - A separate agreement on attorneys' fees and expenses was reached on April 14, 2025, based on a double-blind recommendation from the Mediator[35] C. The Settling Parties Agree That the Settlement Confers Substantial Benefits Upon and Serves the Best Interests of the Company and Its Stockholders Settling Stockholders, recognizing litigation risks, determined the proposed settlement with corporate governance reforms is in Okta's best interest - Settling Stockholders asserted claims for Exchange Act violations and breach of fiduciary duty regarding alleged misstatements about the Auth0 Inc. merger and ineffective cybersecurity controls[36][37] - The settlement decision was based on recognizing litigation expense, time, uncertainty, proof problems, and substantial benefits from proposed corporate governance reforms[38][41] - Extensive investigation included reviewing SEC filings, public statements, analyst reports, corporate governance documents, related pleadings, nearly 2,000 pages of confidential Okta documents, and expert consultation[39][40] D. Defendants' Denials of Wrongdoing Settling Defendants denied all wrongdoing and liability, asserting proper conduct, and settled to avoid protracted litigation without admitting fault - Settling Defendants denied all allegations of wrongdoing, fault, liability, and/or damage, including violations of federal/Delaware law and breach of fiduciary duty[43] - Defendants believe they acted properly at all times and that the complaints and demands lacked merit[43] - The settlement was entered into to avoid the uncertainty, risks, and expense of protracted litigation, without admitting any wrongdoing[44] II. Terms of Stipulation and Agreement of Settlement This section details the formal terms of the settlement, including definitions, corporate governance reforms, fees, court approval, released claims, and effectiveness conditions A. Introduction This introduction formally stipulates the agreement to resolve Derivative Matters and Released Claims, subject to Court approval, and defines key terms - The Stipulation aims to fully and finally resolve Released Claims and dismiss Derivative Matters with prejudice, subject to Court approval[46] - Key terms defined include 'Current Okta Stockholder,' 'Derivative Matters' (all related legal actions), and 'Reforms' (corporate governance changes)[48][50][59] - The 'Fee and Expense Amount' is defined as $2,250,000 for Settling Stockholders' Counsel, subject to Court approval[51] - 'Released Claims' encompass all claims asserted or assertable in Derivative Matters by Settling Stockholders or Current Okta Stockholders, with exclusions for Securities Class Action claims and insurance rights[61][62] B. Settlement of the Derivative Matters This section details the settlement's core, outlining the Board's agreement to adopt and maintain significant corporate governance and internal control reforms for at least five years A. Insider Trading Policy Okta will file and post its Insider Trading Policy, reviewed annually by the Audit Committee, requiring pre-approval or Rule 10b5-1 plans for Director and Section 16 Officer trades - Okta will file its Insider Trading Policy and Special Trading Procedures as Form 10-K exhibits and post them on its Investor Relations website[74] - The Audit Committee, with the Chief Legal Officer, will review the Insider Trading Policy annually, requiring all Director and Section 16 Officer trades to be under Rule 10b5-1 plans or pre-approved[76] - Rule 10b5-1 plans for Directors/Section 16 Officers require 45-day advance approval, public reporting, a minimum length of six months, and cannot be cancelled or modified during blackout periods or with material non-public information[76][77] B. Disclosure Committee Okta will amend its Disclosure Committee charter to require quarterly reports to the Audit Committee, ensure full access to company records, and maintain meeting records for five years - Okta will amend its Disclosure Committee charter to require quarterly reports to the Audit Committee, including disclosure concerns[78] - The Disclosure Committee will have full access to all Company books, records, facilities, personnel, and independent auditors[78] - The committee will work with the Audit Committee to ensure timely and accurate public disclosure of material information regarding acquired company integration, employee data, security breaches, cybersecurity risk management, financial results, and internal control efficacy[78][79] - The Disclosure Committee shall maintain meeting records (minutes and materials) for at least five years[80] C. Audit Committee The Audit Committee will adopt procedures to oversee internal controls, review earnings call scripts, pre-approve SEC filings, and coordinate cybersecurity oversight with the Cybersecurity Risk Committee - The Audit Committee will adopt procedures to oversee internal controls, review draft earnings call scripts, obtain management input on periodic reporting, and pre-approve Form 10-Qs and 10-Ks[81][82] - The committee will review the Code of Conduct annually, obtain quarterly compliance updates from the Chief Legal Officer/Chief Compliance Officer, and receive regular Board reports on Cybersecurity Risk Committee meetings[82] - It will coordinate with the Cybersecurity Risk Committee to oversee Okta's cybersecurity and data privacy programs, including risk management, and receive quarterly updates from Internal Audit and Legal teams[82] - At least one member of the Audit Committee must be an SEC-defined 'financial expert'[83] D. Cybersecurity Risk Committee Okta will add the Cybersecurity Risk Committee to its corporate governance chart, ensuring it meets at least quarterly, maintains minutes, and obtains regular reports on cybersecurity programs and risks - Okta will add the Cybersecurity Risk Committee and its members to the corporate governance chart on its Investor Relations website[84] - The Cybersecurity Risk Committee will meet at least quarterly, maintain written minutes, and obtain quarterly reports from management on Okta's cybersecurity program, risks, cyberattacks, and data protection[84] - The committee will report to the Board or consult with the Audit Committee on IT and cybersecurity systems affecting internal controls, and meet with the Chief Security Officer at least quarterly to oversee risk management and program enhancements[84][85] E. Cybersecurity Disclosures Okta will assess and disclose material cybersecurity incidents on Form 8-K within four business days of materiality determination, and detail risk management processes in its Annual Report on Form 10-K - For Form 8-K, Okta will assess incident materiality without unreasonable delay, disclosing material incidents within four business days of determination, describing nature, scope, timing, and impact[87] - Amendments to Form 8-K will be filed within four business days if required information is undetermined or unavailable at initial filing[87] - In its Annual Report on Form 10-K, Okta will disclose processes for assessing and managing material cybersecurity risks, risk descriptions, Board oversight, and management's role[89] F. Chief Security Officer The Chief Security Officer (CSO) will meet with the Cybersecurity Risk Committee at least quarterly and report annually on Okta's cybersecurity program effectiveness and risk mitigation - The Chief Security Officer (CSO) shall meet with the Cybersecurity Risk Committee at least quarterly[88] - The CSO will report to the Cybersecurity Risk Committee at least annually on Okta's cybersecurity program effectiveness, risk mitigation, attack controls, resiliency plans, and program enhancements[88][90] G. Chief Compliance Officer ("CCO") The Chief Compliance Officer (CCO) will oversee Okta's global ethics and compliance program, including policy administration, ethics concerns, and quarterly updates to the Audit Committee - The Chief Compliance Officer (CCO) shall oversee Okta's global ethics and compliance program, including administration of policies like the Code of Conduct and Anti-Corruption Policy[91][92] - The CCO's responsibilities include fostering compliance, overseeing the reporting hotline, investigating ethics concerns, and updating the Audit Committee at least quarterly on ethics and compliance matters[92][93] - Specific duties include evaluating program goals, annual review and Audit Committee sign-off of the Code of Conduct, evaluating compliance risks, overseeing whistleblower complaints, and managing ethics and compliance training[93][94] H. Clawback Policy Okta will maintain its Compensation Clawback Policy for at least the duration of the five-year Commitment Term - Okta will maintain its Compensation Clawback Policy for at least the five-year Commitment Term[94] I. Board Updates Okta's Chief Security Officer and/or relevant management will report to the Board or a committee quarterly on material Company developments, including acquired company integration, cybersecurity, and financial performance - Okta's Chief Security Officer and/or relevant management will report to the Board or a committee quarterly on material Company developments[95] - These updates will cover acquired company integration, headcounts, cybersecurity breaches, data security policies, financial performance, and internal control efficacy[95][218] J. Director Independence The Nominating and Corporate Governance Committee will review its internal processes to enhance independent director candidate selection and retain an independent search company - The Nominating and Corporate Governance Committee will review its internal processes to enhance the independent director candidate process[96] - The committee will retain an independent search company to assist in identifying and nominating new directors and will identify objective criteria for candidate selection[96] 2.3 Previously Implemented Reforms Influenced by Derivative Matters The Derivative Matters significantly influenced the Board's amendments to Corporate Governance Guidelines, Committee Charters, and the establishment of the Cybersecurity Risk Committee and Clawback Policy - The Derivative Matters substantially influenced the Board's amendments to Corporate Governance Guidelines (September 14, 2023), Nominating and Corporate Governance Committee Charter (September 14, 2023), and Compensation Committee Charter (June 22, 2023)[97][98] - The establishment of the Board-level Cybersecurity Risk Committee (December 14, 2023) and adoption of the Compensation Clawback Policy (October 2, 2023) were also influenced by the Derivative Matters[98] 2.4 Settlement Review Committee Approval Okta's Settlement Review Committee approved the Stipulation and Reforms, affirming they are in the best interest of Okta and its Current Stockholders - The Stipulation and Reforms have been approved by Okta's Settlement Review Committee, affirming they are in the best interest of Okta and Current Okta Stockholders[99] - The Board agrees to adopt and maintain corporate governance, oversight, and internal controls Reforms for a minimum of five years ('Commitment Term') following Final Judgment[73] - Settling Parties acknowledge that Settling Stockholders' litigation and settlement efforts substantially influenced the Board's agreement to adopt these Reforms[72] - The Reforms have been approved by Okta's Settlement Review Committee as being in the best interest of Okta and Current Okta Stockholders[99] C. Settling Stockholders' Counsel's Fee and Expense Amount and Settling Stockholders' Service Awards Settling Parties agreed to $2,250,000 for attorneys' fees and expenses, and $3,000 service awards per Settling Stockholder, all subject to Court approval Settlement Financials | Item | Amount | | :-------------------------------- | :------------- | | Attorneys' Fees and Expense Reimbursement | $2,250,000 | | Service Award (per Settling Stockholder) | $3,000 | - The Fee and Expense Amount is subject to Court approval and will be deposited by Okta's Insurers into an escrow account within twenty business days of the Preliminary Approval Order[100] - Settling Stockholders' Counsel will allocate the Fee and Expense Amount among themselves, with any disputes resolved by the Mediator[102] - Any order or appeal solely related to the Fee and Expense Amount or Service Awards will not affect the Settlement's finality[103] D. Settlement Procedure and Notice This section outlines the procedural steps for Court approval, including preliminary approval, stockholder notice, a Settlement Hearing, and dismissal of related actions - Plaintiffs in the California Federal Action will submit the Stipulation for a Preliminary Approval Order within seven calendar days of execution[105] - Okta will provide notice to Current Okta Stockholders within ten business days of the Preliminary Approval Order via its Investor Relations website, a press release, and a Form 8-K filing[105] - A Settlement Hearing will be held at least forty-five calendar days after notice is provided to approve the Settlement and dismiss all claims[107] - Upon the Judgment becoming Final, the Delaware Federal Actions and Delaware Chancery Action will be dismissed with prejudice, and Demanding Stockholders will withdraw their demands[108] E. Releases Upon the Effective Date, Settling Stockholders and Current Okta Stockholders will release 'Released Claims' against 'Released Persons,' who will concurrently release Settling Stockholders and counsel - Upon the Effective Date, Settling Stockholders (on their own behalf and derivatively for Okta) and all Current Okta Stockholders will fully and finally release all 'Released Claims' against 'Released Persons' and be enjoined from prosecuting them[109] - Upon the Effective Date, each 'Released Person' will fully and finally release Settling Stockholders and their Counsel from all claims arising from the Derivative Matters or Released Claims[111] - The Settling Parties expressly waive the provisions, rights, and benefits conferred by California Civil Code Section 1542 or any similar law regarding unknown claims[70] F. Conditions of Settlement, Effect of Disapproval, Cancellation or Termination The settlement's effectiveness is contingent upon committee approval, court judgment, finality, dismissal of related actions, and fee payment; failure results in termination - The Settlement's effectiveness is conditional upon Okta's Settlement Review Committee approval, Court Judgment entry, Judgment finality, dismissal of Delaware Federal and Chancery Actions, and Fee and Expense Amount payment[113][114] - If any conditions are not met, the Stipulation will be canceled and terminated, unless mutually agreed otherwise by counsel for the Settling Parties[115] - In case of cancellation, the Stipulation becomes null and void, and parties are restored to their original positions as of the Stipulation date[157] G. Miscellaneous Provisions This section includes standard legal clauses ensuring good faith, clarifying no admission of wrongdoing, outlining Stipulation use in future actions, and specifying governing law - The Settling Parties agree to act in good faith and cooperate to effectuate and implement the terms of the Stipulation[116] - The Settlement is not an admission by any Settling Party as to the merits of any claim, allegation, or defense, nor is it evidence of fault, wrongdoing, or liability[117][119][132] - The Stipulation and/or Judgment may be filed by Released Persons in any action to support a defense based on principles of res judicata, collateral estoppel, or similar defenses[120] - The Stipulation and its Exhibits constitute the entire agreement, and the rights and obligations of the parties shall be governed by the internal, substantive laws of the State of Delaware[122][129] Exhibit A: Preliminary Approval Order This exhibit is the proposed court order granting preliminary approval of the settlement, setting the Settlement Hearing, approving notice, and outlining objection deadlines - The Court preliminarily approves the Settlement set forth in the Stipulation, including the dismissal with prejudice of the California Federal Action[145] - A Settlement Hearing is scheduled to determine if the Settlement is fair, reasonable, and adequate, and to approve the payment of the Fee and Expense Amount and Service Awards[146] - The Long Form Notice and Summary Notice are approved, and their distribution method is deemed to satisfy Rule 23.1 and due process requirements[146] - Okta is authorized to post the Long Form Notice and Stipulation on its Investor Relations website, issue a press release, and file them as Form 8-K exhibits within ten business days[148] - An Objection Deadline is set for fourteen calendar days prior to the Settlement Hearing, requiring written objections to be filed with the Court and sent to Settling Stockholders' Counsel[151] Exhibit B: Notice of Pendency and Proposed Settlement of Derivative Matters (Long Form Notice) This detailed notice informs current Okta stockholders about the proposed settlement of derivative lawsuits, explaining litigation history, settlement terms, and objection instructions - The notice is directed to all current record and beneficial owners of Okta common stock as of June 26, 2025, informing them of the proposed settlement of the consolidated stockholder derivative action and related Derivative Matters[166] - The notice details the procedural history of the California Federal Action, Delaware Federal Actions, Delaware Chancery Action, Demanding Stockholder demands, and the mediation process leading to settlement[169][173][177][181][184][186] - The principal settlement terms include Okta's agreement to adopt and maintain specific corporate governance, policies, procedures, and internal controls reforms for a minimum of five years, as detailed in ¶ 2.2 of the Stipulation[194][197] - The settlement provides for $2,250,000 in attorneys' fees and expense reimbursement for Settling Stockholders' Counsel and $3,000 service awards for each Settling Stockholder, both subject to Court approval[223][224] - Stockholders wishing to object must do so in writing by the Objection Deadline (14 calendar days prior to the Settlement Hearing), providing proof of stock ownership and detailed grounds for objection[232][234][237] Exhibit C: Summary Notice of Proposed Settlement of Derivative Matters This condensed notice provides an overview of the proposed settlement, corporate governance reforms, and requested fees, directing stockholders to the full Stipulation and Long Form Notice for details and objection procedures - This Summary Notice informs current Okta stockholders of the proposed derivative lawsuit settlement, including Okta's adoption and maintenance of corporate governance and internal controls reforms[248] - The Reforms and Stipulation were approved by Okta's Settlement Review Committee and are deemed fair, reasonable, adequate, and in the best interests of the Company and its stockholders[248][249] Settlement Financials (Summary) | Item | Amount | | :-------------------------------- | :------------- | | Attorneys' Fees and Expense Amount | $2,250,000 | | Service Awards (for Settling Stockholders) | Requested | - A Settlement Hearing will be held to consider final approval of the Settlement, the Fee and Expense Amount, and Service Awards; stockholders may object in writing by a specified deadline[250][251][254] Exhibit D: Final Judgment and Order of Dismissal with Prejudice This exhibit is the proposed final court order approving the settlement, dismissing the California Federal Action and Released Claims, confirming fee payments, and finding adequate notice and good faith negotiation - The Court finds the Settlement provides substantial benefits to Okta, is fair, reasonable, adequate, and in the best interests of Current Okta Stockholders, and is finally approved[270] - Upon the Effective Date, the California Federal Action and all Released Claims are dismissed with prejudice, and all Settling Stockholders and Current Okta Stockholders are deemed to have released Released Claims against Released Persons[271][283] - The Court finds that notice to Current Okta Stockholders was adequate and complied with due process, and that the Stipulation was negotiated at arm's length and in good faith, with all parties complying with Rule 11[267][269][280] - The Fee and Expense Amount and Service Awards, as set forth in the Stipulation, are approved[281] - The Court retains continuing jurisdiction over the implementation and enforcement of the Settlement[282]