ENDOLOGIX INC /DE/ (Form: 10-K, Received: 03/13/2018 16:34:28)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________________

Form 10-K

_______________________________

(Mark One)



x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2017



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transaction period from to .

Commission file number: 000-28440

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Endologix, Inc.

(Exact name of registrant as specified in its charter)

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Delaware		68-0328265
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

2 Musick, Irvine, California 92618

(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: (949) 595-7200

_______________________________

Securities registered pursuant to Section 12(b) of the Act:



Title of each class		Name of each exchange on which registered
Common Stock, $0.001 par value		The NASDAQ Stock Market, LLC

Securities registered pursuant to Section 12(g) of the Act: None

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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer	o	Accelerated filer	x

Non-accelerated filer	o (Do not check if a smaller reporting company)	Smaller reporting company	o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

As of June 30, 2017 , the aggregate market value of the voting stock held by non-affiliates of the Registrant was $405,453,548 (based upon the $4.86 closing price for shares of the Registrant’s Common Stock as reported by the NASDAQ Global Select Market on June 30, 2017 , the last trading date of the Registrant’s most recently completed second fiscal quarter).

On March 12, 2018 , approximately 83,725,197 shares of the Registrant’s Common Stock, $0.001 par value, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Part III of this Annual Report on Form 10-K are incorporated by reference into the Registrant’s Proxy Statement for its Annual Meeting of Stockholders to be held on June 14, 2018 .

TABLE OF CONTENTS



Item	Description	Page
PART I
1.	Business	2
1A.	Risk Factors	15
1B.	Unresolved Staff Comments	30
2.	Properties	30
3.	Legal Proceedings	30
4.	Mine Safety Disclosures	30

PART II
5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	31
6.	Selected Financial Data	32
7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	33
7A.	Quantitative and Qualitative Disclosures About Market Risk	44
8.	Financial Statements and Supplementary Data	45
9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	84
9A.	Controls and Procedures	84
9B.	Other Information	84

PART III
10.	Directors, Executive Officers and Corporate Governance	85
11.	Executive Compensation	85
12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	85
13.	Certain Relationships and Related Transactions, and Director Independence	85
14.	Principal Accountant Fees and Services	85

PART IV
15.	Exhibits, Financial Statement Schedules	86
16.	Form 10-K Summary	91
	Signatures	91

Special Note Regarding Forward-Looking Statements

In addition to historical information, this Annual Report on Form 10-K contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward looking statements are intended to qualify for the safe harbor established by the Private Securities Litigation Reform Act of 1995. You can identify forward-looking statements by the use of forward-looking terminology such as “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “projects,” “predicts,” “should” or “will” or the negative of these terms or other comparable terminology, or by discussions of strategies, opportunities, plans or intentions. In addition, any statements that refer to projections of our future financial performance, trends in our businesses, or other characterizations of future events or circumstances are forward-looking statements. We have based these forward-looking statements largely on our current expectations based on information currently available to us and projections about future events and trends affecting the financial condition of our businesses. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. These forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. The risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements are set forth in the risk factors listed from time to time in our filings with the Securities and Exchange Commission and those set forth in Item 1A, “Risk Factors.”

You are urged to carefully review and consider the various disclosures made by us, which attempt to advise you of the risks, uncertainties, and other factors that may affect our business, operating results and financial condition, for a discussion of other important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, the forward-looking statements herein may not prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all.

Our forward-looking statements speak only as of the date each such statement is made. We expressly disclaim any intention or obligation to update or revise any financial projections or forward-looking statements after the date hereof to conform such statements to actual results or to changes in our opinions or expectations, except as required by applicable law or the rules and regulations of the Securities and Exchange Commission and the NASDAQ Global Select Market.

The industry and market data contained in this Annual Report on Form 10-K are based either on our management’s own estimates or on independent industry publications, reports by market research firms, or other published independent sources. Although we believe that these sources are reliable as of their respective dates, we have not independently verified the information and cannot guarantee its accuracy and completeness, as industry and market data are subject to change and cannot always be verified with complete certainty due to limits on the availability and reliability of raw data, the voluntary nature of the data gathering process, and other limitations and uncertainties inherent in any statistical survey of market shares. Accordingly, you should be aware that the industry and market data contained in this Annual Report on Form 10-K, and estimates and beliefs based on such data, may not be reliable.

PART I


Item 1.	Business

Company Overview

We develop, manufacture, market, and sell innovative medical devices for the treatment of aortic disorders. Our products are intended for the minimally invasive endovascular treatment of abdominal aortic aneurysms ("AAA"). Our AAA products are built on one of two platforms:


•	Traditional minimally-invasive endovascular aneurysm repair (“EVAR”) or


•	Endovascular aneurysm sealing (“EVAS”), our innovative solution for sealing the aneurysm sac while maintaining blood flow through two blood flow lumens.

Our current EVAR products include the AFX ^® Endovascular AAA System (the “AFX System”), the VELA ^® Proximal Endograft (“VELA”), and the Ovation ^® Abdominal Stent Graft System (the “Ovation System”). Our current EVAS product is the Nellix ^® Endovascular Aneurysm Sealing System (the “Nellix EVAS System”). We sell our EVAR platforms (including extensions and accessories) to hospitals in the United States, Canada, New Zealand, South Korea and Europe, and our EVAS platform to hospitals in New Zealand and Europe. We sell our EVAR and EVAS platforms (including extensions and accessories) to third-party international distributors and agents in Asia, Europe, South America and in other parts of the world. Such sales of our EVAR and EVAS platforms provide the sole source of our reported revenue.

Endologix ^® , AFX ^® , Nellix ^® , IntuiTrak ^® , Ovation ^® , VELA ^® , Ovation Prime ^® , Duraply ^® , Ovation Alto ^® , and CustomSeal ^® , are registered trademarks of Endologix, Inc. and its subsidiaries. ActiveSeal™ and the respective product logos are trademarks of Endologix, Inc. and its subsidiaries.

We have obtained CE Mark approval for the Nellix EVAS System in the European Union. The Nellix EVAS System is only approved as an investigational device in the United States. Ovation Alto, our next generation Ovation System device, is only approved as an investigational device and is not currently approved in any market.

Our Mission

Our mission is to be the leading innovator of medical devices to treat aortic disorders. The key elements of our strategy to accomplish this mission are as follows:


•	Focus exclusively on the aorta for the commercialization of innovative products.


•	Design and manufacture EVAR and EVAS products that are easy to use and deliver excellent clinical outcomes.


•	Design EVAR and EVAS products to expand into the treatment of complex AAA and thoracic anatomies.


•	Offer physicians and hospitals a broad range of products so they can provide the best device for each individual patient.


•	Provide exceptional clinical and technical support to physicians through an experienced and knowledgeable sales and clinical organization.

Market Overview and Opportunity

AAA Background

Atherosclerosis reduces the integrity and strength of blood vessel walls, causing the blood vessel to expand or balloon out, which is known as an “aneurysm”. Aneurysms are commonly diagnosed in the aorta, which is the body’s largest artery, extending from the chest to the abdomen. The abdominal aorta is the segment between the renal (kidney) arteries and the area where the aorta divides into the two iliac arteries which travel down the legs. An abdominal aortic aneurysm (“AAA”) occurs when a portion of the abdominal aorta bulges into an aneurysm because of a weakening of the vessel wall, which may result in life threatening internal bleeding upon rupture. AAA is more common in men than women.

Although AAA is one of the most serious cardiovascular diseases, many AAAs are never detected. Most AAA patients do not have symptoms at the time of their initial diagnosis. AAAs generally are discovered coincidentally during procedures to treat or diagnose unrelated medical conditions.

According to a paper titled Elective Versus Ruptured Abdominal Aortic Aneurysm Repair: A 1-Year Cost-Effectiveness Analysis, the overall patient mortality rate for ruptured AAA is approximately 80%, making it among the leading causes of

death in the United States. Once diagnosed, patients with AAA require either non-invasive monitoring, or, depending on the size and rate of growth of the AAA, EVAR, EVAS or open surgical repair.

EVAR and EVAS Versus Open Surgical Repair

Our EVAR and EVAS products are used exclusively for minimally-invasive procedures, as opposed to open surgical repair of AAA. Open surgical repair is a highly invasive procedure requiring (i) a large incision in the patient’s abdomen, (ii) manipulation of the patient’s abdominal organs to gain access to the aneurysm, (iii) the cross clamping of the aorta to stop blood flow, and (iv) implantation of a synthetic graft which is sutured to the aorta, connecting one end above the aneurysm, to the other end below the aneurysm.

Open surgical repair typically lasts for two to four hours, while the typical EVAR and EVAS procedure lasts for one to two hours. After receiving open surgical repair, a patient usually requires a few days in the hospital’s surgical intensive care unit, and the total hospital stay may be four to ten days. Post-procedure convalescence may take another four to six weeks due to the invasiveness of the operation. By comparison, patients are often discharged a day or two after their EVAR and EVAS procedure, and once discharged, most patients return to normal activity within two weeks.

We estimate that approximately 75% of all treated AAAs in the United States are repaired through EVAR, and 25% through open surgical repair. Although EVAR and EVAS have many advantages over open surgical repair, many patients are not candidates for EVAR and EVAS due to the limitations of current EVAR devices to treat more complex AAA anatomies. We are developing new products to address these more challenging anatomies.

Market Size

We estimate the global endovascular aortic aneurysm market potential to be $4.0 billion annually. Of this amount, we estimate the traditional aneurysm market potential, encompassing aneurysms with aortic neck length greater than or equal to 10mm, to be $1.6 billion. The majority of diagnosed aneurysms in this market can be treated with currently available EVAR products. We estimate that a $1.2 billion market opportunity exists for the treatment of challenging anatomies, defined as aneurysms with neck lengths less than 10mm. Currently, there are limited options with available EVAR products to treat these short or no neck aortic aneurysms. The thoracic aneurysm market includes aneurysms, dissections, and transections in the ascending aorta, the aortic arch, and the descending aorta. For many of these anatomies there are limited endovascular options due to anatomical and technological challenges. We believe the thoracic market potential is $1.2 billion. Below is a table summarizing the market potential and penetration by aneurysm type.



Market Description ($ in millions)	Penetrated		Unpenetrated		Total
Traditional	$	1,337	$	306	$	1,643
Complex	373		803		1,176
Thoracic	589		606		1,195
Total	$	2,299	$	1,715	$	4,014

We estimate that there are approximately 202,300 AAA (EVAR and surgical repair) procedures performed across the globe annually.

In the United States alone, an estimated 1.2 million to 2.0 million people have an AAA and over 200,000 people are diagnosed with an AAA in the United States annually. Of those diagnosed with an AAA, approximately 60,000 people underwent an AAA repair procedure in the United States in 2017, of which approximately 46,000 were addressed through EVAR.

According to United States Census Bureau estimates, the age 65 and over population in the United States presently numbers approximately 51 million, or 16% of the total population, and is expected to grow by 3.4% annually to 56 million by 2020. Accordingly, we believe that AAA treatments will naturally increase over time, given this demographic trend.

Since AAAs generally arise in people over the age of 65 and come with little warning, initiatives have been undertaken to increase screening. The most prominent of these initiatives is the Screening Abdominal Aortic Aneurysms Very Efficiently Act (“SAAAVE”), which was signed into law in the United States on February 8, 2006, began providing coverage on January 1, 2007 and was updated effective January 1, 2014. SAAAVE provides for a one-time free AAA screening for men who have smoked some time in their life, and men or women who have a family history of the disease.

Our Products

Our EVAR Platforms

AFX System and VELA:

The AFX System consists of (i) a cobalt chromium alloy stent covered by expanded polytetrafluoroethylene (commonly referred to as ePTFE) graft material and (ii) accompanying delivery systems. Once fixed in its proper position within the abdominal aortic bifurcation, the AFX System provides a conduit for blood flow, thereby relieving pressure within the weakened or “aneurysmal” section of the vessel wall, which greatly reduces the potential for the AAA to rupture. In February 2014, we launched a new proximal extension in the United States, VELA, designed to be used in conjunction with our AFX bifurcated device. VELA features a circumferential graft line marker and controlled delivery system that enable predictable deployment and final positional adjustments. We began a commercial introduction of VELA in Europe in January 2015.

•

Anatomical Fixation . The AFX System is unique in that the main body of the device sits on the patient's natural aortoiliac bifurcation. This provides a solid foundation for the long-term stability of the device. Alternative EVAR devices rely on hooks, barbs and radial force to anchor within the aorta (commonly referred to as "proximal fixation") near the renal arteries. The data from our clinical studies have demonstrated anatomical fixation can inhibit device migration within the aorta due to the inherent foundational support of the patient’s own anatomy.


•	Minimally Invasive Delivery System . The AFX System requires 17F introducer access on the ipsilateral side and 7F introducer access on the contralateral side. Comparative endovascular stent grafts for infrarenal repair require between 12F and 22F introducer access on the ipsilateral side and between 10F and 16F introducer access on the contralateral side.

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Preserves Aortic Bifurcation. The AFX System allows for future endovascular procedures when access across the aortic bifurcation is required. Approximately 30% to 40% of AAA patients also have peripheral arterial disease (“PAD”). The AFX System is the only graft presently available that preserves the physician's ability to go back over the aortic bifurcation for future interventions. This is a meaningful feature of the AFX System, as many AAA patients today are living longer and returning to the hospital for PAD procedures.

Ovation System:

The Ovation System consists of (i) a radiopaque nitinol suprarenal stent with integral anchors, (ii) a low-permeability polytetrafluoroethylene (“PTFE”), aortic body graft that contains a network of inflatable rings filled with a liquid polymer that solidifies during the deployment procedure, (iii) nitinol iliac limb stents encapsulated with PTFE, and (iv) accompanying ultra-low profile delivery systems, auto injector and fill polymer kit. The Ovation System creates a custom seal that conforms to anatomical irregularities and has a low profile delivery system allowing for percutaneous access.

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Patient Accessibility. Our FDA and CE Mark-approved Instructions for Use (“IFU”) allow for the on-label treatment of more patients who otherwise may undergo an off-label EVAR procedure or be subject to open surgical repair, or not receive treatment at all. Our differentiated platform expands the pool of patients eligible for EVAR by virtue of its low profile and flexible delivery system that addresses several key anatomical access challenges, while providing a novel sealing mechanism to address many of the difficulties of diseased patient anatomies.

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Ability to Pass through Small Access Vessels. The Ovation System’s novel separation and optimization of fixation and seal minimize the overlap between metal and fabric within the catheter, allowing the device to be loaded in a delivery catheter that is smaller than those of conventional EVAR devices. At an outer diameter of 14F, or approximately 4.7mm, the Ovation System is the lowest profile FDA-approved stent graft.


•	Ability to Pass through Diseased and/or Tortuous Access Vessels. The Ovation System has the lowest profile FDA-approved delivery system. Its characteristics increase flexibility, designed to enable easier passage through access vessels.


•	The Ovation System Enables Minimally Invasive Techniques. The Ovation System’s low profile and proven safety record offer physicians the opportunity to provide percutaneous endovascular aneurysm repair access (“PEVAR”) with regional or local anesthesia to more patients. Studies have shown that the use of smaller profile delivery devices results in fewer access site complications.


•	Treatment of Complex Anatomy. The separation and optimization of the fixation and sealing mechanisms of the Ovation System enable the device to seal with a smaller aortic contact area than conventional EVAR devices.


•	Avoiding Aortic Neck Dilatation . The Ovation System’s polymer filled sealing rings do not exert significant chronic, outward pressure at the` neck of the aorta. In the Ovation Pivotal Trial, core lab results demonstrated stable neck diameter and durable seal with the Ovation System through five-year follow-up.

Our EVAS Platform

Nellix EVAS System:

Our Nellix EVAS System is designed to seal the aneurysm and provide blood flow to the legs through two blood flow lumens. The Nellix EVAS System consists of (i) bilateral covered stents with endobags, (ii) a biocompatible polymer injected into the endobags to seal the aneurysm and (iii) a delivery system and associated accessories. The Nellix EVAS System is intended to seal the entire aneurysm sac effectively excluding the aneurysm and reducing the likelihood of future aneurysm rupture.


•	Potentially Reduce Endoleaks Leading to Secondary Interventions. The Nellix EVAS System seals the entire aneurysm, potentially reducing the likelihood of many causes of secondary intervention in EVAR procedures.


•	Low Profile Introducer. The delivery catheter for the Nellix EVAS System has an outer diameter of 17F, which is beneficial for the delivery of the devices in tight access arteries, potentially reducing risk of vascular injuries to the patient.

Our EVAR and EVAS Extensions and Accessories

Aortic Extensions and Limb Extensions. We offer limb extensions for the Ovation System and proximal aortic extensions and limb extensions for the AFX System which allow physicians to customize the implant to fit the patient's anatomy. In February 2014, we launched a proximal extension in the United States, VELA, designed specifically for the treatment of proximal aortic neck anatomies with AFX. VELA features a circumferential graft line marker and controlled delivery system that enable predictable deployment and final positional adjustments. We commenced commercial sales of VELA in 2015.

Accessories. We offer various accessories to facilitate the delivery of our EVAR and EVAS products, including compatible guidewires, inflation devices and snares.

Our Product Evolution

We first commercialized the Powerlink System (the "Powerlink System for AAA") in Europe in 1999 and in the United States in 2004. As our EVAR platform products evolved, we branded them under the names Powerlink System with Visiflex Delivery System, IntuiTrak ^® , and AFX. We added the Nellix EVAS System through our merger with Nellix, Inc. in December 2010. We added the Ovation System to our EVAR product portfolio through our merger with TriVascular in February 2016.

• Powerlink System for AAA. The Powerlink System for AAA was our original EVAR product.


•	IntuiTrak . We received FDA approval for IntuiTrak in October 2008, CE Mark approval for IntuiTrak in March 2010, and Japanese Shonin approval for IntuiTrak in December 2012. IntuiTrak provided an updated delivery system that enhanced physician ease of use and for manufacturability.

•

AFX. In May 2011 and November 2011, we received FDA approval and CE Mark approval, respectively, for the AFX System, and we received Japanese Shonin approval for the AFX System in December 2015. We began a full commercial launch of the AFX System in the United States in August 2011 and in numerous international markets in 2012. In addition, we entered into a distribution arrangement with a Japanese distributor to introduce the AFX System in the Japanese market in the first quarter of 2016.


•	AFX2. In October 2015, we received FDA approval for our AFX2 Bifurcated Endograft System (“AFX2”).


•	Ovation TriVascular. We received CE mark approval for the Ovation System in August 2010 and FDA approval for the Ovation System in October 2012. In February 2015, the FDA approved our next generation Ovation iX Iliac Stent Graft for the Ovation System, and in July 2015, the FDA approved the Ovation

iX Abdominal Stent Graft System. In September 2015, the first patients were treated with the Ovation iX Abdominal Stent Graft System in Europe, and in October 2015, we initiated the launch of our Ovation iX Iliac Stent Graft System in the United States.

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Nellix EVAS System . In February 2013, we received CE Mark approval of the Nellix EVAS System, and we commenced a limited market introduction of the Nellix EVAS System in Europe. In December 2013, we received IDE approval in the United States to begin a clinical trial which commenced in January 2014. Enrollment in the IDE study was completed in November 2014. In the fourth quarter of 2014, we obtained IDE continued access approval for additional patients. In April 2016, we announced achievement of CE Mark approval of the next-generation Nellix EVAS System. In September 2017, we announced CE Mark approval for the Nellix EVAS System with the refined IFU. In October 2017, we received IDE approval in the United States to begin the EVAS2 confirmatory clinical study to evaluate the next-generation Nellix EVAS System.


•	ChEVAS . ChEVAS is a procedure where the Nellix EVAS System could potentially be used together with branch stent grafts to treat patients with complex aortic anatomies. Physicians initiated a clinical trial called ASCEND (Aneurysm Study for Complex AAA: Evaluation of Nellix Durability) to evaluate the clinical performance of ChEVAS. We are pursuing CE mark and FDA approval for this indication.

Product Developments and Clinical Trials

Overview

We incurred expenses of $34.0 million in 2017 , $48.6 million in 2016 , and $41.8 million in 2015 , on research and development activities and clinical studies. Our focus is to continually develop innovative and cost-effective medical devices for the treatment of aortic disorders. We believe that our ability to develop new technologies is a key to our future growth and success. Historically, we have focused on developing our EVAR and EVAS products to treat infrarenal AAA, including initial development of products to treat complex AAA anatomies. However, we expect to devote more resources in the future to developing, enhancing and obtaining expanded indications for our current EVAR and EVAS products and to develop new product indications to treat more complex anatomies.

Nellix EVAS System

Using the technology we acquired in the Nellix acquisition, we developed the Nellix EVAS System, a next-generation device, to treat infrarenal AAA. We have the following trials in process to build independent and collective clinical and economic evidence of clinical safety and effectiveness:

•

EVAS FORWARD IDE - We conducted this pivotal clinical trial to evaluate the safety and effectiveness of the Nellix EVAS System. This study is a prospective single arm registry which enrolled 179 patients at 29 centers in the United States and Europe. In November 2014, we completed enrollment in the study, and we submitted the one year results to the FDA in March 2016. In May 2016, we announced the results of the one year clinical data from the EVAS FORWARD IDE study that demonstrate that the Nellix EVAS System met the study primary endpoints for major adverse events at 30 days (safety) and treatment success at one year (effectiveness). Two-year imaging revealed a signal of migration, leading to a field safety notification issued in October 2016 and a dedicated root cause analysis, resulting in refinements to the IFU. Following the implementation of the refined IFU, the Nellix EVAS system is applicable to treat an estimated 40% of AAA patients with a traditional aneurysm.

Subsequently, the two-year results from the trial were announced. Key highlights from the Nellix US IDE trial two-year clinical data are included below:


•	Freedom from all endoleaks (94%), rupture (97%), all-cause mortality (97%), and cardiovascular mortality (99%), among all patients.


•	Highest freedom of type II endoleaks, of 97%, ever reported at two years, among all patients.


•	When applying the refined IFUs for Nellix, patients at the two-year follow-up demonstrated 96% freedom from Type IA endoleak, migration >10mm, and sac growth.

•

EVAS2 IDE - In May 2017, we announced the decision to seek United States approval of the Nellix EVAS System by conducting a confirmatory clinical study with the updated IFU and the Gen2 device design. The Gen2 device incorporates design improvements to enhance ease of use and offers physicians more sizes to treat more patients with AAA. In October 2017, we announced our receipt of IDE approval from the FDA to commence a confirmatory clinical study to evaluate the safety and effectiveness of the Gen2 Nellix EVAS System for the

endovascular treatment of infrarenal AAA. The EVAS2 IDE Multicenter Safety and Effectiveness Confirmatory Study (“EVAS2”) will prospectively evaluate the refined IFU and the Nellix Gen2 EVAS System. The study is approved to enroll up to 90 primary patients, with one-year follow-up data required for the pre-market approval (“PMA”) application. We commenced EVAS2 patient enrollment in March 2018, and currently estimate a decision on our PMA application by the end of 2020.

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EVAS FORWARD Global Registry - This study is designed to provide real world clinical results to demonstrate the effectiveness and applicability of the Nellix EVAS System. The first phase of the registry included 300 patients enrolled in up to 30 international centers. The first patient in the registry was treated in October 2013. In September 2014, we announced completion of patient enrollment in the EVAS FORWARD Global Registry. In November 2016, we announced positive two-year results on 300 patients from the EVAS FORWARD Global Registry at the annual VEITH meeting. The following outcomes were presented at the annual VEITH meeting:


•	37% of the patients had complex anatomies;


•	98% freedom from any persistent endoleaks at latest follow-up;


•	No secondary interventions for Type II endoleaks;


•	97% freedom from aneurysm-related mortality; and


•	99% freedom from cardiovascular mortality.

In 2017, the EVAS FORWARD Global Registry 2 commenced a post market evaluation of the Nellix Gen2 EVAS System, our second generation device design.

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ASCEND Registry - In April 2016, we announced the first data presentation with one-year outcomes from the ASCEND Registry (Aneurysm Study for Complex AAA: Evaluation of Nellix Durability), a physician-initiated registry of the Nellix EVAS System used with aortic branch stent grafts for the treatment of patients with complex AAAs. The results of the study were formally published in the peer-reviewed Journal of Endovascular Therapy in December 2017.

R efined IFU - In September 2017, we announced CE Mark approval for the Nellix EVAS System with the refined IFU. The Nellix EVAS System is being studied in the U.S. under an IDE. Following a thorough review of supporting clinical data, the Company's Notified Body in the European Union, together with an independent clinical reviewer, has determined that the Nellix EVAS System, with the refined IFU, meets the applicable safety and clinical performance requirements. As a result of these evaluations, the Notified Body has granted a CE Mark for the Nellix EVAS System with the refined IFU.

AFX System

In September 2014, we announced a new clinical study called LEOPARD (Looking at EVAR Outcomes by Primary Analysis of Randomized Data). This study was designed to compare outcomes of the AFX System versus other commercially available EVAR devices. We designed the LEOPARD study to randomize and enroll up to 600 patients at 60 leading centers throughout the United States and commenced enrollment in the first quarter of 2015. The centers were a mix of our current and new customers, with each investigator selecting one competitive device to randomize against AFX. The LEOPARD study is being led by an independent steering committee of leading physicians who are involved with the study and responsible for presenting the results over the five-year follow-up period.

Subsequently, positive interim results from LEOPARD were announced. Based upon the patients that have completed their one-year follow-up, freedom from Aneurysm Related Complications with AFX/AFX2 is 84.7%, compared to 82.0% with other devices. These preliminary results demonstrate similar outcomes between the endografts under investigation. AFX/AFX2, however, remains the only device that preserves the patient's aortic bifurcation. Based upon the anticipated number of additional patients required to prove superiority, we stopped further randomization in the LEOPARD study and plan to continue to follow enrolled patients for the planned five years.

In December 2015, we announced that the AFX Endovascular AAA System for the treatment of AAA received Shonin approval from the Japanese Ministry of Health, Labor and Welfare (“MHLW”).

In February 2016, we announced the completion of the first United States commercial implant of AFX2, which reduces procedure steps for the delivery and deployment of the bifurcated endograft. AFX2 also facilitates PEVAR by providing the lowest profile contralateral access through a 7F introducer. These improvements bring together our ActiveSeal™ technology, DuraPly ^® PTFE graft material and VELA Proximal Endograft, into an integrated new EVAR system.

In December 2016, we received notice from our Notified Body in the European Union that the CE Mark for AFX and AFX2 would be suspended due to reports of Type III endoleaks with a prior generation of the device. We had, for our current generation of AFX products, implemented device and graft material improvements and updated IFUs resulting in a substantial reduction in reported Type III endoleaks. We provided documentation of the foregoing reduction in Type III endoleaks to our Notified Body. In January 2017, we received notice from our Notified Body that the CE Mark for AFX and AFX2 had been re-instated, effective immediately.

Additionally, in December 2016, we placed a temporary hold on shipments of AFX and AFX2 to complete an investigation of quality concerns with some sizes of these devices. Subsequently, we removed the temporary hold and resumed shipments of all sizes of AFX and the smaller diameter sizes of AFX2 and initiated a voluntary recall of (1) the small remaining quantity of original AFX with Strata graft material, and (2) the larger diameter sizes of AFX2. In January 2017, we removed the temporary hold and resumed shipments of the remaining larger diameter sizes of AFX2.

Ovation System

In May 2011, we initiated a three-year European Post Market Registry to enroll 500 patients across 30 European centers. Enrollment ended in December 2013. In January 2017, we announced positive three-year results from the Ovation EU Post Market Registry. The data were presented at the 2017 LINC meeting and showed that the Ovation platform has the broadest range of patient applicability on IFU of all commercially available infrarenal endovascular AAA devices. The resulting outcomes included:


•	99% freedom from aneurysm-related mortality;


•	99% freedom from migration, rupture, and conversion;


•	97% freedom from Type I/III endoleak; and


•	Excellent freedom from secondary intervention for occlusion (97%), Type I endoleak (97%) and Type II endoleak 95%.

In October 2014, we initiated the LIFE Study to illustrate the potential advantages of a fast track protocol including PEVAR, no general anesthesia, no time in ICU and a one night stay in the hospital with the Ovation System. In May 2016, we announced the completion of enrollment of 250 patients at 34 sites participating in the LIFE Study. In September 2016, we announced the results of the one-month clinical data from the LIFE Study that demonstrate that the Ovation System met the study primary endpoint for major adverse events at 30 days. The following are highlights of the presentation, with outcomes covering one-month follow-up:


•	Low major adverse event rate of 0.4%;


•	No ruptures, conversion, or secondary interventions;


•	99% and 100% freedom from type I and type III endoleaks, respectively;


•	Fast-Track completed in 216 (87%) patients, with positive results compared to non-Fast-Track patients;


•	Procedure time of 84 minutes vs. 110 minutes;


•	General anesthesia use 0% vs. 18%;


•	ICU stay 0% vs. 32%; and


•	Mean hospital stay 1.2 vs. 1.9 days.

In August 2015, we enrolled the first subject in the LUCY Study, a multi-center post-market registry designed to explore the clinical benefits associated with EVAR using the Ovation Abdominal Stent Graft Platform in female patients with AAA, as compared to males. It is the first prospective study evaluating EVAR in females, a population that has historically been underrepresented in EVAR clinical trials. We announced completion of enrollment of 225 patients in the LUCY study in February 2017. The 30-day LUCY data showed that, in women, the ultra-low profile (14F) Ovation System device resulted in:


•	At least 28% greater EVAR eligibility for women with AAA;


•	1.3% major adverse events, the lowest rate reported for EVAR, compared to other contemporary, prospective, post-market registries;


•	No deaths;


•	No proximal endoleaks;


•	No limb occlusion;


•	Low readmission rate of 3.9%; and


•	100% procedural success

In February 2015, the FDA approved the next generation Ovation iX Iliac Stent Graft for the Ovation System, and in July 2015, the FDA approved the Ovation iX Abdominal Stent Graft System. In September 2015, the first patients were treated with the Ovation iX Abdominal Stent Graft System in Europe, and in August 2015, we initiated the launch of the Ovation iX System in the United States.

In November 2016, we announced at VEITH that the five-year results from the Ovation Global Pivotal Trial were positive and showed the following outcomes:


•	Broad patient applicability, with 40% of the patients treated outside the labeled indications of other EVAR devices;


•	Stable aortic neck diameters with an average expansion of 0.1%, compared to 25% as reported with other EVAR devices;


•	97% freedom from secondary interventions related to type I endoleak; and


•	No migration or conversions.

In August 2016, we announced that the first two patients were treated with the Ovation Alto ^® Abdominal Stent Graft System, which is the newest device in the Ovation System platform of abdominal stent graft systems. Ovation Alto is an investigational device, currently not approved in any market. It expands EVAR to include the treatment of patients with complex AAAs, specifically patients with very short or otherwise complex aortic neck anatomy. This is achieved by the conformable O-rings with CustomSeal ^® polymer that have been repositioned near the top of the endograft, providing seal just below the renal arteries. In November 2016, we received IDE approval from the FDA to conduct a clinical study with the Ovation Alto ^® Abdominal Stent Graft System in the United States.

In March 2017, we announced the enrollment of the first patients in the Expanding Patient Applicability with Polymer Sealing Ovation Alto Stent Graft (“ELEVATE”) IDE clinical study, our pivotal clinical trial to evaluate the safety and effectiveness of Ovation Alto for the repair of infrarenal AAAs. The ELEVATE IDE clinical trial is approved to enroll 75 patients at up to 16 centers in the United States.

The Company plans to file regulatory submissions in the third quarter of 2018 and estimates potential approval of the Alto device in both the U.S. and European markets in 2019.

PEVAR

Vascular access for EVAR previously required femoral artery exposure (commonly referred to as surgical cut-down) of one or both femoral arteries, allowing for safe introduction of the EVAR product. Complications from femoral artery exposure during EVAR procedures is an inherent risk of current surgical practice. PEVAR procedures do not require an open surgical cut-down of either femoral artery, as access to the femoral artery is achieved via a needle-puncture through the skin and closure with use of a suture-mediated device. Advantages to the patient and to the health care system of an entirely percutaneous procedure include reduced surgical procedure times, less post-operative pain, and fewer access-related wound complications.

In April 2013, we announced FDA approval of the PEVAR indication for use with our AFX and IntuiTrak products. Trial results show the safety and effectiveness of our device and PEVAR procedure facilitated with a suture-mediated closure device, and showed reduced surgical procedure time compared to surgical EVAR. Other trends favoring PEVAR include less medication prescribed for post-operative groin pain, reduced blood loss, and less hospitalization time. To date, no other company has conducted a randomized prospective FDA trial to specifically obtain approval for a PEVAR indication.

Manufacturing and Supply

Most of our commercial products are manufactured, assembled, and packaged at our 129,000 square foot leased facilities in Irvine, California and our 110,000 square foot leased facilities in Santa Rosa, California.

We rely on third parties for the supply of certain components used in our EVAR and EVAS products, such as the wire used to form our cobalt chromium alloy stent, PTFE and the raw material used in the manufacturing of polymer. While we obtain many of these components from single source suppliers, we believe there are alternative vendors for the supply of the vast majority of our required components. Many of our third party manufacturers go through a formal qualification and approval process, including periodic renewal to ensure fitness for use and compliance with applicable FDA requirements and International Organization for Standardization (“ISO”) 13485 requirements, and/or other required quality standards. Additionally, we actively manage supply risk with our key suppliers through a combination of negotiating favorable terms of supply agreements, maintaining strategic inventory levels, and maintaining frequent communications with our suppliers.

Marketing and Sales

We market and sell our EVAR products through a direct sales force and network of agents in the United States, Canada, New Zealand, South Korea, and fourteen European countries. In 20 other European countries, Japan, 12 Latin American countries, and seven other Asian countries we sell our EVAR products through independent distributors. In 2017, we marketed our EVAR products in 56 countries outside the United States.

United States. We market and sell our EVAR products in the United States through a direct sales force. The primary customer and decision-maker for our EVAR products is the vascular surgeon, and to a lesser extent, the cardiovascular surgeon, interventional radiologist and the interventional cardiologist. Through our direct sales force, we provide clinical support and service to many of the approximately 1,600 hospitals and approximately 4,000 physicians in the United States that perform EVAR. Approximately 68% of our revenues for the year ended December 31, 2017 were generated from sales of our EVAR products in the United States.

International. We market and sell our products outside the United States through a direct sales force and through third party distributors and agents. Approximately 32% of our revenues for the year ended December 31, 2017 were generated from sales of our EVAR and EVAS products outside the United States.

See Note 7 of the Notes to the Consolidated Financial Statements for a tabular summary of our revenue by geographic region for the fiscal years 2017 , 2016 and 2015 .

Competition

The medical device industry is highly competitive. Any product we develop that achieves regulatory clearance or approval will have to compete for market acceptance and market share. We believe that the primary competitive factors in the AAA device market segment are:


•	clinical effectiveness;


•	product safety, reliability, and durability;


•	ease of use;


•	sales force experience and relationships; and


•	price.

We experience significant competition and we expect that the intensity of competition will increase over time. For example, our major competitors, Medtronic, Inc., W.L. Gore Inc., and Cook Medical Products, Inc., have each obtained full regulatory approval for their EVAR products in the United States and/or other international markets. In addition to these major competitors, we also have smaller competitors, and emerging competitors with active EVAR system development programs.

Our major competitors have substantially greater capital resources than we do and also have greater resources in the areas of research and development, regulatory affairs, manufacturing, marketing, and sales. In addition, these competitors have multiple product offerings, which some physicians and hospitals may find more convenient when developing business relationships. We also compete with other medical device companies for clinical trial sites and for the hiring of qualified personnel, including sales representatives and clinical specialists.

Patents and Proprietary Information

We believe that our intellectual property and proprietary information is key to protecting our technology. We continue to build a portfolio of apparatus and method patents covering various aspects of our current and future technology. In the area of aorta treatment systems, our rights include 37 United States patents, 9 pending United States patent applications, 32 issued foreign patents and 9 pending foreign patent applications. Our current AFX-related aorta treatment related patents have expiration dates from 2018 to 2038. As a result of our acquisition of Nellix, we added additional patents to our portfolio which have evolved to currently include 22 issued United States patents, 26 pending United States patent applications, and 14 issued foreign patents, with expiration dates from 2018 to 2038. As a result of our merger with TriVascular, we added patents to our portfolio which have evolved to currently including 46 issued United States patents, 20 pending United States patent applications, and 87 issued foreign patents with expiration dates from 2018 to 2037. We intend to continue to file patent applications to strengthen our intellectual property position as we continue to develop our technology, while simultaneously avoiding paying unnecessary fees to maintain patents and applications when we believe it is not in our best interest.

Our policy is to protect our proprietary position by, among other methods, filing United States and foreign patent applications to protect technology, inventions and improvements that are important to the development of our business. We also own trademarks to protect our brand. In addition to patents and trademarks, we rely on trade secrets and proprietary know-how protection as well.

We seek protection of these trade secrets and proprietary know-how, in part, through confidentiality and proprietary information agreements. We make diligent efforts to require our employees, directors, consultants, and advisors to execute confidentiality agreements at the beginning of their employment, consulting, or other contractual relationships with us. These agreements provide that all confidential information developed or made known to the individual or entity during the course of the relationship is to be kept confidential and not be disclosed to third parties, except in specific circumstances. In the case of employees and certain other parties, the agreements also provide that all inventions conceived by the individual will be our exclusive property.

Third-Party Reimbursement

In the United States, hospitals are the primary purchasers of our EVAR and EVAS products. Hospitals in turn bill various third-party payors, such as Medicare, Medicaid and private health insurance plans, for the total healthcare services required to treat the patient’s AAA. Government agencies, private insurers and other payors determine whether to provide coverage for a particular procedure and to reimburse hospitals for medical treatment. While hospitals are often reimbursed at a fixed rate based on the diagnosis-related group (“DRG”) established by the United States Centers for Medicare and Medicaid Service (“CMS”), other insurers may negotiate differing approaches with hospitals. The fixed rate of reimbursement is based on the procedure performed, and is unrelated to the specific medical devices used in that procedure.

Reimbursement of procedures utilizing our EVAR and EVAS products currently are covered. Some payors may deny reimbursement if they determine that the device used in a treatment was unnecessary, not cost-effective, or used for a non-approved indication.

Beginning on October 1, 2015, CMS started requiring those who make claims for reimbursement to use ICD-10 codes to designate diagnosis and treatment of Medicare beneficiaries. The following are the ICD-10-PCS codes associated with the endovascular treatment of abdominal aneurysms utilizing our devices indicated for that treatment.



ICD-10 PCS	Description
Abdominal Aorta
04V03DZ	Restriction of Abdominal Aorta, with Intraluminal Device, Percutaneous Approach
04V04DZ	Restriction of Abdominal Aorta, with Intraluminal Device, Percutaneous Endoscopic Approach
04V03DJ	Restriction of Abdominal Aorta, with Intraluminal Device, Temporary, Percutaneous Approach
04V04DJ	Restriction of Abdominal Aorta, with Intraluminal Device, Temporary, Percutaneous Endoscopic Approach
04U03JZ	Supplement of Abdominal Aorta with Synthetic Substitute, Percutaneous Approach
04U04JZ	Supplement of Abdominal Aorta with Synthetic Substitute, Percutaneous Endoscopic Approach

CMS reimburses these hospital inpatient procedures utilizing the following MS-DRGs. National average reimbursement values are shown.



Aortic and Heart Assist Procedures Except Pulsation Balloon with MCC	$37,598
Aortic and Heart Assist Procedures Except Pulsation Balloon without MCC	$24,017

Outside of the United States, market acceptance of medical devices, including EVAR and EVAS systems, depends partly upon the availability of reimbursement within the prevailing healthcare payment system. Reimbursement levels vary significantly by country, and by region within some countries. Reimbursement is obtained from a variety of sources, including government sponsored healthcare and private health insurance plans.

Presently, the European Union (“EU”) is updating regulations for the sale and reimbursement of medical devices in EU countries. The current directives on active implantable medical devices (90/385/EEC) and on medical devices (93/42/EEC) will

be replaced by a regulation on medical devices. The legislation will harmonize such regulations throughout all EU countries. It is expected that the new regulations will require: (i) stricter guidelines for clinical evidence supporting device efficacy, (ii) more powers for regulatory assessment bodies, (iii) stronger supervision of manufacturers, importers and distributors, and (iv) an extended database for medical devices and better traceability throughout the supply chain. The European Commission proposals have been discussed in the European Parliament and in the European Council, and a final text was agreed upon on June 15, 2016. Work is currently ongoing to translate the final texts in all the EU official languages and to correct technical inconsistencies. Final formal adoption was expected both on the Council and the Parliament sides during the first semester 2017. Regulation would then gradually come into effect by 2020.

Government Regulation - Medical Devices

Our medical devices are subject to regulation by various government agencies, including the FDA and similar agencies within governments outside the United States. Each of these agencies requires us to comply with laws and regulations governing the development, qualification, manufacturing, labeling, marketing, and distribution of our medical devices.

United States

In the United States, medical devices are regulated by the FDA under the Federal Food, Drug and Cosmetic Act. The FDA classifies medical devices into one of three classes based upon controls the FDA considers necessary to reasonably ensure their safety and effectiveness. Class I devices are subject to general controls such as labeling, adherence to good manufacturing practices and maintenance of product complaint records, but are usually exempt from premarket notification requirements. Class II devices are subject to the same general controls and also are subject to special controls such as performance standards, FDA guidelines, and may also require clinical testing prior to approval. Class III devices are subject to the highest level of controls because they are life-sustaining or life-supporting devices. Class III devices require rigorous clinical testing prior to their approval and generally require a PMA or PMA supplement approval prior to marketing for sale.

Authorization to commercially distribute a medical device in the United States is generally received in one of two ways. The first, known as premarket notification (i.e., the 510(k) process), requires us to submit data to the United States FDA to demonstrate that our medical device is substantially equivalent to another medical device that is legally marketed in the United States The United States FDA must issue a finding of substantial equivalence before we can commercially distribute our medical device. Devices that receive a finding of substantial equivalence are referred to as 510(k)-cleared devices. Modifications to medical devices cleared under the 510(k) process can be made under the 510(k) process, or without the 510(k) process if the changes do not significantly affect safety or effectiveness.

The second process, known as premarket approval (i.e., the PMA process), requires us to collect and submit nonclinical and human clinical data on the medical device for its intended use to demonstrate that it is safe and effective. Human clinical data must be collected in compliance with FDA IDE regulations. The IDE application must be supported by data, typically including the results of animal and engineering testing of the device. If the IDE application is approved by the FDA, human clinical studies may begin at a specific number of investigational sites with a maximum number of patients. The clinical studies must be conducted under the review of an independent institutional review board to ensure the protection of the patients’ rights. In the PMA process, the FDA will approve the medical device and thereby authorize its commercial distribution in the United States if it determines that the probable benefits outweigh the risks for the intended patient population, and, therefore, makes a determination of reasonable assurances of safety and effectiveness. The PMA process takes longer and is more expensive than the 510(k) process. Our Powerlink, IntuiTrak AFX, AFX2 and Ovation EVAR Systems were approved through this PMA process. The Nellix EVAS System is currently engaged in the PMA process and we anticipate will be made commercially available in the United States following PMA approval.

We are required to register as a medical device manufacturer with the FDA. Additionally, the California Department of Health Services (“CDHS”) requires us to register as a medical device manufacturer. Because of this, the FDA and the CDHS routinely inspect us for compliance with Quality System regulations. These regulations require that we manufacture our products and maintain related documentation in a prescribed manner with respect to manufacturing, testing and control activities. We have undergone and expect to continue to undergo regular Quality System inspections in connection with the manufacture of our products at our facility. Further, the FDA requires us to comply with various regulations regarding labeling. The Medical Device Reporting (“MDR”) laws and regulations require us to provide information to the FDA on deaths or serious injuries alleged to have been associated with the use of our devices, as well as product malfunctions that likely would cause or contribute to death or serious injury if the malfunction were to recur. Although physicians are permitted to use their medical judgment to apply medical devices to indications other than those cleared or approved by the FDA, we are prohibited from promoting products for such “off-label” uses, and can only market our products for the 510(k)-cleared or PMA-approved indications for use.

International

Internationally, our medical devices are subject to regulatory requirements in the countries in which they are sold. The requirements and regulatory approval processes vary from country to country.

In the EU, one regulatory approval process exists. We must comply with the requirements of the Medical Devices Directive (“MDD”), and appropriately affix the CE Mark on our products to attest to such compliance. To obtain a CE Mark, our products must meet minimum standards of safety, performance, and quality (i.e., “Essential Requirements”), and then comply with defined conformity assessment routes. A notified body, selected by us, assesses our Quality Management System and our product conformity to the Essential Requirements and the requirements of the MDD. The notified body must perform regular inspections to verify compliance. The EU government ministries of health ("Competent Authorities") oversee human clinical studies and post-market surveillance of approved products, referred to as Vigilance Reporting. We are required to report device failures and serious adverse events potentially related to product use to responsible Competent Authorities. We also must comply with additional requirements of individual countries in which our products are marketed. Our Powerlink, AFX, and Ovation EVAR Systems and Nellix EVAS System were approved through the CE marking process.

To be sold in Japan, most medical devices must undergo thorough safety examinations and demonstrate medical efficacy before they are granted approval, or “S honin ”. In Japan, the MHLW, with administration by the Pharmaceutical and Medical Devices Agency, regulates medical devices under the Pharmaceuticals and Medical Device Law (“PMD”). Our quality management system and product conformity to the PMD are overseen by MHLW and Pharmaceutical and Medical Devices Agency. Our Powerlink System and AFX System were approved through the S honin process. The Ovation System and the Nellix EVAS System require future approval through the foregoing process in order to be commercially available in Japan.

To be sold in China, all medical devices are required to have licenses from the China Food and Drug Administration (“CFDA”) (formerly State Food & Drug Administration or SFDA). Quality system, premarket testing and clinical investigation are required for Class II and III devices. CFDA released a new regulation on Innovative Medical Device Registration Applications in March 2014, which Endologix may utilize to register its product in China. Class II and III submissions will have a full application review conducted; this will include a technical and administrative review. Novel and high-risk products may also be subject to an Expert Panel Meeting (which may result in an additional 4 to 6 months to the review process), and CFDA may conduct an onsite QMS audit of manufacturing facilities. The AFX System and the Ovation System, as well as the Nellix EVAS System, require future approval through the foregoing process in order to be commercially available in China.

We are also subject to other local, state, federal and international regulations relating to a variety of areas including laboratory practices, manufacturing practices, medical device export, quality system practices, as well as health care reimbursement and delivery of products and services.

United States and Foreign Government Regulations - Healthcare Fraud and Abuse and Privacy Laws

Healthcare Fraud and Abuse

We are subject to various United States and foreign governmental laws and regulations relating to the manufacturing, labeling, marketing and selling of our products, non-compliance with which could adversely affect our business, financial condition and results of operations. We have implemented and maintain a comprehensive compliance program that includes ongoing risk assessment, development of relevant policies, monitoring, and training of our employees to ensure compliance with United States and foreign laws and regulations.

Various United States federal and state laws and regulations pertaining to health care fraud and abuse govern how we can and cannot do business in the United States and globally, including the federal False Claims Act, which prohibits the submission of false or otherwise improper claims for payment to a federally-funded health care program, the federal Anti-Kickback Statute, which prohibits offers to pay or receive remuneration of any kind for the purpose of inducing or rewarding referrals of items or services reimbursable by a Federal health care program, and similar state false claims and anti-kickback laws and regulations that apply to state funded health care programs. Violations of these laws and regulations are punishable by criminal and/or civil sanctions, including, in some instances, fines, imprisonment and, within the United States, exclusion from participation in federal and/or state health care programs, including Medicare and Medicaid. The interpretation and enforcement of these laws and regulations are uncertain and subject to rapid change.

We conduct a significant amount of sales activity outside of the United States. We intend to continue to pursue growth opportunities internationally, including in emerging markets. Our international operations are, and will continue to be, subject to a complex set of laws and regulations, including:


•	Foreign medical reimbursement policies and programs;


•	Complex data privacy requirements and laws;


•	Ever-changing and contradictory country-specific guidelines, transparency requirements and laws;

•

The Foreign Corrupt Practices Act, a United States law, which prosecutes United States companies who engage in bribery when doing business with physicians, distributors, agents, and other third parties outside the United States Many physicians outside the United States are considered government officials, and United States companies, together with individuals who engaged in the bribery, face civil and criminal sanctions both in the United States and any country where bribery of a government official violates the law of that country;


•	Foreign anti-corruption laws, such as the UK Bribery Act; and


•	Trade protection measures, including import or export restrictions or sanctions, that may restrict us from doing business in and/or shipping products to certain parts of the world.

The foregoing are subject to change and evolving interpretations and any violation thereof could subject us to financial or other penalties.

US and Foreign Privacy Laws

We are subject to various United States federal and state privacy and security laws and regulations that protect the security and privacy of individually identifiable health information. We are mindful that our systems require significant resources and oversight to protect employee, patient, physician and customer information. If we fail to maintain or protect our information systems and data integrity effectively, we could lose existing customers, have difficulty preventing, detecting, and controlling fraud, have disputes with customers, physicians, and other health care professionals, have regulatory sanctions or other penalties imposed, have increases in operating expenses, incur expenses or lose revenues as a result of a data privacy breach, or suffer other adverse consequences.

We are also impacted by the privacy and security requirements of countries outside the United States Privacy standards in Europe and Asia have become stricter. Enforcement actions and financial penalties related to privacy in the EU are growing, and foreign governmental authorities have passed new laws and restrictions relating to privacy requirements and standards. The management of cross border transfers of information among and outside of EU member countries is becoming more complex, which may affect our consulting arrangements with physicians or our clinical research activities, as well as product offerings that involve transmission or use of clinical data.

The EU published the EU General Data Protection Regulation (“GDPR”) in April 2016. This major piece of legislation represents the most significant change in EU data protection law since 1995. It will apply in all EU Member States as of May 2018. The GDPR mandates a baseline set of standards that will have a significant impact on us as we are involved in the processing of personal data outside the EU. It will increase the penalties for noncompliance, with fines of up to €20 million or 4% of annual worldwide revenue.

Any significant breakdown, intrusion, interruption, corruption, or destruction of our systems or information could have a material adverse effect on our business, results of operations and financial condition. Thus, we will continue our efforts to comply with all applicable privacy and security laws and regulations. To the best of our knowledge at this time, we do not expect that the ongoing cost and impact of assuring compliance with applicable privacy and security laws and regulations will have a material impact on our business, results of operations or financial condition.

Product Liability

The manufacture and marketing of medical devices carries the significant risk of financial exposure to product liability claims. Our products are used in situations in which there is a high risk of serious injury or death. Such risks will exist even with respect to those products that have received, or in the future may receive, regulatory approval for commercial sale. We are currently covered under a product liability insurance policy with coverage limits of $20 million per occurrence and $20 million per year in the aggregate, subject to customary deductible of $150,000.

Employees

As of December 31, 2017 , we had 675 employees (as compared to 782 employees as of December 31, 2016 ), including 218 in manufacturing, 45 in research and development, 41 in regulatory and clinical affairs, 75 in quality, 191 in sales and marketing, and 105 in administration. We believe that the success of our business will depend on our ability to attract and retain

qualified personnel. Our employees are not subject to a collective bargaining agreement, and we believe that we have good relations with our employees.

General Information

We were incorporated in California in March 1992 under the name Cardiovascular Dynamics, Inc. and reincorporated in Delaware in June 1993. In January 1999, Cardiovascular Dynamics, Inc. (by then a publicly-traded company) merged with privately-held Radiance Medical Systems, Inc., and we changed our name to Radiance Medical Systems, Inc. In May 2002, we merged with then privately-held Endologix, Inc., and we changed our name to Endologix, Inc.

Our principal executive office is located at 2 Musick, Irvine, California and our telephone number is (949) 595-7200. Our website is located at www.endologix.com. The information on, or that can be accessed through, our website is not incorporated by reference into this Annual Report on Form 10-K and should not be considered to be a part hereof.

We make our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and related amendments to these reports, as applicable, available on our website, at www.endologix.com, free of charge as soon as practicable after filing or furnishing such reports with the SEC.

All such reports are also available free of charge via EDGAR through the SEC website at www.sec.gov. In addition, the public may read and copy materials filed by us with the SEC at the SEC’s public reference room located at 100 F Street, NE, Washington, D.C., 20549. Information regarding operation of the SEC’s public reference room can be obtained by calling the SEC at 1-800-SEC-0330.


Item 1A.	Risk Factors

Before deciding to invest in our company, or to maintain or increase your investment, you should carefully consider the risks described below, in addition to the other information contained in this Annual Report on Form 10-K and other reports we have filed with the SEC. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us, or that we currently deem immaterial, may also affect our business operations. If any of these risks are realized, our business, financial condition, or results of operations could be seriously harmed and, in that event, the market price for our common stock could decline and you may lose all or part of your investment.

These risk factors should be considered in connection with evaluating the forward-looking statements contained in this Annual Report on Form 10-K. These factors could cause actual results and conditions to differ materially from those projected in our forward-looking statements.

Risks Related to Our Business

All of our revenue is generated from a limited number of products, and any decline in the sales of these products will negatively impact our business.

We have focused heavily on the development and commercialization of a limited number of products for the treatment of AAA. If we are unable to continue to achieve and maintain market acceptance of these products and do not achieve sustained positive cash flow from operations, we will be constrained in our ability to fund development and commercialization of improvements and other product lines. In addition, if we are unable to market our products as a result of a manufacturing or quality problem or failure to maintain regulatory approvals, we would lose our only source of revenue and our business would be negatively affected.

We are in a highly competitive market segment, which is subject to rapid technological change. If our competitors are better able to develop and market products that are safer, more effective, less costly, easier to use, or otherwise more attractive than any products that we may develop, our business will be adversely impacted.

Our industry is highly competitive and subject to rapid technological change. Our success depends, in part, upon our ability to maintain a competitive position in the development of technologies and products for use in the treatment of AAA and other aortic disorders. We face competition from both established and development stage companies. Many of the companies developing or marketing competing products enjoy several advantages to us, including:


•	greater financial and human resources for product development, sales and marketing and patent litigation;


•	greater name recognition;


•	long established relationships with physicians, customers, and third-party payors;


•	additional lines of products, and the ability to offer rebates or bundle products to offer greater discounts or incentives;


•	more established sales and marketing programs, and distribution networks;


•	greater experience in conducting research and development, manufacturing, clinical trials, preparing regulatory submissions, and obtaining regulatory clearance or approval for products and marketing approved products; and


•	greater buying power and influence with suppliers.

Our competitors may develop and patent processes or products earlier than us, obtain regulatory clearance or approvals for competing products more rapidly than us, and develop more effective or less expensive products or technologies that render our technology or products obsolete or less competitive. We also face fierce competition in recruiting and retaining qualified scientific, sales, and management personnel, establishing clinical trial sites and patient enrollment in clinical trials, as well as in acquiring technologies and technology licenses complementary to our products or advantageous to our business. If our competitors are more successful than us in these matters, our business may be harmed.

If third-party payors do not provide reimbursement for the use of our products, our revenues may be negatively impacted.

Our success in marketing our products depends in large part on whether domestic and international government health administrative authorities, private health insurers and other organizations will reimburse customers for the cost of our products. Reimbursement systems in international markets vary significantly by country and by region within some countries, and reimbursement approvals must be obtained on a country-by-country basis. Further, many international markets have government managed healthcare systems that control reimbursement for new devices and procedures. In most markets, there are private insurance systems as well as government-managed systems. If sufficient reimbursement is not available for our current or future products, in either the United States or internationally, the demand for our products may be adversely affected or we may decide to cease commercial activities in any such region.

We may never realize the expected benefits of our business combination transactions.

In addition to developing new products and growing our business internally, we have sought to grow through combinations with complementary businesses. Examples include our recently completed merger with TriVascular in 2016 and our merger with Nellix in 2010. Such business combination transactions involve risks, including the risk that we may fail to realize some or all of the anticipated benefits of the transaction. For example, the success of our recent business combination transactions largely depends on our ability to realize anticipated growth opportunities for existing products and potential new products. Our ability to realize these benefits, and the timing of this realization, depend upon a number of factors and future events, many of which we cannot control. These factors and events include, without limitation, with respect to the acquired products and technologies, the results of clinical trials, the receipt of applicable regulatory approvals, obtaining and maintaining intellectual property rights and further developing an effective sales and marketing organization in global markets. Although we carefully plan our business combination transactions, we may be unable to realize the expected benefits of such transactions.

Our success depends on the growth in the number of AAA patients treated with endovascular devices.

We estimate that over 200,000 people are diagnosed with AAA in the United States, and approximately 60,000 people undergo aneurysm repair, either via EVAR or open surgical repair, annually. Our growth will depend upon an increasing percentage of patients with AAA being diagnosed, and an increasing percentage of those diagnosed receiving EVAR, as opposed to an open surgical procedure. Initiatives to increase screening for AAA include SAAAVE, which was signed into law on February 8, 2006 in the United States. SAAAVE provides one-time AAA screening for men who have smoked some time in their life, and men or women who have a family history of the disease. Screening is provided as part of the “Welcome to Medicare” physical and such coverage began on January 1, 2007. Such general screening programs may never gain wide acceptance. The failure to diagnose more patients with AAA could negatively impact our revenue growth.

Our success depends on convincing physicians to use, and continue to use, our products in more endovascular AAA procedures and to assist us in development of new products.

If we are unable to continue convincing physicians to use our products, our business could be negatively impacted. Additionally, if we fail to maintain our working relationships with health care professionals, many of our products may not be developed and marketed in line with the needs and expectations of the professionals who use and support our products, which could cause a decline in our financial performance. The research, development, marketing, and sales of many of our new and improved products is dependent upon our maintaining working relationships with health care professionals. We rely on these professionals to provide us with considerable knowledge and experience regarding the development, marketing, and sale of our

products. Physicians assist us as researchers, marketing and product consultants, inventors, and public speakers. If we are unable to maintain our strong relationships with these professionals and continue to receive their advice and input, the development and marketing of our products could suffer, which could have a material adverse effect on our consolidated earnings, financial condition, and/or cash flows.

Manufacturing and quality problems with our products could harm our reputation and erode our competitive advantage, sales, and market share.

The manufacture of many of our products is highly complex and subject to strict quality controls, due in part to rigorous regulatory requirements. In addition, quality is extremely important due to the serious and costly consequences of a product failure. Problems can arise during the manufacturing process for a number of reasons, including equipment malfunction, failure to follow protocols and procedures, raw material problems or human error. If these problems arise or if we otherwise fail to meet our internal quality standards or those of the FDA or other applicable regulatory bodies, which include detailed record-keeping requirements, our reputation could be damaged, we could become subject to a safety alert or a recall, we could incur product liability and other costs, product approvals could be delayed, suspended or revoked and our business could otherwise be adversely affected.

Our international operations involve operating risks, which could adversely impact our net sales, results of operations, and financial condition.

Sales of our products outside the United States represented approximately 32% of our revenue in 2017 . As of December 31, 2017 , we sold our products through 41 distributors located in the following countries outside of the United States: Argentina, Brazil, Chile, Columbia, Czech Republic, Israel, Japan, Mexico, Canada, Austria, Latvia, Romania, Poland, Sweden, Switzerland, Portugal, Spain, Slovakia, Italy, Hungary, Greece, Thailand, Singapore, Hong Kong, Russia, Cyprus, Ecuador, Australia, Turkey and South Korea. The sales territories authorized within these various distribution agreements cover a total of 54 countries. The sale and shipment of our products across international borders, as well as the purchase of components and products from international sources, subjects us to extensive United States and foreign governmental trade, import and export, and custom regulations and laws.

Pursuant to the SEC rules regarding disclosure of the use of certain minerals in our products, known as "conflict minerals,” which are mined from the Democratic Republic of the Congo and adjoining countries, we are now required to disclose the procedures we employ to determine the sourcing of such minerals and metals produced from those minerals. The implementation of these rules could adversely affect the sourcing, supply, and pricing of materials used in our products. Although we intend to disclose that we utilized certain of the four conflict minerals in our products in our conflict minerals report for the 2017 calendar year, we have been unable in all instances to determine that our sources of these minerals have been certified as “conflict free.” We may continue to face difficulties in gathering this information in the future.

Compliance with these regulations is costly and exposes us to penalties for non-compliance. Other laws and regulations that can significantly impact us include various anti-bribery laws, including the United States Foreign Corrupt Practices Act and anti-boycott laws and similar laws in foreign jurisdictions. Any failure to comply with applicable legal and regulatory obligations could impact us in a variety of ways that include, but are not limited to, significant criminal, civil and administrative penalties, including imprisonment of individuals, fines and penalties, denial of export privileges, seizure of shipments, restrictions on certain business activities, and exclusion or debarment from government contracting. Also, the failure to comply with applicable legal and regulatory obligations could result in the disruption of our shipping and sales activities.

Substantially all of our sales outside of the United States are denominated in local currencies and not in United States dollars. Measured in local currency, a substantial portion of our international sales was generated in Europe (and primarily denominated in the Euro) and in Japan. The United States dollar value of our international sales varies with currency exchange rate fluctuations. Decreases in the value of the United States dollar to the Euro or the British Pound Sterling have the effect of increasing our reported revenues even when the volume of international sales has remained constant. Increases in the value of the United States dollar relative to the Euro or the British Pound Sterling, as well as other currencies, have the opposite effect and, if significant, could have a material adverse effect on our reported revenues and results of operations.

In addition, many of the countries in which we sell our products are, to some degree, subject to political, economic or social instability. Our international operations expose us and our distributors to risks inherent in operating in foreign jurisdictions. These risks include:


•	difficulties in enforcing or defending intellectual property rights;


•	pricing pressure that we may experience internationally;


•	a shortage of high-quality sales people and distributors;


•	changes in third-party reimbursement policies that may require some of the patients who receive our products to directly absorb medical costs or that may necessitate the reduction of the selling prices of our products;


•	the imposition of additional United States and foreign governmental controls or regulations;


•	economic instability;


•	changes in duties and tariffs, license obligations and other non-tariff barriers to trade;


•	the imposition of restrictions on the activities of foreign agents, representatives and distributors;


•	scrutiny of foreign tax authorities which could result in significant fines, penalties and additional taxes being imposed on us;


•	laws and business practices favoring local companies;


•	longer payment cycles;


•	difficulties in maintaining consistency with our internal guidelines;


•	difficulties in enforcing agreements and collecting receivables through certain foreign legal systems;


•	the imposition of costly and lengthy new export licensing requirements;


•	the imposition of United States or international sanctions against a country, company, person or entity with whom we do business that would restrict or prohibit continued business with the sanctioned country, company, person or entity; and


•	the imposition of new trade restrictions.

If we experience any of these risks, our sales in international countries may be harmed and our results of operations would suffer.

If we fail to develop and retain our direct sales force, our business could suffer.

We have a direct sales force in the United States and in certain European countries. We also utilize a network of third-party distributors for sales outside of the United States. As we launch new products and increase our marketing efforts with respect to existing products, we will need to retain and develop our direct sales personnel to build upon their experience, tenure with our products, and their relationships with customers. There is significant competition for sales personnel experienced in relevant medical device sales. If we are unable to attract, motivate, develop, and retain qualified sales personnel and thereby grow our sales force, we may not be able to maintain or increase our revenues.

Our third-party distributors may not effectively distribute our products.

We depend in part on medical device distributors and strategic relationships for the marketing and selling of our products outside of the United States and outside of certain countries in Europe. We depend on these distributors’ efforts to market our products, yet we are unable to control their efforts completely. In addition, we are unable to ensure that our distributors comply with all applicable laws regarding the sale of our products. If our distributors fail to effectively market and sell our products, and in full compliance with applicable laws, our operating results and business may suffer.

If clinical trials of our current or future products do not produce results necessary to support regulatory clearance or approval in the United States or elsewhere, we will be unable to commercialize these products.

We are currently conducting clinical trials. We will likely need to conduct additional clinical trials in the future to support new product approvals, for the approval for new indications for the use of our products, or support the use of existing products. Clinical testing is expensive, and typically takes many years, and carries uncertain outcomes. The initiation and completion of any of these studies may be prevented, delayed, or halted for numerous reasons, including, but not limited to, the following:


•	the FDA, institutional review boards or other regulatory authorities do not approve a clinical study protocol, force us to modify a previously approved protocol, or place a clinical study on hold;


•	patients do not enroll in, or enroll at the expected rate, or complete a clinical study;


•	patients or investigators do not comply with study protocols;


•	patients do not return for post-treatment follow-up at the expected rate;


•	patients experience serious or unexpected adverse side effects for a variety of reasons that may or may not be related to our products such as the advanced stage of co-morbidities that may exist at the time of treatment, causing a clinical study to be put on hold or terminated.


•	sites participating in an ongoing clinical study may withdraw, requiring us to engage new sites;


•	difficulties or delays associated with establishing additional clinical sites;


•	third-party clinical investigators decline to participate in our clinical studies, do not perform the clinical studies on the anticipated schedule, or are inconsistent with the investigator agreement, clinical study protocol, good clinical practices, and other FDA and Institutional Review Board requirements;


•	Failure to complete data collection analysis in a timely or accurate manner;


•	regulatory inspections of our clinical studies require us to undertake corrective action or suspend or terminate our clinical studies;


•	changes in federal, state, or foreign governmental statutes, regulations or policies;


•	interim results are inconclusive or unfavorable as to immediate and long-term safety or efficacy;


•	the study design is inadequate to demonstrate safety and efficacy; or


•	the results of the study do not meet the study endpoints.

Clinical failure can occur at any stage of the testing. Our clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical and/or non-clinical testing in addition to those we have planned. Our failure to adequately demonstrate the efficacy and safety of any of our devices would prevent receipt of regulatory clearance or approval and, ultimately, the commercialization of that device or indication for use.

We rely on single vendors to supply several components for our product lines, and any disruption in the supply of such materials could impair our ability to manufacture our products or meet customer demand for our products in a timely and cost effective manner.

Our reliance on single source suppliers exposes our operations to disruptions in supply caused by:


•	failure of our suppliers to comply with regulatory requirements;


•	any strike or work stoppage;


•	disruptions in shipping;


•	a natural disaster caused by fire, flood or earthquakes; or


•	a supply shortage experienced by a single source supplier.

Although we take reasonable efforts to mitigate risk, a significant extending interruption from key suppliers could impact our ability to manufacture and adversely affect our business, financial condition, and results of operations.

If we are unable to protect our intellectual property, our business may be negatively affected.

Our success depends significantly on our ability to protect our intellectual property and proprietary technologies. Our policy is to obtain and protect our intellectual property rights. We rely on patent protection, as well as a combination of copyright, trade secret and trademark laws, and nondisclosure, confidentiality and other contractual restrictions, to protect our proprietary technology. However, these legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep any competitive advantage. Our pending United States and foreign patent applications may not issue as patents or may not issue in a form that will be advantageous to us. Any patents we have obtained, or will obtain, may be challenged by re-examination, inter partes review, opposition or other administrative proceeding, or in litigation. Such challenges could result in a determination that the patent is invalid. In addition, competitors may be able to design alternative methods or devices that avoid infringement of our patents. To the extent our intellectual property protection offers inadequate protection, or is found to be invalid, we are exposed to a greater risk of direct competition. If our intellectual property does not provide adequate protection against our competitors’ products, our competitive position could be adversely affected, as could our business. Both the patent application process and the process of managing patent disputes can be time consuming and expensive. Furthermore, the laws of some foreign countries may not protect our intellectual property rights to the same extent, as do the laws of the United States. In addition, changes in United States patent laws could prevent or limit us from filing patent applications or patent claims to protect our products and/or technologies or limit the exclusivity periods that are available to patent holders.

We also own trade secrets and confidential information that we try to protect by entering into confidentiality agreements and intellectual property assignment agreements with our employees, consultants and other parties. However, such agreements may not be honored or, if breached, we may not have sufficient remedies to protect our confidential information. Further, our competitors may independently learn our trade secrets or develop similar or superior technologies. To the extent that our employees, consultants or others apply technological information to our projects that they develop independently or others

develop, disputes may arise regarding the ownership of proprietary rights to such information, and such disputes may not be resolved in our favor. If we are unable to protect our intellectual property adequately, our business and commercial prospects will likely suffer.

The medical device industry is subject to extensive patent litigation, and if our products or processes infringe upon the intellectual property of third parties, the sale of our products may be challenged and we may have to defend costly and time-consuming infringement claims.

We may need to engage in expensive and prolonged litigation to assert or defend any of our intellectual property rights or to determine the scope and validity of rights claimed by other parties. With no certainty as to the outcome, litigation could be too expensive for us to pursue. Our failure to prevail in such litigation or our failure to pursue litigation could result in the loss of our rights that could substantially hurt our business. In addition, the laws of some foreign countries do not protect our intellectual property rights to the same extent as the laws of the United States, if at all.

Our failure to obtain rights to intellectual property of third parties, or the potential for intellectual property litigation, could force us to do one or more of the following:


•	stop selling, making, or using products that use the disputed intellectual property;


•	obtain a license from the intellectual property owner to continue selling, making, licensing, or using products, which license may not be available on reasonable terms, or at all;


•	redesign our products, processes or services; or


•	subject us to significant liabilities to third parties.

If any of the foregoing occurs, we may be unable to manufacture and sell our products and may suffer severe financial harm. Whether or not an intellectual property claim is valid, the cost of responding to it, in terms of legal fees and expenses and the diversion of management resources, could harm our business.

We may face product liability claims that could result in costly litigation and significant liabilities.

The manufacture, marketing and sale of our commercial products, and the clinical testing of our products under development, may expose us to significant risk of product liability claims. In the past, we have had a small number of product liability claims relating to our products, none of which either individually, or in the aggregate, have resulted in a material negative impact on our business. In the future, we may be subject to additional product liability claims, some of which may have a negative impact on our business. Such claims could divert our management from pursuing our business strategy and may be costly to defend. Regardless of the merit or eventual outcome, product liability claims may result in:


•	decreased demand for our products;


•	injury to our reputation;


•	injury to our relationships with our customers;


•	significant litigation and other costs;


•	substantial monetary awards to or costly settlements with patients;


•	product recalls;


•	loss of revenue; and


•	the inability to commercialize new products.

Although we have, and intend to maintain, product liability insurance, the coverage limits of our insurance policies may not be adequate to protect us from any liabilities we may incur, and one or more claims brought against us for uninsured liabilities or in excess of our insurance coverage may have a material adverse effect on our business and results of operations. In addition, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts or scope to protect us against losses. Any claims against us, regardless of their merit, could severely harm our reputation and financial condition, strain our management and other resources and adversely affect or eliminate the prospects for commercialization or sales of a product which is the subject of any such claim. In addition, a recall of our products, whether or not as a result of a product liability claim, could result in decreased demand for our products, injury to our reputation, significant litigation and other costs, substantial monetary awards to or costly settlements with patients, loss of revenue and our inability to commercialize new products or product candidates.

We currently are involved in litigation, and may face future claims, that could adversely affect our business and

financial condition, divert management’s attention from our business, and subject us to significant liabilities.

On January 3, 2017, a stockholder purporting to represent a class of persons who purchased our securities between August 2, 2016 and November 16, 2016, filed a lawsuit against us and certain of our officers in the United States District Court for the Central District of California. The lawsuit alleges that we made materially false and misleading statements and failed to disclose material adverse facts about our business, operational and financial performance, in violation of federal securities laws, relating to FDA PMA for our Nellix EVAS System. On January 11, 2017, a second stockholder filed a similar lawsuit against us and certain of our officers in the United States District Court for the Central District of California. The plaintiffs sought unspecified monetary damages on behalf of the alleged class, interest, and attorney’s fees and costs of litigation. The first lawsuit, Nguyen v. Endologix, Inc. et al., Case No. 2:17-cv-0017 AB (PLAx) (C.D. Cal.), was consolidated with the second lawsuit, Ahmed v. Endologix, Inc. et al, Case No. 8:17-cv-00061 AB (PLAx) (C.D. Cal.), and lead Nguyen plaintiff filed a consolidated First Amended Complaint. On December 5, 2017, the District Court granted Endologix’s motion to dismiss lead plaintiff’s First Amended Complaint, with leave to amend. On January 9, 2018, lead plaintiff filed a Second Amended Complaint.

Four shareholders have filed derivative lawsuits on behalf of Endologix, the nominal plaintiff, based on allegations substantially similar to those alleged by lead plaintiff in Nguyen. Those actions consist of: Sindlinger v. McDermott et al., Case No. BC662280 (Los Angeles Superior Court); Abraham v. McDermott et al., Case No. 30-2018-00968971-CU-BT-CSC (Orange County Superior Court); and Green v. McDermott et al., Case No. 8:17-cv-01155-AB (PLAx), which has been consolidated with Cocco v. McDermott et al., Case No. 8:17-cv-01183-AB (PLAx) (C.D. Cal.).

Although we believe that these lawsuits are without merit and intend to defend ourselves vigorously, we are not able to predict the ultimate outcome of these lawsuits. It is possible that they could cause us to incur substantial costs and that they could be resolved adversely to us, result in substantial damages, result in or be connected to additional claims, and divert management’s attention and resources, any of which could harm our business. While we maintain director and officer liability insurance, the amount of insurance coverage may not be sufficient to cover these claims and other claims to which we may become subject, and the continued availability of this insurance cannot be assured. Protracted litigation, including any adverse outcomes, may have an adverse impact on our business, results of operations or financial condition and could subject us to adverse publicity and require us to incur significant legal fees.

In July 2017, we learned that the SEC issued a Formal Order of Investigation to investigate, among other things, events surrounding the Nellix EVAS System and the prospect of its FDA pre-market approval. We are fully cooperating with the investigation but cannot predict its outcome or the timing of the investigation’s conclusions.

Our ability to maintain our competitive position depends on our ability to attract and retain highly qualified personnel.

Our future success depends, in part, upon our ability to retain and motivate key managerial, technical, and sales personnel, as well as our ability to continue to attract and retain additional highly qualified personnel. We compete for such personnel with other companies. We may be unsuccessful in retaining our current personnel or in hiring or retaining qualified personnel in the future. Key personnel may depart for various reasons, including as a result of difficulties with change or a desire not to remain with our company. Any unanticipated loss or interruption of services of our management team and our key personnel could significantly reduce our ability to meet our strategic objectives because it may not be possible for us to find appropriate replacement personnel should the need arise. Loss of key personnel or the inability to hire or retain qualified personnel in the future could have a material adverse effect on our ability to operate successfully.

If our facilities or systems are damaged or destroyed, we may experience delays that could negatively impact our revenues or have other adverse effects.

Our facilities and systems may be affected by natural or man-made disasters. We currently conduct our manufacturing, development and management activities in Santa Rosa, California and Irvine, California, near known earthquake fault zones and seasonal wildfire activity. Our finished goods inventory is split between our Santa Rosa and Irvine locations and our distribution centers in Memphis, Tennessee and Tilburg, The Netherlands. We have taken precautions to safeguard our facilities and systems, including insurance, health and safety protocols, and off-site storage of computer data. However, our facilities and systems may be vulnerable to earthquakes, fire, storm, power loss, telecommunications failures, physical and software break-ins, software viruses and similar events which could cause substantial delays in our operations, damage or destroy our equipment or inventory, and cause us to incur additional expenses. In addition, the insurance coverage we maintain may not be adequate to cover our losses in any particular case and may not continue to be available to use on acceptable terms, or at all.

Failure to protect our information technology infrastructure against cyber-based attacks, network security breaches, service interruptions, or data corruption could significantly disrupt our operations and adversely affect our business and operating results.

We rely on information technology and telephone networks and systems, including the Internet, to process and transmit sensitive electronic information and to manage or support a variety of business processes and activities, including sales, billing, customer service, procurement and supply chain, manufacturing, and distribution. We use enterprise information technology systems to record, process, and summarize financial information and results of operations for internal reporting purposes and to comply with regulatory financial reporting, legal, and tax requirements. Our information technology systems, some of which are managed by third-parties, may be susceptible to damage, disruptions or shutdowns due to computer viruses, attacks by computer hackers, failures during the process of upgrading or replacing software, databases or components thereof, power outages, hardware failures, telecommunication failures, user errors or catastrophic events. We are not aware of any breaches of our information technology infrastructure. Despite the precautionary measures we have taken to prevent breakdowns in our information technology and telephone systems, if our systems suffer severe damage, disruption or shutdown and we are unable to effectively resolve the issues in a timely manner, our business and operating results may suffer.

We are subject to credit risk from our accounts receivable related to our product sales, which include sales within European countries that are currently experiencing economic turmoil.

The majority of our accounts receivable arise from product sales in the United States. However, we also have significant receivable balances from customers within the European Union, Japan, Brazil, and Argentina. Our accounts receivable in the United States are primarily due from public and private hospitals. Our accounts receivable outside of the United States are primarily due from public and private hospitals and to a lesser extent independent distributors. Our historical write-offs of accounts receivable have not been significant.

We monitor the financial performance and credit worthiness of our customers so that we can properly assess and respond to changes in their credit profile. Our independent distributors and sub-dealers operate in certain countries such as Greece and Italy, where economic conditions continue to present challenges to their businesses, and thus, could place in risk the amounts due to us from them. These distributors are owed amounts from public hospitals that are funded by their governments. Adverse financial conditions in these countries may continue, thus negatively affecting the length of time that it will take us to collect associated accounts receivable, or impact the likelihood of ultimate collection.

Consolidation in the health care industry could have an adverse effect on our revenues and results of operations.

The health care industry has been consolidating, and organizations such as GPOs, independent delivery networks, and large single accounts continue to consolidate purchasing decisions for many of our health care provider customers. As a result, transactions with customers are larger, more complex, and tend to involve more long-term contracts. The purchasing power of these larger customers has increased, and may continue to increase, causing downward pressure on product pricing. If we are not one of the providers selected by one of these organizations, we may be precluded from making sales to its members or participants. Even if we are one of the selected providers, we may be at a disadvantage relative to other selected providers that are able to offer volume discounts based on purchases of a broader range of medical equipment and supplies. Further, we may be required to commit to pricing that has a material adverse effect on our revenues and profit margins, business, financial condition and results of operations. We expect that market demand, governmental regulation, third-party reimbursement policies and societal pressures will continue to change the worldwide health care industry, resulting in further business consolidations and alliances, which may exert further downward pressure on the prices of our products and could adversely impact our business, financial condition, and results of operations.

If any future acquisitions or business development efforts are unsuccessful, our business may be harmed.

As part of our business strategy to be an innovative leader in the treatment of aortic disorders, we may need to acquire other companies, technologies, and product lines in the future. Acquisitions involve numerous risks, including the following:


•	the possibility that we will pay more than the value we derive from the acquisition, which could result in future non-cash impairment charges;


•	difficulties in integration of the operations, technologies, and products of the acquired companies, which may require significant attention of our management that otherwise would be available for the ongoing development of our business;


•	the assumption of certain known and unknown liabilities of the acquired companies; and


•	difficulties in retaining key relationships with employees, customers, partners, and suppliers of the acquired company.

In addition, we may invest in new technologies that may not succeed in the marketplace. If they are not successful, we may be unable to recover our initial investment, which could include the cost of acquiring the license, funding development efforts, acquiring products, or purchasing inventory. Any of these would negatively impact our future growth and cash reserves.

Risks Related to Our Financial Condition

We have a history of operating losses and may be required to obtain additional funds to pursue our business strategy.

We have a history of operating losses and may need to seek additional capital in the future. We believe that our existing liquidity will be sufficient to meet our anticipated cash needs for at least the next 12 to 24 months. However, we may need to obtain additional financing to pursue our business strategy, to respond to new competitive pressures or to act on opportunities to acquire or invest in complementary businesses, products or technologies. Our cash requirements in the future may be significantly different from our current estimates and depend on many factors, including:


•	the results of our commercialization efforts for our existing and future products;


•	the revenues generated by sales of our existing and future products;


•	the need for additional capital to fund existing and future development programs;


•	the need to adapt to changing technologies and technical requirements, and the costs related thereto;


•	the costs involved in obtaining and enforcing patents or any litigation by third parties regarding intellectual property;


•	the establishment of high volume manufacturing and increased sales and marketing capabilities; and


•	whether we are successful if we enter into collaborative relationships with other parties.

In addition, we are required to make periodic interest payments to the holders of our senior convertible notes and term loan and to make payments of principal upon conversion or maturity. We may also be required to purchase our senior convertible notes from the holders thereof upon the occurrence of a fundamental change involving our company. To finance the foregoing, we may seek funds through borrowings or through additional rounds of financing, including private or public equity or debt offerings and collaborative arrangements with corporate partners. We may be unable to raise funds on favorable terms, or at all.

The sale of additional equity or convertible debt securities could result in additional dilution to our stockholders. If we borrow additional funds or issue debt securities, these securities could have rights superior to holders of our common stock, and could contain covenants that will restrict our operations. We might have to obtain funds through arrangements with collaborative partners or others that may require us to relinquish rights to our technologies, product candidates, or products that we otherwise would not relinquish. If we do not obtain additional resources, our ability to capitalize on business opportunities will be limited, and the growth of our business will be harmed.

Changes in the credit environment and covenant restrictions under our financing arrangements may adversely affect our business and financial condition.

Future volatility in the global financial markets could increase borrowing costs or affect our ability to access the capital markets. Future worsening economic conditions may also adversely affect the business of our customers, including their ability to pay for our products. This could result in a decrease in the demand for our products, longer sales cycles, slower adoption of new technologies, and increased price competition.

Further, our ability to enter into or maintain existing financing arrangements on acceptable terms could be adversely affected if there is a material decline in the demand for our products or the prices that we can command for our products, our customers become insolvent or decide to reduce or discontinue their purchase of our products, we encounter significant regulatory, quality, manufacturing or compliance issues, or there is any other material adverse event which impacts our business. Any deterioration in our key financial ratios, or non-compliance with certain financial, reporting, regulatory or other covenants in existing or future loan or credit agreements may result in an event of default under such agreements, which could also adversely affect our business and financial condition.

We have limited resources to invest in research and development and to grow our business and may need to raise additional funds in the future for these activities.

We believe that our growth will depend, in significant part, on our ability to develop new technologies for the treatment of AAA and other aortic disorders, and technology complementary to our current products. Our existing resources may not allow

us to conduct all of the research and development activities that we believe would be beneficial for our future growth. As a result, we may need to seek funds in the future to finance these activities. If we are unable to raise funds on favorable terms, or at all, we may not be able to increase our research and development activities and the growth of our business may be negatively impacted.

The accounting method for convertible debt securities that may be settled in cash, such as our senior convertible notes, is the subject of recent changes that could have a material effect on our reported financial results.

In May 2008, the Financial Accounting Standards Board ("FASB"), issued FASB Staff Position No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement), which has subsequently been codified as Accounting Standards Codification 470-20, Debt with Conversion and Other Options, which we refer to as ASC 470-20. Under ASC 470-20, an entity must separately account for the liability and equity components of the convertible debt instruments (such as our senior convertible notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. The effect of ASC 470-20 on the accounting for our senior convertible notes is that the equity component is required to be included in the additional paid-in capital section of stockholders’ equity on our consolidated balance sheets and the value of the equity component would be treated as original issue discount for purposes of accounting for the debt component of such notes. As a result, we will be required to record a greater amount of non-cash interest expense in current periods presented as a result of the accretion of the discounted carrying value of our senior convertible notes to their face amount over the term of such notes. We will report lower net income in our financial results because ASC 470-20 will require interest to include both the current period’s accretion of the debt discount and the instrument’s coupon interest, which could adversely affect our reported or future financial results and the market price of our common stock.

In addition, under certain circumstances, convertible debt instruments (such as the notes) that may be settled entirely or partly in cash are currently accounted for utilizing the treasury stock method, the effect of which is that the shares issuable upon conversion of the notes are not included in the calculation of diluted earnings per share except to the extent that the conversion value of the notes exceeds their principal amount. Under the treasury stock method, for diluted earnings per share purposes, the transaction is accounted for as if the number of shares of common stock that would be necessary to settle such excess, if we elected to settle such excess in shares, are issued. We cannot be sure that the accounting standards in the future will continue to permit the use of the treasury stock method. If we are unable to use the treasury stock method in accounting for the shares issuable upon conversion of the notes, then our diluted earnings per share would be adversely affected.

Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our debt.

Our ability to make scheduled payments of the principal of, to pay interest on, to pay any cash due upon conversion of or to refinance our indebtedness, including the senior convertible notes, depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not continue to generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.

The expense and potential unavailability of insurance coverage for our company may have an adverse effect on our financial position and results of operations.

While we currently have insurance for our business, property, directors and officers, and product liability, such insurance coverage is increasingly costly and the scope of coverage is narrower, and we may be required to assume more risk in the future. If we are subject to claims or suffer a loss or damage in excess of our insurance coverage, we will be required to cover the amounts outside of or in excess of our insurance limits. If we are subject to claims or suffer a loss or damage that is outside of our insurance coverage, we may incur significant costs associated with loss or damage that could have an adverse effect on our financial position and results of operations. Furthermore, any claims made on our insurance policies may impact our ability to obtain or maintain insurance coverage at reasonable costs or at all. We do not have the financial resources to self-insure, and it is unlikely that we will have these financial resources in the foreseeable future. Our product liability insurance covers our products and business operations, but we may need to increase and expand this coverage commensurate with our expanding business.

Risks Related to Regulation of Our Industry

Healthcare policy changes, including recent federal legislation to reform the United States healthcare system, may have a material adverse effect on us.

In response to perceived increases in health care costs in recent years, there have been and continue to be proposals by the federal government, state governments, regulators and third-party payors to control these costs and, more generally, to reform the United States healthcare system. Certain of these proposals could limit the prices we are able to charge for our products or the amounts of reimbursement available for our products and could limit the acceptance and availability of our products. Moreover, as discussed below, recent federal legislation would impose significant new taxes on medical device makers such as us. The adoption of some or all of these proposals, including the recent federal legislation, could have a material adverse effect on our financial position and results of operations.

On March 23, 2010, President Obama signed the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act (the “PPACA”). The total cost imposed on the medical device industry by the PPACA may be up to approximately $20 billion over ten years. The PPACA includes, among other things, a deductible 2.3% excise tax on any entity that manufactures or imports medical devices offered for sale in the United States, with limited exceptions, effective January 1, 2013. This excise tax will result in a significant increase in the tax burden on our industry, and if any efforts we undertake to offset the excise tax are unsuccessful, the increased tax burden could have an adverse effect on our results of operations and cash flows. Other elements of the PPACA, including comparative effectiveness research, an independent payment advisory board, payment system reforms including shared savings pilots and other provisions, may significantly affect the payment for, and the availability of, healthcare services and result in fundamental changes to federal healthcare reimbursement programs, any of which may materially affect numerous aspects of our business.

On December 18, 2015, President Obama signed the Consolidated Appropriations Act of 2016, which imposed a two-year moratorium on the 2.3% excise tax beginning on January 1, 2016 and ending on December 31, 2017. On January 22, 2018, the continuing resolution extended this moratorium for an additional two years, through the 2019 calendar year. The continuing resolution provides that this additional delay applies to sales made after December 31, 2017 . Therefore, as a result of both moratoriums, the medical devices tax will not apply to any sales made between January 1, 2016 and December 31, 2019. Upon the end of this period we believe the PPACA could continue to have an adverse effect on our results of operations and cash flows.

Our future success depends on our ability to develop, receive regulatory clearance or approval for, and introduce new products or product enhancements that will be accepted by the market in a timely manner.

It is important to our business that we continue to build a more complete product offering for treatment of AAA and other aortic disorders. As such, our success will depend in part on our ability to develop and introduce new products. However, we may not be able to successfully develop and obtain regulatory clearance or approval for product enhancements, or new products, or these products may not be accepted by physicians or the payors who financially support many of the procedures performed with our products.

The success of any new product offering or enhancement to an existing product will depend on several factors, including our ability to:


•	properly identify and anticipate physicians and patient needs;


•	develop and introduce new products or product enhancements in a timely manner;


•	avoid infringing upon the intellectual property rights of third parties;


•	demonstrate, if required, the safety and efficacy of new products with data from preclinical studies and clinical trials;


•	obtain the necessary regulatory clearances or approvals for new products or product enhancements;


•	be fully FDA-compliant with marketing of new devices or modified products;


•	provide adequate training to potential users of our products;


•	receive adequate coverage and reimbursement for procedures performed with our products; and


•	develop an effective and FDA-compliant, dedicated marketing and distribution network.

If we do not develop new products or product enhancements in time to meet market demand or if there is insufficient demand for these products or enhancements, our results of operations will suffer.

Our business is subject to extensive governmental regulation that could make it more expensive and time consuming for us to introduce new or improved products.

Our products must comply with regulatory requirements imposed by the FDA in the United States, and similar agencies in foreign jurisdictions. These requirements involve lengthy and detailed laboratory and clinical testing procedures, sampling activities, an extensive agency review process, and other costly and time-consuming procedures. It often takes several years to satisfy these requirements, depending on the complexity and novelty of the product. We also are subject to numerous additional licensing and regulatory requirements relating to safe working conditions, manufacturing practices, environmental protection, fire hazard control, and disposal of hazardous or potentially hazardous substances. Some of the most important requirements we face include:


•	FDA Regulations (Title 21 CFR);


•	European Union CE mark requirements, including the new Medical Device Regulations and MEDDEV 2.7.1 Rev.4, which implement stricter requirements for clinical data to support new product approvals;


•	Other international regulatory approval requirements;


•	Medical Device Single Audit Program (“MDSAP”);


•	Medical Device Quality Management System Requirements (21 CFR 820, ISO 13485:2003, EN ISO 13485:2012, ISO 13485:2016, and other similar international regulations);


•	Occupational Safety and Health Administration requirements; and


•	California Department of Health Services requirements.

Government regulation may impede our ability to conduct continuing clinical trials and to manufacture our existing and future products. Government regulation also could delay our marketing of new products for a considerable period of time and impose costly procedures on our activities. The FDA and other regulatory agencies may not approve any of our future products on a timely basis, if at all. Any delay in obtaining, or failure to obtain, such approvals could negatively impact our marketing of any proposed products and reduce our product revenues.

Our products remain subject to strict regulatory controls on manufacturing, marketing and use. We may be forced to modify or recall our product after release in response to regulatory action or unanticipated difficulties encountered in general use. Any such action could have a material effect on the reputation of our products and on our business and financial position.

Further, regulations may change, and any additional regulation could limit or restrict our ability to use any of our technologies, which could harm our business. We could also be subject to new international, federal, state or local regulations that could affect our research and development programs and harm our business in unforeseen ways. If this happens, we may have to incur significant costs to comply with such laws and regulations, which will harm our results of operations.

The potential off-label promotion and subsequent off-label use of our products may harm our image in the marketplace and result in government investigations and/or penalties.

The products we currently market have been cleared or approved by the FDA and international regulatory authorities for specific indications for use, including in specific AAA anatomies. Physicians have the discretion, however, to use our products outside of those cleared/approved indications for use, a practice known as “off-label” use. Off-label use of our and our competitors’ products by physicians is common in the AAA field. Though physicians in most countries have the discretion to engage in off-label use of our products, if we are deemed by the FDA or other regulatory bodies to have engaged in the promotion of our products for any such off-label use, we could be subject to prohibitions on the sale or marketing of our products in the United States or other jurisdictions, face significant fines and penalties, and be required to enter into onerous corporate integrity agreements, consent decrees or similar court or agency-imposed agreements. The imposition of any such fines, penalties or sanctions could affect our reputation and position within the industry and could materially and adversely affect our business, financial condition, results of operations and prospects, which in turn could cause our stock price to decline. Additionally, the use of our products for indications other than those cleared/approved by the FDA or international regulatory authorities may result in suboptimal outcomes that could harm our reputation in the marketplace among physicians and patients. Physicians may misuse our products or use improper techniques if they are not adequately trained, potentially leading to injury and an increased risk of product liability and similar claims. If our products are misused or used with improper technique, we may become subject to costly litigation by our customers or their patients. Product liability claims could divert management’s attention from our core business, be expensive to defend, and result in sizable damage awards against us that may not be covered by insurance.

Our products may in the future be subject to product recalls or voluntary market withdrawals that could harm our reputation, business and financial results.

The FDA and similar foreign governmental authorities have the authority to require the recall of commercialized products in the event of material deficiencies or defects in design or manufacture that could affect patient safety. In the case of the FDA, the authority to require a recall must be based on an FDA finding that there is a reasonable probability that the device would cause serious adverse health consequences or death. Manufacturers may, under their own initiative, recall a product if any material deficiency in a device is found or suspected. A government-mandated recall or voluntary recall by us or one of our distributors could occur as a result of component failures, manufacturing errors, design or labeling defects or other issues. Recalls, which include corrections as well as removals, of any of our products would divert managerial and financial resources and could have an adverse effect on our financial condition, harm our reputation with customers, and reduce our ability to achieve expected revenues.

We are required to comply with medical device reporting (“MDR”) requirements and must report certain malfunctions, deaths, and serious injuries associated with our products, which can result in voluntary corrective actions or agency enforcement actions.

Under the FDA MDR regulations, medical device manufacturers are required to submit information to the FDA when they receive a report or become aware that a device has or may have caused or contributed to a death or serious injury or has or may have a malfunction that would likely cause or contribute to death or serious injury if the malfunction were to recur. All manufacturers placing medical devices on the market in the European Economic Area are legally bound to report any serious or potentially serious incidents involving devices they produce or sell to the regulatory agency, or Competent Authority, in whose jurisdiction the incident occurred.

Malfunction of our products could result in future voluntary corrective actions, such as recalls, including corrections, or customer notifications, or agency action, such as inspection or enforcement actions. If malfunctions do occur, we may be unable to correct the malfunctions adequately or prevent further malfunctions, in which case we may need to cease manufacture and distribution of the affected products, initiate voluntary recalls, and redesign the products. Regulatory authorities may also take actions against us, such as ordering recalls, imposing fines, or seizing the affected products. Any corrective action, whether voluntary or involuntary, will require the dedication of our time and capital, distract management from operating our business, and may harm our reputation and financial results.

We may be subject to federal, state and foreign healthcare fraud and abuse laws and regulations, and a finding of failure to comply with such laws and regulations could have a material adverse effect on our business.

Our operations may be directly or indirectly affected by various broad federal, state or foreign healthcare fraud and abuse laws. In particular, the federal Anti-Kickback Statute prohibits any person from knowingly and willfully offering, paying, soliciting or receiving remuneration, directly or indirectly, in return for or to induce the referring, ordering, leasing, purchasing or arranging for or recommending the ordering, purchasing or leasing of an item or service, for which payment may be made under federal healthcare programs, such as the Medicare and Medicaid programs. We are also subject to the federal HIPAA statute, which created federal criminal laws that prohibit executing a scheme to defraud any health care benefit program or making false statements relating to health care matters, and federal “sunshine” laws that require transparency regarding financial arrangements with health care providers, such as the reporting and disclosure requirements imposed by PPACA on drug manufacturers regarding any “transfer of value” made or distributed to prescribers and other health care providers.

In addition, the federal False Claims Act prohibits persons from knowingly filing, or causing to be filed, a false claim to, or the knowing use of false statements to obtain payment from the federal government. Suits filed under the False Claims Act, known as “qui tam” actions, can be brought by any individual on behalf of the government and such individuals, commonly known as “whistleblowers,” may share in any amounts paid by the entity to the government in fines or settlement. When an entity is determined to have violated the False Claims Act, it may be required to pay up to three times the actual damages sustained by the government, plus civil penalties for each separate false claim. Various states have also enacted laws modeled after the federal False Claims Act.

Many states have also, adopted laws similar to each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers as well as laws that restrict our marketing activities with physicians, and require us to report consulting and other payments to physicians. Some states mandate implementation of commercial compliance programs to ensure compliance with these laws. We also are subject to foreign fraud and abuse laws, which vary by country. For instance, in the European Union, legislation on inducements offered to physicians and other healthcare workers or hospitals differ from country to country. Breach of the laws relating to such inducements may expose us to the imposition of criminal sanctions.

The risk of our being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Moreover, recent health care reform legislation has strengthened these laws. Further, we expect there will continue to be federal and state laws and/or regulations, proposed and implemented, that could impact our operations and business. The extent to which future legislation or regulations, if any, relating to health care fraud abuse laws and/or enforcement, may be enacted or what effect such legislation or regulation would have on our business remains uncertain. If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us now or in the future, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from governmental health care programs, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our financial results.

We may be subject to health information privacy and security laws and regulations, and a finding of failure to comply with such laws and regulations could have a material adverse effect on our business.

The HIPAA statute, and its implementing regulations, safeguard the privacy and security of individually-identifiable health information. Certain of our operations may be subject to these requirements. Penalties for noncompliance with these rules include both criminal and civil penalties. In addition, the Health Information Technology for Economic and Clinical Health Act (“HITECH Act”) expanded federal health information privacy and security protections. Among other things, HITECH makes certain of HIPAA’s privacy and security standards directly applicable to “business associates”-independent contractors or agents of covered entities that receive or obtain protected health information in connection with providing a service on behalf of a covered entity. HITECH also set forth new notification requirements for health data security breaches, increased the civil and criminal penalties that may be imposed against covered entities, business associates and possibly other persons, and gave state attorneys general new authority to enforce HIPAA and seek attorney’s fees and costs associated with pursuing federal civil actions.

Risks Related to Our Common Stock

We will be obligated to issue additional shares of our common stock to the former stockholders of Nellix as a result of our satisfaction of a certain milestone set forth in the merger agreement with Nellix and the other parties thereto, resulting in stock ownership dilution.

Under the terms of the merger agreement with Nellix and the other parties thereto, we agreed to issue additional shares of our common stock to the former stockholders of Nellix as contingent consideration upon our satisfaction of one or both of two milestones related to the Nellix System and described in the merger agreement, or upon a change of control of our company prior to our completion of one or both milestones. On June 17, 2014, we issued an additional 2.7 million shares of our common stock to the former stockholders of Nellix upon achievement of a revenue-based milestone. One additional regulatory related milestone remains, and the maximum aggregate number of shares of our common stock remaining issuable to the former Nellix stockholders upon our achievement of such regulatory milestone, or upon a change of control of our company prior to our achievement of such milestone, assuming the average per share closing price of our common stock (as determined under the terms of the Nellix merger agreement) at such time is 2.9 million shares.

Issuing additional shares of our common stock to the former stockholders in satisfaction of contingent consideration dilutes the ownership interests of holders of our common stock on the dates of such issuances. If we are unable to realize the strategic, operational and financial benefits anticipated from our acquisition of Nellix, our stockholders may experience dilution of their ownership interests in our company upon any such future issuances of shares of our common stock without receiving any commensurate benefit.

Our operating results may vary significantly from quarter to quarter, which may negatively impact our stock price in the future.

Our quarterly revenues and results of operations may fluctuate due to, among others, the following reasons:


•	physician acceptance of our products;


•	the conduct and results of clinical trials;


•	the timing and expense of obtaining future regulatory approvals;


•	fluctuations in our expenses associated with expanding our operations;


•	the introduction of new products by our competitors;


•	the timing of product launch may lead to excess or obsolete inventory;


•	supplier, manufacturing or quality problems with our devices;


•	litigation expenses;


•	the timing of stocking orders from our distributors;


•	changes in our pricing policies or in the pricing policies of our competitors or suppliers; and


•	changes in third-party payors’ reimbursement policies.

Because of these and possibly other factors, it is likely that in some future period our operating results will not meet investor expectations or those of public market analysts.

Any unanticipated change in revenues or operating results is likely to cause our stock price to fluctuate since such changes reflect new information available to investors and analysts. New information may cause investors and analysts to revalue our business, which could cause a decline in the trading price of our stock.

The price of our stock may fluctuate unpredictably in response to factors unrelated to our operating performance.

The stock market periodically experiences significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These broad market fluctuations may cause the market price of our common stock to drop. In particular, the market price of securities of medical device companies, like ours, has been very unpredictable and may vary in response to:


•	announcements by us or our competitors concerning technological innovations;


•	introductions of new products;


•	FDA and foreign regulatory actions;


•	developments or disputes relating to patents or proprietary rights;


•	maintain the effectiveness of our Quality System;


•	failure of our results of operations to meet the expectations of stock market analysts and investors;


•	changes in stock market analyst recommendations regarding our common stock;


•	the conversion of some or all of our senior convertible notes and any sales in the public market of shares of our common stock issued upon conversion of such notes;


•	changes in healthcare policy in the United States or other countries; and


•	general stock market and economic conditions and other factors unrelated to our operating performance.

These factors may materially and adversely affect the market price of our common stock.

We may not achieve our financial guidance or projected goals and objectives in the time periods that we anticipate or announce publicly, which could have an adverse effect on our business and could cause the market price of our ordinary shares to decline.

We typically provide financial guidance that is based on management’s then current expectations and typically does not contain any significant margin of error or cushion for any specific uncertainties or for the uncertainties inherent in all financial forecasting. The failure to achieve our financial guidance or the projections of analysts and investors could have an adverse effect on our business, disappoint analysts and investors, and cause the market price of our common stock to drop. We also set goals and objectives for, and make public statements regarding, the timing of certain accomplishments and milestones regarding our business or operating results, such as the timing of financial objectives, new products, clinical trials, and regulatory actions. The actual timing of these events can vary dramatically due to a number of factors, including the risk factors described in this report. As a result, we may be unable to achieve our projected goals and objectives in the time periods that we anticipate or announce publicly. The failure to achieve such projected goals and objectives in the time periods that we anticipate or announce publicly could have an adverse effect on our business, disappoint investors and analysts, and cause the market price of our common stock to decline.

Trading in our stock over the last twelve months has been limited, so investors may not be able to sell as much stock as they wish at prevailing prices.

The average daily trading volume in our common stock for the twelve months ended December 31, 2017 was approximately 1,142,122 shares. If limited trading in our stock continues, it may be difficult for investors to sell their shares in the public market at any given time at prevailing prices. Moreover, the market price for shares of our common stock may be made more volatile because of the relatively low volume of trading in our common stock. When trading volume is low,

significant price movement can be caused by the trading of a relatively small number of shares. Volatility in our common stock could cause stockholders to incur substantial losses.

Some provisions of our charter documents and Delaware law may make takeover attempts difficult, which could depress the price of our stock and inhibit one’s ability to receive a premium price for their shares.

Provisions of our amended and restated certificate of incorporation could make it more difficult for a third party to acquire control of our business, even if such change in control would be beneficial to our stockholders. Our amended and restated certificate of incorporation allows our board of directors to issue up to five million shares of preferred stock and to fix the rights and preferences of such shares without stockholder approval. Any such issuance could make it more difficult for a third party to acquire our business and may adversely affect the rights of our stockholders. In addition, our board of directors is divided into three classes for staggered terms of three years. We are also subject to anti-takeover provisions under Delaware law, each of which could delay or prevent a change of control. Together these provisions may delay, deter or prevent a change in control of us, adversely affecting the market price of our common stock.

We do not anticipate declaring any cash dividends on our common stock.

We have never declared or paid cash dividends on our common stock and do not plan to pay any cash dividends in the near future. Our current policy is to retain all funds and any earnings for use in the operation and expansion of our business. Our revolving credit facility and term loan contain restrictions prohibiting us from paying any cash dividends without the lender’s prior approval. If we do not pay dividends, a return on one’s investment may only occur if our stock price rises above the price it was purchased.


Item 1B.	Unresolved Staff Comments

None.


Item 2.	Properties

On June 12, 2013, we entered into a lease agreement for two adjacent office, research and development, and manufacturing facilities in Irvine, California. The premises consist of approximately 129,000 combined square feet. The lease has a 15 -year term beginning January 1, 2014 and provides for one optional 5 year extension. The initial base rent under the lease is $1.9 million per year, payable in monthly installments, and escalates by 3% per year for years 2015 through 2019, and 4% per year for years 2020 and beyond. We received a rent abatement for the first nine months of the lease. Refer to Note 8 of the Notes to the Consolidated Financial Statements for further discussion of properties.

Our facility in Rosmalen, The Netherlands is an administrative office of approximately 2,900 square feet under an operating lease scheduled to expire in December 2020.

In conjunction with the TriVascular merger, we assumed the lease for TriVascular's facility in Santa Rosa, California. We use the Santa Rosa facility for manufacturing, research & development, and administrative purposes, and the facility consists of 110,000 square feet under an operating lease scheduled to expire in February 2023, which may be renewed for an additional five years.

We believe that all of our facilities and equipment are in good condition, suitable and adequate for their purposes, and are maintained on a consistent basis for sound operations.

Item 3. Legal Proceedings

Refer to Note 8 of the Notes to the Consolidated Financial Statements for discussion of legal proceedings.

Item 4. Mine Safety Disclosures

Not applicable.

PART II


Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity

Securities

Our common stock trades on the NASDAQ Global Select Market under the symbol “ELGX.” The following table sets forth the high and low intraday prices for our common stock as reported on the NASDAQ Global Select Market for the periods indicated.



	High		Low
Year Ended December 31, 2016
First Quarter	$	10.04	$	6.51
Second Quarter	13.60		8.13
Third Quarter	14.50		11.33
Fourth Quarter	13.25		4.78
Year Ended December 31, 2017
First Quarter	$	7.44	$	5.45
Second Quarter	7.66		4.21
Third Quarter	5.37		4.08
Fourth Quarter	6.50		4.50

On March 12, 2018 , the closing price of our common stock on the NASDAQ Global Select Market was $4.49 per share, and there were 254 holders of record of our common stock.

The following chart compares the yearly percentage change in the cumulative total stockholder return on our common stock for the period from December 31, 2011 through December 31, 2017 , with the cumulative total return on the NASDAQ Composite Index and the NASDAQ Medical Equipment Index for the same period. The comparison assumes $100 was invested on December 31, 2012 in our common stock at the then closing price of $7.15 per share.

Comparison of 5 Year Cumulative Total Return*

Among Endologix, Inc., the NASDAQ Composite Index, and the NASDAQ Medical Equipment Index

*$100 invested on December 31, 2011 in stock or index, including reinvestment of dividends. Fiscal year ending December 31.

Dividend Policy

We have never paid any dividends. We currently intend to retain all earnings, if any, for use in the expansion of our business and therefore do not anticipate paying any dividends in the foreseeable future. Additionally, the terms of our credit facility with Deerfield prohibit us from paying cash dividends without their consent.


Item 6.	Selected Financial Data

The following selected consolidated financial data has been derived from our audited Consolidated Financial Statements. The audited Consolidated Financial Statements for the fiscal years ended December 31, 2017, 2016, and 2015 are included elsewhere in this Annual Report on Form 10-K. The information set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 and the Consolidated Financial Statements and the related notes thereto in Item 8 .



	Year Ended December 31,
	2017			2016			2015			2014			2013
	(In thousands, except per share data)
Consolidated Statement of Operations Data:
Revenue	$	181,157		$	192,925		$	153,612		$	147,588		$	132,257
Cost of goods sold	59,828			69,133			51,821			41,801			32,750
Gross profit	121,329			123,792			101,791			105,787			99,507
Operating expenses:
Research and development	21,019			32,337			26,421			21,616			16,199
Clinical and regulatory affairs	12,952			16,215			15,418			13,243			8,679
Marketing and sales	92,400			107,759			78,213			73,411			63,588
General and administrative	35,301			41,044			29,581			26,663			21,409
Restructuring cost	1,477			11,093			—			—			—
Contract termination and business acquisition expenses	—			5,768			5,071			—			—
Settlement costs	—			4,650			—			—			—
Total operating expenses	163,149			218,866			154,704			134,933			109,875
Loss from operations	(41,820		)	(95,074		)	(52,913		)	(29,146		)	(10,368		)
Total other income (expense)	(25,039		)	(59,105		)	(6,848		)	(3,334		)	(5,710		)
Net loss before income tax benefit (expense)	(66,859		)	(154,179		)	(59,761		)	(32,480		)	(16,078		)
Income tax benefit (expense)	459			(498		)	9,337			62			10
Net loss	$	(66,400	)	$	(154,677	)	$	(50,424	)	$	(32,418	)	$	(16,068	)
Basic and diluted net loss per share	$	(0.80	)	$	(1.91	)	$	(0.75	)	$	(0.50	)	$	(0.26	)
Shares used in computing basic and diluted loss per share	83,325			80,976			67,671			65,225			62,607

	December 31,
	2017			2016			2015			2014			2013
Consolidated Balance Sheet Data:	(In thousands)
Cash and cash equivalents and marketable securities	$	57,991		$	47,108		$	177,321		$	86,669		$	126,465
Accounts receivable, net	$	32,294		$	34,430		$	28,531		$	26,113		$	24,972
Total assets	$	365,047		$	359,684		$	331,050		$	248,209		$	256,197
Debt	$	208,253		$	177,178		$	167,748		$	70,407		$	67,101
Total liabilities	$	289,985		$	246,891		$	227,743		$	124,059		$	151,556
Accumulated deficit	$	520,001		$	453,601		$	298,924		$	248,500		$	216,082
Total stockholders’ equity	$	75,062		$	112,793		$	103,307		$	124,150		$	104,641


Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with “Selected Financial Data” and our audited Consolidated Financial Statements and the related notes thereto included in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of various factors including the risks we discuss in Item 1A of Part I, “Risk Factors” and elsewhere in this Annual Report on Form 10-K.

Overview

Our Business

Our corporate headquarters are located in Irvine, California and manufacturing facilities are located in Irvine and Santa Rosa, California. We develop, manufacture, market, and sell innovative medical devices for the treatment of aortic disorders. Our principal products are intended for the treatment of abdominal aortic aneurysms (“AAA”). Our AAA products are built on two platforms: (1) traditional minimally-invasive endovascular repair (“EVAR”), and (2) endovascular sealing (“EVAS”), our innovate solution for sealing the aneurysm sac while maintaining blood flow through two blood flow lumens.

We sell our products through (i) our direct United States and European sales forces and (ii) third-party international distributors and agents in Europe and in other parts of the world.

For an overview of our business, products, product development initiatives, and clinical trials, please see Item 1, “Business.”

Characteristics of Our Revenue and Expenses

Revenue

Revenue is derived from sales of our EVAR and EVAS products (including extensions and accessories) to hospitals upon completion of each AAA repair procedure, or from sales to distributors upon title transfer (which is typically at shipment), provided our other revenue recognition criteria have been met.

Cost of Goods Sold

Cost of goods sold includes compensation (including stock-based compensation) and benefits of production personnel and production support personnel. Cost of goods sold also includes depreciation expense for production equipment, amortization of developed technology, production materials and supplies expense, allocated facilities-related expenses, and certain direct costs such as shipping.

Research and Development

Research and development expenses consist of compensation (including stock-based compensation) and benefits for research and development personnel, materials and supplies, research and development consultants, outsourced and licensed research and development costs, and allocated facilities-related costs. Our research and development activities primarily relate to the development and testing of new devices and methods to treat aortic disorders.

Clinical and Regulatory

Clinical and regulatory expenses consist of compensation (including stock-based compensation) and benefits for clinical and regulatory personnel, regulatory and clinical payments related to studies, regulatory costs related to registration and approval activities, and allocated facilities-related costs. Our clinical and regulatory activities primarily relate to obtaining regulatory approval for the commercialization of our devices.

Marketing and Sales

Marketing and sales expenses primarily consist of compensation (including stock-based compensation) and benefits for our sales force, clinical specialist, internal sales support functions, and marketing personnel. It also includes costs attributable to marketing our products to our customers and prospective customers.

General and Administrative

General and administrative expenses primarily include compensation (including stock-based compensation) and benefits for personnel that support our general operations such as information technology, executive management, financial accounting,

and human resources. General and administrative expenses also include bad debt expense, patent and legal fees, financial audit fees, insurance, recruiting fees, other professional services, the federal Medical Device Excise Tax, and allocated facilities-related expenses.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with United States generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the periods presented. While management believes these estimates are reasonable and consistent, they are by their very nature, estimates of amounts that will depend on future events. Accordingly, actual results could differ from these estimates. Our Audit Committee of the Board of Directors periodically reviews our significant accounting policies. Our critical accounting policies arise in conjunction with the following:

• Revenue recognition and accounts receivable;

• Inventory - lower of cost or market;

• Business combinations;

• Goodwill and intangible assets - impairment analysis;

• Stock-based compensation;

• Contingent consideration for business acquisition; and

• Litigation accruals.

Revenue Recognition and Accounts Receivable

We recognize revenue when all of the following criteria are met:


•	We have appropriate evidence of a binding arrangement with our customer;


•	The sales price for our product (including extensions and accessories) is established with our customer;

• Our product has been used by the hospital in an AAA repair procedure, or our distributor

has assumed title with no right of return, as applicable; and

• Collection from our customer is reasonably assured at the time of sale.

For sales made to a direct customer (i.e., hospitals), we recognize revenue upon completion of an AAA repair procedure, when our product is implanted in a patient. For sales to distributors, we recognize revenue at the time of title transfer, which is typically at shipment. We do not offer any right of return to our customers, other than honoring our standard warranty.

We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to pay amounts due. These estimates are based on our review of the aging of customer balances, correspondence with the customer, and the customer’s payment history.

Inventory - Lower of Cost or Market

We adjust our inventory value for estimated amounts of obsolete or unmarketable items. Such assumptions involve projections of future customer demand, as driven by economic and market conditions, and the product’s shelf life. If actual demand, or economic or market conditions are less favorable than those projected by us, additional inventory write-downs may be required.

Business Combinations

The application of acquisition accounting to a business acquisition requires that we identify the individual assets acquired and liabilities assumed and estimate the fair value of each. The fair value of assets acquired and liabilities assumed in a business acquisition are recognized at the acquisition date, with the purchase price exceeding the fair values being recognized as goodwill. Determining fair value of identifiable assets, particularly intangibles, liabilities acquired and contingent obligations assumed requires management to make estimates. In certain circumstances, the allocations of the purchase price are based upon preliminary estimates and assumptions and subject to revision when we receive final information, including appraisals and other analysis. Accordingly, the measurement period for such purchase price allocations will end when the information, or the facts and circumstances, becomes available, but will not exceed twelve months. We will recognize measurement-period adjustments during the period of resolution, including the effect on earnings of any amounts that would have been recorded in previous periods if the accounting had been completed at the acquisition date.

Goodwill and intangible assets often represent a significant portion of the assets acquired in a business combination. We recognize the fair value of an acquired intangible apart from goodwill whenever the intangible arises from contractual or other legal rights, or when it can be separated or divided from the acquired entity and sold, transferred, licensed, rented or exchanged, either individually or in combination with a related contract, asset or liability. Intangible assets consist primarily of technology, customer relationships, and trade name and trademarks acquired in business combinations and in-process research and development (“IPR&D”). We generally assess the estimated fair values of acquired intangibles using a combination of valuation techniques. To estimate fair value, we are required to make certain estimates and assumptions, including future economic and market conditions, revenue growth, market share, operating costs and margins, and risk-adjusted discount rates. Our estimates require significant judgment and are based on historical data, various internal estimates, and external sources. Our assessment of IPR&D also includes consideration of the risk that the projects may not achieve technological feasibility.

Goodwill and Intangible Assets - Impairment Analysis

Goodwill and other intangible assets with indefinite lives are not subject to amortization, but are tested for impairment annually as of June 30, or whenever events or changes in circumstances indicate that the asset might be impaired.

We evaluate the possible impairment of definite-lived intangible assets if/when events or changes in circumstances occur that indicate that the carrying value of assets may not be recoverable. The impairment reviews require significant estimates about fair value, including estimates of future cash flows, selection of appropriate discount rates, and estimates of long-term growth rates. If actual results, or the forecasts and estimates used in future impairment analysis, are lower than the original estimates used to assess the recoverability of these assets, we could incur impairment charges.

Stock-Based Compensation

We recognize stock-based compensation expense for employees based on fair value at the date of grant. For awards granted to consultants, the award is marked-to-market each reporting period, with a corresponding adjustment to stock-based compensation expense. The fair value of equity awards that are expected to vest is amortized on a straight-line basis over (i) the requisite service period or (ii) the period from grant date to the expected date of the completion of the performance condition for vesting of the award. Stock-based compensation expense recognized is net of an estimated forfeiture rate, which is updated as appropriate.

We use the Black-Scholes option pricing model to value stock option grants. The Black-Scholes option pricing model requires the input of subjective assumptions, including the expected volatility of our common stock, expected risk-free interest rate, and the option’s expected life. The fair value of our restricted stock is based on the closing market price of our common stock on the date of grant. A portion of restricted stock vesting is dependent on us achieving certain regulatory and financial milestones. We use judgment in estimating the likelihood and timing of achieving these milestones. Each period, we will reassess the likelihood and estimate the timing of reaching these milestones, and will adjust the expense accordingly.

Contingent Consideration for Business Acquisition

We determine the fair value of contingently issuable common stock related to the Nellix acquisition using a probability-based income approach and an appropriate discount rate. Changes in the fair value of the contingently issuable common stock are determined each period end and recorded in the other income (expense) section of the Consolidated Statements of Operations and Comprehensive Loss and the current and non-current liabilities section of the Consolidated Balance Sheets. The fair value of the contingent consideration liability could be impacted by changes such as: (i) fluctuations in the price of our common stock, or (ii) the timing of achieving the underlining milestones.

Litigation Accruals

From time to time we are involved in various claims and legal proceedings of a nature considered normal and incidental to our business. These matters may include product liability, intellectual property, employment, and other general claims. We accrue for contingent liabilities when it is probable that a liability has been incurred and the amount can be reasonably estimated. The accruals are adjusted periodically as assessments change or as additional information becomes available.

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, which amends the FASB Accounting Standards Codification and creates Topic 842, “Leases.” The new topic supersedes Topic 840, “Leases,” and increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and requires disclosures of key information about leasing arrangements. The guidance is effective for reporting periods beginning after December 15, 2018.

ASU 2016-02 mandates a modified retrospective transition method. We are currently assessing the impact this guidance will have on our consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 provides guidance on the presentation and classification of specific cash flow items to improve consistency within the statement of cash flows. This guidance is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2017, with early adoption permitted. We are evaluating the effect that ASU 2016-15 will have on our consolidated financial statements and related disclosures.

In October 2016, the FASB issued ASU No. 2016-16, “Intra-Entity Transfers of Assets Other Than Inventory,” which requires an entity to immediately recognize the tax consequences of intercompany transfer other than inventory. The guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We are assessing the impact this guidance will have on our consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, “Restricted Cash,” which is intended to reduce the diversity in the classification and presentation of changes in restricted cash in the statement of cash flows, by requiring entities to combine the changes in cash and cash equivalents and restricted cash in one line. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash in the statement of cash flows. In addition, if more than one line item is recorded on the balance sheet for cash and cash equivalents and restricted cash, a reconciliation between the statement of cash flows and balance sheet is required. This ASU is effective for annual and interim reporting periods beginning after December 15, 2017, and early adoption was permitted. The retrospective transition method, requiring adjustment to all comparative periods presented, is required. We are assessing the impact this guidance will have on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”. This accounting standards update changes the procedural steps in applying the goodwill impairment test. A goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance is effective prospectively for annual and interim periods beginning after December 15, 2019, with early adoption permitted. We are currently assessing the impact this guidance will have on our consolidated financial statements.

In May 2017, the FASB issued ASU No. 2017-09, “Compensation - Stock Compensation: Scope of Modification Accounting,” which clarifies and aims to reduce the cost and complexity when applying the stock compensation modification accounting guidance. The amendments in this update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. ASU 2017-09 will be effective for public companies for fiscal years beginning after December 15, 2017, including interim periods. Early adoption is permitted. We are currently assessing the impact this guidance will have on our consolidated financial statements.

Results of Operations

Operations Overview - 2017 , 2016 , and 2015

The following table presents our results of continuing operations and the related percentage of the period’s revenue (in thousands):



	Year Ended December 31,
	2017				2016				2015
Revenue	$	181,157		100.0%	$	192,925		100.0%	$	153,612		100.0%
Cost of goods sold	59,828			33.0%	69,133			35.8%	51,821			33.7%
Gross profit	121,329			67.0%	123,792			64.2%	101,791			66.3%
Operating expenses:
Research and development	21,019			11.6%	32,337			16.8%	26,421			17.2%
Clinical and regulatory affairs	12,952			7.1%	16,215			8.4%	15,418			10.0%
Marketing and sales	92,400			51.0%	107,759			55.9%	78,213			50.9%
General and administrative	35,301			19.5%	41,044			21.3%	29,581			19.3%
Restructuring costs	1,477			0.8%	11,093			5.7%	—			—%
Settlement costs	—			—%	4,650			2.4%	—			—%
Contract termination and business acquisition expenses	—			—%	5,768			3.0%	5,071			3.3%
Total operating expenses	163,149			90.1%	218,866			113.4%	154,704			100.7%
Loss from operations	(41,820		)	(23.1)%	(95,074		)	(49.3)%	(52,913		)	(34.4)%
Total other income (expense)	(25,039		)	(13.8)%	(59,105		)	(30.6)%	(6,848		)	(4.5)%
Net loss before income tax benefit	(66,859		)	(36.9)%	(154,179		)	(79.9)%	(59,761		)	(38.9)%
Income tax benefit (expense)	459			0.3%	(498		)	(0.3)%	9,337			6.1%
Net loss	$	(66,400	)	(36.7)%	$	(154,677	)	(80.2)%	$	(50,424	)	(32.8)%

Year Ended December 31, 2017 versus December 31, 2016

Revenue



	Year Ended December 31,
	2017		2016		Variance			Percent Change
	(in thousands)
Revenue	$	181,157	$	192,925	$	(11,768	)	(6.1)%

US Sales . Net sales totaled $123.2 million for the year ended December 31, 2017 , a 9% decrease from $136.1 million in the year ended December 31, 2016 . This decrease was driven by AFX product due to slower than expected customer recapture and sales force attrition partially offset by strong sales growth for the Ovation System.

International Sales . Net sales of products in our international regions totaled $57.9 million for the year ended December 31, 2017 , a 2% increase from $56.8 million in the year ended December 31, 2016 . Both AFX and Ovation product lines posted strong growth which was offset by a decline in Nellix sales reflecting the refined IFU. Our international sales for the year ended December 31, 2017 included a favorable currency impact of approximately $0.4 million when compared to the net sales for the year ended December 31, 2016, which had a 0.8% favorable impact on growth rate representing constant currency increase of 1.2%.

Cost of Goods Sold, Gross Profit, and Gross Margin Percentage



	Year Ended December 31,
	2017			2016			Variance			Percent Change
	(in thousands)
Cost of goods sold	$	59,828		$	69,133		$	(9,305	)	(13.5)%
Gross profit	121,329			123,792			(2,463		)	(2.0)%
Gross margin percentage (gross profit as a percent of revenue)	67.0		%	64.2		%	2.8		%

Gross margin for the year ended December 31, 2017 increased to 67.0% from 64.2% for the year ended December 31, 2016. The year ended December 31, 2016 included an $8.2 million impact of purchase price accounting for inventory acquired in the TriVascular merger. Excluding this impact, cost of goods sold decreased by $1.1 million in the year ended December 31, 2017 versus 2016. This decrease is driven by lower revenue.

Operating Expenses



	Year Ended December 31,
	2017		2016		Variance			Percent Change
	(in thousands)
Research and development	$	21,019	$	32,337	$	(11,318	)	(35.0)%
Clinical and regulatory affairs	12,952		16,215		(3,263		)	(20.1)%
Marketing and sales	92,400		107,759		(15,359		)	(14.3)%
General and administrative	35,301		41,044		(5,743		)	(14.0)%
Restructuring costs	1,477		11,093		(9,616		)	(86.7)%
Settlement costs	—		4,650		(4,650		)	(100.0)%
Contract termination and business acquisition expenses	—		5,768		(5,768		)	(100.0)%

Research and development. The $11.3 million decrease in research and development expenses as compared to the prior year period was attributable to the timing of project spending and synergies related to the TriVascular merger.

Clinical and regulatory affairs. The $3.3 million decrease in clinical and regulatory affairs expenses as compared to the prior year period was due to synergies related to the TriVascular merger.

Marketing and sales . The $15.4 million decrease in marketing and sales expenses as compared to the prior year period was due to synergies related to the TriVascular merger.

General and administrative . The $5.7 million decrease in general and administrative expenses as compared to the prior year period was primarily attributable to a decrease in headcount related to synergies as a result of the TriVascular merger. The targeted reductions were initiated to provide efficiencies and realign resources as well as to allow for continued investment in strategic areas and drive growth.

Restructuring costs. The $9.6 million decrease in restructuring costs for the year ended December 31, 2017 was driven by fiscal year 2016 costs associated with TriVascular executive change in control agreements, and severance and retention bonuses resulting from the TriVascular merger.

Other income (expense), net



	Year Ended December 31,
	2017			2016			Variance		Percent Change
	(in thousands)
Other income (expense), net	$	(25,039	)	$	(59,105	)	$	34,066	(57.6)%

Other expense for the year ended December 31, 2017 consists mainly of interest expense of $22.1 million , loss on debt extinguishment of $6.5 million , favorable change in fair value of contingent consideration related to the Nellix acquisition of $2.9 million , and foreign currency gain of $0.7 million. Other expenses for the year ended December 31, 2016 included interest expense of $15.8 million, the change in fair value of derivative of $43.8 million, $2.1 million currency remeasurement loss and a non-cash benefit of $2.5 million related to the fair value of the Nellix contingent consideration.

Provision for Income Taxes



	Year Ended December 31,
	2017		2016			Variance		Percent Change
	(in thousands)
Income tax benefit (expense)	$	459	$	(498	)	$	957	>100%

Our income tax benefit was $0.5 million and our effective tax rate was (0.7)% for the twelve months ended December 31, 2017 due to our tax positions in various jurisdictions and the impact of the Tax Reform Act. Our income tax expense was $0.5 million and our effective tax rate was (0.3)% for the twelve months ended December 31, 2016 due to our tax positions in various jurisdictions. During the twelve months ended December 31, 2017 and 2016 , we had operating legal entities in the United States, Canada, Italy, New Zealand, Poland, Singapore, and the Netherlands (including registered sales branches in certain countries in Europe).

Year Ended December 31, 2016 versus December 31, 2015

Revenue



	Year Ended December 31,
	2016		2015		Variance		Percent Change
	(in thousands)
Revenue	$	192,925	$	153,612	$	39,313	25.6%

US Sales . Net sales totaled $136.1 million for the year ended December 31, 2016 , a 27% increase from 107.2 million in the year ended December 31, 2015. This increase was driven by sales contributed from products acquired as part of the TriVascular merger offset by the impact of the AFX and AFX2 products hold in the quarter ended December 31, 2016 .

International Sales . Net sales of products in our international regions totaled $56.8 million for the year ended December 31, 2016, a 22% increase from $46.4 million in the year ended December 31, 2015, primarily due to sales contributed from products acquired as part of the TriVascular merger. Our international sales for the year ended December 31, 2016 included the impact from the temporary AFX CE Mark suspension along with the AFX and AFX2 products hold in the quarter ended December 31, 2016.

Net sales contributed from products acquired as part of the TriVascular merger totaled $40.0 million for the year ended December 31, 2016 .

Cost of Goods Sold, Gross Profit, and Gross Margin Percentage



	Year Ended December 31,
	2016			2015			Variance			Percent Change
	(in thousands)
Cost of goods sold	$	69,133		$	51,821		$	17,312		33.4%
Gross profit	123,792			101,791			22,001			21.6%
Gross margin percentage (gross profit as a percent of revenue)	64.2		%	66.3		%	(2.1		)%

Gross margin for the year ended December 31, 2016 decreased to 64.2% from 66.3% for the year ended December 31, 2015. The increase in cost of goods sold is largely due to the impact of purchase price accounting for inventory and intangible assets acquired in the TriVascular merger, as well as due to the increase in sales.

Operating Expenses



		Year Ended December 31,
		2016		2015		Variance		Percent Change
		(in thousands)
Research and development		$	32,337	$	26,421	$	5,916	22.4%
Clinical and regulatory affairs		16,215		15,418		797		5.2%
Marketing and sales		107,759		78,213		29,546		37.8%
General and administrative		41,044		29,581		11,463		38.8%
Restructuring costs	1,477	11,093		—		11,093		100.0%
Settlement costs	—	4,650		—		4,650		100.0%
Contract termination and business acquisition expenses		5,768		5,071		697		13.7%

Research and development. The $5.9 million increase in research and development expenses was attributable to increased product development investments related to Ovation.

Clinical and regulatory affairs. The $0.8 million increase in clinical and regulatory affairs expenses is due to increased regulatory fees and costs to support ongoing clinical activities, such as LUCY, EVAS FORWARD IDE and LEOPARD.

Marketing and sales . The $29.5 million increase in marketing and sales expenses for the year ended December 31, 2016, as compared to the prior year period, was driven by the integration of the TriVascular sales and marketing organization.

General and administrative . The $11.5 million increase in general and administrative expenses is primarily attributable to an increase in headcount related to the TriVascular merger, higher professional fees and stock-based compensation.

Restructuring costs. The $11.1 million increase in restructuring costs for the year ended December 31, 2016 is comprised of costs associated with TriVascular executive change in control agreements, severance and retention bonuses as a result of the TriVascular merger.

Settlement costs. The $4.7 million in settlement costs for the year ended December 31, 2016 is a result of the LifePort settlement.

Contract termination and business acquisition expenses. The $0.7 million increase in contract termination and business acquisition expenses for the year ended December 31, 2016, was primarily related to termination of some of our international distributors as well as transaction related expenses associated with the TriVascular merger.

Other income (expense), net



	Year Ended December 31,
	2016			2015			Variance		Percent Change
	(in thousands)
Other income (expense), net	$	(59,105	)	$	(6,848	)	(52,257	)	>100%

Other expense for the year ended December 31, 2016 consists mainly of interest expense of $15.8 million, the change in fair value of derivative of $43.8 million, $2.1 million currency re-measurement loss and a non-cash benefit of $2.5 million related to the fair value of the Nellix contingent consideration. Other expense for the year ended December 31, 2015 includes interest expense associated with our convertible notes of $7.5 million, a non-cash expense of $0.1 million related to the fair value of the Nellix contingent consideration offset by $0.5 million currency re-measurement gain of certain assets and liabilities that were not transacted in the functional currency of the corresponding operating entity and $0.2 million of interest income.

Provision for Income Taxes



	Year Ended December 31,
	2016			2015		Variance			Percent Change
	(in thousands)
Income tax benefit (expense)	$	(498	)	$	9,337	$	(9,835	)	>100%

Our income tax expense was $0.5 million and our effective tax rate was (0.3)% for the twelve months ended December 31, 2016 due to our tax positions in various jurisdictions. Our income tax benefit of $9.3 million for the twelve

months ended December 31, 2015 was due to our recognition of a deferred tax liability of $9.6 million as a result of the temporary difference between the carrying value and the tax basis of the 3.25% Senior Notes. This liability which was recorded as an adjustment to the additional paid-in capital resulted in a reduction of our valuation allowance which was recorded as a benefit to income tax expense in 2015. During the twelve months ended December 31, 2016 and 2015, we had operating legal entities in the United States, Canada, Italy, New Zealand, Poland and the Netherlands (including registered sales branches in certain countries in Europe).

Liquidity and Capital Resources

The chart provided below summarizes selected liquidity data and metrics as of December 31, 2017, 2016, and 2015 :



	December 31, 2017		December 31, 2016		December 31, 2015
	(in thousands, except financial metrics data)
Cash and cash equivalents	$	57,991	$	26,120	$	124,553
Marketable securities	$	—	$	20,988	$	52,768
Accounts receivable, net	$	32,294	$	34,430	$	28,531
Total current assets	$	143,134	$	129,845	$	236,412
Total current liabilities	$	60,630	$	44,902	$	50,855
Working capital surplus (a)	$	82,504	$	84,943	$	185,557
Current ratio (b)	2.4		2.9		4.6
Days sales outstanding (“DSO”) (c)	68		67		67
Inventory turnover (d)	1.4		2.0		1.8

(a) total current assets minus total current liabilities as of the corresponding balance sheet date.

(b) total current assets divided by total current liabilities as of the corresponding balance sheet date.

(d) cost of goods sold divided by the average inventory balance for the corresponding period.

Year Ended December 31, 2017 versus December 31, 2016

Operating Activities

Cash used in operating activities was $38.5 million for the year ended December 31, 2017 , as compared to cash used in operating activities of $74.8 million in the prior year period. For the twelve months ended December 31, 2017 , the decrease in cash usage was primarily due to (i) the decreased net loss of $66.4 million , (ii) noncash stock-based compensation of $11.6 million , (iii) non-cash accretion of interest on convertible note of $10.2 million , (iv) depreciation and amortization of $9.1 million , (v) a decrease in accounts receivable and other receivables of $4.8 million , (vi) an increase in accrued expenses and other current liabilities of $4.4 million , (vii) an increase in accrued expenses and other current liabilities of $4.4 million and (viii) non-cash loss on debt extinguishment of $4.0 million . These decreases in cash usage were partially offset by a decrease in accrued payroll of $5.2 million , an increase in inventory expenditures of $3.0 million , a decrease in accounts payable of $1.8 million , and a decrease in prepaid expenses and other current assets of $1.0 million .

During the twelve months ended December 31, 2017 and 2016 , our cash collections from customers totaled $186.8 million and $193.9 million , respectively, representing 103% and 101% , respectively, of reported revenue for the same periods.

Investing Activities

Cash provided by investing activities for the twelve months ended December 31, 2017 was $19.8 million , as compared to the cash used in investing activities of $28.5 million in the prior period. For the twelve months ended December 31, 2017 , cash provided by investing activities consisted of $21.0 million from the proceeds from maturities of marketable securities, offset by $1.2 million used for machinery and equipment purchases. Cash used in investing activities for the twelve months ended December 31, 2016 was $28.5 million and consisted of $60.6 million used for the acquisition of TriVascular, $21.0 million used to purchase marketable securities and $2.8 million used for machinery and equipment purchases. This is offset by proceeds from the maturities of marketable securities of $55.9 million .

Financing Activities

Cash provided by financing activities was $49.7 million for the twelve months ended December 31, 2017 , as compared to cash provided by financing activities of $5.3 million in the prior year period. For the twelve months ended December 31, 2017 , cash provided by financing activities consisted of $120.0 million from the proceeds from issuance of debt, $3.1 million from the exercise of stock options and proceeds from sales of common stock under our employee stock purchase plan; offset by $66.6 million used to repay debt and $6.8 million used to pay deferred financing costs. Cash provided by financing activities for the twelve months ended December 31, 2016 consisted of proceeds of $6.3 million from the exercise of stock options and proceeds from sales of common stock under our employee stock purchase plan; offset by deferred financing costs of $0.9 million , and $0.1 million used to pay minimum tax withholdings on behalf of employees for restricted stock units vested during the period.

Year Ended December 31, 2016 versus December 31, 2015

Operating Activities

Cash used in operating activities was $74.8 million for the year ended December 31, 2016 , as compared to cash used in operating activities of $31.1 million in the prior year period. The increase in cash usage was primarily due to (i) the increased net loss of $154.7 million, (ii) an increase in accounts receivable and other receivables of $2.9 million and (iii) a decrease in accounts payable of $5.2 million. These increases in cash usage were partially offset by non-cash stock-based compensation of $12.3 million, depreciation and amortization of $9.1 million, an increase in accrued payroll of $7.1 million, a decrease in inventory expenditures of $3.5 million, an increase in accrued expenses and other current liabilities of $2.9 million, non-cash accretion of interest on convertible note of $9.5 million, and change in fair value of derivative non-cash of $43.8 million.

During the twelve months ended December 31, 2016 and 2015, our cash collections from customers totaled $193.9 million and $152.7 million, respectively, representing 101% and 99% of reported revenue for the same periods.

Investing Activities

Cash used in investing activities for the twelve months ended December 31, 2016 was $28.5 million , as compared the cash provided by inventing activities of $2.9 million in the prior period. For the twelve months ended December 31, 2016, cash used in investing activities consisted of $60.6 million used for the acquisition of TriVascular, $21.0 million used to purchase marketable securities and $2.8 million used for machinery and equipment purchases. This is offset by proceeds from the maturities of marketable securities of $55.9 million. Cash provided by investing activities for the twelve months ended December 31, 2015 was $2.9 million and consisted of proceeds from maturity of marketable securities of $89.7 million. This is offset by (i) purchases of marketable securities of $82.6 million and (ii) machinery and equipment purchases for $4.2 million.

Financing Activities

Cash provided by financing activities was $5.3 million for the twelve months ended December 31, 2016 , as compared to cash provided by financing activities of $126.7 million in the prior year period. For the twelve months ended December 31, 2016 , cash provided by financing activities consisted of $6.3 million from the exercise of stock options and proceeds from sales of common stock under our employee stock purchase plan, offset by $0.9 million used to pay deferred financing costs and $0.1 million used to pay minimum tax withholdings on behalf of employees for restricted stock units vested during the period. Cash provided by financing activities for twelve months ended December 31, 2015 consisted of (i) proceeds of $5.8 million from the exercise of stock options and proceeds from sales of common stock under our employee stock purchase plan; and (ii) net proceeds from issuance of convertible debt of $121.4 million, offset by $0.5 million used to pay minimum tax withholdings on behalf of employees for restricted stock units vested during the period.

Credit Arrangements

See Note 6 of the Notes to the Consolidated Financial Statements. As of December 31, 2017 , the Company was not in compliance with the required minimum net revenue threshold set forth in the Credit Agreement. On January 5, 2018, the Company delivered a notice of termination to Deerfield for the Deerfield Revolver under the Credit and Security Agreement (the “Credit Agreement”), dated as of April 3, 2017. The termination of the Deerfield Revolver was effective on January 12, 2018 (the “Termination Date”) and required the Company to pay $1.3 million in termination fees.

Future Capital Requirements

We believe that the future growth of our business will depend upon our ability to successfully develop new technologies for the treatment of aortic disorders and successfully bring these technologies to market. We expect to incur significant expenditures in completing product development and clinical trials for our products. In addition, as a result of the completion of the merger with TriVascular, our future capital requirements are expected to increase.

The timing and amount of our future capital requirements will depend on many factors, including:


•	the need for working capital to support our sales growth;


•	the need for additional capital to fund future development programs;


•	the need for additional capital to fund our sales force expansion;


•	the need for additional capital to fund strategic acquisitions;


•	our requirements for additional facility space or manufacturing capacity;


•	our requirements for additional information technology infrastructure and systems; and


•	adverse outcomes from potential litigation and the cost to defend such litigation.

We believe that our world-wide cash resources are adequate to operate our business. We presently have several operating subsidiaries outside of the United States As of December 31, 2017 , these subsidiaries hold an aggregate $7.3 million in foreign bank accounts to fund their local operations. These balances related to undistributed earnings, are deemed by management to be permanently reinvested in the corresponding country in which our subsidiary operates. Management has no present or planned intention to repatriate foreign earnings into the United States However, in the event that we require additional funds in the United States and may have to repatriate any foreign earnings to meet those needs, we would then need to accrue, and ultimately pay, incremental income tax expenses on such “deemed dividend,” unless we then have sufficient net operating losses to offset this potential tax liability.

If we require additional financing in the future, it may not be available on commercially reasonable terms, or at all. Even if we are able to obtain financing, it may cause substantial dilution (in the case of an equity financing), or may contain burdensome restrictions on the operation of our business (in the case of debt financing). If we are not able to obtain required financing, we may need to curtail our operations and/or our planned product development.

Contractual Obligations

Contractual obligation payments by year with initial terms in excess of one year were as follows as of December 31, 2017 (in thousands):



	Payments due by period
Contractual Obligations	Total	2018	2019	2020	2021	2022	2023 and thereafter
Long-term debt obligations	$263,278	$18,278	$—	$125,000	$40,000	$40,000	$40,000
Interest on debt obligations	50,242	12,832	12,421	12,455	6,962	4,175	1,397
Operating lease obligations	36,265	3,450	3,567	3,735	3,692	3,800	18,021
Total	$349,785	$34,560	$15,988	$141,190	$50,654	$47,975	$59,418

Refer to Note 6 of the Notes to the Consolidated Financial Statements for a discussion of long-term debt obligations and Note 8 of the Notes to the Consolidated Financial Statements for a discussion of operating lease obligations.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements (except for operating leases) that provide financing, liquidity, market or credit risk support, or involve derivatives. In addition, we have no arrangements that may expose us to liability that are not expressly reflected in the accompanying Consolidated Financial Statements.

As of December 31, 2017 , we did not have any relationships with unconsolidated entities or financial partnerships, often referred to as “structured finance” or “special purpose entities,” established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not subject to any material financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We do not believe that we currently have material exposure to interest rate or foreign currency transaction risks.

Interest Rate Risk and Market Risk. We do not use derivative financial instruments in our investment portfolio. We are averse to principal loss and try to ensure the safety and preservation of our invested funds by limiting default risk, market risk, and reinvestment risk. We attempt to mitigate default risk by investing in only high credit quality securities and by positioning our portfolio to appropriately respond to a significant reduction in the credit rating of any investment issuer or guarantor.

We were exposed to market risk for changes in interest rates on the MidCap Credit Facility. All outstanding amounts under the MidCap Credit Facility bore interest at a variable rate equal to LIBOR, plus 4.10%. On April 3, 2017, we replaced the MidCap Credit Facility with a new revolving line of credit with Deerfield ELGX Revolver, LLC (“Deerfield Revolver”), pursuant to which the Company may borrow up to the lesser of $50 million or its applicable borrowing base from time to time prior to March 31, 2020 (the “Revolver”) and paid $2.5 million in termination fees to MidCap. All outstanding principal under the Revolver bore interest at a rate equal to 3-month LIBOR (with a 1% floor) plus 4.60%. On January 5, 2018, the Company delivered a notice of termination to Deerfield, for the Deerfield Revolver under the Credit and Security Agreement (the “Credit Agreement”), dated as of April 3, 2017. The termination of the Credit Agreement was effective on January 12, 2018 (the “Termination Date”) following payment by the Company of approximately $1.3 million in termination fees and related fees and expenses. The Company decided to terminate the Credit Agreement after it determined that it had failed to satisfy the required minimum net revenue threshold set forth in the Credit Agreement for the twelve months ended December 31, 2017. There are no borrowings currently outstanding under the Credit Agreement.

Our 3.25% Senior Notes, 2.25% Senior Notes and Term Loan bear fixed interest rates, and therefore, would not be subject to interest rate risk. The capped call transactions are derivative instruments that qualify for classification within stockholders’ equity because they meet an exemption from mark-to-market derivative accounting. The settlement amounts for the capped call transactions are each determined based upon the difference between a strike price and a traded price of our common stock.

Foreign Currency Transaction Risk. While a majority of our business is denominated in the United States dollar, a portion of our revenues and expenses are denominated in foreign currencies. Fluctuations in the rate of exchange between the United States dollar and the Euro or the British Pound Sterling may affect our results of operations and the period-to-period comparisons of our operating results. Foreign currency transaction gains and losses are caused by transactions denominated in a currency other than the functional currency and must be remeasured at each balance sheet date or upon settlement. Foreign currency transaction realized and unrealized gains and losses resulted in approximately $0.7 million of gain in 2017 , primarily related to intercompany payables and receivables associated with our European operations. We expect to continue to limit our exposure through future settlements.

Item 8. Financial Statements and Selected Supplementary Data

ENDOLOGIX, INC.

FORM 10-K ANNUAL REPORT

For the Fiscal Year Ended December 31, 2017

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



Item		Page
Reports of Independent Registered Public Accounting Firm		46
Consolidated Balance Sheets as of December 31, 2017 and 2016		48
Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2017, 2016, and 2015		49
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2017, 2016, and 2015		50
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016, and 2015		51
Notes to Consolidated Financial Statements		52
Financial Statement Schedule		86
Schedule II - Valuation and Qualifying Accounts for the years ended December 31, 2017, 2016, and 2015		86

All other schedules are omitted because the required information is not applicable or the information is presented in the Consolidated Financial Statements or the related notes thereto.

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Endologix, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Endologix, Inc. and subsidiaries (the “Company”) as of December 31, 2017 and 2016 , the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the years in the three‑year period ended December 31, 2017 , and the related notes and financial statement schedule of valuation and qualifying accounts (collectively, the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2017 , based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 13, 2018 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ KPMG LLP

We have served as the Company’s auditor since 2012.

Irvine, California

March 13, 2018

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Endologix, Inc.:

Opinion on Internal Control Over Financial Reporting

We have audited Endologix, Inc. and subsidiaries’ (the “Company”) internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2017 and 2016, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2017, and the related notes and financial statement schedule of valuation and qualifying accounts (collectively, the “consolidated financial statements”), and our report dated March 13, 2018 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG LLP

March 13, 2018

Irvine, California

ENDOLOGIX, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and par value amounts)



	December 31,
	2017			2016
ASSETS
Current assets:
Cash and cash equivalents	$	57,991		$	26,120
Restricted cash	2,608			2,001
Marketable securities	—			20,988
Accounts receivable, net of allowance for doubtful accounts of $470 and $1,037, respectively	32,294			34,430
Other receivables	418			1,787
Inventories	45,153			41,160
Prepaid expenses and other current assets	4,670			3,359
Total current assets	$	143,134		$	129,845
Property and equipment, net	19,212			23,265
Goodwill	120,927			120,711
Intangibles, net	80,403			84,511
Deposits and other assets	1,371			1,352
Total assets	$	365,047		$	359,684

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	12,351		$	13,237
Accrued payroll	15,054			19,997
Accrued expenses and other current liabilities	16,002			11,668
Current portion of debt	17,202			—
Revolving line of credit	21			—
Total current liabilities	$	60,630		$	44,902
Deferred income taxes	201			879
Deferred rent	7,724			7,949
Other liabilities	3,877			3,783
Contingently issuable common stock	9,300			12,200
Debt	208,253			177,178
Total liabilities	$	289,985		$	246,891
Commitments and contingencies
Stockholders’ equity:
Convertible preferred stock, $0.001 par value; 5,000,000 shares authorized. No shares issued and outstanding.	—			—
Common stock, $0.001 par value; 135,000,000 shares authorized. 83,855,824 and 82,986,244 shares issued, respectively. 83,643,585 and 82,774,005 shares outstanding, respectively.	84			83
Additional paid-in capital	594,586			567,765
Accumulated deficit	(520,001		)	(453,601		)
Treasury stock, at cost, 212,239 and 212,239 shares, respectively.	(2,942		)	(2,942		)
Accumulated other comprehensive income	3,335			1,488
Total stockholders’ equity	$	75,062		$	112,793
Total liabilities and stockholders’ equity	$	365,047		$	359,684

See accompanying notes to these consolidated financial statements.

ENDOLOGIX, INC.

Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except per share amounts)



	Year Ended December 31,
	2017			2016			2015
Revenue	$	181,157		$	192,925		$	153,612
Cost of goods sold	59,828			69,133			51,821
Gross profit	121,329			123,792			101,791
Operating expenses:
Research and development	21,019			32,337			26,421
Clinical and regulatory affairs	12,952			16,215			15,418
Marketing and sales	92,400			107,759			78,213
General and administrative	35,301			41,044			29,581
Restructuring costs	1,477			11,093			—
Settlement costs	—			4,650			—
Contract termination and business acquisition expenses	—			5,768			5,071
Total operating expenses	163,149			218,866			154,704
Loss from operations	(41,820		)	(95,074		)	(52,913		)
Other income (expense):
Interest income	83			228			175
Interest expense	(22,064		)	(15,841		)	(7,476		)
Other income (expense), net	554			(2,161		)	553
Change in fair value of contingent consideration related to acquisition	2,900			2,500			(100		)
Loss on extinguishment of debt	(6,512		)	—
Change in fair value of derivative liabilities	—			(43,831		)	—
Total other income (expense)	(25,039		)	(59,105		)	(6,848		)
Net loss before income tax benefit	(66,859		)	(154,179		)	(59,761		)
Income tax benefit (expense)	459			(498		)	9,337
Net loss	$	(66,400	)	$	(154,677	)	$	(50,424	)
Other comprehensive income (loss) foreign currency translation	1,847			978			(1,762		)
Comprehensive loss	$	(64,553	)	$	(153,699	)	$	(52,186	)

Basic and diluted net loss per share	$	(0.80	)	$	(1.91	)	$	(0.75	)
Shares used in computing basic and diluted loss per share	83,325			80,976			67,671

See accompanying notes to these consolidated financial statements.

ENDOLOGIX, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)



	Common Stock			Additional Paid-In Capital			Accumulated Deficit			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
	Issued Shares	$0.001 Par Value		Additional Paid-In Capital			Accumulated Deficit			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
Balance at December 31, 2014	67,322	$	67	$	372,639		$	(248,500	)	$	(2,328	)	$	2,272		$	124,150
Exercise of common stock options	397	1		2,870			—			—			—			2,871
Employee stock purchase plan	355	—		2,962			—			—			—			2,962
Treasury stock purchased	—	—		—			—			(481		)	—			(481		)
Stock compensation expense	—	—		6,266			—			—			—			6,266
Issuance of restricted stock	161	—		—			—			—			—			—
Restricted stock expense	—	—		2,843			—			—			—			2,843
Non-employee restricted stock expense	—	—		146			—			—			—			146
Equity conversion option	—	—		17,547			—			—			—			17,547
Debt issuance costs allocated to equity	—	—		(811		)	—			—			—			(811		)
Net loss	—	—		—			(50,424		)	—			—			(50,424		)
Other comprehensive loss	—			—			—			—			(1,762		)	(1,762		)
Balance at December 31, 2015	68,235	68		404,462			(298,924		)	(2,809		)	510			103,307
Exercise of common stock options	524	2		3,127			—			—			—			3,129
Employee stock purchase plan	394	—		3,216			—			—			—			3,216
Issuance of common stock	13,587	13		100,799			—			—			—			100,812
Treasury stock purchased	11	—		—			—			(133		)	—			(133		)
Stock compensation expense	—	—		8,541			—			—			—			8,541
Issuance of restricted stock	235	—		—			—			—			—			—
Restricted stock expense	—	—		3,715			—			—			—			3,715
Non-employee restricted stock expense	—	—		30			—			—			—			30
Equity conversion option	—	—		43,875			—			—			—			43,875
Net loss	—	—		—			(154,677		)	—			—			(154,677		)
Other comprehensive income	—	—		—			—			—			978			978
Balance at December 31, 2016	82,986	83		567,765			(453,601		)	(2,942		)	1,488			112,793
Exercise of common stock options	129	—		546			—			—			—			546
Employee stock purchase plan	446	1		2,518			—			—			—			2,519
Stock compensation expense	—	—		8,538			—			—			—			8,538
Issuance of restricted stock	294	—		—			—			—			—			—
Restricted stock expense	—	—		3,027			—			—			—			3,027
Non-employee restricted stock expense	—	—		79			—			—			—			79
Equity conversion option	—	—		(2,235		)	—			—			—			(2,235		)
Deerfield warrants	—	—		14,704			—			—			—			14,704
Debt issuance costs allocated to equity	—	—		(356		)	—			—			—			(356		)
Net loss	—	—		—			(66,400		)	—			—			(66,400		)
Other comprehensive loss	—	—		—			—			—			1,847			1,847
Balance at December 31, 2017	83,855	$	84	$	594,586		$	(520,001	)	$	(2,942	)	$	3,335		$	75,062

See accompanying notes to these consolidated financial statements.

ENDOLOGIX, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



	Year Ended December 31,
	2017			2016			2015
Cash flows from operating activities:
Net loss	$	(66,400	)	$	(154,677	)	$	(50,424	)
Adjustments to reconcile net loss to net cash used in operating activities:
Deferred income taxes	(696		)	—			(9,635		)
Bad debt expense	(235		)	916			107
Depreciation and amortization	9,111			9,149			5,886
Stock-based compensation	11,644			12,286			9,255
Change in fair value of derivative liabilities	—			43,831			—
Change in fair value of contingent consideration related to acquisition	(2,900		)	(2,500		)	100
Accretion of interest & amortization of deferred financing costs on convertible notes	10,165			9,539			4,842
Accretion on marketable securities	—			(87		)	59
Non-cash loss on debt extinguishment	3,997			—			—
Loss on disposal of assets	—			123			58
Non-cash foreign exchange (gain) loss	(678		)	2,112			(504		)
Changes in operating assets and liabilities:
Restricted cash	(607		)	(2,001		)	—
Accounts receivable and other receivables	4,771			(2,911		)	(3,193		)
Inventories	(3,035		)	3,540			3,528
Prepaid expenses and other current assets	(1,034		)	1,070			167
Accounts payable	(1,826		)	(5,152		)	8,342
Accrued payroll	(5,176		)	7,079			(75		)
Accrued expenses and other current liabilities	4,374			2,875			395
Net cash used in operating activities	$	(38,525	)	$	(74,808	)	$	(31,092	)
Cash flows from investing activities:
Purchases of marketable securities	—			(20,976		)	(82,646		)
Maturity on marketable securities	21,000			55,850			89,690
Purchases of property and equipment	(1,170		)	(2,796		)	(4,191		)
Acquisition of business, net of cash acquired of $24,012	—			(60,622		)	—
Net cash provided by (used in) investing activities	$	19,830		$	(28,544	)	$	2,853
Cash flows from financing activities:
Net proceeds from revolving line of credit	21			—			—
Deferred financing costs	(6,755		)	(918		)	(3,617		)
Proceeds from sale of common stock under employee stock purchase plan	2,519			3,216			2,962
Proceeds from exercise of stock options	546			3,129			2,871
Proceeds from issuance of debt	120,000			—			125,000
Repayment of debt	(66,613		)	—			—
Minimum tax withholding paid on behalf of employees for restricted stock units	—			(133		)	(481		)
Net cash provided by financing activities	$	49,718		$	5,294		$	126,735
Effect of exchange rate changes on cash and cash equivalents	848			(375		)	(741		)
Net increase (decrease) in cash and cash equivalents	31,871			(98,433		)	97,755
Cash and cash equivalents, beginning of year	26,120			124,553			26,798
Cash and cash equivalents, end of year	$	57,991		$	26,120		$	124,553
Supplemental disclosure of cash flow information:
Cash paid for interest	$	9,836		$	6,262		$	1,957
Cash paid for income taxes	681			208			124
Non-cash investing and financing activities:
Landlord funded leasehold improvements	$	—		$	—		$	46
Fair value of warrants issued for business acquisition	—			44			—
Fair value of common stock issued for business acquisition	—			100,812			—
Acquisition of property and equipment included in accounts payable	—			—			155
Fair value of warrants issued in connection with the Facility Agreement	14,704			—			—

See accompanying notes to these consolidated financial statements.

ENDOLOGIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(all tabular amounts presented in thousands, except per share, per unit, and number of years)

1. Description of Business, Basis of Presentation, and Operating Segment

(a) Description of Business

Endologix, Inc. (the “Company”) is a Delaware corporation with corporate headquarters in Irvine, California and production facilities located in Irvine and Santa Rosa, California. The Company develops, manufactures, markets, and sells innovative medical devices for the treatment of aortic disorders. The Company’s products are intended for the treatment of abdominal aortic aneurysms (“AAA”). The Company’s AAA products are built on two platforms: (1) traditional minimally-invasive endovascular repair (“EVAR”) and (2) endovascular sealing (“EVAS”), the Company’s innovative solution for sealing the aneurysm sac while maintaining blood flow through two blood flow lumens. The Company’s current EVAR products include the Ovation® Abdominal Stent Graft System (“Ovation”), Endologix AFX Endovascular AAA System (“AFX”), the VELA™ Proximal Endograft System (“VELA”) and the Endologix IntuiTrak Endovascular AAA System (“IntuiTrak”). The Company’s current EVAS product is the Nellix Endovascular Aneurysm Sealing System (“Nellix EVAS System”). Sales of the Company’s EVAR and EVAS platforms (including extensions and accessories) to hospitals in the United States and Europe, and to third-party international distributors, provide the sole source of the Company’s reported revenue.

(b) Basis of Presentation

The accompanying Consolidated Financial Statements in this Annual Report on Form 10-K have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and with the rules and regulations of the United States Securities and Exchange Commission (“SEC”). These financial statements include the financial position, results of operations, and cash flows of the Company, including its subsidiaries, all of which are wholly-owned. All inter-company accounts and transactions have been eliminated in consolidation. For years ended December 31, 2017, 2016, and 2015 there were no related party transactions.

In August 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-15, “Disclosure of Uncertainties About an Entity's Ability to Continue as a Going Concern.” ASU 2014-15 explicitly requires management to assess an entity's ability to continue as a going concern, and to provide related footnote disclosure in certain circumstances. ASU 2014-15 is intended to define management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The new standard is effective for all entities in the first annual period ending after December 15, 2016 and for annual periods and interim periods thereafter. We have adopted the guidance for the year ended December 31, 2016. The adoption of ASU 2014-15 did not impact our disclosures.

In April 2015, the FASB issued ASU No. 2015-03, "Simplifying the Presentation of Debt Issuance Costs", which requires debt issuance costs related to a recognized debt liability to be presented on the balance sheet as a direct deduction from the debt liability, similar to the presentation of debt discounts. The ASU was effective for the Company on January 1, 2016. The Company adopted ASU 2015-03, "Simplifying the Presentation of Debt Issuance Costs" during the first quarter of 2016, utilizing retrospective application as permitted. As a result, the Company reclassified debt issuance costs from other assets to reduce the convertible notes as of December 31, 2015 and 2016. In conjunction with the Company’s adoption of ASU 2015-03, the Company also adopted an update thereof or ASU 2015-15 “Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of Credit Arrangements.” As a result, the Company classified debt issuance costs related to a line-of-credit arrangement as other assets.

In September 2015, the FASB issued ASU No. 2015-16, “Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments,” which requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The new guidance also requires that the acquirer record, in the same period's financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The guidance is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The Company adopted this standard and has applied it to amounts related to the TriVascular acquisition.

In July 2015, the FASB issued ASU No. 2015-11, “Simplifying the Measurement of Inventory,” which requires an entity to measure inventory within the scope of the amendment at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and

ENDOLOGIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(all tabular amounts presented in thousands, except per share, per unit, and number of years)

transportation. We adopted this new accounting standard prospectively in the first quarter of 2017. This new accounting standard did not have a significant impact on our consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” which modifies certain aspects of the accounting for share-based payment transactions, including income taxes, classification of awards, and classification in the statement of cash flows. We adopted this standard effective January 1, 2017. As a result, excess tax benefits are no longer recorded in additional paid-in capital and instead are applied against taxes payable or recognized in the consolidated statements of operations. In addition, our income tax expense and associated effective tax rate will be impacted by fluctuations in stock price between the grant dates and vesting dates of equity awards. We also determined that there were no significant changes to disclosure or financial statement presentation and changes in accounting for excess tax benefits and deficiencies were not material as a result of adoption.

In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers”, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU No. 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The FASB agreed to a one-year deferral of the revenue recognition standard's effective date for all entities. The new revenue standard is effective for us on January 1, 2018. Early application is permitted, but not before the original effective date, which would have been January 1, 2017 for us. The new revenue standard permits the use of either the full retrospective or modified retrospective transition method; these methods may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application.

Accordingly, in 2016, we established a cross-functional implementation team to analyze the impact of the new revenue standard. This preliminary analysis included the review of an initial sample of contracts, as well as reviewing current accounting policies and customary business practices to identify potential differences that would result from applying the requirements of the new standard to our revenue contracts. We currently expect revenue related to the completion of an EVAR or EVAS procedure in hospitals and shipments to distributors of our products, to remain substantially unchanged. As part of our review, we separated revenue streams into portfolios of contracts with similar characteristics and selected samples thereof, as we do not expect the financial statement effects to differ materially when applying this approach to individual contracts. In addition, we are in the process of implementing appropriate changes to our business processes, systems and controls to support recognition and disclosure under the new revenue standard. We currently expect to adopt the new revenue standard in our first quarter of 2018 utilizing the modified retrospective adoption method. We continue to expect that the new revenue standard will not have a material impact on the amount and timing of revenue recognized in our consolidated financial statements; we also currently do not expect to have an adjustment to the opening balance of retained earnings under the modified retrospective adoption method in our first quarter of 2018 financial statements. We are also in the process of reviewing the expansion of our disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with our customers, as required by the new revenue standard. We are continuing to evaluate our impact and will continue to monitor any modifications or interpretations communicated by the FASB that may impact any of our final assessments.

The Company has one operating and reporting segment that is focused exclusively on the development, manufacture, marketing, and sale of EVAR and EVAS products for the treatment of aortic disorders. For the year ended December 31, 2017 , all of the Company's revenue and related expenses were solely attributable to these activities. Substantially all of the Company's long-lived assets are located in the United States.

2. Use of Estimates and Summary of Significant Accounting Policies

The preparation of financial statements in conformity with GAAP requires the Company's management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent liabilities. On an on-going basis, the Company's management evaluates its estimates, including those related to (i) collectibility of customer accounts; (ii) whether the cost of inventories can be recovered; (iii) the value of goodwill and intangible assets; (iv) realization of tax assets and estimates of tax liabilities; (v) likelihood of payment and value of contingent liabilities; and (vi) potential outcome of litigation. Such estimates are based on management's judgment which takes into account historical experience and various assumptions. Nonetheless, actual results may differ from management's estimates.

The following critical accounting policies and estimates were used in the preparation of the accompanying Consolidated Financial Statements:

ENDOLOGIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(all tabular amounts presented in thousands, except per share, per unit, and number of years)

(i) Cash and Cash Equivalents

We consider all highly liquid investments that are readily convertible into cash and have a maturity of three months or less at the time of purchase to be cash equivalents. The cost of these investments approximates their fair value.

(ii) Marketable securities

At December 31, 2016, the Company’s investments included short-term marketable securities, which were classified as held-to-maturity investments as the Company had the positive intent and ability to hold the investments to maturity. These investments were therefore recorded on an amortized cost basis. Discounts or premiums were amortized to interest income using the interest method. Marketable securities are investments with original maturities of greater than 90 days. Management reviewed the Company’s investments as of December 31, 2016, and concluded that there were no securities with other than temporary impairments in the investment portfolio. The Company’s investments were matured during the year ended December 31, 2017 and at December 31, 2017 , the Company had no marketable securities.

(ii) Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount, inclusive of applicable value-added tax ("VAT"), and do not bear interest. Revenue is recorded net of VAT. The allowance for doubtful accounts is management's best estimate of the amount of probable credit losses in existing accounts receivable. Account balances are charged off against the allowance after appropriate collection efforts are exhausted.

(iii) Inventories

The Company values inventory at the lower of the actual cost to purchase or manufacture the inventory, or net realizable value for such inventory. Cost is determined on the first-in, first-out method. The Company regularly reviews inventory quantities in process and on hand, and when appropriate, records a provision for obsolete and excess inventory. The provision is based on actual loss experience and a forecast of product demand compared to its remaining shelf life.

(iv) Property and Equipment

Property and equipment are stated at cost and depreciated on a straight-line basis over the following estimated useful lives:



Property Class		Useful Life
Office furniture		Seven years
Computer hardware		Three years
Computer software		Three to eight years
Production equipment and molds		Three to seven years
Leasehold improvements		Shorter of expected useful life or remaining term of lease

Upon sale or disposition of property and equipment, any gain or loss is included in the accompanying Consolidated Statements of Operations and Comprehensive Loss. Property and equipment are tested for impairment only when impairment indicators are present.

(v) Goodwill and Intangible Assets

Intangible assets with definite lives are amortized over their estimated useful lives using a method that reflects the pattern over which the economic benefit is expected to be realized, and is as follows:



Intangible Asset Class		Useful Life
Goodwill		Indefinite lived
Trademarks and tradenames		Indefinite lived
Developed technology		Eleven to thirteen years
Customer relationships		Ten years

In-process research and development will be amortized upon commencement of commercial sales and it is expected to be amortized over its useful life.

ENDOLOGIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(all tabular amounts presented in thousands, except per share, per unit, and number of years)

Goodwill and other intangible assets with indefinite lives are not subject to amortization, but are tested for impairment annually or whenever events or changes in business circumstances suggest the potential of an impairment. Under the FASB guidance, the evaluation of indefinite-lived intangible assets for impairment allows for a qualitative assessment to be performed, which is similar to the FASB guidance for evaluating goodwill for impairment. In performing these qualitative assessments, the Company considered relevant events and conditions, including but not limited to: macroeconomic trends, industry and market conditions, overall financial performance, cost factors, company-specific events, legal and regulatory factors and the Company's market capitalization. The Company completed its annual indefinite lived intangible asset impairment test as of June 30, 2017 , with no resulting impairment.

The Company most recently completed its annual test for impairment of goodwill as of June 30, 2017 , with no resulting impairment, as its market capitalization was in substantial excess of the value of its total stockholders' equity (the Company has one "reporting unit" for purposes of the goodwill impairment test).

Intangible assets with finite lives are tested for impairment only when impairment indicators are present.

(vi) Fair Value Measurements

In determining the fair value of its assets and liabilities, the Company uses various valuation approaches. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy distinguishes between (i) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (ii) an entity's own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:

Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 - Inputs that are both significant to the fair value measurement and unobservable.

The availability of observable inputs can vary among the various types of financial assets and liabilities. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for financial statement disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is categorized is based on the lowest level input that is significant to the overall fair value measurement.

The Company’s held-to-maturity securities, which are fixed income investments, are comprised of obligations of United States government agencies, corporate debt securities and other interest bearing securities. These held-to-maturity securities are recorded at amortized cost and are therefore not included in the Company’s market value measurement disclosure. Money market funds, which are cash and cash equivalents, are valued using quoted market prices with no valuation adjustments applied. Accordingly, these securities are categorized in Level 1. The recorded values of all our other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.

The recorded values of all our accounts receivable and accounts payable approximate their current fair values because of their nature and respective relatively short maturity dates or durations.

(vii) Contingent Consideration for Business Acquisition

The Company's management determined the fair value of contingently issuable common stock on the Nellix acquisition date (see Note 9) using a probability-based income approach with an appropriate discount rate (determined using both Level 1 and Level 3 inputs). Changes in the fair value of this contingently issuable common stock are determined at each period end and are recorded in the other income (expense) section of the accompanying Consolidated Statements of Operations and Comprehensive Loss, and the current and non-current liabilities section of the accompanying Consolidated Balance Sheets.

(viii) Revenue Recognition

ENDOLOGIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(all tabular amounts presented in thousands, except per share, per unit, and number of years)

The Company recognizes revenue when all of the following criteria are met:


•	Appropriate evidence of a binding arrangement exists with the customer;


•	The sales price for the EVAR or EVAS product (including device extensions and accessories) is established with the customer;


•	The EVAR or EVAS product has been used by the hospital in an EVAR procedure, or the distributor has assumed title with no right of return; and


•	Collection of the corresponding receivable from the customer is reasonably assured at the time of sale.

For sales made to hospitals, the Company recognizes revenue upon completion of an EVAR or EVAS procedure, when the EVAR or EVAS products are implanted in a patient. For sales made to distributors, the Company recognizes revenue when title passes, which is typically at the time of shipment, as this represents the period that the customer has assumed custody of the EVAR or EVAS product, without right of return, and assumed risk of loss.

The Company does not offer rights of return, other than honoring a standard warranty.

(ix) Shipping Costs

Shipping costs billed to customers are reported within revenue, with the corresponding costs reported within costs of goods sold.

(x) Foreign Currency Transactions

The assets and liabilities of the Company's foreign subsidiaries are translated at the rates of exchange at the balance sheet date. The income and expense items of these subsidiaries are translated at average monthly rates of exchange. Gains and losses resulting from foreign currency transactions, which are denominated in a currency other than the respective entity’s functional currency are included in other income (expense), net, within the accompanying Consolidated Statements of Operations and Comprehensive Loss. Foreign currency translation adjustments between the respective entity's functional currency and the United States dollar are recorded to accumulated other comprehensive loss within the stockholders' equity section of the accompanying Consolidated Balance Sheets. There were no items reclassified out of accumulated other comprehensive loss and into net loss during the years ended December 31, 2017, 2016, and 2015 . The only activity in the accumulated other comprehensive loss was related to foreign currency translation.

(xi) Income Taxes

The Company records the estimated future tax effects of temporary differences between the tax basis of assets and

liabilities and amounts reported in the financial statements, as well as operating losses and tax credit carry forwards. The Company has recorded a valuation allowance to substantially reduce its net deferred tax assets, because the Company believes that, based upon a number of factors, it is more likely than not that substantially all the deferred tax assets will not be realized. If the Company were to determine that it would be able to realize additional deferred tax assets in the future, an adjustment to the valuation allowance on its deferred tax assets would increase net income in the period such determination was made. In the event that the Company were assessed interest and/or penalties from taxing authorities, such amounts would be included in "income tax expense" within the Consolidated Statements of Operations and Comprehensive Loss in the period the notice was received.

(xii) Net Loss Per Share

Net loss per common share is computed using the weighted average number of common shares outstanding

during the periods presented. Because of the net losses during the years ended December 31, 2017, 2016, and 2015 , options to purchase the common stock, restricted stock awards, and restricted stock units of the Company were excluded from the computation of net loss per share for these periods because the effect would have been antidilutive.

(xiii) Research and Development Costs

Research and development costs are expensed as incurred.

(xiv) Product Warranty

Within six months of shipment, certain customers may request replacement of products they receive that do not meet product specifications; no other warranties are offered. The Company contractually disclaims responsibility for any damages associated with physician's use of its EVAR or EVAS product. Historically, the Company has not experienced a significant amount of costs associated with its warranty policy.

ENDOLOGIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(all tabular amounts presented in thousands, except per share, per unit, and number of years)

3. Balance Sheet Account Detail

(a) Property and Equipment

Property and equipment consisted of the following:



	December 31,
	2017			2016
Production equipment, molds, and office furniture	$	12,118		$	11,714
Computer hardware and software	8,115			8,162
Leasehold improvements	15,499			15,495
Construction in progress (software and related implementation, production equipment, and leasehold improvements)	743			839
Property and equipment, at cost	36,475			36,210
Accumulated depreciation	(17,263		)	(12,945		)
Property and equipment, net	$	19,212		$	23,265

Depreciation expense for property and equipment for the years ended December 31, 2017 , 2016 , and 2015 was $5.0 million , $5.3 million , and $4.6 million , respectively.

(b) Inventories

Inventories consisted of the following:



	December 31,
	2017		2016
Raw materials	$	12,226	$	13,133
Work-in-process	7,736		10,139
Finished goods	25,191		17,888
Inventories	$	45,153	$	41,160

ENDOLOGIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(all tabular amounts presented in thousands, except per share, per unit, and number of years)

The following table presents goodwill, indefinite lived intangible assets, finite lived intangible assets, and related accumulated amortization:



	December 31,
	2017			2016
Goodwill	$	120,927		$	120,711

Intangible assets:
Indefinite lived intangibles
Trademarks and trade names	$	2,708		$	2,708
In-process research and development	11,200			11,200

Finite lived intangibles
Developed technology	$	67,600		$	67,600
Accumulated amortization	(7,167		)	(3,810		)
Developed technology, net	$	60,433		$	63,790

Customer relationship	$	7,500		$	7,500
Accumulated amortization	(1,438		)	(687		)
Customer relationship, net	$	6,062		$	6,813

Intangible assets (excluding goodwill), net	$	80,403		$	84,511

The change in the carrying amount of goodwill for the year ended December 31, 2017 is as follows (in thousands):



Balance at January 1, 2017	120,711
Foreign currency translation adjustment	216
Balance at December 31, 2017	$	120,927

Amortization expense for intangible assets for the years ended December 31, 2017 , 2016 , and 2015 was $4.1 million , $3.8 million , and $1.3 million , respectively.

Estimated amortization expense for the five succeeding years and thereafter is as follows:



	Amortization Expense
2018	$	4,095
2019	4,300
2020	4,944
2021	7,020
2022	8,734
2023 and thereafter	37,402
Total	$	66,495

ENDOLOGIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(all tabular amounts presented in thousands, except per share, per unit, and number of years)

(d) Marketable securities

Investments in held-to-maturity marketable securities consist of the following at December 31, 2016 :



	December 31, 2016
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Fair Value
Agency bonds	$	6,488	$	2	$	—		$	6,490
Corporate bonds	10,513		—		(21		)	$	10,492
Commercial paper	3,987		—		—			3,987
Total	$	20,988	$	2	$	(21	)	$	20,969

At December 31, 2017 , the Company had no marketable securities. There were no realized gains or losses on the investments for the year ended December 31, 2017 .

(e) Fair Value Measurements

The following fair value hierarchy table presents information about each major category of the Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2017 and 2016 :



	Fair value measurement at reporting date using:
	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total
At December 31, 2017
Cash and cash equivalents	$	57,991	$	—	$	—	$	57,991
Restricted cash	$	2,608	$	—	$	—	$	2,608
Contingently issuable common stock	$	—	$	—	$	9,300	$	9,300
At December 31, 2016
Cash and cash equivalents	$	26,120	$	—	$	—	$	26,120
Restricted cash	$	2,001	$	—	$	—	$	2,001
Contingently issuable common stock	$	—	$	—	$	12,200	$	12,200

There were no remeasurements to fair value during the years ended December 31, 2017 and 2016 of financial assets and liabilities that are not measured at fair value on a recurring basis. There were no transfers between Level 1, Level 2, or Level 3 securities during the years ended December 31, 2017 and 2016 .

(f) Instruments Not Recorded at Fair Value on a Recurring Basis

The Company measures the fair value of their Senior Notes carried at amortized cost quarterly for disclosure purposes. The estimated fair value of the Senior Notes is determined by Level 2 inputs and is based primarily on quoted market prices for the same or similar issues. Based on the market prices, the fair value of our Senior Notes was $131.2 million as of December 31, 2017 and $187.6 million as of December 31, 2016 .

The Company measures the fair value of its Term Loan carried at amortized cost quarterly for disclosure purposes. The estimated fair value of the Term Loan is determined by Level 3 inputs and is based primarily on unobservable inputs that are not corroborated by market data. The fair value of the Company's Term Loan was $101.9 million as of December 31, 2017 .

Due to its short-term nature, the Company believes that the carrying value of its revolving line of credit approximated its fair value at December 31, 2017 .

ENDOLOGIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(all tabular amounts presented in thousands, except per share, per unit, and number of years)

The Company measures the fair value of our held-to-maturity marketable securities carried at amortized cost quarterly for disclosure purposes. The fair value of certain marketable securities is determined by Level 2 inputs and is based primarily on quoted market prices for the same or similar instruments.

4. Stock-Based Compensation

2015 Stock Incentive Plan

The Company has one active stockholder-approved stock-based compensation plan, the 2015 Stock Incentive Plan (the "2015 Plan"), which replaced the Company's former stockholder-approved plans. Incentive stock options, non-qualified options, restricted stock awards, restricted stock units, and stock appreciation rights may be granted under the 2015 Plan.

The maximum number of shares of the Company's common stock available for issuance under the 2015 Plan is 9.8 million shares. As of December 31, 2017 , 0.9 million shares were available for grant. It is the Company's policy that before stock is issued through the exercise of stock options, the Company must first receive all required cash payment for such shares. The stock issuable under the Plan shall be shares of authorized new unissued shares.

Stock-based awards are governed by agreements between the Company and the recipients. Incentive stock options and nonqualified stock options may be granted under the 2015 Plan at an exercise price of not less than 100% of the closing fair market value of the Company's common stock on the respective date of grant. The grant date is generally the first day of employment for new hire grants and the date of approval for all others. Awards are approved by either a delegated member of the Company's Executive Management or by the Compensation Committee of the Board of Directors for awards that exceed the Company's Executive Management's authority.

The Company's standard stock-based award vests 25% on the first anniversary of the date of grant, or for new hires, the first anniversary of their initial date of employment with the Company. Awards vest monthly thereafter on a straight-line basis over three years . Stock options must be exercised, if at all, no later than 10 years from the date of grant. Upon termination of employment with the Company, vested stock options may be exercised within 90 days from the last date of employment. In the event of an optionee's death, disability, or retirement, the exercise period is 365 days from the last date of employment.

2017 Inducement Stock Incentive Plan

On October 27, 2017, the Board of Directors (the “Board”) of the Company adopted the 2017 Inducement Stock Incentive Plan (the “2017 Inducement Plan”). The 2017 Inducement Plan provides for the grant of equity-based awards in the form of non-qualified stock options, restricted stock, restricted stock units, stock appreciation rights, performance shares and performance units. In accordance with Nasdaq Listing Rules, awards under the 2017 Inducement Plan may only be made to an employee who has not previously been an employee of the Company or a member of the Board, or an employee or member of the board of directors of any subsidiary of the Company, or following a bona fide period of non-employment with the Company or any subsidiary of the Company, if he or she is granted such award in connection with his or her commencement of employment with the Company or a subsidiary of the Company and such grant is an inducement material to his or her entering into employment with the Company or such subsidiary.

The Board has reserved 2,000,000 shares of the Company’s common stock for issuance pursuant to awards granted under the 2017 Inducement Plan, and the 2017 Inducement Plan will be administered by the Compensation Committee of the Board. As of December 31, 2017, 1.7 million shares were available for grant.

Employee Stock Purchase Plan

Under the terms of the Company's Amended and Restated 2006 Employee Stock Purchase Plan, as amended (the "ESPP"), eligible employees can purchase common stock through payroll deductions. As of December 31, 2017 , 1.0 million shares were available for grant. The purchase price is equal to the closing price of the Company's common stock on the first or last day of the offering period (whichever is less), minus a 15% discount. The Company uses the Black-Scholes option-pricing model, in combination with the discounted employee price, in determining the value of ESPP expense to be recognized during each offering period.

The table below summarizes the stock-based compensation recognized, common stock shares purchased by Company employees, and the average purchase price per share as part of the ESPP program during the years ended December 31, 2017, 2016, and 2015 .

ENDOLOGIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(all tabular amounts presented in thousands, except per share, per unit, and number of years)



	Year Ended December 31,
	2017		2016		2015
Stock-based compensation expense	$	850	$	1,205	$	921
Common stock shares purchased by Company employees	446,490		394,120		355,557
Average purchase price per share	$	5.64	$	8.17	$	8.33

Stock Options and Restricted Stock

The Company values stock-based awards, including stock options and restricted stock, as of the date of grant (and is marked-to-market at each reporting period for unvested grants issued to non-employees).

The Company recognizes stock-based compensation expense (net of estimated forfeitures) using the straight-line method over the requisite or implicit service period, as applicable. Forfeitures of employee awards are estimated at the time of grant and the forfeiture assumption is periodically adjusted for actual employee vesting behavior. For purposes of this estimate, the Company has applied an estimated forfeiture rate of 11% , 11% , and 14% for the years ended December 31, 2017, 2016, and 2015 , respectively.

Stock-Based Compensation Expense Summary

The Company classifies related compensation expense in the accompanying Consolidated Statements of Operations and Comprehensive Loss, based on the Company department to which the recipient belongs. Stock-based compensation expense included in cost of goods sold and operating expenses for years ended December 31, 2017, 2016, and 2015 was as follows:



	Year Ended December 31,
	2017		2016		2015
Cost of goods sold	$	828	$	944	$	1,000
Operating expenses:
Research and development	1,259		1,528		1,005
Clinical and regulatory affairs	770		672		858
Marketing and sales	3,796		4,335		3,237
General and administrative	4,991		4,807		3,155
Total operating expenses	$	10,816	$	11,342	$	8,255

Total	$	11,644	$	12,286	$	9,255

In addition, the Company had $0.4 million , $0.5 million , and $0.6 million of stock-based compensation capitalized in inventory as of December 31, 2017 , 2016 , and 2015 , respectively.

Valuation Assumptions

The grant-date fair value per share for restricted stock awards was based upon the closing market price of the Company’s common stock on the award grant-date.

The fair value of stock options granted was estimated at the date of grant using the Black-Scholes option-pricing model. The following assumptions were used to determine fair value for the stock awards granted in the applicable year:



	Year Ended December 31,
	2017	2016	2015
Average expected option life (in years) (a)	5.6	5.5	5.5
Volatility (b)	51.3%	44.2%	43.3%
Risk-free interest rate (c)	1.9%	1.2%	1.6%
Dividend yield (d)	—	—	—
Weighted-average grant-date fair value per stock option	$2.51	$3.45	$6.37

ENDOLOGIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(all tabular amounts presented in thousands, except per share, per unit, and number of years)

(a) Determined by the historical stock option exercise behavior of the Company's employees (maximum term is 10 years ).

(b) Measured using daily price observations for a period equal to the stock options' expected terms.

(d) The Company has never paid cash dividends on its common stock and does not expect to declare any cash dividends.

Stock Option Activity

Stock option activity during the year ended December 31, 2017 is as follows:



	Number of Stock Options	Weighted Average Exercise Price	Weighted- Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Outstanding — January 1, 2017	8,673,215	9.22
Granted	5,370,408	5.44
Exercised	(129,478)	4.21		(a)	$	226
Forfeited	(1,405,534)	8.20
Expired	(684,279)	11.38
Outstanding — December 31, 2017	11,824,332	$7.56	7.1	(b)	$	4,570
Vested and Expected to Vest — December 31, 2017	10,629,743	7.67	6.9	(b)	$	4,173
Vested — December 31, 2017	5,041,775	8.48	4.9	(b)	$	2,530

(a) Represents the total difference between the Company's stock price at the time of exercise and the stock option exercise price, multiplied by the number of options exercised.

(b) Represents the total difference between the Company's closing stock price on the last trading day of period reported on and the stock option exercise price, multiplied by the number of in-the-money options as of the period reported on. The amount of intrinsic value will change based on the fair market value of the Company's stock.

For years ended December 31, 2017 , 2016 and 2015 the total intrinsic value of options exercised was $0.2 million , $2.7 million and $3.2 million respectively. The Company recognized stock option expense of $7.7 million , $7.4 million and $5.3 million for the years ended December 31, 2017, 2016, and 2015 , respectively.

As of December 31, 2017 , there was $14.5 million of total unrecognized compensation expense related to granted, but unvested stock options, which is expected to be recognized over a weighted average period of 2.7 years.

ENDOLOGIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(all tabular amounts presented in thousands, except per share, per unit, and number of years)

The following table summarizes information regarding outstanding stock option grants as of December 31, 2017 :



					Outstanding				Exercisable
Range of Exercise Prices					Granted Stock Options Outstanding	Weighted- Average Remaining Contractual Life (Years)	Weighted- Average Exercise Price		Granted Stock Options Exercisable	Weighted- Average Exercise Price
$	1.64	—	$	4.42	2,390,446	5.6	$	3.76	1,135,219	$	3.27
4.49		—	6.62		3,626,065	8.6	5.72		691,585	5.72
6.66		—	7.53		2,865,141	7.6	7.39		1,298,962	7.40
7.57		—	15.51		2,373,560	5.9	12.22		1,543,700	12.52
15.53		—	17.58		569,120	6.3	16.58		372,309	16.53
$	1.64	—	$	17.58	11,824,332	7.1	$	7.56	5,041,775	$	8.48

Non-Employee - Stock Options

As of December 31, 2017, 2016, and 2015 , a total of 1,500 , 11,500 , and 31,500 non-employee stock options, respectively, were outstanding and fully vested.

Restricted Stock Award Activity

The following table summarizes activity and related information for the Company's restricted stock awards:



	Number of Restricted Stock Awards(2)		Weighted Average Fair Value per Share at Grant Date		Grant Date Fair Value		Vest Date Fair Value(1)
Unvested as of December 31, 2016	1,310,019		$	10.19
Granted	1,590,662		5.01		$	7,969
Forfeited	(470,626	)	9.74
Vested	(293,612	)	11.39				$	1,757
Unvested as of December 31, 2017	2,136,443		$	6.27

(1) Represents the Company's stock price on the vesting date multiplied by the number of vested shares.

(2) Shares granted in 2017 include 513,011 performance stock units that have certain performance conditions required to be achieved to vest.

For years ended December 31, 2017 , 2016 and 2015 , the weighted average grant date fair value of shares granted was $5.01 , $8.29 , and $16.03 , respectively.

For years ended December 31, 2017 , 2016 and 2015 , the total fair value of shares vested was $1.8 million , $2.6 million , and $2.2 million , respectively.

The Company recognized restricted stock expense of $3.0 million , $3.7 million , and $2.8 million for the years ended December 31, 2017, 2016, and 2015 , respectively. As of December 31, 2017 , there was $5.2 million of unrecorded expense related to issued restricted stock that will be recognized over an estimated weighted average period of 1.9 years.

Non-Employee Restricted Stock

During the years ended December 31, 2017, 2016, and 2015 , $79 thousand , $30 thousand , and $0.1 million , respectively, was recorded as compensation expense for the change in the fair value of unvested non-employee restricted stock. There were no restricted stock units granted to non-employees during the year ended December 31, 2016.

As of December 31, 2017, 2016, and 2015 , a total of 41,000 , 41,000 , and 72,000 shares of unvested restricted stock, respectively, issued to non-employees were outstanding.

ENDOLOGIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(all tabular amounts presented in thousands, except per share, per unit, and number of years)

Award Modifications

During 2017 , there was an award modification affecting one employee. The employee was provided with twelve months of accelerated vesting for all awards outstanding which included stock options, restricted stock units, and four performance stock units. The total incremental stock compensation expense recognized for the years ended 2017 , 2016 and 2015 related to awards modifications was $286,000 , $273,000 and $46,000 , respectively.

5. Net Loss Per Share

Net loss per share was computed by dividing net loss by the weighted average number of common shares outstanding for the years ended December 31, 2017, 2016, and 2015 :



	Year Ended December 31,
	2017			2016			2015
Net loss	$	(66,400	)	$	(154,677	)	$	(50,424	)
Shares used in computing basic and diluted net loss per share	83,325			80,976			67,671
Basic and diluted net loss per share	$	(0.80	)	$	(1.91	)	$	(0.75	)

The following outstanding Company securities, using the treasury stock method, were excluded from the above calculations of net loss per share because their impact would have been anti-dilutive due to the net losses during the years ended December 31, 2017, 2016, and 2015 :



	Year Ended December 31,
	2017	2016	2015
Common stock options	520	1,248	1,651
Restricted stock awards	119	129	133
Restricted stock units	250	370	230
Total	889	1,747	2,014

Conversion of Senior Notes

As discussed in Note 6, in December 2013, the Company issued $86.3 million in aggregate principal amount of 2.25% Convertible Senior Notes due 2018 (the “ 2.25% Senior Notes”) in an underwritten public offering. In October 2015, the Company also issued $125.0 million in aggregate principal amount of 3.25% Convertible Senior Notes due 2020 (the “ 3.25% Senior Notes”) in an underwritten public offering. Upon any conversion, the 2.25% Senior Notes and/or 3.25% Senior Notes, (collectively the "Senior Notes") may be settled, at the Company’s election, in cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock. For purposes of calculating the maximum dilutive impact, it is presumed that the Senior Notes will be settled in common stock with the resulting potential common shares included in diluted earnings per share if the effect is more dilutive. The effect of the conversion of the Senior Notes is excluded from the calculation of diluted loss per share because the impact of these securities would be anti-dilutive.

Deerfield Warrants

On April 3, 2017, the Company entered into a Facility Agreement (the “Facility Agreement”) with affiliates of Deerfield Management Company, L.P. (collectively, “Deerfield”), pursuant to which Deerfield agreed to loan to the Company up to $120.0 million , subject to the terms and conditions set forth in the Facility Agreement (the “Term Loan”). Pursuant to the terms of the Facility Agreement, the Company issued warrants to Deerfield to purchase an aggregate of 6,470,000 shares of common stock of the Company at an exercise price of $9.23 per share (the “Deerfield Warrants”). The number of shares of common stock of the Company into which the Warrants are exercisable and the exercise price of the Warrants will be adjusted to reflect any stock splits, recapitalizations or similar adjustments in the number of outstanding shares of common stock of the Company. Refer to Note 6 of the Notes to the Condensed Consolidated Financial Statements for further discussion.

ENDOLOGIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(all tabular amounts presented in thousands, except per share, per unit, and number of years)

The potential dilutive effect of these securities is shown in the chart below:



	Year Ended December 31,
	2017	2016	2015
Conversion of the Senior Notes	11,939	14,767	14,767
Deerfield Warrants	6,470	—	—

The effect of the contingently issuable common stock is excluded from the calculation of basic loss per share until all necessary conditions for issuance have been satisfied. Refer to Note 9 of the Notes to the Consolidated Financial Statements for further discussion.

6. Credit Facilities

2.25% Convertible Senior Notes

On December 10, 2013, the Company issued $86.3 million in aggregate principal amount of 2.25% Senior Notes. The 2.25% Senior Notes mature on December 15, 2018 unless earlier repurchased by the Company or converted. The Company received net proceeds from the sale of the 2.25% Senior Notes of approximately $82.6 million , after deducting underwriting discounts and commissions and offering expenses payable by the Company. Interest is payable on the 2.25% Senior Notes on June 15 and December 15 of each year, beginning June 15, 2014.

The 2.25% Senior Notes are governed by the terms of a base indenture (the “Base Indenture”), as supplemented by the first supplemental indenture relating to the 2.25% Senior Notes (the “First Supplemental Indenture,” and together with the Base Indenture, the “ 2.25% Senior Notes Indenture”), between the Company and Wells Fargo Bank, National Association (the “Trustee”), each of which were entered into on December 10, 2013.

The 2.25% Senior Notes are senior unsecured obligations and are: (a) senior in right of payment to the Company’s future indebtedness that is expressly subordinated in right of payment to the 2.25% Senior Notes; (b) equal in right of payment to the Company’s existing and future unsecured indebtedness that is not so subordinated; (c) effectively junior to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and (d) structurally junior to all existing and future indebtedness (including trade payables) incurred by the Company’s subsidiaries.

On or after December 15, 2016, the Company may redeem for cash all or any portion of the 2.25% Senior Notes, at its option, but only if the closing sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the second trading day immediately preceding the date on which the Company provides notice of redemption, exceeds 130% of the conversion price on each applicable trading day. The redemption price will equal 100% of the principal amount of the 2.25% Senior Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the 2.25% Senior Notes.

Holders may convert their 2.25% Senior Notes at any time prior to the close of business on the business day immediately preceding September 15, 2018 only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on March 31, 2014, if the closing sale price of the Company’s common stock, for at least 20 trading days (whether or not consecutive) in the period of 30 consecutive trading days ending on the last trading day of the calendar quarter immediately preceding the calendar quarter in which the conversion occurs, is more than 130% of the conversion price of the 2.25% Senior Notes in effect on each applicable trading day; (2) during the five consecutive business-day period following any five consecutive trading-day period in which the trading price for the 2.25% Senior Notes for each such trading day was less than 98% of the closing sale price of the Company’s common stock on such date multiplied by the then-current conversion rate; (3) if the Company calls all or any portion of the 2.25% Senior Notes for redemption, at any time prior to the close of business on the second scheduled trading day prior to the redemption date; or (4) upon the occurrence of specified corporate events. On or after September 15, 2018 until the close of business on the second scheduled trading day immediately preceding the stated maturity date, holders may surrender their 2.25% Senior Notes for conversion at any time, regardless of the foregoing circumstances.

Upon conversion, the Company will at its election pay or deliver, as the case may be, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock.

ENDOLOGIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(all tabular amounts presented in thousands, except per share, per unit, and number of years)

The initial conversion rate will be 41.6051 shares of the Company’s common stock for each $1,000 principal amount of 2.25% Senior Notes, which represents an initial conversion price of approximately $24.04 per share. Following certain corporate transactions that occur on or prior to the stated maturity date or the Company’s delivery of a notice of redemption, the Company will increase the conversion rate for a holder that elects to convert its 2.25% Senior Notes in connection with such a corporate transaction.

If a fundamental change (as defined in the 2.25% Senior Notes Indenture) occurs prior to the stated maturity date, holders may require the Company to purchase for cash all or any portion of their 2.25% Senior Notes at a fundamental change purchase price equal to 100% of the principal amount of the 2.25% Senior Notes to be purchased, plus accrued and unpaid interest to, but excluding, the fundamental change purchase date.

The 2.25% Senior Notes Indenture contains customary terms and covenants and events of default with respect to the 2.25% Senior Notes. If an event of default (as defined in the 2.25% Senior Notes Indenture) occurs and is continuing, either the Trustee or the holders of at least 25% in aggregate principal amount of the outstanding 2.25% Senior Notes may declare the principal amount of the 2.25% Senior Notes to be due and payable immediately by notice to the Company (with a copy to the Trustee). If an event of default arising out of certain events of bankruptcy, insolvency or reorganization involving the Company or a significant subsidiary (as set forth in the 2.25% Senior Notes Indenture) occurs with respect to us, the principal amount of the 2.25% Senior Notes and accrued and unpaid interest, if any, will automatically become immediately due and payable.

The Company was not required to separate the conversion option in the 2.25% Senior Notes under ASC 815, "Derivatives and Hedging", and has the ability to settle the 2.25% Senior Notes in cash, common stock or a combination of cash and common stock, at its option. In accordance with cash conversion guidance contained in ASC 470-20, "Debt with Conversion and Other Options", the Company accounted for the 2.25% Senior Notes by allocating the issuance proceeds between the liability and the equity component. The equity component is classified in stockholders’ equity and the resulting discount on the liability component is accreted such that interest expense equals the Company’s nonconvertible debt borrowing rate. The separation was performed by first determining the fair value of a similar debt that does not have an associated equity component. That amount was then deducted from the initial proceeds of the 2.25% Senior Notes as a whole to arrive at a residual amount, which was allocated to the conversion feature that is classified as equity. The initial fair value of the indebtedness was $66.9 million resulting in a $19.3 million allocation to the embedded conversion option. The embedded conversion option was recorded in stockholders’ equity and as debt discount, to be subsequently accreted to interest expense over the term of the 2.25% Senior Notes. Underwriting discounts and commissions and offering expenses totaled $3.7 million and were allocated between the liability and the equity component in proportion to the allocation of proceeds and accounted for as debt issuance costs and equity issuance costs, respectively. As a result, $2.9 million attributable to the indebtedness was recorded as deferred financing costs in other assets, to be subsequently amortized as interest expense over the term of the 2.25% Senior Notes, and $0.8 million attributable to the equity component was recorded as a reduction to additional paid-in-capital in stockholders’ equity. During the three months ended March 31, 2016, the Company adopted ASU 2015-03, "Simplifying the Presentation of Debt Issuance Costs" utilizing retrospective application as permitted. As a result, the Company reclassified $1.9 million of debt issuance costs from current and non-current other assets to reduce the 2.25% Senior Notes as of December 31, 2015.

On April 3, 2017, the Company entered into the Facility Agreement with Deerfield, pursuant to which Deerfield agreed to loan to the Company up to $120 million , subject to the terms and conditions set forth in the Facility Agreement. The Company used a portion of the proceeds from the Term Loan to repurchase $68 million aggregate principal amount of outstanding 2.25% Senior Notes, plus the accrued but unpaid interest thereon, from the holders thereof in privately negotiated transactions. Refer to the section entitled Deerfield Facility Agreement below for further discussion. The embedded conversion option of the 2.25% Senior Notes, which was originally recorded in additional paid-in capital, was reduced by $2.2 million . Additionally, $3.2 million related to the reduction of outstanding principal related to the 2.25% Senior Notes was charged to loss on debt extinguishment on the Company’s Consolidated Statements of Operations and Comprehensive Loss.

As of December 31, 2017 , the Company had outstanding borrowings of $17.4 million , and deferred financing costs of $0.2 million , related to the 2.25% Senior Notes. There are no principal payments due during the term. Annual interest expense on these notes will range from $1.1 million to $1.5 million through maturity.

Capped Call Transactions

On December 10, 2013, in connection with the pricing of the 2.25% Senior Notes and the exercise in full of their overallotment option by the underwriters, the Company entered into privately-negotiated capped call transactions (the “Capped Call Transactions”) with Bank of America, N.A., an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated. The Capped Call Transactions initial conversion rate and number of options substantially corresponds to each $1,000 principal

ENDOLOGIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(all tabular amounts presented in thousands, except per share, per unit, and number of years)

amount of 2.25% Senior Notes. The Company used approximately $7.4 million of the net proceeds from the 2.25% Senior Notes offering to pay for the cost of the Capped Call Transactions.

The Capped Call Transactions are separate transactions entered into by the Company with Bank of America, N.A., are not part of the terms of the 2.25% Senior Notes and will not change the holders’ rights under the 2.25% Senior Notes. The Capped Call Transactions have anti-dilution adjustments substantially similar to those applicable to the 2.25% Senior Notes. The Capped Call Transactions are derivative instruments that qualify for classification within stockholders’ equity because they meet an exemption from mark-to-market derivative accounting.

The Capped Call Transactions are expected generally to reduce the potential dilution and/or offset potential cash payments that the Company is required to make in excess of the principal amount upon conversion of the 2.25% Senior Notes in the event that the market price per share of the Company’s common stock, as measured under the terms of the Capped Call Transactions, is greater than the strike price of the Capped Call Transactions, which initially corresponds to the $24.04 conversion price of the 2.25% Senior Notes. If, however, the market price per share of the Company’s common stock, as measured under the terms of the Capped Call Transactions, exceeds the initial cap price of $29.02 , there would nevertheless be dilution and/or there would not be an offset of such potential cash payments, in each case, to the extent that such market price exceeds the cap price of the Capped Call Transactions.

The Company will not be required to make any cash payments to Bank of America, N.A. or any of its affiliates upon the exercise of the options that are a part of the Capped Call Transactions, but will be entitled to receive from Bank of America, N.A. (or an affiliate thereof) a number of shares of the Company’s common stock and/or an amount of cash generally based on the amount by which the market price per share of the Company’s common stock, as measured under the terms of the Capped Call Transactions, is greater than the strike price of the Capped Call Transactions during the relevant valuation period under the Capped Call Transactions. However, if the market price of the Company’s common stock, as measured under the terms of the Capped Call Transactions, exceeds the cap price of the Capped Call Transactions during such valuation period under the Capped Call Transactions, the number of shares of common stock and/or the amount of cash the Company expects to receive upon exercise of the Capped Call Transactions will be capped based on the amount by which the cap price exceeds the strike price of the Capped Call Transactions.

For any conversions of 2.25% Senior Notes prior to the close of business on the 55th scheduled trading day immediately preceding the stated maturity date of the 2.25% Senior Notes, including without limitation upon an acquisition of the Company or similar business combination, a corresponding portion of the Capped Call Transactions will be terminated. Upon such termination, the portion of the Capped Call Transactions being terminated will be settled at fair value (subject to certain limitations), as determined by Bank of America, N.A., in its capacity as calculation agent under the Capped Call Transactions, which the Company expects to receive from Bank of America, N.A., and no payments will be due Bank of America, N.A. The capped call expires on December 13, 2018.

In connection with the Company’s repurchase of approximately $68 million aggregate principal amount of outstanding 2.25% Senior Notes in April 2017, the Company and Bank of America, N.A. unwound the portion of the Capped Call Transactions relating to the repurchased 2.25% Senior Notes. These Capped Call Transactions were originally classified in stockholders’ equity and continued to meet the criteria for classification thereof while outstanding, and therefore were not subsequently measured at fair value. The Company did not pay or receive any compensation related to the unwind of the Capped Call Transactions. Therefore, the Company accounted for the unwind of the Capped Call Transactions by removing these options at their carrying value in additional paid-in capital and recording an offsetting entry to additional paid-in capital. As a result, the Company did not recognize any gain or loss, and the unwind had no net impact on additional paid-in capital.

3.25% Convertible Senior Notes due 2020

On November 2, 2015, the Company issued $125.0 million aggregate principal amount of 3.25% Senior Convertible Notes due 2020 (the “ 3.25% Senior Notes”). The 3.25% Senior Notes are governed by the Base Indenture, as amended and supplemented by the second supplemental indenture relating to the 3.25% Senior Notes (the “Second Supplemental Indenture,” and together with the Base Indenture, the “ 3.25% Senior Notes Indenture”), dated as of November 2, 2015, by and between the Company and the Trustee.

The 3.25% Senior Notes are senior unsecured obligations and are: senior in right of payment to the Company’s future indebtedness that is expressly subordinated in right of payment to the 3.25% Senior Notes; equal in right of payment to the Company’s existing and future unsecured indebtedness that is not so subordinated, including the 2.25% Senior Notes; effectively junior to any of the Company’s secured indebtedness to the extent of the value of the assets securing such

ENDOLOGIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(all tabular amounts presented in thousands, except per share, per unit, and number of years)

indebtedness; and structurally junior to all existing and future indebtedness (including trade payables) incurred by the Company’s subsidiaries.

The 3.25% Senior Notes accrue interest at a rate of 3.25% per year, payable semi-annually in arrears on May 1 and November 1 of each year, commencing May 1, 2016. The 3.25% Senior Notes mature on November 1, 2020, unless earlier purchased, redeemed or converted into shares of common stock in accordance with the terms of the 3.25% Senior Notes Indenture.

The Company may not redeem the 3.25% Senior Notes prior to November 1, 2018. On or after November 1, 2018, the Company may redeem for cash all or any portion of the 3.25% Senior Notes, at its option, but only if the closing sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the second trading day immediately preceding the date on which the Company provides notice of redemption, exceeds 130% of the conversion price on each applicable trading day. The redemption date can be no sooner than 30 trading days from the date on which notice of redemption is provided to the holders, during which time, up until two trading days prior to the redemption, the holders may elect to convert all or a portion of the 3.25% Senior Notes into shares of the Company’s common stock. The redemption price will equal 100% of the principal amount of the 3.25% Senior Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the 3.25% Senior Notes.

The 3.25% Senior Notes are convertible at the option of the holders: (1) in the calendar quarter following any quarter in which, for at least 20 out of the 30 consecutive trading days (whether or not consecutive) ending on the last day of the quarter, the closing price of the Company’s common stock is more than 130% of the then-current conversion price of the 3.25% Senior Notes; (2) in the five business days following any five day period in which the trading price per $1,000 note was less than 98% of the product of the closing sale price of the Company’s common stock and the current conversion rate; (3) in the event that the Company has provided notice of redemption, but no later than two trading days prior to Company’s proposed redemption date; or (4) upon the occurrence of specified corporate events. On or after August 1, 2020 until the close of business on the second scheduled trading day immediately preceding the stated maturity date, holders may surrender their 3.25% Senior Notes for conversion at any time, regardless of the foregoing circumstances.

The initial conversion rate of the 3.25% Senior Notes is 89.4314 shares of the Company’s common stock per $1,000 principal amount of the 3.25% Senior Notes, which is equivalent to an initial conversion price of approximately $11.18 per share. The conversion rate is subject to adjustment upon the occurrence of certain specified events. Upon conversion, the Company will at its election pay or deliver, as the case may be, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock.

If a fundamental change (as defined in the 3.25% Senior Notes Indenture) occurs prior to the stated maturity date, holders may require the Company to purchase for cash all or any portion of their 3.25% Senior Notes at a fundamental change purchase price equal to 100% of the principal amount of the 3.25% Senior Notes to be purchased, plus accrued and unpaid interest.

The 3.25% Senior Notes Indenture contains customary terms and covenants and events of default with respect to the 3.25% Senior Notes. If an event of default (as defined in the 3.25% Senior Notes Indenture) occurs and is continuing, either the Trustee or the holders of at least 25% in aggregate principal amount of the outstanding 3.25% Senior Notes may declare the principal amount of the 3.25% Senior Notes to be due and payable immediately by notice to the Company (with a copy to the Trustee). If an event of default arising out of certain events of bankruptcy, insolvency or reorganization involving the Company or a significant subsidiary (as set forth in the 3.25% Senior Notes Indenture) occurs with respect to us, the principal amount of the 3.25% Senior Notes and accrued and unpaid interest, if any, will automatically become immediately due and payable.

Upon issuance and through December 31, 2015, the Company was not required to separate the conversion option from the 3.25% Senior Notes under ASC 815, "Derivatives and Hedging". However, because the Company has the ability to settle the 3.25% Senior Notes in cash, common stock or a combination of cash and common stock, the Company applied the cash conversion guidance contained in ASC 470-20, "Debt With Conversion and other Options", and accounted for the 3.25% Senior Notes by allocating the issuance proceeds between the liability-classified debt component and a separate equity component attributable to the conversion option. The equity component is classified in stockholders’ equity and the resulting discount on the liability component is accreted such that interest expense equals the Company’s borrowing rate for nonconvertible loan products of similar duration. The separation was performed by first determining the fair value of a similar debt that does not have an associated equity component. That amount was then deducted from the initial proceeds of the 3.25% Senior Notes as a whole to arrive at a residual amount, which was allocated to the conversion feature that is classified as equity. The initial fair value of the indebtedness was $97.8 million resulting in a $27.2 million allocation to the embedded conversion option. The embedded conversion option was recorded in stockholders’ equity and as a debt discount, to be subsequently accreted to interest

ENDOLOGIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(all tabular amounts presented in thousands, except per share, per unit, and number of years)

expense over the term of the 3.25% Senior Notes. Underwriting discounts and commissions and offering expenses totaled $3.7 million and were allocated between the liability and the equity component in proportion to the allocation of proceeds and accounted for as debt issuance costs and equity issuance costs, respectively. As a result, $2.9 million attributable to the indebtedness was recorded as deferred financing costs in other assets, to be subsequently amortized as interest expense over the term of the 3.25% Senior Notes, and $0.8 million attributable to the equity component was recorded as a reduction to additional paid-in-capital in stockholders’ equity. During the three months ended March 31, 2016, the company adopted ASU 2015-03, "Simplifying the Presentation of Debt Issuance Costs", utilizing retrospective application as permitted. As a result, the Company reclassified $2.9 million of debt issuance costs from current and non-current other assets to reduce the 3.25% Senior Notes as of December 31, 2015.

As of December 31, 2017 , the Company had outstanding borrowings of $108.1 million , and deferred financing costs of $1.8 million , related to the 3.25% Senior Notes. There are no principal payments due during the term. Annual interest expense on these 3.25% Senior Notes will range from $9.1 million to $10.7 million through maturity.

In connection with its merger with TriVascular in February 2016, the Company issued 13.6 million shares of common stock as consideration to the former stockholders. As a result of the Company's issuance of such shares in the merger, the quantity of authorized common shares available for future issuance was reduced to a level insufficient to honor all of the potential common shares underlying instruments then outstanding. Such instruments include the conversion options related to the 3.25% Senior Notes and 2.25% Senior Notes, employee stock options, restricted stock units, contingently issuable common stock relating to the prior Nellix acquisition, and stock warrants. The creation of this authorized share deficiency in February 2016 required the Company, during the first quarter of 2016, to separate as a stand-alone derivative the 3.25% Senior Notes conversion option and a portion of the 2.25% Senior Notes conversion option for which no authorized shares are available to effect share settlement in the event of a conversion. Accordingly, in February 2016 the Company re-classed $24.8 million of the conversion features originally recorded in stockholder’s equity of the Senior Notes to derivative liabilities which will be marked to market each period until the Company authorizes sufficient new common shares to alleviate the deficiency.

On June 2, 2016, the Company amended their Amended and Restated Certificate of Incorporation to increase the number of authorized shares of common stock from 100,000,000 to 135,000,000 , which is currently at a level sufficient to alleviate the share deficiency. Accordingly, on June 2, 2016, the Company re-classed $68.6 million of the conversion features of the Senior Notes from derivative liabilities to additional paid-in capital.

For the year ended December 31, 2016 , the Company recorded $43.8 million as a fair value adjustment of derivative liabilities. The primary factor causing the change in the fair value of the derivative liability was during the period February 3, 2016 through June 2, 2016 when the Company's stock price increased. Adjustments to the fair value of the derivative liabilities are recognized within other income (expense) in the Consolidated Statements of Operations and Comprehensive Loss.

The value of the derivative liabilities were estimated using a “with” and “without” approach utilizing observable and unobservable inputs causing this to be a Level 3 measurement. In the “with” scenario, the value of the Senior Notes were estimated in a binomial lattice model that considers all terms of the Senior Notes, including the conversion features, with a range of probabilities and assumptions related to the timing and likelihood of the conversion features being exercised by either the Company or the holders of the Senior Notes. In the “without” scenario the value of the Senior Notes absent the conversion options were estimated. The difference between the values estimated in the “with” and “without” scenarios represents the value of the derivative liabilities. Changes in the value of the derivative liabilities were driven by changes in the Company’s stock price, expected volatility, credit spreads, and market yields.

Bank of America Line of Credit

On July 21, 2015, the Company entered into a revolving credit facility with Bank of America, N.A. (“BOA”), whereby the Company could borrow up to $20.0 million (the “BOA Credit Facility”). All amounts owing under the BOA Credit Facility would become due and payable upon its expiration on July 21, 2017. A sub-feature in the line of credit allowed for the issuance of up to $10.0 million in letters of credit. The BOA Credit Facility was collateralized by all of the Company's assets, except its intellectual property. The BOA Credit Facility could be terminated at any time during the two year term by the Company upon three business days’ notice. The BOA Credit Facility usage was priced at a spread over the one-, two-, three- and six-month LIBOR rates, and was subject to a covenant related to timely providing publicly reported information and a liquidity covenant tied to Unencumbered Liquid Assets ("ULA") of not less than $30.0 million . If not in default, the Company had the ability to reduce the ULA covenant requirement by reducing the BOA Credit Facility, with the ULA maintained at 1.5 times the BOA Credit Facility.

ENDOLOGIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(all tabular amounts presented in thousands, except per share, per unit, and number of years)

The Company terminated the BOA Credit Facility on July 29, 2016 concurrent with its entry into a credit and security agreement with MidCap.

MidCap Credit Facility

On July 29, 2016, the Company entered into a credit and security agreement with MidCap Financial Trust ("MidCap"), as agent for the lenders party thereto and as a lender, whereby the Company may borrow up to the lesser of $50.0 million or its applicable borrowing base of asset-based revolving loans (the “MidCap Credit Facility”). All amounts owing under the MidCap Credit Facility shall accrue interest at a rate equal to the LIBOR Rate plus four and one tenth percent ( 4.10% ). For purposes of the MidCap Credit Facility, LIBOR Rate means a per annum rate of interest equal to the greater of (a) one half of one percent ( 0.50% ) and (b) the rate determined by MidCap by dividing (i) the Base LIBOR Rate, meaning the base London interbank offer rate for the applicable interest period, by (ii) the sum of one minus the daily average during such interest period of the aggregate maximum reserve requirement then imposed under Regulation D of the Board of Governors of the Federal Reserve System for Eurocurrency Liabilities (as defined therein).

The MidCap Credit Facility was secured by substantially all of the Company's assets, excluding its intellectual property (“Collateral”), and placed customary limitations on indebtedness, liens, distributions, acquisitions, investments, and other activities of the Company in a manner designed to protect the Collateral.

Deferred financing costs directly related to the MidCap Credit Facility such as legal, origination, and professional services fees totaled $0.9 million . In conjunction with the Company’s adoption of ASU 2015-03 “Simplifying the Presentation of Debt Issuance Costs” during the first quarter of 2016, the Company also adopted an update thereof or ASU 2015-15 “Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of Credit Arrangements.” As a result, $0.9 million attributable to the MidCap Credit Facility was recorded as deferred financing costs in other assets, to be subsequently amortized as interest expense over the term of the MidCap Credit Facility. The MidCap Credit Facility also contained a lockbox arrangement clause requiring the Company to maintain a lockbox bank account in favor of the MidCap Credit Facility; Company cash receipts remitted to the lockbox bank account were swept on a regular basis to reduce outstanding borrowings related to the MidCap Credit Facility.

In conjunction with the Company’s termination of the BOA Credit Facility and concurrent entry into a credit and security agreement with MidCap in July 2016, the Company entered into a corporate credit card agreement whereby the Company is required to maintain a $2.0 million deposit in favor of the credit card issuer. The deposit account related to these credit cards will be presented as restricted cash on the Company’s Consolidated Balance Sheets.

On April 3, 2017, the Company replaced the MidCap Credit Facility with a new revolving line of credit with Deerfield ELGX Revolver, LLC. As a result, the Company wrote off approximately $0.8 million in deferred financing costs and was required to pay a $2.5 million termination fee to Midcap; the foregoing were charged to loss on debt extinguishment on the Company’s Consolidated Statements of Operations and Comprehensive Loss.

Deerfield Facility Agreement

On April 3, 2017 (“the Agreement Date”), the Company entered into a Facility Agreement (the “Facility Agreement”) with affiliates of Deerfield Management Company, L.P. (collectively, “Deerfield”), pursuant to which Deerfield agreed to loan to the Company up to $120.0 million , subject to the terms and conditions set forth in the Facility Agreement (the “Term Loan”). The Company drew the entire principal amount of the Term Loan on the Agreement Date. The Company agreed to pay Deerfield a yield enhancement fee equal to 2.25% of the principal amount of the funds disbursed on the Agreement Date. The Company also agreed to reimburse Deerfield for all reasonable out-of-pocket expenses incurred by Deerfield in connection with the negotiation and documentation of the Facility Agreement up to a capped amount. Accordingly, deferred financing costs of $5.1 million was recorded on the Company’s Consolidated Balance Sheets as a direct reduction of the Term Loan, to be subsequently amortized as interest expense over the effective period of the Term Loan. Concurrently with entering into the Facility Agreement, the Company entered into a Guaranty and Security Agreement with Deerfield (the “Security Agreement”), pursuant to which, as security for the repayment of the Company’s obligations under the Facility Agreement, the Company granted to Deerfield a first priority security interest in substantially all of the Company’s assets including intellectual property, with the priority of such security interest being pari passu with the security interest granted pursuant to the Facility Agreement.

ENDOLOGIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(all tabular amounts presented in thousands, except per share, per unit, and number of years)

Any amounts drawn under the Facility Agreement accrue interest at a rate of 6.87% per annum, payable quarterly in arrears beginning on July 1, 2017 and on the first business day of each calendar quarter thereafter and on the Maturity Date, unless repaid earlier. The Company will be required to pay Deerfield on each of April 2, 2021, April 2, 2022 and April 2, 2023 (the “Maturity Date”), an amortization payment equal to $40 million (or, if on the Maturity Date, the remaining outstanding principal amount of the Term Loan).

Upon a change of control of the Company, if the acquirer satisfies certain conditions set forth in the Facility Agreement, such acquirer may assume the outstanding principal amount under the Facility Agreement without penalty. If such acquirer does not satisfy the conditions set forth in the Facility Agreement, Deerfield may, at its option, require the Company to repay the outstanding principal balance under the Facility Agreement plus, depending on the timing of the change of control transaction, the Company may be required to pay a make-whole premium and will be required to pay a change of control fee.

At any time on or after the fourth anniversary of the Agreement Date, the Company has the right to prepay any amounts owed under the Facility Agreement without premium or penalty, unless such prepayment occurs in connection with a change of control of the Company, in which case the Company must pay Deerfield a change of control fee unless such change of control occurs beyond a certain period after the Maturity Date. At any time prior to the fourth anniversary of the Agreement Date, any prepayment made by the Company will be subject to a make-whole premium and, if such prepayment occurs in connection with a change of control of the Company, a change of control fee.

Any amounts drawn under the Facility Agreement may become immediately due and payable upon customary events of default, as defined in the Facility Agreement, or the consummation of certain change of control transactions, as described above.

The Facility Agreement contains various representations and warranties, events of default, and affirmative and negative covenants, customary for financings of this type, including reporting requirements, requirements that the Company maintain timely reporting with the SEC and restrictions on the ability of the Company and its subsidiaries to incur additional liens on their assets, incur additional indebtedness and acquire and dispose of assets outside the ordinary course of business.

As of December 31, 2017 , the Company had outstanding borrowings of $106.5 million , and deferred financing costs of $4.5 million , related to the Term Loan. Annual interest expense on these notes will range from $1.5 million to $12.7 million through maturity.

Warrants

In connection with the execution of the Facility Agreement, the Company issued to Deerfield warrants to purchase an aggregate of 6,470,000 shares of common stock of the Company at an exercise price of $9.23 per share (the “Deerfield Warrants”). The number of shares of common stock of the Company into which the Warrants are exercisable and the exercise price of the Warrants will be adjusted to reflect any stock splits, recapitalizations or similar adjustments in the number of outstanding shares of common stock of the Company.

The Warrants expire on the seven th anniversary of the Agreement Date. Subject to certain exceptions, the Warrants contain limitations such that the Company may not issue shares of common stock of the Company to Deerfield upon the exercise of the Warrants if such issuance would result in Deerfield beneficially owning in excess of 4.985% of the total number of shares of common stock of the Company then issued and outstanding.

The holders of the Warrants may exercise the Warrants for cash, on a cashless basis or through a reduction of an amount of principal outstanding under the Term Loan. In connection with certain major transactions, the holders may have the option to convert the Warrants, in whole or in part, into the right to receive the transaction consideration payable upon consummation of such major transaction in respect of a number of shares of common stock of the Company equal to the Black-Scholes value of the Warrants, as defined therein, and in the case of other major transactions, the holders may have the right to exercise the Warrants, in whole or in part, for a number of shares of common stock of the Company equal to the Black-Scholes value of the Warrants.

The Company measured the initial fair value of the 6,470,000 shares underlying the Deerfield Warrants at $14.3 million , net of issuance costs of $0.4 million , and recorded the amount in additional paid-in-capital and as a direct reduction of the Term Loan, to be subsequently amortized as interest expense over the effective period of the Term Loan.

ENDOLOGIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(all tabular amounts presented in thousands, except per share, per unit, and number of years)

Registration Rights Agreement

In connection with the Term Loan and the issuance of the Warrants, the Company entered into a Registration Rights Agreement with Deerfield (the “Registration Rights Agreement”). Pursuant to the terms of the Registration Rights Agreement, the Company agreed to file a registration statement on Form S-3 with the SEC on or prior to the 30th day following the Agreement Date, to register for resale the shares of common stock of the Company issuable upon the exercise of the Warrants. The registration statement was filed on Form S-3 on May 2, 2017.

Credit and Security Agreement

On April 3, 2017, the Company entered into a Credit and Security Agreement (the “Credit Agreement”) with Deerfield ELGX Revolver, LLC (“Deerfield Revolver”), pursuant to which the Company could borrow up to the lesser of $50 million or its applicable borrowing base from time to time prior to March 31, 2020 (the “Revolver”). Any outstanding principal under the Revolver will accrue interest at a rate equal to 3-month LIBOR (with a 1% floor) plus 4.60% , payable monthly in arrears on the first business day of the immediately succeeding calendar month and on the maturity date. The Company is subject to other fees in addition to interest on the outstanding principal amount under the Revolver, including in connection with an early termination of the Revolver.

As described above, the Revolver replaces the Company’s $50.0 million asset-based revolving line of credit with MidCap Financial Trust. In conjunction with the Company’s adoption of ASU 2015-03 “Simplifying the Presentation of Debt Issuance Costs” during the first quarter of 2016, the Company also adopted an update thereof or ASU 2015-15 “Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of Credit Arrangements.” As a result, the Company recorded $1.2 million in deferred financing costs related to the Revolver and presents these costs as a deferred asset, to be subsequently amortized as interest expense over the term of the Revolver, on the Company’s Consolidated Balance Sheets. The Company’s obligations under the Credit Agreement are secured by a first priority security interest in substantially all of the Company’s assets including intellectual property, with the priority of such security interest being pari passu with the security interest granted pursuant to the Term Loan. As of December 31, 2017, the Company had outstanding borrowings of $21 thousand under, and deferred financing costs of $1.0 million related to, the Revolver.

In conjunction with the Company’s entry into the Credit Agreement, the Company entered into a corporate credit card agreement whereby the Company is required to maintain a $2.0 million deposit in favor of the credit card issuer. The deposit account related to these credit cards will be presented as restricted cash on the Company’s Consolidated Balance Sheets.

As of December 31, 2017 , the Company was not in compliance with the required minimum net revenue threshold set forth in the Credit Agreement. On January 5, 2018, the Company delivered a notice of termination to Deerfield for the Deerfield Revolver under the Credit and Security Agreement (the “Credit Agreement”), dated as of April 3, 2017. The termination of the Deerfield Revolver was effective on January 12, 2018 (the “Termination Date”) and required the Company to pay $1.3 million in termination fees.

7. Revenue by Geographic Region

The Company's revenue by geographic region was as follows:



	Year Ended December 31,
	2017		2016		2015
United States	$123,209	68.0%	$136,111	70.6%	$107,228	69.8%
Total International	57,948	32.0%	56,814	29.4%	46,384	30.2%
Revenue	$181,157	100%	$192,925	100%	$153,612	100%

8. Commitments and Contingencies

(a) Leases

The Company leases its administrative, research, and manufacturing facilities located in Irvine and Santa Rosa, California and an administrative office located in Rosmalen, The Netherlands. These facility lease agreements require the Company to pay

ENDOLOGIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(all tabular amounts presented in thousands, except per share, per unit, and number of years)

operating costs, including property taxes, insurance, and maintenance. In addition, the Company has certain equipment and automobile under long-term agreements that are accounted for as operating leases.

Future minimum payments by year under non-cancelable leases with initial terms in excess of one year were as follows as of December 31, 2017 :



2018	$	3,450
2019	3,567
2020	3,735
2021	3,692
2022	3,800
2023 and thereafter	18,021
Total	$	36,265

Facilities rent expense in 2017, 2016 and 2015 was $3.4 million , $3.3 million , and $2.3 million , respectively.

On June 12, 2013, the Company entered into a lease agreement for two adjacent office, research and development, and manufacturing facilities in Irvine, California. The premises consist of approximately 129,000 combined square feet. The lease has a 15 -year term beginning January 1, 2014 and provides for one optional 5 year extension. The initial base rent under the lease is $1.9 million per year, payable in monthly installments, and escalates by 3% per year for years 2015 through 2019, and 4% per year for years 2020 and beyond. The Company received a rent abatement for the first nine months of the lease. These premises replaced the Company's previous Irvine facilities. The terms of this lease agreement provide for $6.8 million of landlord-funded improvements (and certain other allowances) to this facility, in order to best suit the Company's requirements.

The Company's Rosmalen facility is an administrative office of approximately 2,900 square feet and in August 2015, the Company extended the lease term for the Rosmalen facility until December 2020.

In conjunction with the TriVascular merger, the Company assumed the lease for TriVascular's facility in Santa Rosa, California. The facility is being used for manufacturing, research & development, and administrative purposes and consists of 110,000 square feet under an operating lease scheduled to expire in February 2023, which may be renewed for an additional five years.

(b) Employment Agreements and Retention Plan

On February 1, 2014, the Company entered into new employment agreements with certain of its executive officers under which payment and benefits would become payable in the event of termination by the Company for any reason other than cause, death or disability or termination by the employee for good reason (collectively, an “Involuntary Termination”) prior to, upon or following a change in control of the Company. The severance payment will generally be in a range of six to eighteen months of the employee’s then current salary for an Involuntary Termination prior to a change in control of the Company, and will generally be in a range of eighteen to twenty-four months of the employee’s then current salary for an Involuntary Termination upon or following a change in control of the Company.

We are from time to time involved in various claims and legal proceedings of a nature we believe is normal and incidental to a medical device business. These matters may include product liability, intellectual property, employment, and other general claims. Such cases and claims may raise complex factual and legal issues and are subject to many uncertainties, including, but not limited to, the facts and circumstances of each particular case or claim, the jurisdiction in which each suit is brought, and differences in applicable law. We accrue for contingent liabilities when it is probable that a liability has been incurred and the amount can be reasonably estimated. The accruals are adjusted periodically as assessments change or as additional information becomes available.

LifePort Sciences LLC v. Endologix, Inc.

On December 28, 2012, LifePort Sciences, LLC (“LifePort”) filed a complaint against the Company in the United States District Court, District of Delaware, alleging that certain of the Company's products infringe United States Patent Nos. 5,489,295, 5,676,696, 5,993,481, 6,117,167, 6,302,906, and 8,192,482, which were alleged to be owned by LifePort. On March 17, 2016, the Company entered into a Settlement and Patent License Agreement with LifePort (the “Settlement Agreement”) whereby LifePort granted the Company license rights to patents in exchange for a settlement of $4.7 million . The Settlement

ENDOLOGIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(all tabular amounts presented in thousands, except per share, per unit, and number of years)

Agreement resolves this litigation and fully and finally releases the Company and LifePort from any claims arising out of or in connection with the litigation or the subject patents. The Settlement Agreement also contained a covenant not to sue for other patents owned by LifePort. However, since the subject patents were all expired and the Company was not currently using and has no plans to use the other patents owned by LifePort in products that could reach technological feasibility during the covenant not to sue period, there is no alternative future use and the full amount was recorded as settlement costs in the accompanying Consolidated Statements of Operations and Comprehensive Loss.

Steven M. Ortiz v. Endologix, Inc.

On September 9, 2016, former employee Steven M. Ortiz filed a class action lawsuit against the Company in Orange County Superior Court, claiming the Company’s failure to pay all overtime wages owing; failure to provide meal periods and failure to pay meal period premiums; failure to pay all wages owed at time of termination seeking waiting time penalties under Labor Code section 203; failure to provide accurate wage statements; and violations of Business and Professions Code section 17200 and alleging claims for penalties under the Private Attorneys General Act of 2004. While the Company contests the allegations asserted in the litigation, a mediation was held on February 24, 2017 at which time the parties agreed to settle the case for $750,000. The court has given final approval to the settlement agreement and the settlement funds have been deposited with the class administrator. It is anticipated that the court will enter final judgment in this case in March 2018, which will officially conclude this litigation .

Stockholder Securities Litigation

In January 2017, two stockholders purporting to represent a class of persons who purchased the Company’s securities between August 2, 2016 and November 16, 2016, filed lawsuits against the Company and certain of its officers in the United States District Court for the Central District of California. The lawsuits allege that the Company made materially false and misleading statements and failed to disclose material adverse facts about its business, operational and financial performance, in violation of federal securities laws, relating to U.S. Food and Drug Administration Premarket Approval for the Company’s Nellix EVAS System. On May 26, 2017, the plaintiffs filed an amended complaint extending the class period to include persons who purchased the Company’s securities between May 5, 2016 and May 18, 2017 and adding certain factual assertions and allegations regarding the Nellix EVAS System. The plaintiffs sought unspecified monetary damages on behalf of the alleged class, interest, and attorney’s fees and costs of litigation. The first lawsuit, Nguyen v. Endologix, Inc. et al., Case No. 2:17-cv-0017 AB (PLAx) (C.D. Cal.), was consolidated with the second lawsuit, Ahmed v. Endologix, Inc. et al, Case No. 8:17-cv-00061 AB (PLAx) (C.D. Cal.), and lead Nguyen plaintiff filed a consolidated First Amended Complaint. On December 5, 2017, the District Court granted Endologix’s motion to dismiss lead plaintiff’s First Amended Complaint, with leave to amend. On January 9, 2018, lead plaintiff filed a Second Amended Complaint. The Company believes these lawsuits are without merit and intends to defend itself vigorously.

Stockholder Derivative Litigation

SEC Investigation

In July 2017, the Company learned that the SEC issued a Formal Order of Investigation to investigate, among other things, events surrounding the Nellix EVAS System and the prospect of its FDA pre-market approval. The Company is fully cooperating with the investigation, but cannot predict its outcome or the timing of the investigation’s conclusion.

ENDOLOGIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(all tabular amounts presented in thousands, except per share, per unit, and number of years)

(d) Contract Termination

In the year ended December 31, 2016 , the Company sent notices of termination to certain of its distributors providing for the termination of the respective distribution agreements. In accordance with ASC No. 420 “Exit or Disposal Cost Obligations”, the Company expensed distributor termination costs in the period in which the written notification of termination occurred. As a result, the Company incurred termination costs of $2.5 million for the year ended December 31, 2016 . Such termination costs were included in contract termination and business acquisition expenses for the year ended December 31, 2016 .

9. Contingently Issuable Common Stock

On October 27, 2010, the Company, entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with Nepal Acquisition Corporation, a wholly-owned subsidiary of the Company (“Merger Sub”), Nellix, Inc., certain of Nellix’s stockholders named therein and Essex Woodlands Health Ventures, Inc., as representative of the former Nellix stockholders. On December 10, 2010 (the “Nellix Closing Date”), the Company completed its acquisition of Nellix, Inc., a pre-revenue, AAA medical device company. The purchase price consisted of 3.2 million of the Company's common shares, issuable to the former Nellix stockholders as of the Nellix Closing Date, then representing a value of $ 19.4 million . Additional payments, solely in the form of the Company's common shares (the “Contingent Payment”), will be made upon the achievement of a revenue milestone and a regulatory approval milestone (collectively, the “Nellix Milestones”).

Under the Merger Agreement, the ultimate value of the Contingent Payment would be determined on the date that each Nellix Milestone is achieved. The number of issuable shares would be established using an applicable per share price, which is subject to a ceiling and/or floor, resulting at the closing of the merger in a potential in a maximum of 10.2 million shares issuable upon the achievement of the Nellix Milestones. As of the Closing Date, the fair value of the Contingent Payment was estimated to be $ 28.2 million .

The Merger Agreement provides that, in addition to the shares of common stock of the Company (the “Common Stock”) issued to the former Nellix stockholders at the closing of the Merger, if the Company receives approval from the FDA to sell the Nellix Product in the United States (the “PMA Milestone”), the Company will issue additional shares of the Common Stock to the former stockholders of Nellix. The dollar value of the shares of the Common Stock to be issued upon achievement of the PMA Milestone will be equal to $15.0 million (less the dollar value of certain cash payments and other deductions). The price per share of the shares of the Common Stock to be issued upon achievement of the PMA Milestone is subject to a stock price floor of $4.50 per share, but not subject to a stock price ceiling.

At December 31, 2017 , the Company's stock price closed at $5.35 per share. Thus, had the PMA Milestone been achieved on December 31, 2017 , the Contingent Payment would have comprised 2.9 million shares (based on the 30-day average closing stock price ending 5 days prior to the announcement, subjected to the stock price floor of $4.50 ), representing a value of $15.2 million .

The value of the Contingent Payment is derived using a discounted income approach model, with a range of probabilities and assumptions related to the timing and likelihood of achievement of the PMA Milestone (which include Level 3 inputs - see Note 3(e) and the Company's stock price (Level 1 input) as of the balance sheet date). These varying probabilities and assumptions and changes in the Company's stock price have required fair value adjustments of the Contingent Payment in periods subsequent to the Nellix Closing Date.

The Contingent Payment fair value will continue to be evaluated on a quarterly basis until milestone achievement occurs, or until the expiration of the "earn-out period," as defined within the Nellix purchase agreement. Adjustments to the fair value of the Contingent Payment are recognized within other income (expense) in the Consolidated Statements of Operations and Comprehensive Loss.



	Fair Value of Contingently Issuable Common Stock
December 31, 2016	$	12,200
Fair value adjustment of Contingent Payment for year ended December 31, 2017	(2,900		)
December 31, 2017	$	9,300

ENDOLOGIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(all tabular amounts presented in thousands, except per share, per unit, and number of years)

As of December 31, 2017 , $9.3 million was presented in non-current liabilities due to the expected achievement of the PMA milestone in the fourth quarter of 2020.

10. Income Tax Expense

Net loss before income tax benefit attributable to United States and international operations, consists of the following:



	Year Ended December 31,
	2017			2016			2015
United States	$	(56,178	)	$	(135,925	)	$	(44,114	)
Foreign	(10,681		)	(18,254		)	(15,647		)
Net loss before income tax	$	(66,859	)	$	(154,179	)	$	(59,761	)

Income tax (benefit) expense consists of the following:



	Year Ended December 31,
	2017			2016			2015
Current:
Federal	$	(102	)	$	(50	)	$	50
State	102			90			100
Foreign	237			458			148
Total current	$	237		$	498		$	298
Deferred:
Federal	$	(699	)	$	—		$	(8,621	)
State	—			—			(1,008		)
Foreign	3			—			(6		)
Total deferred	$	(696	)	$	—		$	(9,635	)
Total:
Federal	$	(801	)	$	(50	)	$	(8,571	)
State	102			90			(908		)
Foreign	240			458			142
Income tax expense (benefit)	$	(459	)	$	498		$	(9,337	)

ENDOLOGIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(all tabular amounts presented in thousands, except per share, per unit, and number of years)

Income tax benefit was computed by applying the United States federal statutory rate of 34% to net loss before taxes as follows:



	Year Ended December 31,
	2017			2016			2015
Income tax benefit at federal statutory rate	$	(22,732	)	$	(52,418	)	$	(20,315	)
State income tax benefit, net of federal benefit	(1,114		)	(2,323		)	(937		)
Meals and entertainment	454			445			328
Research and development credits	(913		)	(2,041		)	(1,756		)
Stock-based compensation	3,203			2,604			1,633
Derivative loss	—			14,903			—
Contingent consideration	(986		)	(850		)	34
Foreign tax rate differential	692			1,394			1,013
Net change in valuation allowance	(24,976		)	35,678			10,052
Return to provision true-up	5,719			1,981			583
Unrecognized tax benefits	457			971			928
Federal tax rate change	39,807			—			—
Other, net	(70		)	154			(900		)
Income tax benefit	$	(459	)	$	498		$	(9,337	)

Significant components of the Company’s deferred tax assets and (liabilities) are as follows:



	Year Ended December 31,
	2017			2016
Deferred tax assets:
Net operating loss carryforwards	$	101,423		$	124,881
Accrued expenses	5,617			6,582
Tax credits	11,826			11,314
Bad debt	78			91
Inventory	2,160			4,424
Capitalized research and development	16,079			21,374
Deferred compensation	2,535			3,596
Other	1,099			964
Deferred tax asset	140,817			173,226
Valuation allowance	(118,551		)	(133,784		)
Total deferred tax assets	22,266			39,442
Deferred tax liabilities:
Developed technology and trademark	(9,033		)	(14,218		)
Trademarks and tradenames	(733		)	(1,027		)
Depreciation and amortization	(8,961		)	(15,316		)
Convertible debt	(3,740		)	(9,760		)
Other	—			—
Total deferred tax liabilities	(22,467		)	(40,321		)
Net deferred tax liability	$	(201	)	$	(879	)

The Company has evaluated the available evidence supporting the realization of its gross deferred tax assets, including the amount and timing of future taxable income, and has determined that it is more likely than not that the domestic and foreign

ENDOLOGIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(all tabular amounts presented in thousands, except per share, per unit, and number of years)

deferred tax assets will not be realized. Due to such uncertainties surrounding the realization of the domestic and foreign deferred tax assets, the Company maintains a valuation allowance of $118.6 million against a substantial portion of its deferred tax assets as of December 31, 2017 . For the year ended December 31, 2017 , the total change in valuation allowance was $(15.2) million , of which $(25.0) million was recorded as a tax benefit through the income statement and $9.8 million was recorded to equity mainly in connection with the Company's adoption of ASU 2016-09. Realization of the deferred tax assets will be primarily dependent upon the Company's ability to generate sufficient taxable income prior to the expiration of its net operating losses.

At December 31, 2017 , the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $314.0 million and $173.0 million , respectively.

Federal and state net operating loss carryforwards began expiring in 2017 and will continue to expire through 2037. The majority of the state net operating losses are attributable to California. In addition, the Company had research and development credits for federal and state income tax purposes of approximately $9.4 million and $14.3 million , respectively, which will begin to expire in 2020. The California research and development credits do not expire.

Under Section 382 of the Internal Revenue Code of 1986, as amended (“IRC”), substantial changes in our ownership may limit the amount of net operating loss and research and development income tax credit carryforwards that could be utilized annually in the future to offset taxable income. Specifically, this limitation may arise in the event of a cumulative change in ownership of our company of more than 50% within a three-year period. Any such annual limitation may significantly reduce the utilization of the net operating loss carryforwards before they expire.

Since the Company's formation, the Company has raised capital through the issuance of capital stock on several occasions which, combined with the purchasing stockholders' subsequent disposition of those shares, may have resulted in such an ownership change, or could result in an ownership change in the future upon subsequent disposition. The Company intends to complete a study in the future to assess whether an ownership change has occurred or whether there have been multiple ownership changes since the Company's formation.

The Company completed an analysis under IRC Sections 382 and 383 to determine if the acquired TriVascular Technologies, Inc.'s net operating loss carryforwards and research and development credits are limited due to a change in ownership. The Company concluded that TriVascular Technologies, Inc. had an ownership change as of February 3, 2016. As a result of the ownership change, the Company reduced the acquired federal and state net operating loss carryforwards by $230.3 million and $209.4 million , respectively, and federal research and development credits by $3.1 million .

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits (in thousands):



	Year Ended December 31, 2017			Year Ended December 31, 2016
Balance at January 1, 2017	$	11,754		$	8,928
Additions for tax positions related to prior periods	—			1,654
Decreases related to prior year tax positions	(160		)	(95		)
Lapse of statute of limitations	—			—
Additions for tax positions related to current period	613			1,267
Balance at December 31, 2017	$	12,207		$	11,754

Our unrecognized gross tax benefits presented above would not reduce our annual effective tax rate if recognized because we have recorded a full valuation allowance on the deferred tax assets. We do not foresee any material changes to our gross unrecognized tax benefit within the next twelve months. We recognize interests and/or penalties related to income tax matters in income tax expense. We did not recognize any accrued interest and penalties related to gross unrecognized tax benefits related to the year ended December 31, 2017 .

The undistributed earnings of the Company's foreign subsidiaries are considered to be indefinitely reinvested. Accordingly, no provision for U.S. federal and state income taxes or foreign withholding taxes have been provided on such undistributed earnings. As of December 31, 2017 , the cumulative amount of earnings upon which U.S. income taxes have not been provided is approximately $0.1 million . Determination of the potential amount of unrecognized deferred U.S. income tax liability and foreign withholding taxes is not practicable because of the complexities associated with its hypothetical calculation; however, net operating losses and unrecognized foreign tax credits would be available to reduce some portion of the U.S. liability.

ENDOLOGIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(all tabular amounts presented in thousands, except per share, per unit, and number of years)

In general, the Company is no longer subject to United States federal, state, local, or foreign examinations by taxing authorities for years before 2013, however, net operating loss and other tax attribute carryforwards utilized in subsequent years continue to be subject to examination by the tax authorities until the year to which the net operating loss and/or other tax attributes are carried forward is no longer subject to examination.

For the twelve months ended December 31, 2017 , our provision for income taxes was $0.5 million benefit and our effective tax rate was ( 0.69% ) for the year ended December 31, 2017 . During the twelve months ended December 31, 2017 , we had operating legal entities in the United States, Italy, New Zealand, Singapore, Poland, Germany, Switzerland, Korea and the Netherlands (plus registered sales branches of our Dutch entity in certain countries in Europe).

On December 22, 2017, the President of the United States signed into law the Tax Reform Act. The legislation significantly changes U.S. tax law by, among other things, lowering corporate income tax rates, implementing a territorial tax system and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries. The Tax Reform Act permanently reduces the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018.

The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. As a result of the reduction in the U.S. corporate income tax rate from 35% to 21% under the Tax Reform Act, the Company revalued its ending net deferred tax liabilities at December 31, 2017 and recognized a $0.4 million tax benefit in the Company’s consolidated statement of income for the year ended December 31, 2017.

The Tax Reform Act provided for a one-time deemed mandatory repatriation of post-1986 undistributed foreign subsidiary earnings and profits (“E&P”) through the year ended December 31, 2017. The Company does not have undistributed foreign E&P subject to the deemed mandatory repatriation and therefore has not recognized income tax expense in the Company’s consolidated statement of operations and comprehensive loss for the year ended December 31, 2017.

While the Tax Reform Act provides for a territorial tax system, beginning in 2018, it includes two new U.S. tax base erosion provisions, the global intangible low-taxed income (“GILTI”) provisions and the base-erosion and anti-abuse tax (“BEAT”) provisions.

The GILTI provisions require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets beginning in 2018. The Company does not believe that it will be subject to excess tax at this time under this new provision. In the event the Company becomes subject to this provision, it will elect to either account for the additional tax in the period in which it is incurred or to account for it through deferred taxes. On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. The Company has recognized the provisional tax impacts related to deemed repatriated earnings and the revaluation of deferred tax assets and liabilities and included these amounts in its consolidated financial statements for the year ended December 31, 2017. The ultimate impact may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of the Tax Reform Act. The accounting is expected to be complete when the 2017 U.S. corporate income tax return is filed in 2018.

ENDOLOGIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(all tabular amounts presented in thousands, except per share, per unit, and number of years)

11. Quarterly Results of Operations (Unaudited)



Three Months Ended:	Revenue		Gross Profit		Operating expenses		Net loss			Basic and Diluted loss per share
December 31, 2017	$	44,003	$	31,356	$	40,261	$	(14,521	)	$	(0.17	)
September 30, 2017	45,986		29,107		38,454		(14,273		)	(0.17		)
June 30, 2017	48,556		32,224		40,130		(16,292		)	(0.20		)
March 31, 2017	42,612		28,642		44,304		(21,314		)	(0.26		)
Three Months Ended:
December 31, 2016	$	47,463	$	29,461	$	51,669	$	(24,924	)	$	(0.30	)
September 30, 2016	52,122		36,931		48,165		(15,245		)	(0.18		)
June 30, 2016	50,974		29,459		52,687		(66,837		)	(0.81		)
March 31, 2016	42,366		27,941		66,345		(47,671		)	(0.62		)

12. Restructuring Charges

In the years ended December 31, 2017 and 2016 , the Company recorded $1.5 million and $11.1 million , respectively in restructuring costs within operating expenses related to focused reductions of its workforce. The Company began substantially formulating plans around this workforce reduction during the first quarter of 2016 in conjunction with its merger of TriVascular. The targeted reductions and other restructuring activities were initiated to provide efficiencies and realign resources as well as to allow for continued investment in strategic areas and to drive growth.

The Company expects to incur a total of $12.6 million in restructuring charges upon the completion of the plan, which represents the Company’s best estimate as of December 31, 2017 .

The recognition of restructuring charges requires that the Company make certain judgments and estimates regarding the nature, timing and amount of costs associated with the planned reductions of workforce. At the end of each reporting period, the Company will evaluate the remaining accrued balance to ensure that no excess accruals are retained and the utilization of the provisions are for their intended purpose in accordance with developed plans. The following table reflects the movement of activity of the restructuring reserve for the year ended December 31, 2017 :



	One-time Termination Benefits
Accrual balance as of December 31, 2016	$	2,754
Restructuring charges	1,477
Utilization	(3,223		)
Accrual balance as of December 31, 2017	$	1,008

The accrual balance as of December 31, 2017 is classified within accrued expenses and other current liabilities in the Company’s Consolidated Balance Sheets.

13. TriVascular Merger

On February 3, 2016 , the Company completed its merger with TriVascular pursuant to the Agreement and Plan of Merger (the “Merger Agreement”), dated October 26, 2015 , by and among Endologix, TriVascular and Teton Merger Sub, Inc., a Delaware corporation and direct wholly-owned subsidiary of Endologix (“Merger Sub”). Pursuant to the terms of the Merger Agreement, Endologix acquired all of TriVascular’s outstanding capital stock through the merger of Merger Sub with and into TriVascular (the “Merger”), with TriVascular surviving the Merger as a wholly-owned subsidiary of Endologix. The Company completed the merger in order to become the innovation leader with broad clinical indications for the treatment of AAA, leverage the combined company’s commercial capabilities, and provide an accelerated path to profitability. The total purchase

ENDOLOGIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(all tabular amounts presented in thousands, except per share, per unit, and number of years)

consideration given related to the acquisition follows:



Cash consideration	$	84,634
Common stock consideration	100,812
Fair value of assumed TriVascular stock warrants	44
Total purchase consideration	$	185,490

Common stock consideration consisted of 13,586,503 shares of Endologix common stock, worth $100.8 million based on the market value of $7.42 per share as of the effective date of the Merger on February 3, 2016 .

In connection with the Merger, the Company assumed stock warrants, originally issued by TriVascular, and converted them to Endologix stock warrants. The fair value of the stock warrants represents a component of the total consideration for the Merger. Stock warrants assumed were valued using the Black-Scholes option pricing model as of the effective date of the Merger.

The acquisition was recorded by allocating the costs of the net assets acquired based on their estimated fair values at the acquisition date. The excess of the cost of the acquisition over the fair value of the net assets acquired is recorded as goodwill. The fair values were based on management’s analysis, including work performed by third-party valuation specialists. The following presents the allocation of the purchase consideration to the assets acquired and liabilities assumed on February 3, 2016 (in thousands):



Cash and cash equivalents	$	24,012
Short-term investments	3,008
Accounts receivable	5,780
Inventories	17,765
Prepaid expenses and other current assets	1,895
Property and equipment	3,152
Intangible assets	46,200
Other assets	317
Accounts payable	(2,214		)
Accrued liabilities and other	(6,450		)
Notes payable	(61		)
Net assets acquired	$	93,404
Goodwill	$	92,086
Total purchase consideration	$	185,490

The goodwill is primarily attributable to strategic opportunities that arose from the acquisition of TriVascular, such as broadening the product portfolio for the treatment of AAA and leveraging the combined company’s technology and commercial capabilities. The goodwill is not expected to be deductible for tax purposes.

During the year ended December 31, 2016, the Company revised the opening net assets acquired and goodwill by $27.1 million , which was comprised of the following: an increase in inventories of $0.2 million ; an increase in prepaid expenses and

other current assets of $0.1 million ; an increase in accounts receivable of $0.2 million ; and an increase in accrued liabilities

and other of $0.6 million as a result of gathering additional information during the measurement period. The Company also

revised the initial values of intangible assets by decreasing them $27.0 million as a result of switching from utilizing

publicly available benchmarking information to determine the fair value of the intangible assets to primarily utilizing an income

method based on forecasts of expected future cash flows. During the three months ended June 30, 2016, the Company recorded

an adjustment to the amortization of intangible assets of $0.3 million , comprising of a $0.2 million and $49 thousand decrease within cost of goods sold and marketing and sales expense, respectively, in the Consolidated Statement of Operations and Comprehensive Loss, that would have been recorded during the three months ended March 31, 2016 , if the adjustment to the intangible assets had been recognized as of the date of the Merger.

ENDOLOGIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(all tabular amounts presented in thousands, except per share, per unit, and number of years)

Trade payables, as well as other current and non-current assets and liabilities, were valued at the existing carrying values as they represented the fair value of those items at the acquisition date, based on management’s judgments and estimates. Trade receivables included gross contractual amounts of $5.8 million and the Company's best estimate of a nominal amount of contractual cash flows not expected to be collected at the acquisition date.

The fair value of property, plant and equipment utilized a combination of the cost and market approaches, depending on the characteristics of the asset classification. Of the $46.2 million of acquired intangible assets, $7.5 million was assigned to customer relationships ( 10 year life), $27.5 million was assigned to developed technology ( 11 year life), and $11.2 million was assigned to in-process research and development.

Pro Forma Combined Financial Information (Unaudited)

The following unaudited pro forma financial information summarizes the results of operations for the periods indicated as if the TriVascular merger had been completed as of January 1, 2015 . Pro forma information reflects adjustments that are expected to have a continuing impact on our results of operations and are directly attributable to the merger. The unaudited pro forma results include adjustments to reflect the amortization of the inventory step-up, direct transaction costs relating to the acquisition, the incremental intangible asset amortization to be incurred based on the values of each identifiable intangible asset, and to eliminate interest expense related to legacy TriVascular's former loans, which was repaid upon completion of the TriVascular merger. The pro forma amounts do not purport to be indicative of the results that would have actually been obtained if the merger had occurred as of January 1, 2015 or that may be obtained in the future, and do not reflect future synergies, integration costs, or other such costs or savings.



	Twelve Months Ended
	December 31,
	2016			2015
Combined net sales	$	195,596		$	195,605
Combined net loss from continuing operations	(150,054		)	(113,534		)
Combined basic and diluted net loss per share	$	(1.82	)	$	(1.40	)

ENDOLOGIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(all tabular amounts presented in thousands, except per share, per unit, and number of years)

14. Subsequent Event

Transition of Chief Executive Officer

On February 21, 2018, the Company announced that Mr. John McDermott, its Chief Executive Officer, will step down effective as of a date no later than June 30, 2018. The Company currently anticipates that Mr. Dermott will continue to serve as the Company’s Chief Executive Officer through the completion of the recruitment and transition process to a new Chief Executive Officer and will remain available to the Company as necessary to facilitate a smooth leadership transition. The Board of Directors has commenced a search for a new Chief Executive Officer to replace Mr. Dermott.


Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A CONTROLS AND PROCEDURES.

Management’s Annual Report on Internal Control over Financial Reporting

Our management, including our chief executive officer and chief financial officer, is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of the financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. This process includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect all material misstatements. In addition, projections of any evaluation of the internal control over financial reporting to future periods are subject to risk that the internal control may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2017 . In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in the report entitled Internal Control-Integrated Framework (2013) . Based on its assessment, our management has concluded that, as of December 31, 2017 , our internal control over financial reporting was effective based on those criteria.

KPMG LLP, an independent registered public accounting firm, has audited the effectiveness of our internal control over financial reporting as of December 31, 2017 as stated in its report, which is included herein.

Disclosure Controls and Procedures

We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act. Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

We carried out an evaluation, under the supervision of and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures as of December 31, 2017 , pursuant to Rule 13a-15(b) under the Exchange Act. Based on that evaluation, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were effective as of December 31, 2017 .

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of the fiscal year ended December 31, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


Item 9B.	Other Information

Not applicable.

PART III


Item 10.	Directors, Executive Officers and Corporate Governance

The information required hereunder is incorporated herein by reference to our definitive Proxy Statement on Schedule 14A to be filed within 120 days of December 31, 2017 and delivered to stockholders in connection with our Annual Meeting of Stockholders to be held on June 14, 2018 .


Item 11.	Executive Compensation


Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters


Item 13.	Certain Relationships and Related Transactions, and Director Independence


Item 14.	Principal Accountant Fees and Services

PART IV


Item 15.	Exhibits, Financial Statement Schedules

(a) Financial Statements and Schedules

The following financial statements and schedules listed below are included in this Annual Report on Form 10-K:

Financial Statements

Reports of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2017 and 2016

Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2017, 2016, and 2015

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2017, 2016, and 2015

Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016, and 2015

Notes to the Consolidated Financial Statements

Financial Statement Schedule:

Schedule II - Valuation and Qualifying Accounts for the years ended December 31, 2017, 2016, and 2015 . All other schedules are omitted, as required information is inapplicable or the information is presented in the consolidated financial statements.

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

Years Ended December 31, 2017 , 2016 , and 2015



Column A	Column B		Column C					Column D			Column E
			Additions (Reductions)
Description	Balance at Beginning of Period		Charged to Bad Debt Expense			Charged to Other Accounts		Deductions (1)			Balance at End of Period
	(In thousands)
Year ended December 31, 2017
Allowance for doubtful accounts	$	1,037	$	(235	)	$	—	$	(332	)	$	470
Year ended December 31, 2016
Allowance for doubtful accounts	$	226	$	916		$	—	$	(105	)	$	1,037
Year ended December 31, 2015
Allowance for doubtful accounts	$	185	$	107		$	—	$	(66	)	$	226


(1)	Deductions represent the actual write-off of accounts receivable balances.

(b) Exhibits

The following is a list of exhibits required by Item 601 of Regulation S-K filed as part of this Annual Report on Form 10-K. For exhibits that we previously filed with SEC, we incorporate those exhibits herein by reference. The exhibit table below includes the form type and filing date of the previous filing, the original exhibit number in the previous filing which is being incorporated by reference herein, and a hyperlink thereto.



Exhibit Number		Exhibit Description
2.1		Agreement and Plan of Merger and Reorganization, dated October 27, 2010, by and among Endologix, Inc., Nepal Acquisition Corporation, Nellix, Inc., certain of Nellix, Inc.’s stockholders listed therein and Essex Woodlands Health Ventures, Inc., as representative of Nellix, Inc.’s stockholders (Incorporated by reference to Exhibit 2.1 to Endologix, Inc. Current Report on Form 8-K, File No. 000-28440, filed on October 27, 2010).
2.2		Agreement and Plan of Merger, dated October 26, 2015, by and among Endologix, Inc., Teton Merger Sub, Inc. and TriVascular Technologies, Inc. (Incorporated by reference to Exhibit 2.1 to Endologix, Inc. Current Report on Form 8-K, File No. 000-28440, filed on October 26, 2015).
3.1		Amended and Restated Certificate of Incorporation, as amended (Incorporated by reference to Exhibit 3.1 to Endologix, Inc. Quarterly Report on Form 10-Q, File No. 000-28440, filed on August 5, 2016).
3.2		Amended and Restated Bylaws, as amended (Incorporated by reference to Exhibit 3.1 to Endologix, Inc. Current Report on Form 8-K, File No. 000-28440, filed on December 14, 2010).
4.1		Specimen Certificate of Common Stock (Incorporated by reference to Exhibit 4.1 to Amendment No. 2 to Endologix, Inc. Registration Statement on Form S-1, No. 333-04560, filed on June 10, 1996).
4.1.1		Updated Specimen Certificate of Common Stock effective as of May 22, 2014 (Incorporated by reference to Exhibit 4.1.1 to Endologix, Inc. Annual Report on Form 10-K, File No. 000-28440, filed on March 2, 2015).
4.2		Indenture, dated December 10, 2013, between Endologix, Inc. and Wells Fargo Bank, National Association, as trustee (Incorporated by reference to Exhibit 4.1 to Endologix, Inc. Current Report on Form 8-K, File No. 000-28440, filed on December 10, 2013).
4.3		First Supplemental Indenture, dated December 10, 2013, between Endologix, Inc. and Wells Fargo Bank, National Association, as trustee (Incorporated by reference to Exhibit 4.2 to Endologix, Inc. Current Report on Form 8-K, File No. 000-28440, filed on December 10, 2013).
4.4		Form of 2.25% Convertible Senior Notes due 2018 (Incorporated by reference to Exhibit A to Exhibit 4.2 to Endologix, Inc. Current Report on Form 8-K, File No. 000-28440, filed on December 10, 2013).
4.5		Second Supplemental Indenture, dated November 2, 2015, between Endologix, Inc. and Wells Fargo Bank, National Association, as trustee (Incorporated by reference to Exhibit 4.2 to Endologix, Inc. Current Report on Form 8-K, File No. 000-28440, filed on November 2, 2015).
4.6		Form of 3.25% Convertible Senior Notes due 2020 (Incorporated by reference to Exhibit A to Exhibit 4.2 to Endologix, Inc. Current Report on Form 8-K, File No. 000-28440, filed on November 2, 2015).
4.7		Form of Warrant to Purchase Common Stock of Endologix, Inc., issued to Deerfield Private Design Fund IV, L.P., Deerfield International Master Fund, L.P., Deerfield Partners, L.P., and Deerfield Private Design Fund III, L.P., together with a schedule of holders and amounts (issued April 3, 2017) (Incorporated by reference to Exhibit 4.1 to Endologix, Inc. Current Report on Form 8-K, File No. 000-28440, filed on April 5, 2017).
4.8		Registration Rights Agreement, dated April 3, 2017, by and among Endologix, Inc., Deerfield Private Design Fund IV, L.P., Deerfield International Master Fund, L.P., Deerfield Partners, L.P., and Deerfield Private Design Fund III, L.P. (Incorporated by reference to Exhibit 4.2 to Endologix, Inc. Current Report on Form 8-K, File No. 000-28440, filed on April 5, 2017).
10.1	(1)	1997 Supplemental Stock Option Plan (Incorporated by reference to Exhibit 99.1 to Endologix, Inc. Registration Statement on Form S-8, No. 333-42161, filed on December 12, 1997).
10.2	(1)	1996 Stock Option/Stock Issuance Plan (Incorporated by reference to Exhibit 4.1 to Endologix, Inc. Registration Statement on Form S-8, No. 333-122491, filed on February 2, 2005).
10.3	(1)	2006 Stock Incentive Plan, as amended (Incorporated by reference to Exhibit 10.1 to Endologix, Inc. Current Report on Form 8-K, File No. 000-28440, filed on May 24, 2013).
10.3.1	(1)	Form of Stock Option Agreement under 2006 Stock Incentive Plan (Incorporated by reference to Exhibit 10.1 to Endologix, Inc. Quarterly Report on Form 10-Q, File No. 000-28440, filed on November 9, 2006).
10.3.2	(1)	Form of Restricted Stock Award Agreement under 2006 Stock Incentive Plan (Incorporated by reference to Exhibit 10.2 to Endologix, Inc. Quarterly Report on Form 10-Q, File No. 000-28440, filed on November 9, 2006).
10.3.3	(1)	Form of Employee Restricted Stock Unit Award Agreement under 2006 Stock Incentive Plan (Incorporated by reference to Exhibit 10.1 to Endologix, Inc. Quarterly Report on Form 10-Q, File No. 000-28440, filed on November 1, 2012).
10.3.4	(1)	Form of Director Restricted Stock Unit Award Agreement under 2006 Stock Incentive Plan (Incorporated by reference to Exhibit 10.2 to Endologix, Inc. Quarterly Report on Form 10-Q, File No. 000-28440, filed on November 1, 2012).



10.4	(1)	Amended and Restated 2006 Employee Stock Purchase Plan, as amended (Incorporated by reference to Exhibit 10.2 to Endologix, Inc. Current Report on Form 8-K, File No. 000-28440, filed on June 7, 2016).
10.5	(1)	2015 Stock Incentive Plan, as amended (Incorporated by reference to Exhibit 10.1 to Endologix, Inc. Current Report on Form 8-K, File No. 000-28440, filed on June 2, 2017).
10.5.1	(1)	Form of Stock Option Agreement under 2015 Stock Incentive Plan (Incorporated by reference to Exhibit 10.1 to Endologix, Inc. Current Report on Form 8-K, File No. 000-28440, filed on June 1, 2015).
10.5.2	(1)	Form of Restricted Stock Unit Award Agreement under 2015 Stock Incentive Plan (Incorporated by reference to Exhibit 10.1 to Endologix, Inc. Current Report on Form 8-K, File No. 000-28440, filed on June 1, 2015).
10.6	(1)	2017 Inducement Stock Incentive Plan (Incorporated by reference to Exhibit 10.1 to Endologix, Inc. Current Report on Form 8-K, File No. 000-28440, filed on October 30, 2017).
10.7	(1)	Employment Agreement, dated February 1, 2014, by and between Endologix, Inc. and John McDermott (Incorporated by reference to Exhibit 10.18 to Endologix, Inc. Annual Report on Form 10-K, File No. 000-28440, filed on March 3, 2014).
10.7.1	(1)	Severance Agreement and General Release, dated February 21, 2018, by and between Endologix, Inc. and John McDermott (Incorporated by reference to Exhibit 10.1 to Endologix, Inc. Current Report on Form 8-K, File No. 000-28440, filed on February 21, 2018).
10.8	(1)	Employment Agreement, dated February 25, 2016, by and between Endologix, Inc. and Vaseem Mahboob (Incorporated by reference to Exhibit 10.12 to Endologix, Inc. Annual Report on Form 10-K, File No. 000-28440, filed on February 29, 2016).
10.9	(1)	Employment Agreement, dated February 1, 2014, by and between Endologix, Inc. and Robert D. Mitchell (Incorporated by reference to Exhibit 10.20 to Endologix, Inc. Annual Report on Form 10-K, File No. 000-28440, filed on March 3, 2014).
10.9.1	(1)(2)	Separation Agreement and General Release, dated December 15, 2017, by and between Endologix, Inc. and Robert D. Mitchell, including the Agreement for Independent Contractor Services attached as Exhibit A thereto.
10.9.2	(1)(2)	Second Amendment to Restricted Stock Award Agreement, dated December 15, 2017, by and between Endologix, Inc. and Robert D. Mitchell.
10.10	(1)	Employment Agreement, dated as of February 3, 2016, by and between Endologix, Inc. and Michael Chobotov, Ph.D. (Incorporated by reference to Exhibit 10.1 to Endologix, Inc. Quarterly Report on Form 10-Q, File No. 000-28440, filed on May 5, 2017).
10.11	(1)	Employment Agreement, dated as of February 3, 2016, by and between Endologix, Inc. and Shari O’Quinn (Incorporated by reference to Exhibit 10.2 to Endologix, Inc. Quarterly Report on Form 10-Q, File No. 000-28440, filed on May 5, 2017).
10.12	(1)	Form of Indemnification Agreement entered into with Endologix, Inc. officers and directors (Incorporated by reference to Exhibit 10.23 to Endologix, Inc. Annual Report on Form 10-K, File No. 000-28440, filed on March 3, 2014).
10.13	(1)	Employment Agreement, dated as of October 30, 2017, by and between Endologix, Inc. and John Onopchenko (Incorporated by reference to Exhibit 10.1 to Endologix, Inc. Quarterly Report on Form 10-Q, File No. 000-28440, filed on November 7, 2017).
10.14		Standard Industrial/Commercial Single-Tenant Lease - Net, dated November 2, 2004, by and between Endologix, Inc. and Del Monico Investments, Inc. (Incorporated by reference to Exhibit 10.46 to Endologix, Inc. Current Report on Form 8-K, File No. 000-28440, filed on November 24, 2004).
10.14.1		Addendum No. 2 to Standard Industrial/Commercial Single-Tenant Lease - Net, by and between Endologix, Inc. and Del Monico Investments, Inc., dated June 9, 2009 (Incorporated by reference to Exhibit 10.1 to Endologix, Inc. Quarterly Report on Form 10-Q, File No. 000-28440, filed on November 2, 2009).
10.14.2		Addendum No. 3 to Standard Industrial/Commercial Single-Tenant Lease - Net, by and between Endologix, Inc. and Del Monico Investments, Inc., dated June 9, 2009 (Incorporated by reference to Exhibit 10.17.2 to Endologix, Inc. Annual Report on Form 10-K, File No. 000-28440, filed on March 2, 2015).
10.14.3		Addendum No. 4 to Standard Industrial/Commercial Single-Tenant Lease - Net, by and between Endologix, Inc. and Del Monico Investments, Inc., dated June 9, 2009 (Incorporated by reference to Exhibit 10.17.3 to Endologix, Inc. Annual Report on Form 10-K, File No. 000-28440, filed on March 2, 2015).
10.15		Standard Industrial/Commercial Multi -Tenant Lease - Net, by and between Endologix, Inc. and Four-In-One Associates, dated August 28, 2009 (Incorporated by reference to Exhibit 10.2 to Endologix, Inc. Quarterly Report on Form 10-Q, File No. 000-28440, filed on November 2, 2009).
10.15.1		Addendum No. 3 to Standard Industrial/Commercial Multi -Tenant Lease - Net, by and between Endologix, Inc. and Four-In-One Associates, dated August 28, 2009 (Incorporated by reference to Exhibit 10.18.1 to Endologix, Inc. Annual Report on Form 10-K, File No. 000-28440, filed on March 2, 2015).



10.16		Standard Industrial/Commercial Multi-Tenant Lease - Net, for 2 Musick, Irvine, California and 35 Hammond, Irvine, dated June 12, 2013, by and between Endologix, Inc. and The Northwestern Mutual Life Insurance Company (Incorporated by reference to Exhibit 10.1 to Endologix, Inc. Quarterly Report on Form 10-Q, File No. 000-28440, filed with on August 5, 2013).
10.17	†	Cross License Agreement dated as of October 26, 2011, by and between Endologix, Inc. and Bard Peripheral Vascular, Inc. (Incorporated by reference to Exhibit 10.19 to Endologix Inc. Annual Report on Form 10-K, File No. 000-28440, filed on March 6, 2012).
10.18	†	Settlement Agreement, dated October 16, 2012 by and among Endologix, Inc., Cook Incorporated, Cook Group and Cook Medical, Inc. (Incorporated by reference to Exhibit 10.22 to Endologix, Inc. Annual Report on Form 10-K, File No. 000-28440, filed with on March 14, 2013).
10.19		Base Capped Call Confirmation, dated December 4, 2013, between Endologix, Inc. and Bank of America, N.A. (Incorporated by reference to Exhibit 10.1 to Endologix, Inc. Current Report on Form 8-K, File No. 000-28440, filed on December 6, 2013).
10.20		Additional Capped Call Confirmation, dated December 5, 2013, between Endologix, Inc. and Bank of America, N.A. (Incorporated by reference to Exhibit 10.2 to Endologix, Inc. Current Report on Form 8-K, File No. 000-28440, filed on December 6, 2013).
10.21		Facility Agreement, dated April 3, 2017, by and among Endologix, Inc., certain subsidiaries of Endologix, Inc., Deerfield Private Design Fund IV, L.P., Deerfield International Master Fund, L.P., Deerfield Partners, L.P., and Deerfield Private Design Fund III, L.P. (Incorporated by reference to Exhibit 10.1 to Endologix, Inc. Current Report on Form 8-K, File No. 000-28440, filed on April 5, 2017).
10.22		Credit and Security Agreement, dated April 3, 2017, by and among Endologix, Inc., certain subsidiaries of Endologix, Inc. and Deerfield ELGX Revolver, LLC. (Incorporated by reference to Exhibit 10.2 to Endologix, Inc. Current Report on Form 8-K, File No. 000-28440, filed on April 5, 2017).
10.23	(2)	Lease Agreement, dated June 16, 2005, by and among TriVascular, Inc., Carmel River, LLC, Carlsen Investments, LLC, and Rieger Investments, LLC.
10.23.1	(2)	Consent, Assignment, First Amendment to Lease and Non-Disturbance Agreement, dated March 28, 2008, by and among Boston Scientific Santa Rosa Corp., Carmel River, LLC, Carlsen Investments, LLC, Rieger Investments, LLC, and Boston Scientific Corporation.
10.23.2	(2)	Second Amendment to Lease, dated December 6, 2011, by and among TriVascular, Inc., Sonoma Airport Properties LLC and Boston Scientific Corporation.
10.23.3		Third Amendment to Lease, by and between TriVascular, Inc. and Sonoma Airport Properties LLC, dated July 3, 2017 (Incorporated by reference to Exhibit 10.4 to Endologix, Inc. Quarterly Report on Form 10-Q, File No. 000-28440, filed on August 4, 2017).
12.1	(2)	Computation of Ratio of Earnings to Fixed Charges.
14		Code of Ethics for Chief Executive Officer and Principal Financial Officers (Incorporated by reference to Exhibit 14 to Endologix, Inc. Annual Report on Form 10-K, File No. 000-28440, filed on March 26, 2004).
21.1	(2)	List of Subsidiaries.
23.1	(2)	Consent of Independent Registered Public Accounting Firm (KPMG LLP).
24.1	(2)	Power of Attorney (included on signature page hereto).
31.1	(2)	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934.
31.2	(2)	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934.
32.1	(2)(3)	Certification of Chief Executive Officer Pursuant to Rule 13a-14(b)/15d-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.
32.2	(2)(3)	Certification of Chief Financial Officer Pursuant to Rule 13a-14(b)/15d-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.
101.INS	(2)	XBRL Instance Document
101.SCH	(2)	XBRL Taxonomy Extension Schema Document
101.CAL	(2)	XBRL Taxonomy Extension Calculation Link Base Document
101.DEF	(2)	XBRL Taxonomy Extension Definition Link Base Document
101.LAB	(2)	XBRL Taxonomy Extension Label Link Base Document
101.PRE	(2)	XBRL Taxonomy Extension Presentation Link Base Document

________________________


†	Portions of this exhibit are omitted and were filed separately with the SEC pursuant to Endologix Inc.'s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


(1)	These exhibits are identified as management contracts or compensatory plans or arrangements of the registrant pursuant to Item 15(a)(3) of Form 10-K.


(2)	Filed herewith.


(3)	Furnished herewith and not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.


Item 16.	Form 10-K Summary.

None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



ENDOLOGIX, INC.

By:		/ S / J OHN M C D ERMOTT
		John McDermott Chief Executive Officer (Principal Executive Officer)

Date: March 13, 2018

POWER OF ATTORNEY

We, the undersigned directors and officers of Endologix, Inc., do hereby constitute and appoint Vaseem Mahboob and Jeremy Hayden, and each of them, as our true and lawful attorneys-in-fact and agents with power of substitution, to do any and all acts and things in our name and behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorney-in-fact and agent may deem necessary or advisable to enable said corporation to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this Annual Report on Form 10-K, including specifically but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto; and we do hereby ratify and confirm all that said attorney-in-fact and agent, shall do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



Signature	Title	Date

/s/ JOHN McDERMOTT	Chief Executive Officer	March 13, 2018
(John McDermott)	(Principal Executive Officer)

/s/ VASEEM MAHBOOB	Chief Financial Officer	March 13, 2018
(Vaseem Mahboob )	(Principal Financial and Accounting Officer)


/s/ DAN LEMAITRE	Chairman of the Board	March 13, 2018
(Dan Lemaitre)

/s/ THOMAS F. ZENTY III	Director	March 13, 2018
(Thomas F. Zenty III)

/s/ THOMAS C. WILDER	Director	March 13, 2018
( Thomas C. Wilder )

/s/ GUIDO J. NEELS	Director	March 13, 2018
( Guido J. Neels )

/s/ GREGORY D. WALLER	Director	March 13, 2018
(Gregory D. Waller)

/s/ LESLIE V. NORWALK	Director	March 13, 2018
(Leslie V. Norwalk)

/s/ CHRISTOPHER G. CHAVEZ	Director	March 13, 2018
(Christopher G. Chavez)

Exhibit 10.9.1

SEVERANCE AGREEMENT AND GENERAL RELEASE

Endologix, Inc. (“ Company ”) and Robert D. Mitchell (“ Employee ”) hereby enter into the following Severance Agreement and General Release (this “ Agreement ”):

1. Employee shall retire from Company, and as a director and/or officer, as applicable, of each subsidiary of Company, and the employment relationship between Employee, Company and each subsidiary of Company will be separated effective December 31, 2017 (the “ Separation Date ”). In reliance on Employee’s representations and releases in this Agreement, Company will provide Employee with the following:

(a) an Agreement for Independent Contractor Services in the form of Exhibit A attached hereto (the “ Independent Contractor Agreement ”);

(b) (i) a lump sum severance payment, equivalent to six months base pay, in the gross amount of $195,250, (ii) payment of Employee’s earned bonus for the 2017 calendar year, in a gross amount to be determined by the Compensation Committee of the Board of Directors of the Company (the “ Committee ”) in February 2018 based upon achievement of the applicable corporate and individual performance objectives, and (iii) payment of Employee’s accrued vacation pay, each less applicable withholdings as required by law (collectively, the “ Severance Payment ”); and

(c) payment of COBRA coverage for Employee under Company’s health insurance plans (medical, dental, prescription drug and group life) through June 30, 2018, if needed.

The Severance Payment shall be made in February 2018, following the Committee’s determination of Employee’s earned bonus for the 2017 calendar year, provided Employee executes, and does not revoke, this Agreement. The consideration described in this paragraph exceeds the amounts Employee would otherwise be eligible to receive under law, agreement and/or Company policies.

2. Subject to Employee’s continued compliance with the covenants set forth in Section 7 of the Independent Contractor Agreement, Employee’s time-based stock options and restricted stock unit awards will continue to vest until the date of expiration of the Term of the attached Independent Contractor Agreement (December 31, 2018), or such earlier date if Employee terminates the Independent Contractor Agreement prior to the expiration of the Term, and Employee’s performance-based restricted stock awards will continue to vest in accordance with their terms. In addition, subject to Employee’s continued compliance with the covenants set forth in Section 7 of the Independent Contractor Agreement, if a Change in Control (as defined in Employee’s Employment Agreement dated February 1, 2014) occurs during the Term of the attached Independent Contractor Agreement, solely as a result of the Change in Control, all outstanding unvested time-based stock options and restricted stock unit awards and performance-based restricted stock awards held by Employee shall become fully vested and, if applicable, exercisable, in each case as of the date of the Change in Control. Employee and Company agree that Employee’s rights and obligations with regard to any equity in Company shall be governed by the terms of any applicable stock option, restricted stock, and restricted stock unit agreement(s) between Employee and Company, except as modified by this Agreement. Employee acknowledges and agrees that his right to exercise any vested stock options shall expire in accordance with the terms of the applicable stock option agreement, as extended by this Agreement and the Independent Contractor Agreement. For purposes of clarity, Employee’s right to exercise any vested stock options shall expire 90 days following the date of expiration of the Term of the attached Independent Contractor Agreement (December 31, 2018) or such earlier date if Employee terminates the Independent Contractor Agreement prior to the expiration of the Term. Employee further

Exhibit 10.9.1

acknowledges and agrees that any incentive stock options held by Employee will cease to be so characterized if exercised by Employee more than 90 days following the Separation Date.

3. As consideration for Company to enter into this Agreement, Employee agrees that he will continue to provide consulting support to Company pursuant to the Independent Contractor Agreement and will not file any complaints or other proceedings against Company or any Released Party (as defined below) with any court or arbitrator based on any claim released by this Agreement, and that if any court or arbitrator assumes jurisdiction of any proceeding against Company or any Released Party on his behalf, Employee will immediately take all actions necessary to assure the matter is dismissed or closed. This Agreement does not limit Employee’s right to file a charge or complaint with any state or federal agency, or to cooperate in such a matter, although Employee expressly waives and relinquishes all right to any relief that any governmental agency may obtain on his behalf.

4. In exchange for the consideration referred to in paragraph 1 above, Employee waives and releases all claims, known and unknown, which he might otherwise have had, as of the date of execution of this Agreement, against Company or any of its parent or affiliated companies, or any of its or their respective officers, directors, stockholders, employees, attorneys, insurers, agents, successors or assigns (collectively, the “ Released Parties ”), including but not limited to claims regarding any aspect of Employee’s employment or compensation, the cessation of Employee’s employment, the Age Discrimination in Employment Act of 1967, the Americans with Disabilities Act of 1990, Title VII of the Civil Rights Act of 1964, 42 U.S.C. section 1981, the Fair Labor Standards Acts, the California Fair Employment and Housing Act, California Government Code section 12900, et seq., the Unruh Civil Rights Act, California Civil Code section 51, all provisions of the California Labor Code and the Employee Retirement Income Security Act, 29 U.S.C. section 1001, et seq., all as amended, any other federal, state or local law, regulation or ordinance or public policy, contract, tort or property law theory, or any other cause of action whatsoever that arose on or before the date Employee executes this Agreement.

5. It is further understood and agreed that as a condition of this Agreement, all rights under Section 1542 of the Civil Code of the State of California are expressly waived by Employee. Such Section reads as follows:

“A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.”

Notwithstanding Section 1542, and for the purpose of implementing a full and complete release and discharge of the Released Parties, Employee expressly acknowledges that this Agreement is intended to include and does include in its effect, without limitation, all claims which Employee does not know or suspect to exist in Employee’s favor against the Released Parties at the time of execution hereof, and that this Agreement expressly contemplates the extinguishment of all such claims.

6. Employee acknowledges that he is entering into this Agreement in return for the consideration referred to in paragraph 1 above. Employee further agrees that no promises, representations, or inducements have been made to him which caused him to sign this Agreement other than those which are expressly set forth above in paragraph 1. This Agreement contains all of the terms, promises, representations, and understandings made between the parties regarding the subject matter of this Agreement; provided , however , that notwithstanding any provision of this Agreement to the contrary, Employee’s Proprietary Information and Inventions Agreement and Indemnification Agreement shall remain in full force and effect in accordance with their terms.

Exhibit 10.9.1

7. Employee agrees not to make any written or oral statements about Company or any of the Released Parties that are disparaging, including via internet and media. Nothing in this Agreement shall preclude Employee from communicating or testifying truthfully (a) to the extent expressly required by law, (b) to any state or federal government agency, (c) in response to subpoena to testify issues by a court of competent jurisdiction, or (d) in any action to challenge or enforce the terms of this Agreement.

8. Employee acknowledges that he has been paid all wages and Company benefits due and owing as of the Separation Date, less appropriate withholdings, including all accrued vacation pay, and is not owed any additional amounts, other than the Severance Payment and any other amounts which Employee may be entitled under this Agreement.

9. Employee will represent that he has returned all Company property in his possession, whether in tangible or electronic form, including, without limitation, computers, phones, printers, furniture and all data, analysis and reports regarding Company and its business, operations, intellectual property, other assets and products or potential products. Notwithstanding the foregoing, Employee may retain the laptop computer and mobile phone provided to him by Company.

10. This Agreement will be interpreted in accordance with the laws of the State of California. All provisions of this Agreement are severable. Accordingly, if any provision of this Agreement is found to be unenforceable, the other provisions shall remain fully valid and enforceable.

11. Employee acknowledges that: (a) Company has advised Employee to consult with an attorney and tax advisor prior to the execution of this Agreement; (b) Employee has had the opportunity to discuss this Agreement with his attorneys and tax advisors, to the full extent he so desires; (c) Employee has carefully read and fully understands all of the provisions of this Agreement; (d) Employee fully understands that this Agreement releases all of his claims, both known and unknown, against Company and the Released Parties; (e) Employee signs this Agreement voluntarily; and (f) Employee has the capacity to enter into this Agreement.

12. Employee understands that he has twenty-one (21) days to review and fully consider this Agreement before signing it, and that he may take as much of that period as he wishes prior to signing it. Employee also understands that within seven (7) days of the date of signing this Agreement, he has the right to revoke this Agreement. Any such revocation must be made in a signed writing delivered to Company, c/o John McDermott, Chief Executive Officer, within the seven (7) day revocation period. If Employee timely revokes this Agreement, it shall not be effective or enforceable, Employee must immediately return the Severance Payment and any other benefits received by Employee prior to the expiration of such revocation period and Employee will not thereafter receive any other benefits described in this Agreement.

[Remainder of Page Intentionally Left Blank; Signature Page Follows]

Exhibit 10.9.1

THE SIGNATURES BELOW MEAN THAT THE UNDERSIGNED HAVE READ THIS SEVERANCE AGREEMENT AND GENERAL RELEASE, FULLY UNDERSTAND SAME, AND AGREE AND VOLUNTARILY CONSENT TO ALL THE TERMS AND CONDITIONS CONTAINED IN THIS AGREEMENT.



DATED: December 15, 2017	ROBERT D. MITCHELL /s/ Robert D. Mitchell (Signature)
DATED: December 15, 2017	ENDOLOGIX, INC. By: /s/ John McDermott John McDermott Chief Executive Officer

Exhibit 10.9.1

EXHIBIT A

AGREEMENT FOR INDEPENDENT CONTRACTOR SERVICES

This Agreement for Independent Contractor Services (the “ Agreement ”) is entered into by and between Endologix, Inc. (the “ Company ”) and Robert D. Mitchell (“ Independent Contractor ”).

WHEREAS , the Company desires to retain Independent Contractor to perform services for the Company, as more particularly described herein; and

WHEREAS , Independent Contractor is in the business of providing such services and has agreed to provide such services pursuant to the terms and conditions set forth in this Agreement.

NOW, THEREFORE , the parties agree as follows:

1. Services to Be Performed . Independent Contractor will consult for, advise the Company on, and/or perform services relating to the Company’s clinical trials and related matters. Independent Contractor also agrees to provide the Company with related services that may be reasonably requested from time to time by the Chief Executive Officer of the Company. During the Term (as defined below), Independent Contractor shall have the title of “Executive Emeritus” or such other title as may be agreed upon by Independent Contractor and the Chief Executive Officer of the Company. Independent Contractor agrees to use his best efforts in the performance of his obligations under this Agreement. Independent Contractor shall cooperate with the Company’s personnel and shall observe all Company rules, including specifically those relating to discrimination and harassment, security and confidentiality. This consulting work shall be limited to ten hours per month or less.

2. Proprietary Information and Inventions Agreement . Independent Contractor agrees to sign and abide by the Company’s Proprietary Information and Inventions Agreement (the “ PIIA ”).

3. Termination . The term of this Agreement shall begin on January 1, 2018 and expire on December 31, 2018 (the “ Term ”). Notwithstanding the above, during the Term, this Agreement may be terminated by either party, at any time, with or without cause, and with or without prior notice. In the event that this Agreement is terminated by the Company, other than due to Independent Contractor’s breach of any covenant set forth in Section 7 herein, Independent Contractor’s time-based stock options and restricted stock unit awards shall continue to vest through the end of the Term in accordance with Section 9 herein, and Independent Contractor’s performance-based restricted stock awards shall continue to vest in accordance with their terms (each subject to Independent Contractor’s continued compliance with the covenants set forth in Section 7 herein). Further, if the Company terminates this Agreement prior to the expiration of the Term, other than due to Independent Contractor’s breach of a term or provision of this Agreement, the Severance Agreement (as defined in Section 7(e) below) or the PIIA, then the Company shall continue to pay the monthly consulting fee set forth in Section 9 of this Agreement until the end of the contemplated Term (i.e., December 31, 2018).

4. Independent Contractor Status . It is the express intention of the parties hereto that Independent Contractor is and at all times during the Term of this Agreement shall remain an independent contractor and not an employee, agent, joint venturer or partner of the Company for any purposes whatsoever.

5. Performance of Services . The Company and Independent Contractor shall mutually agree upon the time, place, methods, manner and means of performing the Services. In performing the Services,

Exhibit 10.9.1

the amount of time devoted by Independent Contractor on any given day will be mutually agreed upon by the Company and Independent Contractor.

6. Final Results . In the performance of the Services, Independent Contractor has the authority to control and direct the performance of the details of the Services, the Company being interested only in the results obtained. However, the Services contemplated herein must meet the Company’s standards and approval.

7. Covenants .

(a) Non-Solicitation . As an additional inducement for the Company to enter into this Agreement, Independent Contractor agrees that during the Term and for a period of one year following the date of expiration of the Term, or such earlier date if Independent Contractor terminates the Agreement prior to the expiration of the Term (the “ Restricted Period ”), Independent Contractor shall not directly or indirectly (a) solicit or attempt to solicit any employee of the Company as of the date of this Agreement who is then still employed by the Company (each, a “ Covered Employee ”) to leave his or her employment with the Company, or induce or attempt to induce any such Covered Employee to terminate or breach his or her employment or similar agreement with the Company, or (b) solicit, contact, or attempt to solicit or contact, or meet with the Company’s current customers for purposes of offering or accepting goods or services similar to or competitive with those offered by the Company.

(b) Non-Competition . As an additional inducement for the Company to enter into this Agreement, Independent Contractor agrees that during the Restricted Period, Independent Contractor shall not, directly or indirectly, own, manage, engage in, operate, control, work for, consult with, render services for, do business with, maintain any material interest in (proprietary, financial or otherwise) or participate in the ownership, management, operation or control of, any business activity anywhere in the world that engages in the research, development, manufacturing, marketing, distribution, commercialization, sale, import or export of any products for the endovascular treatment of aortic aneurysms, dissections or occlusions (such business, a “ Competing Business ”). Nothing herein shall prohibit Independent Contractor from purchasing or owning less than five percent (5%) of the publicly traded securities of any corporation engaged in a Competing Business, provided that such ownership represents a passive investment and that the Employee is not a controlling person of, or a member of a group that controls, such corporation.

(c) Non-Disparagement . As an additional inducement for the Company to enter into this Agreement, Independent Contractor agrees that he will not at any time make, publish, or communicate to any person or entity or in any public forum any defamatory or disparaging remarks, comments, or statements concerning the Company or its business or products, or any of its directors, officers or employees.

(d) Scope . It is the desire and intent of the Company and Independent Contractor that the provisions of this Section 7 shall be enforced to the fullest extent permissible under applicable laws and regulations applied in each jurisdiction in which enforcement is sought. If any of the covenants set forth herein are held to be unreasonable, arbitrary, or against public policy, such covenants will be considered divisible with respect to scope, time, and geographic area, and in such lesser scope, time and geographic area, will be effective, binding and enforceable against Independent Contractor.

(e) Remedies . In the event of a breach by Independent Contractor of any of the covenants set forth in this Section 7, Independent Contractor hereby consents and agrees that:

Exhibit 10.9.1

(i) if such breach occurs during the Term, all continued vesting of Independent Contractor’s time-based stock options and restricted stock unit awards shall immediately cease, and Independent Contractor’s right to any future vesting of his performance-based restricted stock awards shall terminate and be of no further force and effect; and

(ii) if such breach occurs following the expiration of the Term, Independent Contractor’s right to any future vesting of his performance-based restricted stock awards shall terminate and be of no further force and effect (even if, in the case of Sections 7(a) and 7(b), such breach occurs after the Restricted Period).

In addition, Independent Contractor hereby consents and agrees that the Company shall be entitled to, in addition to other available remedies, a temporary or permanent injunction or other equitable relief against such breach from any court of competent jurisdiction.

8. No Employment Benefits . Independent Contractor shall not be entitled to any employment benefits made available to employees from time to time, other than those to which he may be entitled under the Severance Agreement and General Release signed by the parties. Independent Contractor shall be solely responsible for all state and federal income taxes, unemployment insurance, social security taxes and state disability insurance and for maintaining adequate workers’ compensation insurance coverage to the extent legally required.

9. No Employment Benefits . Independent Contractor shall not be entitled to any employment benefits made available to employees from time to time, other than those to which he may be entitled under the Severance Agreement and General Release signed by the parties. Independent Contractor shall be solely responsible for all state and federal income taxes, unemployment insurance, social security taxes and state disability insurance and for maintaining adequate workers’ compensation insurance coverage to the extent legally required.

10. Compensation . For the full and proper performance of this Agreement, and subject to Section 7(e) above, the Company agrees to compensate Independent Contractor by continued vesting of Independent Contractor’s time-based stock options and restricted stock unit awards through the date of expiration of the Term, or such earlier date if Independent Contractor terminates this Agreement prior to the expiration of the Term, and of Independent Contractor’s performance-based restricted stock awards in accordance with their terms. During the Term of this Agreement (and subject to Section 3 above), the Company shall pay Independent Contractor a monthly consulting fee in the amount of $3,000 as consideration for Independent Contractor’s consulting services, to be directed by the Chief Executive Officer of the Company.

11. Expenses . The Company shall reimburse Independent Contractor for all pre-approved out-of-pocket travel and related expenses incurred by Independent Contractor in connection with the performance of services under this Agreement, provided that Independent Contractor provides accounts or invoices therefor evidencing such expenses. Except as otherwise set forth herein, Independent Contractor shall be responsible for all business expenses incurred by Independent Contractor in connection with, or related to, the performance of services under this Agreement. No Authority to Bind . Independent Contractor shall have no power to obligate, commit or legally bind the Company in any manner whatsoever, and the Company shall have no liability to Independent Contractor or to others for any acts or omissions of Independent Contractor.

12. Warranties . Independent Contractor will assume sole responsibility for his compliance with applicable federal and state laws and regulations, and shall rely exclusively upon his own determination, or

Exhibit 10.9.1

that of its legal advisers, that the performance of services and the receipt of fees hereunder comply with such laws and regulations.

13. Non-Assignability of Contract . This Agreement is personal to Independent Contractor and he shall not have the right to assign any of his rights or delegate any of his duties without the express written consent of the Company.

14. Governing Law . This Agreement shall be governed by and interpreted in accordance with the laws of the State of Utah, including all matters of construction, validity, performance, and enforcement, without giving effect to principles of conflict of laws.

15. Severability . Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable laws and regulations, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or regulation in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision, but this Agreement shall, subject to Section 7(d) hereof, be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had been replaced by a valid, legal and enforceable provision that comes closest to expressing the intention of the parties hereto.

16. Amendment . This Agreement may be amended or modified only by a written instrument executed by both the Company and Independent Contractor.

17. Counterparts . This Agreement may be executed in counterparts, each of which shall constitute an original, but all of which taken together shall constitute one and the same instrument.

18. Complete Agreement . This Agreement, along with the PIIA, contains the entire understanding between the parties and supersedes, replaces and takes precedence over any prior or contemporaneous understanding or oral or written agreement between the parties respecting the subject matter of this Agreement, including without limitation Indendent Contractor’s Employment Agreement with the Company dated February 1, 2014; provided , that except as expressly set forth herein nothing in this Agreement is intended to alter the Severance Agreement. There are no other representations, agreements, arrangements, nor understandings, oral or written, between the parties hereto relating to the subject matter of this Agreement which are not fully expressed herein.

[Remainder of Page Intentionally Left Blank; Signature Page Follows]

Exhibit 10.9.1

This Agreement is executed and entered into on the date(s) set forth below.

ROBERT D. MITCHELL ENDOLOGIX, INC.

/s/ Robert D. Mitchell By: /s/ John McDermott

Date: December 15, 2017 Name: John McDermott

Title: CEO

Date: December 15, 2017

Exhibit 10.9.2

Restricted Stock Award Number: 00003033 and 012251

Purchase ID Number: 1507

ENDOLOGIX, INC.

SECOND AMENDMENT TO RESTRICTED STOCK AWARD AGREEMENT

This Second Amendment to Restricted Stock Award Agreement (this “ Amendment ”) is made effective as of December 15, 2017 by and between Robert Mitchell (hereinafter referred to as “ Purchaser ”) and Endologix, Inc., a Delaware corporation (hereinafter referred to as the “ Company ”).

RECITALS

A. The Company and Purchaser are parties to that certain Restricted Stock Award Agreement dated as of December 10, 2010, as amended November 24, 2012 (as amended, the “ Agreement ”), pursuant to which the Company granted to Purchaser an aggregate of three hundred fifty thousand (350,000) shares of Common Stock of the Company subject to performance-based vesting. Capitalized terms used but not defined herein shall have the respective meanings assigned to them in the Agreement.

B. The Company and Purchaser now desire to amend the Agreement as set forth below.

AGREEMENT

NOW, THEREFORE, in consideration of the mutual covenants contained in this Amendment and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows:

1. Section 4(a) of the Agreement is hereby amended and restated in its entirety to read as follows:

“ 4. Vesting of Shares .

(a) Subject to Section 4(b) below, the Shares acquired hereunder shall vest in full and become “Vested Shares” in accordance with the following schedule:

(i) One Hundred Thousand (100,000) of the Shares (the “ Nellix OUS Shares ”) shall vest in full in a single installment upon the Company achieving the OUS Milestone (as such term is defined in the Merger Agreement) within twenty-four (24) months following CE Mark Approval (as such term is defined in the Merger Agreement). No additional Nellix OUS Shares shall vest after the date of termination of Purchaser’s Continuous Service.

(ii) One Hundred Thousand (100,000) of the Shares (the “ OUS Sales Shares ”) shall vest in full in a single installment upon the Company achieving its first fiscal quarter in which the net amount billed or invoiced by the Company (gross sales net of discounts, returns and allowances) for sales of Company products to independent third parties, including without limitation customers, end-users, licensees, dealers or distributors of the Company, outside of the United States equaled or exceeded Ten Million Dollars ($10,000,000). No additional OUS Sales Shares shall vest after the date of termination of Purchaser’s Continuous Service.

Exhibit 10.9.2

(iii) Thirty Seven Thousand Five Hundred (37,500) of the Shares (the “ OUS Profit Shares ”) shall vest in full in a single installment upon the Company achieving its first fiscal quarter of OUS Profit (the “ OUS Profit Milestone ”). The Company acknowledges and agrees that the OUS Profit Shares shall continue to vest if the Company achieves the OUS Profit Milestone following the date of termination of Purchaser’s Continuous Service, subject to Purchaser’s continued compliance with the restrictive covenants set forth in Section 7 of the Agreement for Independent Contractor Services between the Company and Purchaser dated as of the date hereof (the “ Independent Contractor Agreement ”). For purposes of this Agreement, “ OUS Profit ” means total non-U.S. revenue less total non-U.S. cost of goods sold less total non-U.S. operating expenses.

(iv) Thirty Seven Thousand Five Hundred (37,500) of the Shares (the “ PMA Milestone Shares ”) shall vest in full in a single installment upon the Company achieving the PMA Milestone (as such term is defined in the Merger Agreement). The Company acknowledges and agrees that the PMA Milestone Shares shall continue to vest if the Company achieves the PMA Milestone following the date of termination of Purchaser’s Continuous Service, subject to Purchaser’s continued compliance with the restrictive covenants set forth in Section 7 of the Independent Contractor Agreement.

(v) Thirty Seven Thousand Five Hundred (37,500) of the Shares (the “ Sales Milestone Shares ”) shall vest in full in a single installment upon the Company achieving its first fiscal quarter in which the net amount billed or invoiced by the Company (gross sales net of discounts, returns and allowances) for sales of Company products to independent third parties, including without limitation customers, end-users, licensees, dealers or distributors of the Company, equaled or exceeded Fifty Five Dollars ($55,000,000) (the “ Sales Milestone ”). The Company acknowledges and agrees that the Sales Milestone Shares shall continue to vest if the Company achieves the Sales Milestone following the date of termination of Purchaser’s Continuous Service, subject to Purchaser’s continued compliance with the restrictive covenants set forth in Section 7 of the Independent Contractor Agreement.

(vi) Thirty Seven Thousand Five Hundred (37,500) of the Shares (the “ Next Gen Milestone Shares ”) shall vest in full in a single installment upon the Company achieving its first-in-man implant of the EVAS Next Gen System (the “ Next Gen Milestone ”). The Company acknowledges and agrees that the Next Gen Milestone Shares shall continue to vest if the Company achieves the Next Gen Milestone following the date of termination of Purchaser’s Continuous Service, subject to Purchaser’s continued compliance with the restrictive covenants set forth in Section 7 of the Independent Contractor Agreement.

2. Except as specifically amended by this Amendment, the Agreement shall in all other respects remain unchanged and in full force and effect.

3. This Amendment may be executed in two or more counterparts, each one of which shall be deemed an original, but all of which shall constitute one and the same instrument.

[Signature Page Follows]

Exhibit 10.9.2

IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first above written.

COMPANY:

ENDOLOGIX, INC.,

a Delaware corporation

By: /s/ John McDermott

Name: John McDermott

Title: CEO

PURCHASER:

/s/ Robert Mitchell

Robert Mitchell

Exhibit 10.9.2

CONSENT AND RATIFICATION OF SPOUSE

The undersigned, the spouse of Robert Mitchell, a party to the Restricted Stock Award Agreement (the “ Agreement ”), dated as of December 10, 2010 as amended November 24, 2012, hereby consents to the execution of the attached Second Amendment to Restricted Stock Award Agreement (the “ Amendment ”) by such party; and ratifies, approves, confirms and adopts the Agreement as amended by the Amendment, and agrees to be bound by each and every term and condition thereof as if the undersigned had been a signatory to said Agreement as amended by the Amendment, with respect to the Shares (as defined in the Agreement) made the subject of said Agreement as amended by the Amendment in which the undersigned has an interest, including any community property interest therein.

I also acknowledge that I have been advised to obtain independent counsel to represent my interests with respect to the Agreement as amended by the Amendment but that I have declined to do so and I hereby expressly waive my right to such independent counsel.

Date:

(Signature)

(Print Name)

Exhibit 10.23

LEASE AGREEMENT

(Multi-Tenant Facility)

ARTICLE ONE: BASIC TERMS.

This Article One contains the Basic Terms of this Lease between the Landlord and Tenant named below. Other Articles, Sections and Paragraphs of the Lease referred to in this Article One explain and define the Basic Terms and are to be read in conjunction with the Basic Terms.

Terms.




Section 1.01. Date of Lease: June 16, 2005

Section 1.02. Landlord (include legal entity): Carmel River, LLC, a Delaware limited liability company; Carlsen Investments, LLC, a California limited liability company, and Rieger Investments, LLC, a Delaware limited liability company.




Address of Landlord:		c/o PDC Properties, Inc.
		8395 Jackson Road, Suite F
		Sacramento, CA 95826

Section 1.03. Tenant (include legal entity):		TriVascular, Inc.
		a California corporation
Address of Tenant:		3910 Brickway Boulevard
		Santa Rosa, CA 95403

Section 1.04. Premises: The premises are comprised of approximately 110,250 rentable square feet, including the Building footprint of 94,500 square feet and the mezzanine of 15,750 square feet (collectively “Premises”) of an approximately 110,250 rentable square foot building (including the mezzanine) (“Building”) known as 3910 Brickway Boulevard, Santa Rosa, California , located on approximately 6.05 acres of land (the Building and parcel of land on which it is located are together defined as the “Project”, in the business park (to the extent owned by Landlord, the “Park”) commonly known as Airport Corporate Center as further described in Exhibit “A” . Airport Corporate Center (“Center”) is approximately 18.27 useable acres.

Section 1.05. Lease Term: Sixty-six (66) months beginning on September 1, 2005 and expiring February 28, 2011.

Section 1.06. Permitted Uses (See Article Five ): The Premises may be used by Tenant for warehouse, office, research and development, light assembly production and related lawful uses. Tenant agrees to comply, upon the Commencement Date and during the Term, with all federal, state and local governmental laws, rules, regulations, zoning and other ordinances applicable to Tenant’s use of the Premises.

Section 1.07. Tenant’s Guarantor (if none, so state): Boston Scientific Corporation, Inc., a Delaware corporation. A copy of the Guaranty is attached as Exhibit “F” .

Section 1.08. Brokers (See Article fourteen ) (if none, so state): Keegan & Coppin represents Tenant, and Cushman & Wakefield of California, Inc., represents Landlord.

Section 1.09. Commission payable to Brokers (See Article Fourteen ): Landlord shall pay a commission to Brokers in accordance with a separate agreement.

Section 1.10. Initial Security Deposit (See Section 3.03 ): None.

Exhibit 10.23

Section 1.11. Vehicle Parking Spaces Allocated to Tenant: (See Section 4.05 ) Three Hundred Ten (310) non-exclusive spaces, plus temporary parking as described in Paragraph 4.05(c).

Section 1.12. Rent and Other Charges Payable by Tenant:

(a) BASE RENT:




Months	Monthly Rent
9/1/2005 to 2/28/2006	$	—
3/1/2006 to 2/28/2007	$	74,970.00
3/1/2007 to 2/29/2008	$	77,175.00
3/1/2008 to 2/28/2009	$	79,380.00
3/1/2009 to 2/28/2010	$	81,585.00
3/1/2010 to 2/28/2011	$	83,790.00

(b) OTHER PERIODIC PAYMENTS: (i) Real Property Taxes (See Section 4.02 ); (ii) Utilities (See Section 4.03 ); (iii) Insurance Premiums (See Section 4.04 ); (iv) Tenant’s initial Pro-Rata Share of Common Area Expenses of the Project shall be 100%, plus offsite expenses as described in Section 4.05 ; (v) Maintenance, Repairs and Alterations (See Article Six ).

Section 1.13. Landlord’s Share of Profit upon Assignment or Sublease : (See Article 9 ) 100 percent (100%) of the profit after deducting Tenant’s reasonable costs to procure a subtenant including leasing commissions, free rent, tenant improvement allowances, and attorneys fees (the “Landlord’s Share”).

Section 1.14. Riders: The following Riders are attached to and made a part of this Lease: (If none, so state)




ARTICLE SIXTEEN:		RENEWAL OPTION
ARTICLE SEVENTEEN:		TENANT IMPROVEMENTS
ARTICLE EIGHTEEN:		RESERVED
ARTICLE NINETEEN:		RIGHT OF FIRST REFUSAL TO PURCHASE BUILDING
ARTICLE TWENTY:		ROOF ACCESS AND CONDUIT ACCESS
ARTICLE TWENTY-ONE:		CONDITIONS PRECEDENT TO EFFECTIVENESS OF LEASE




Exhibit A:		Premises, Building, Project and Center Description.
Exhibit B:		Form of Landlord’s Estoppel Certificate.
Exhibit C:		Signage.
Exhibit D:		Form of Lender’s Estoppel Certificate.
Exhibit E:		Subordination, Nondistrubance and Attornment Agreement.
Exhibit F:		Lease Guaranty.

ARTICLE TWO. LEASE TERM.

Section 2.01. Lease of Premises for Lease Term. Landlord leases the Premises to Tenant and Tenant leases the Premises from Landlord for the Lease Term. The Lease Term is for the period stated in Section 1.05 above and shall begin and end on the dates specified in Section 1.05 above, unless the beginning or end of the Lease Term is changed under any provision of this Lease.

Section 2.02. Delay in Commencement. Landlord shall not be liable to Tenant if Landlord does not deliver possession of the Premises to Tenant on the date stated in Section 1.05. Landlord’s non-delivery of the Premises to Tenant on that date shall

Exhibit 10.23

not affect this Lease or the obligations of Tenant under this Lease except that the Commencement Date shall be delayed until Landlord delivers possession of the Premises to Tenant and the Lease Term shall be extended for a period equal to the delay in delivery of possession of the Premises to Tenant, plus the number of days necessary to end the Lease Term on the last day of a month. If delivery of possession of the Premises to Tenant is delayed, Landlord and Tenant shall, upon such delivery, execute an amendment to this Lease setting forth the actual Commencement Date and expiration date of the Lease. Failure to execute such amendment shall not affect the actual Commencement Date and expiration date of the Lease.

Section 2.03. Early Access . Prior to the Lease Commencement Date, Landlord shall allow Tenant early access to the Premises. The purpose of Tenant’s early access is for Tenant to do its space planning, complete installation of Tenant’s equipment, and construct improvements to the Premises (subject to the terms of this Lease). If Tenant enters the Premises prior to the Commencement Date, Tenant’s access to the Premises shall be subject to all of the provisions of this Lease, including providing evidence of all insurance coverage required by this Lease. Tenant shall provide similar coverage for any and all of Tenant’s vendors and/or contractors. However, early access of the Premises shall not advance the expiration date of this Lease. Further, Tenant shall neither pay Base Rent nor Additional Rent during the early access period. In the event improvements are complete in a portion of the Premises and a temporary occupancy permit can be obtained, Tenant shall be permitted to use such space for the permitted uses herein without Base Rent commencing, but Tenant shall be responsible for such pro-rata share of Additional Rent. During the early access period, Landlord’s representatives shall retain complete control of the job site. Tenant’s early access shall not interfere with or delay the Landlord’s work.

Section 2.04. Holding Over . Tenant shall vacate the Premises upon the expiration of the Lease Term or earlier termination of this Lease. Tenant shall reimburse Landlord for and defend and indemnify Landlord against all damages which Landlord incurs from Tenant’s delay in vacating the Premises. If Tenant does not vacate the Premises upon the expiration or earlier termination of the Lease and Landlord thereafter accepts rent from Tenant, Tenant’s occupancy of the Premises shall be a “month to month” tenancy, subject to all of the terms of this Lease applicable to a month-to-month tenancy, except that the Base Rent then in effect shall be increased by twenty-five percent (25%) for the first six months of Tenant’s hold ever period, and the Base Rent shall be increased by fifty percent (50%) thereafter. Landlord shall have the right to terminate Tenant’s right to occupy the Premises on sixty days written notice.

ARTICLE THREE: BASE RENT .

Section 3.01. Time and Manner of Payment . Upon execution of this Lease, Tenant shall pay Landlord the Base Rent in the amount stated in Section 1.12(a) above for the seventh (7 th ) month of the Lease Term, in consideration of the first month for which Base Rent is due. On the first day of the eighth (8 th ) month of the Lease Term and each month thereafter, Tenant shall pay Landlord the Base Rent, in advance, without offset, deduction or prior demand, in the amount stated in Section 1.12(a). The Base Rent shall be payable at Landlord’s address or at such other place as Landlord may designate in writing.

Section 3.02. [Reserved]

Section 3.03. [Reserved]

Section 3.04. Termination; Advance Payments. Upon termination of this Lease under Article Seven (Damage or Destruction), Article Eight (Condemnation) or any other termination not resulting from Tenant’s default, and after Tenant has vacated the Premises in the manner required by this Lease, Landlord shall refund or credit to Tenant (or Tenant’s successor), any advance rent or other advance payments made by Tenant to Landlord, and any amounts paid for real property taxes and other reserves which apply to any time periods after termination of the Lease no later than 30 days after premises have been vacated. Deductions from said advance payments and deposits shall be itemized by Landlord and presented to Tenant for review.

ARTICLE FOUR: OTHER CHARGES PAYABLE BY TENANT.

Section 4.01. Additional Rent. All charges payable by Tenant other than Base Rent are called “Additional Rent.” Unless this Lease provides otherwise, Tenant shall pay all Additional Rent then due with the next monthly installment of Base Rent, commencing upon the Commencement Date. During the free rent period, Additional Rent shall be due on the first day of each calendar month. The term “rent” shall mean Base Rent and Additional Rent.

Section 4.02. Property Taxes.

Exhibit 10.23

(a) Real Property Taxes . Tenant shall pay in the manner stated in Section 4.05(e), Tenant’s Pro Rata Share (based on the rentable square feet of the Premises including the mezzanine) of all Real Property Taxes on the Project (including any fees, taxes or assessments against, or as a result of, any change of ownership, reassessment, or improvements installed on the Premises by or for the benefit of Tenant) during the Lease Term (but excluding excise taxes, conveyance taxes, or other fees, taxes or assessments imposed on this transaction or other change of ownership, as opposed to taxes on the property value itself and which may become the basis for a lien on the property). Within thirty (30) days after the Lease Term, Landlord shall reimburse Tenant for any Real Property Taxes paid in excess by Tenant covering any period of time prior to or after the Lease Term.

(b) Definition of “Real Property Tax.” “Real Property Tax” means: (i) any fee, license fee, license tax, business license fee, commercial rental tax, levy charge, assessment, penalty or interest due to Tenant’s actions, or tax imposed by any taxing authority against the Premises, provided it is assessed on the property value itself and may become the basis for a lien on the property; (ii) any tax on the Landlord’s right to receive, or the receipt of, rent or income from the Premises or against Landlord’s business of leasing the Premises; (iii) any tax or charge for fire protection, streets, sidewalks, road maintenance, refuse or other services provided to the Premises by any governmental agency; (iv) any tax imposed or based upon a re-assessment of the Premises due to a change of ownership, as defined by applicable law, or other transfer of all or part of Landlord’s interest in the Premises, (v) any tax or charge for a local improvement district; and (vi) any charge or fee replacing any tax previously included within the definition of real property tax. “Real Property Tax” does not, however, include Landlord’s federal or state income, franchise, inheritance or estate taxes, or excise taxes, conveyance taxes, or other such fees, taxes or assessments imposed on this transaction or other transfer or sale of the Project.

(c) Joint Assessment . If the Premises is not separately assessed, Landlord shall reasonably determine Tenant’s share of the Real Property Tax payable by Tenant under Section 4.02(a) from the assessor’s worksheets or other reasonably available information.

(d) Personal Property Taxes .

(i) Tenant shall pay all taxes charged against trade fixtures, furnishings, equipment or any other personal property belonging to Tenant prior to the same becoming delinquent. Tenant shall try to have personal property taxed separately from the Premises. (ii) If any of Tenant’s personal property is taxed with the Premises Tenant shall pay Landlord the taxes for the personal property within fifteen (15) days after Tenant receives a written statement from Landlord for such personal property taxes.

Section 4.03. Utilities . Tenant shall pay, directly to the appropriate utility provider, the cost of all natural gas, electricity, sewer service, telephone, water, storm sewer, refuse disposal and other utilities and services supplied to the Premises. However, for any services or utilities that are jointly metered with other property, Landlord shall make a reasonable determination of the Premises’ and Tenant’s proportionate share of the cost of such utilities and services and Tenant shall pay such share to Landlord in the manner stated in Section 4.05(e).

Section 4.04. Insurance Policies.

(a) Liability Insurance . During the Lease Term, Tenant shall maintain a policy of commercial general liability insurance (sometimes known as broad form comprehensive general liability insurance) insuring Tenant against liability for bodily injury, property damage (including loss of use of third party’s property) and personal injury arising out of the operation, use or occupancy of the Premises. Tenant may also obtain property loss coverage for Tenant’s fixtures or equipment or building improvements installed by Tenant on the Premises. Tenant shall name Landlord, and Landlord’s property manager, as additional insureds under such commercial general liability policy. The initial coverage amount of such insurance shall be TWO MILLION DOLLARS ($2,000,000.00) per occurrence The liability insurance obtained by Tenant under this Section 4.04(a) shall (i) be primary and non-contributing; (ii) contain severability of interests endorsements; and (iii) insure Landlord against Tenant’s performance under Section 5.05, if the matters giving rise to the indemnity under Section 5.05 result from the negligence of Tenant. The amount and coverage of such insurance shall not limit Tenant’s liability nor relieve Tenant of any other obligations under this Lease. Landlord may also obtain commercial general liability insurance in an amount and with coverage determined by Landlord insuring Landlord against liability arising out of ownership, operation, use or occupancy of the Premises. The policy obtained by Landlord shall be contributory only and shall not provide primary insurance.

(b) Property and Rental Income Insurance . During the Lease Term, Landlord shall maintain policies of insurance covering loss of or damage to the Project (including improvements constructed by Landlord), in the full amount of its replacement value. Such policy shall contain an inflation guard endorsement and shall provide protection against all perils included within the classification of fire , extended coverage, vandalism, malicious mischief, special extended perils (all risk), sprinkler leakage and any other perils which Landlord deems reasonably necessary. Landlord shall have the right, but not the obligation, to obtain flood insurance at Tenant’s prorata cost, if such insurance is required by Landlord’s lender or otherwise agreed to by Tenant. Landlord shall not obtain insurance for Tenant’s fixtures or equipment or building improvements installed

Exhibit 10.23

by Tenant on the Premises. During the Lease Term, Landlord shall also maintain a rental income insurance policy, with loss payable to Landlord, in an amount equal to one (1) year’s Base Rent based on the Base Rent period from 3/1/2006 through 2/28/2007, plus estimated Additional Rent.

(c) Payment of Premiums . Tenant shall pay its Pro-Rata Share of premiums for the insurance policies for the Project described in Section 4.04 (b) in the manner stated in Section 4.05(e), and Tenant shall pay 100% of premiums for its liability insurance policy described in Section 4.04(a). If insurance policies maintained by Landlord cover improvements on real property other than the Project, Landlord shall fairly allocate premiums among the various properties and deliver to Tenant a statement of the premium applicable to the Project showing in reasonable detail how the Project’s and Tenant’s share of the premium was computed. If the Lease Term expires before the expiration of an insurance policy maintained by Landlord, Tenant shall be liable for Tenant’s prorated share of the insurance premiums. Before entering the Premises Tenant shall provide Landlord a certificate of insurance, executed by an authorized officer of the insurance company or broker, showing that the insurance which Tenant is required to maintain under this Section 4.04 is in full force and effect and containing such other information which Landlord reasonably requires. Tenant shall also promptly provide evidence of all policy renewals.

(d) General Insurance Provisions.

(i) Any policy or certificate of insurance which Tenant is required to maintain under this Lease shall include a provision which requires the insurance carrier or broker to give Landlord not less than thirty (30) days’ written notice prior to any cancellation, material modification, or non-renewal of such coverage.

(ii) If Tenant fails to deliver a policy, certificate or renewal to Landlord required under this Lease within the prescribed time period or if any such policy is cancelled, materially modified, or nonrenewed during the Lease Term without Landlord’s consent upon written notice to Tenant Landlord may obtain such insurance, in which case Tenant shall reimburse Landlord for the cost of such insurance within thirty (30) days after receipt of a statement that indicates the cost of such insurance.

(iii) Tenant shall maintain all insurance required under this Lease with companies holding a “General Policy Rating” of A-, VIII, or better, as set forth in the most current issue of “Best Key Rating Guide”. Landlord and Tenant acknowledge the insurance markets are rapidly changing and that insurance in the form and amounts described in this Section 4.04 may not be available in the future. Tenant acknowledges that the insurance described in this Section 4.04 is for the primary benefit of Landlord. If at any time during the Lease Term, Tenant is unable to maintain the insurance required under the Lease, Tenant shall nevertheless maintain insurance coverage which is customary and commercially reasonable in the insurance industry for Tenant’s type of business, as that coverage may change from time to time. Landlord makes no representation as to the adequacy of such insurance to protect Landlord’s or Tenant’s interests. Therefore, Tenant shall obtain any such additional property or liability insurance which Tenant deems necessary to protect Landlord and Tenant.

(iv) Unless prohibited under any applicable insurance policies maintained, Landlord and Tenant each hereby waive any and all rights of recovery against the other, or against the officers, employees, agents or representatives of the other, for loss of or damage to its property or the property of others under its control, if such loss or damage would be or is covered by any insurance policy (whether or not described in required by this Lease) at the time of such loss or damage. Upon obtaining the required policies of insurance, Landlord and Tenant shall give notice to the insurance carriers of this mutual waiver of subrogation.

(v) Tenant shall be liable for the payment of any deductible amount under Landlord’s or Tenant’s insurance policies maintained pursuant to this Section 4.04. Landlord and Tenant agree that the deductible amounts for the commercial general liability insurance policy (excluding property damage coverage) shall not exceed ONE HUNDRED FIFTY THOUSAND DOLLARS ($150,000.00) per occurrence, or as otherwise reasonably agreed by Landlord and Tenant (taking into account other financial security provided by Tenant. Tenant shall not do or permit anything to be done which invalidates any such insurance policies. Notwithstanding any language herein to the contrary, Tenant shall not be liable for the earthquake insurance deductible.

Section 4.05. Common Areas: Use, Maintenance and Costs.

(a) Common Areas. As used in this Lease, “Common Areas” shall mean all areas within the Project or Center which are available for the common use of tenants of the Center or Project and which are not leased or held for the exclusive use of Tenant or other tenants. For the Project, the Common Areas include, but are not limited to, parking areas, driveways, sidewalks, loading areas, access roads, corridors, emergency generator, landscaping and planted areas. For the Center, the Common Areas include, but are not limited to, roadways and landscaping areas. Landlord, from time to time, may change the size, location, nature and use of any of the Center Common Areas, convert Center Common Areas into leaseable areas, construct additional parking facilities (including parking structures) in the Center Common Areas, and increase or decrease Center Common Area land and/or facilities. Tenant acknowledges that such activities may result in an increase or decrease of Center

Exhibit 10.23

Common Area land or facilities. Tenant acknowledges that such activities may result in inconvenience to Tenant. Such activities are permitted if they do not materially affect Tenant’s access to or use of the Premises, or materially increase Tenant’s Pro Rata Share of Common Area costs or the total Common Area costs allocated to Tenant.

(b) Use of Common Areas. Tenant shall have the nonexclusive right (in common with other tenants and all others to whom Landlord has granted or may grant such rights to use the Common Areas for the purposes intended, subject to such reasonable rules and regulations as Landlord may establish from time to time. Tenant shall abide by such rules and regulations and shall use its best effort to cause others who use the Common Areas with Tenant’s express or implied permission to abide by Landlord’s rules and regulations. At any time and with notice to Tenant, Landlord may close any Common Areas to perform any acts in the Common Areas as, in Landlord’s judgment, are desirable to improve the Project or Park. Tenant shall not interfere with the rights of Landlord, other tenants or any other person entitled to use the Common Areas.

(c) Specific Provision re: Vehicle Parking. Tenant shall be entitled to nonexclusive use of the number of vehicle parking spaces in the Project allocated to Tenant in Section 1.11 of the Lease without paying any additional rent. Tenant’s parking shall not be reserved and shall be limited to vehicles no larger than standard size automobiles or pickup utility vehicles. Tenant shall not cause large trucks or other large vehicles to be parked on the adjacent public streets or within the Project, except at specified loading doors into the Premises. Vehicles shall be parked only in striped parking spaces and not in driveways, loading areas or other locations not specifically designated for parking. Handicapped spaces shall only be used by those legally permitted to use them. If Tenant parks more vehicles in the parking area than the number set forth in Section 1.11 of this Lease, Landlord may declare such conduct to be a material breach of this Lease after providing written notice to Tenant and allowing Tenant a reasonable amount of time to cure such breach. In addition to Landlord’s other remedies under the Lease, upon notice, Tenant may be assessed a daily charge determined by Landlord for each such additional vehicle. Notwithstanding any language to the contrary, if Tenant is leasing one hundred percent (100%) of the Building, Tenant may park in any area of the Project (the Building and parcel of land on which it is located) which is not prohibited by the local governmental authority.

Further notwithstanding any language herein to the contrary, so long as 3950 Brickway Boulevard (“3950”) is in common ownership with the Project, and so long as not more than 25% of 3950 is leased to a third party, Tenant may park on 30 spaces along the common boundary between the Project and 3950. Upon Landlord’s leasing of more than 25% of the space in 3950 to a third party and written notice of such to Tenant’s, Tenant shall discontinue its use of the additional spaces unless otherwise agreed upon between Landlord and Tenant.

(d) Maintenance of Common Areas. Landlord shall maintain the Common Areas in good order, condition and repair and shall operate the Project and Park, in Landlord’s reasonable discretion, as a first-class industrial/commercial real property development. Tenant shall pay, on a monthly basis, Tenant’s Pro-Rata Share (as determined below) of the costs specified below and incurred by Landlord for the operation and maintenance of the Common Areas in the manner stated in Section 4.05(e). Common Area costs include, but are not limited to, costs and expenses for the following: the emergency generator gardening and landscaping; utilities, water, storm water and sanitary sewage charges; maintenance of signs (other than tenants’ signs); premiums for liability, property damage, fire and other types of casualty insurance on the Common Areas and all Common Area improvements; all Real Property Taxes levied on or attributable to the Common Areas and all Common Area improvements; all personal property taxes levied on or attributable to personal property used in connection with the Common Areas; straight-line depreciation on personal property owned by Landlord which is consumed or used in the operation or maintenance of the Common Areas; rental or lease payments paid by Landlord for rented or leased personal property used in the operation or maintenance of the Common Areas; fees for required licenses and permits; repairing, resurfacing and repaying, striping or restriping, maintaining, painting, lighting, cleaning, refuse removal, security and similar items; sales taxes; business and occupations taxes; and a reasonable fee to Landlord for Landlord’s supervision of the Common Areas and Project management (not to exceed three percent (3%) of the Base Rents of the Project for the calendar year). Landlord may cause any or all of such services to be provided by third parties and the cost of such services shall be included in Common Area costs. Common Area costs shall not include depreciation of real property which forms part of the Common Areas. The parties acknowledge and agree that the costs for maintaining the emergency generator shall be divided pro-rata among the four buildings to which it is connected.

(e) Tenant’s Share and Payment . Tenant shall pay, in monthly installments to Landlord, Tenant’s annual Pro-Rata Share of all Common Area costs (prorated for any fractional month) in the manner described in this Section 4.05(e). Tenant’s “Pro-Rata Share” of the Project shall be calculated by dividing the square foot area of the rentable square feet of the Premises, as set forth in Section 1.04 of the Lease, by the aggregate rentable square foot area of the Building which is leased or held for lease by tenants, as of the date on which the computation is made. Tenant’s initial Pro-Rata Share of the Project is set out in Section 1.12(b), and Tenant’s initial Pro-Rata Share of the offsite Common Area Expenses is set out in Section 4.05(a). Any changes in the Common Area costs and/or the aggregate area of the Building leased or held for lease during the Lease Term shall be effective on the first day of the month after such change occurs. Upon written notice to Tenant, Landlord shall estimate in advance and charge to Tenant as Common Area costs, Tenant’s Pro Rata Share of all Real Property Taxes for the Project for which Tenant is liable under Section 4.02 of the Lease, Tenant’s Pro Rata Share of all insurance premiums for the Project for

Exhibit 10.23

which Tenant is liable under Section 4.04 of the Lease, Tenant’s Pro Rata Share of all operation, maintenance and repair costs for the Project for which Tenant is liable under Section 4.05 and Section 6.03 of the Lease, and all other costs payable by Tenant with Common Area costs hereunder. The level of such costs shall be in accordance with good commercial practices for comparable buildings in the area and shall not exceed competitive market rates. Such statements of estimated Common Area costs shall be delivered monthly, quarterly or at any other periodic intervals to be designated by Landlord. Landlord may adjust such estimates at any time upon a material change in costs, based upon reasonable anticipation of costs. Such adjustments shall be effective as of the next rent payment date after notice to Tenant. Within one hundred twenty (120) days after the end of each calendar year of the Lease Term, Landlord shall deliver to Tenant a statement prepared in accordance with generally accepted accounting principles setting forth, in reasonable detail, the Common Area costs paid or incurred by Landlord during the preceding calendar year and Tenant’s Pro-Rata Share. Upon receipt of such statement, there shall be an adjustment between Landlord and Tenant, with payment to or credit given by Landlord (as the case may be) so that Landlord shall receive the entire amount of Tenant’s Pro-Rata Share of such costs and expenses for such period within thirty (30) days of receipt of such statement. Tenant may, within ninety (90) days after the communication of such adjustment, review Landlord’s records relating to Common Area costs covered by such adjustment, at Tenant’s sole cost and expense, at the place Landlord normally maintains such records during Landlord’s normal business hours. If following such review Tenant shall dispute one or more items and Landlord and Tenant are unable to agree as to any disputed items within fifteen (15) days after Tenant notifies Landlord of the dispute, then Tenant may at its sole cost and expense, engage an independent certified public accounting firm (which firm shall not have been engaged by either Landlord or Tenant for any purpose in the twelve months preceding the date of Tenant’s dispute notice) to audit Landlord’s records relating to the disputed items, which audit shall be scheduled promptly at the reasonable convenience of both Landlord and Tenant and shall take place in Landlord’s offices. If the results of such audit indicate that the aggregate cost or allocation of the disputed items is incorrect, then Landlord shall refund the discrepancy, and if the amount of the discrepancy is more than three percent (3%), then Landlord shall pay the reasonable costs of such audit.

Section 4.06. [Reserved]

Section 4.07. Late Charges . Tenant’s failure to pay rent promptly may cause Landlord to incur unanticipated costs. The exact amount of such costs are impractical or extremely difficult to ascertain. Such costs may include, but are not limited to, processing and accounting charges and late charges which may be imposed on Landlord by any ground lease, mortgage or trust deed encumbering the Premises. Therefore, if Landlord does not receive any rent payment within ten (10) days after it becomes due, Tenant shall pay to Landlord a late charge equal to ten percent (10%) of the overdue amount. The parties agree that such late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of such late payment.

Section 4.08. Interest on Past Due Obligations . Any amount owed by Tenant to Landlord which is not paid when due shall bear interest at the rate of Prime + 4% per annum from the due date of such amount until paid in full. However, interest shall not be payable on late charges to be paid by Tenant under this Lease. The payment of interest on such amounts shall not excuse or cure any default by Tenant under this Lease. If the interest rate specified in this Lease is higher than the rate permitted by law, the interest rate is hereby decreased to the maximum legal interest rate permitted by law.

ARTICLE FIVE: USE OF PROPERTY .

Section 5.01. Permitted Uses . Tenant may use the Premises only for the Permitted Uses set forth in Section 1.06 above, or as otherwise permitted under the applicable zoning ordinance.

Section 5.02. Manner of Use . Tenant shall not cause or permit the Premises to be used in any way which constitutes a violation of any law, ordinance, or governmental regulation or order, which unreasonably annoys or interferes with the rights of other tenants of Landlord, or which constitutes a nuisance or waste. Tenant shall obtain and pay for all permits required for Tenant’s use of the Premises and shall promptly take all actions necessary to comply with all applicable statutes, ordinances, rules, regulations, orders and requirements regulating the use by Tenant of the Premises, including the Occupational Safety and Health Act.

Section 5.03. Hazardous Materials . As used in this Lease, the term “Hazardous Material” means any flammable items, explosives, radioactive materials, hazardous or toxic substances, material or waste or related materials, including any substances defined as or included in the definition of “hazardous substances”, “hazardous wastes”, “hazardous materials” or “toxic substances” now or subsequently regulated under any applicable federal, state or local laws or regulations, including, without limitation petroleum-based products, paints, solvents, lead, cyanide, DDT, printing inks, acids, pesticides, ammonia compounds and other chemical products, asbestos, PCBs and similar compounds, and including any different products and materials which are subsequently found to have adverse effects on the environment or the health and safety of persons. Tenant shall not cause or permit any Hazardous Material to be generated, produced, brought upon, used, stored, treated or disposed of

Exhibit 10.23

in or about the Premises by Tenant, its agents, employees, contractors, sub lessees except in connection with its permitted use and in compliance with applicable laws, or as otherwise consented to in writing to by Landlord. Landlord shall be entitled to take into account such other factors or facts as Landlord may reasonably determine to be relevant in determining whether to grant or withhold consent to Tenant’s proposed activity with respect to Hazardous Material. In no event, however, shall Landlord be required to consent to the installation or use of any storage tanks on the Premises.

Section 5.04. Signs and Auctions . Tenant shall not place any signs on the Premises without Landlord’s prior written consent. Tenant shall not conduct or permit any auctions or sheriff’s sales at the Premises. Landlord will allow Tenant to install signage that is reasonably acceptable to Landlord and in conformance with Exhibit “C”. All signage will be at the expense of the Tenant and subject to appropriate permits and approvals by regulatory authorities having jurisdiction, and subject to any applicable Covenants, Conditions, and Restrictions which are of public record.

Section 5.05. Indemnity . Tenant shall indemnify Landlord against and hold Landlord harmless from all costs, claims or liability arising from: (a) Tenant’s use of the Premises; (b) the conduct of Tenant’s business or anything else done or permitted by Tenant to be done in or about the Premises, including any contamination of the Premises or any other property resulting from the presence or use of Hazardous Material caused or permitted by Tenant; (c) any breach or default in the performance of Tenant’s obligations under this Lease; (d) any misrepresentation or breach of warranty by Tenant under this Lease; or (e) other acts or omissions of Tenant. Tenant’s indemnity shall include costs related to reasonable attorneys, accounting, consulting, engineering, and other fees and expenses, which may be imposed upon, incurred by, or assessed against Landlord. Tenant shall defend Landlord against any such cost, claim or liability at Tenant’s expense with counsel reasonably acceptable to Landlord or, at Landlord’s election, Tenant shall reimburse Landlord for any reasonable legal fees or costs incurred by Landlord in connection with any such claim. As a material part of the consideration to Landlord, Tenant assumes all risk of damage to property or injury to persons in or about the Premises arising from any cause except as provided herein, and Tenant hereby waives all claims in respect thereof against Landlord, except for any claim arising out of Landlord’s gross negligence or willful misconduct. As used in parts (a) through (e) of this Section, the term “Tenant” shall include Tenant’s employees, agents, contractors and invitees, if applicable. As used in this Section, the indemnitee “Landlord” includes its officers, directors, members, employees, partners, and shareholders.

Section 5.06. [Reserved]

Section 5.07. Landlord’s Access . Upon a 24 hour advance notice to Tenant, Landlord or its agents may enter the Premises escorted by a representative of Tenant during normal business hours, Monday through Friday to show the Premises to potential buyers, lenders, investors or tenants or other parties; to do any other act or to inspect and conduct tests in order to monitor Tenant’s compliance with all applicable environmental laws and all laws governing the presence and use of Hazardous Material; or for any other purpose Landlord deems necessary. Landlord shall give Tenant prior notice of such entry, except in the case of an emergency. Landlord may place customary “For Sale” or “For Lease” signs on the Premises upon notice to Tenant.

Section 5.08. Quiet Possession . If Tenant pays the rent and complies with all other terms of this Lease, Tenant may quietly occupy and enjoy the Premises for the full Lease Term, subject to the provisions of this Lease, without hindrance or molestation by Landlord or anyone claiming under or through Landlord.

Section 5.09. Access . Landlord agrees to provide Tenant with access to the Premises twenty-four (24) hours per day, three hundred sixty five (365) days per year.

ARTICLE SIX: CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS

Section 6.01. Existing Conditions. Landlord represents and warrants that as of the Commencement Date, the Building will comply with all laws (including the Americans with Disabilities Act as interpreted by the County of Sonoma, California with respect to the Landlord’s Work, but without regard for Tenant’s Work, Tenant’s operations, employees, contractors, agents or invitees), codes, rules, zoning and other ordinances, governmental regulations, restrictive covenants and other restrictions applicable to the Building or the Project . Tenant accepts the Premises in its condition as of the execution of the Lease including all systems, such as electrical, plumbing, HVAC, which shall be in good condition and operating properly, subject to all recorded matters, laws, ordinances, and governmental regulations and orders. In the event Landlord is providing tenant improvements, then Tenant accepts the Premises in its condition as of the substantial completion of such tenant improvements, so long as they are completed in accordance with this Lease. Except as provided herein, Tenant acknowledges that neither Landlord nor any agent of Landlord has made any representation as to the condition of the Premises or the suitability of the Premises for Tenant’s intended use. Tenant represents and warrants that Tenant has made its own inspection of and inquiry regarding the condition of the Premises as well as zoning and is not relying on any representations of Landlord or Brokers with respect thereto.

Exhibit 10.23

Section 6.02. Exemption of Landlord from Liability . Landlord shall not be liable for any damage or injury to the person, business (or any loss of income therefrom), goods, wares, merchandise or other property of Tenant, Tenant’s employees, invitees, customers or any other person in or about the Premises, whether such damage or injury is caused by or results from: (a) fire, steam, electricity, water, gas or rain; (b) the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures or any other cause; (c) conditions arising in or about the Premises or upon other portions of the Park, or from other sources or places; or (d) any act or omission of any other tenant of the Park. Landlord shall not be liable for any such damage or injury even though the cause of or the means of repairing such damage or injury are not accessible to Tenant. The provisions of this Section 6.02 shall not, however, exempt Landlord from liability for Landlord’s gross negligence or willful misconduct, or from its liabilities under Section 5.06 and Section 6.03.

Section 6.03. Landlord’s Obligations .

(a) Except as provided in Article Seven (Damage or Destruction) and Article Eight (Condemnation), Landlord shall keep the following in good order, condition and repair: the foundations, exterior walls and roof of the Premises (including painting the exterior surface of the exterior walls of the Premises not more than once every five (5) years, if necessary), and all components of electrical, mechanical, plumbing, heating and air conditioning systems and other building systems and facilities located in the Premises which are concealed or used in common by tenants of the Project, including the emergency generator. However, Landlord shall not be obligated to maintain or repair windows, doors, plate glass or the interior surfaces of exterior walls. Landlord shall make repairs under this Section 6.03 within a reasonable time after receipt of written notice from Tenant of the need for such repairs.

(b) Tenant shall pay or reimburse Landlord for its Pro Rata Share of all costs Landlord incurs under Section 6.03(a) above as Common Area costs as provided for in Section 4.05 of the Lease.

Section 6.04. Tenant’s Obligations .

(a) Except as provided in Article Six (Landlord’s Obligation), Article Seven (Damage Destruction) and Article Eight (Condemnation), Tenant shall keep all portions of the Premises, including nonstructural, interior walls, windows, doors, plate glass and the interior surfaces of exterior walls of the Premises, as well as Tenant’s equipment, in good order, condition and repair (including interior repainting and refinishing, as needed), reasonable wear and tear excepted. If any portion of the Premises or any system or equipment in the Premises which Tenant is obligated to repair cannot be fully repaired or restored, Tenant shall promptly replace such portion of the Premises or system or equipment in the Premises, regardless of whether the benefit of such replacement extends beyond the Lease Term; but if the benefit or useful life of such replacement extends beyond the Lease Term (as such term may be extended by exercise of any options), the useful life of such replacement shall be prorated over the remaining portion of the Lease Term (as extended), and Tenant shall be liable only for that portion of the cost which is applicable to the Lease Term (as extended). Landlord shall require, at Tenant’s sole cost, that Tenant maintain a preventive maintenance contract (unless Landlord elects to do so at Tenant’s expense) providing for the yearly inspection and maintenance of the heating and air conditioning system by a licensed heating and air conditioning contractor. If any part of the Premises is damaged by any intentional misconduct of Tenant, Tenant shall pay Landlord the cost of repairing or replacing such damaged property, whether or not Landlord would otherwise be obligated to pay the cost of maintaining or repairing such property, subject to Section 4.04(d)(iv). It is the intention of Landlord and Tenant that at all times Tenant shall maintain the portions of the Premises which Tenant is obligated to maintain in an attractive, first-class and fully operative condition.

(b) Tenant shall fulfill all of Tenant’s obligations under this Section 6.04, at Tenant’s sole expense. If Tenant fails to maintain, repair or replace the Premises as required by this Section 6.04, Landlord may, upon ten (10) days’ prior written notice to Tenant (except that no notice shall be required in the case of an emergency), enter the Premises and perform such maintenance or repair (including replacement, as needed) on behalf of Tenant. In such case, Tenant shall reimburse Landlord for all reasonable costs incurred in performing such maintenance or repair immediately upon demand.

Section 6.05. Alterations, Additions, and Improvements .

(a) With the exception of the provisions set forth in Article Seventeen, Tenant shall not make any alterations, additions, or improvements to the Premises without Landlord’s prior written consent, except for non-structural alterations or improvements which do not exceed Fifty Thousand Dollars ($50,000.00) in cost cumulatively over a twelve (12) month period and which are not visible from the outside of the Building of which the Premises are a part. Landlord may require Tenant to provide demolition and/or lien and completion bonds in form and amount satisfactory to Landlord. Tenant shall promptly remove any alterations, additions, or improvements constructed in violation of this Section 6.05(a) upon Landlord’s written request. All alterations, additions, and improvements shall be done in a good and workmanlike manner, in conformity with all applicable laws and regulations, and by a contractor approved by Landlord, which approval shall not be unreasonably withheld. Upon

Exhibit 10.23

completion of any such work, Tenant shall provide Landlord with “as built” plans, copies of all building permits, and proof of payment for all labor and materials.

(b) Tenant shall pay when due all claims for labor and material furnished to the Premises that were installed or directed to be installed by Tenant and not permit any liens to be filed against the Premises that relate to work performed by or directed to be performed by Tenant. Tenant shall give Landlord at least ten (10) days’ prior written notice of the commencement of any work on the Premises costing in excess of $10,000 regardless of whether Landlord’s consent to such work is required. Landlord may elect to record and post notices of non-responsibility on the Premises.

Section 6.06. Condition upon Termination . Upon the termination of the Lease, Tenant shall surrender the Premises to Landlord, broom clean and in the same condition as received, except for ordinary wear and tear, and except for other maintenance or repairs for which Tenant was not otherwise obligated to remedy under any provision of this Lease. Tenant shall not be obligated to repair any damage which Landlord is required to repair under Section 6.03 or Article Seven (Damage or Destruction). With the exception of Landlord’s work as set forth in Article 17 hereof, Landlord may require Tenant to remove any signs, alterations, additions or improvements (whether or not made with Landlord’s consent unless such restoration is waived by Landlord) prior to the expiration of the Lease and to restore the Premises to its prior condition, less normal wear and tear, all at Tenant’s expense. All alterations, additions and improvements which Landlord has not required Tenant to remove shall become Landlord’s property and shall be surrendered to Landlord upon the expiration or earlier termination of the Lease, except that Tenant may remove any of Tenant’s trade fixtures, machinery or equipment. Tenant shall repair, at Tenant’s expense, any damage to the Premises caused by the removal of any such machinery or equipment. In no event, however, shall Tenant remove any of the following materials or equipment (which shall be deemed Landlord’s property, in place at the commencement of this Lease or otherwise purchased by Landlord) without Landlord’s prior written consent: any power wiring or power panels except electrical drops; lighting or lighting fixtures except task lighting; wall coverings; drapes, blinds or other window coverings; carpets or other floor coverings; heaters, air conditioners or any other heating or air conditioning equipment; fencing or security gates except inventory fencing; or other similar building operating equipment and decorations as provided by Landlord. In the event that Tenant fails to put the Premises in the condition required by the terms of this Section 6.06 at such time as this Lease terminates, or leave any personal property on the Premises, Landlord without prior notice to Tenant, shall have the right, but not the obligation, to perform Tenant’s obligations under this Section 6.06. All reasonable costs and expenses incurred by Landlord, including disposal costs of any personal property left on the Premises, shall be paid to Landlord by Tenant upon demand. The amount due shall bear interest at the rate set forth in Section 4.08 from the date each item of expense was incurred until paid in full.

ARTICLE SEVEN: DAMAGE OR DESTRUCTION

Section 7.01. Partial Damage to Premises .

(a) Tenant shall notify Landlord in writing immediately upon the occurrence of any damage to the Premises. If the Premises is only partially damaged (i.e., less than fifty percent (50%) of the Premises is untenantable as a result of such damage or less than fifty percent (50%) of Tenant’s operations are materially impaired) and if the proceeds received by Landlord from the casualty insurance policy described in Section 4.04(b) are sufficient to pay for the necessary repairs, this Lease shall remain in effect and Landlord shall repair the damage as soon as reasonably possible. Landlord may elect (but is not required) to repair any damage to Tenant’s fixtures, equipment, or improvements constructed by Tenant. The Base Rent and Additional Rent shall be abated as stated in Section 7.03.

(b) If the insurance proceeds received by Landlord are not sufficient to pay the entire cost of repair, or if the cause of the damage is not covered by the casualty insurance policy which Landlord maintains under Section 4.04(b), Landlord may elect either to (i) repair the damage as soon as reasonably possible, in which case this Lease shall remain in full force and effect, or (ii) terminate this Lease as of the date the damage occurred. Landlord shall notify Tenant within thirty (30) days after receipt of notice of the occurrence of the damage whether Landlord elects to repair the damage or terminate the Lease. If Landlord elects to repair the damage, Tenant shall pay Landlord its Pro Rata Share of the “deductible amount” (if any) under Landlord’s insurance policies. If Landlord elects to terminate the Lease, Tenant may elect to continue this Lease in full force and effect, in which case Tenant shall repair any damage to the Premises and any building in which the Premises is located. Tenant shall pay the cost of such repairs, except that upon satisfactory completion of such repairs, Landlord shall deliver to Tenant all insurance proceeds received by Landlord for the damage repaired by Tenant. Tenant shall give Landlord written notice of such election within ten (10) days after receiving Landlord’s termination notice. The failure by Tenant to notify Landlord within the ten (10) day period shall constitute an election by Tenant not to repair the damage and that this Lease is terminated. In the event Tenant elects to restore the Premises under this Section 7.01 and in the event Tenant elects to purchase the Building pursuant to Article 19, Tenant shall deduct from the purchase price of the Building, the cost of such restoration in excess of any insurance proceeds received by Tenant.

Exhibit 10.23

(c) If the damage to the Premises occurs during the last six (6) months of the Lease Term and such damage will require more than thirty (30) days to repair, either Landlord or Tenant may elect to terminate this Lease as of the date the damage occurred, regardless of the sufficiency of any insurance proceeds. The party electing to terminate this Lease shall give written notification to the other party of such election within thirty (30) days after Tenant’s notice to Landlord of the occurrence of the damage.

Section 7.02. Substantial or Total Destruction. If the Premises is substantially or totally destroyed by any cause whatsoever (i.e., the damage to the Premises is greater than partial damage as described in Section 7.01), and regardless of whether Landlord receives any insurance proceeds, this Lease shall terminate as of the date the destruction occurred. Notwithstanding the preceding sentence, if the Premises can be rebuilt within six (6) months after the date of destruction, Landlord may elect to rebuild the Premises at Landlord’s own expense, in which case this Lease shall remain in full force and effect, with the exception of abatement of Base Rent and Additional Rent until the Premises is fully restored. Landlord shall notify Tenant of such election within fifteen (15) days after Tenant’s notice of the occurrence of total or substantial destruction. If Landlord so elects, Landlord shall rebuild the Premises at Landlord’s sole expense, except if the damage was due to the intentional misconduct of Tenant, or Tenant’s employees, agents, contractors or invitees, and such intentional misconduct causes Landlord’s insurance to deny coverage, then Tenant shall pay the difference between the actual cost of repair and any insurance proceeds received by Landlord.

Section 7.03. Temporary Reduction of Rent. If the Premises is destroyed or damaged and Landlord or Tenant repairs or restores the Premises pursuant to the provisions of this Article Seven, any rent payable during the period of such damage, repair and/or restoration shall be reduced according to the degree, if any, to which Tenant’s use of the Premises is impaired. Except for such possible reduction in rent, insurance premiums and real property taxes, Tenant shall not be entitled to any compensation, or reimbursement from Landlord as a result of any damage, destruction, repair, or restoration of or to the Premises.

Section 7.04. Waiver. Landlord and Tenant waive the protection of any statute, code or judicial decision which grants a landlord or tenant the right to terminate a lease in the event of the substantial or total destruction of the leased property, to the extent inconsistent with Section 7.02 above. Landlord and Tenant agree that the provisions of Section 7.02 above shall govern the rights and obligations of Landlord and Tenant in the event of any substantial or total destruction to the Premises.

ARTICLE EIGHT: CONDEMNATION

If all or any portion of the Premises is taken under the power of eminent domain or sold under the threat of that power (all of which are called “Condemnation”), this Lease shall terminate as to the part taken or sold on the date the condemning authority takes title or possession, whichever occurs first. If more than twenty percent (20%) of the Building is taken, either Landlord or Tenant may terminate this Lease as of the date the condemning authority takes title or possession, by delivering written notice to the other within ten (10) days after receipt of written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority takes title or possession). If neither Landlord nor Tenant terminates this Lease, this Lease shall remain in effect as to the portion of the Premises not taken, except that the Base Rent and Additional Rent shall be reduced in proportion to the reduction in the floor area of the Premises. Any Condemnation award or payment shall be the property of Landlord whether as compensation for reduction in the value of the leasehold, the taking of the fee, or otherwise, provided however the Tenant may pursue and award for relocation and other expenses. If this Lease is not terminated, Landlord shall repair any damage to the Premises caused by the Condemnation, except that Landlord shall not be obligated to repair any damage for which Tenant has been reimbursed by the condemning authority. If the damages received by Landlord are not sufficient to pay for such repair, Landlord shall have the right to either terminate this Lease or make such repair at Landlord’s expense.

ARTICLE NINE: ASSIGNMENT AND SUBLETTING

Section 9.01. Landlord’s Consent Required but Not Unreasonably Withheld . Except as set forth herein, no portion of the Premises or of Tenant’s interest in this Lease may be acquired by any other person or entity, whether by sale, assignment, mortgage, sublease, transfer, operation of law, or act of Tenant, without Landlord’s prior written consent, which shall not be unreasonably withheld, delayed or denied except as provided in Section 9.02 below. Landlord has the right to grant or withhold its consent as provided in Section 9.05 below. Any attempted transfer without consent shall be void and shall constitute a non-curable breach of this Lease.

Section 9.02. Tenant Affiliate. Tenant may assign this Lease or sublease the Premises, without Landlord’s consent, to any corporation which controls, is controlled by or is under common control with Tenant, or to any corporation resulting from the merger or acquisition of or consolidation with Tenant (“Tenant’s Affiliate”). In such case, any Tenant’s Affiliate shall assume in writing all of Tenant’s obligations under this Lease.

Exhibit 10.23

Section 9.03. No Release of Tenant. No transfer permitted by this Article Nine, whether with or without Landlord’s consent nor any assumption of Tenant’s obligation under this Lease, shall release Tenant or change Tenant’s primary liability to pay the rent and to perform all other obligations of Tenant under this Lease. Landlord’s acceptance of rent from any other person is not a waiver of any provision of this Article Nine. Consent to one transfer is not a consent to any subsequent transfer. If Tenant’s transferee defaults under this Lease, Landlord may proceed directly against Tenant without pursuing remedies against the transferee. Landlord may consent to subsequent assignments or modifications of this Lease by Tenant’s transferee, without notifying Tenant or obtaining its consent. Such action shall not relieve Tenant’s liability under this Lease.

Section 9.04. Offer to Terminate. If Tenant desires to assign the Lease or sublease the Premises, Tenant shall have the right to offer, in writing, to terminate the Lease as of a date specified in the offer. If Landlord elects in writing to accept the offer to terminate within twenty (20) days after notice of the offer, the Lease shall terminate as of the date specified and all the terms and provisions of the Lease governing termination shall apply. If Landlord does not so elect, the Lease shall continue in effect until otherwise terminated and the provisions of Section 9.05 with respect to any proposed transfer shall continue to apply.

Section 9.05. Landlord’s Consent .

(a) Tenant’s request for consent to any transfer described in Section 9.01 shall set forth in writing the details of the proposed transfer, including the name, business and financial condition of the prospective transferee, financial details of the proposed transfer (e.g., the term of and the rent and security deposit payable under any proposed assignment or sublease), and any other information Landlord deems relevant. Landlord shall have the right to withhold consent, if reasonable, or to grant consent based on the following factors: (i) the business of the proposed assignee or subtenant and the proposed use of the Premises, (ii) the net worth, profitability and financial reputation of the proposed assignee or subtenant, (iii) Tenant’s compliance with all of its obligations under the Lease. If Landlord objects to a proposed assignment solely because of the net worth, profitability and/or financial reputation of the proposed assignee, Tenant may nonetheless sublease (but not assign), all or a portion of the Premises to the proposed transferee, but only on the other terms of the proposed transfer. Landlord’s consent shall not be unreasonably withheld, delayed or denied.

Section 9.06. No Merger. No merger shall result from Tenant’s sublease of the Premises under this Article Nine, Tenant’s surrender of this Lease or the termination of this Lease in any other manner. In any such event, Landlord may terminate any or all subtenancies or succeed to the interest of Tenant as sublandlord under any or all subtenancies.

ARTICLE TEN: DEFAULTS; REMEDIES

Section 10.01. Covenants and Conditions. Landlord’s and Tenant’s performance of each of their respective obligations under this Lease is a condition as well as a covenant. Tenant’s right to continue in possession of the Premises is conditioned upon Tenant’s performance. Time is of the essence in the performance of all covenants and conditions.

Section 10.02. Defaults. The following shall be considered an Event of Default under this Lease:

(a) If Tenant abandons the Premises without notice to Landlord or if Tenant’s vacation of the Premises results in the cancellation or increased cost of any insurance described in Section 4.04;

(b) If Tenant fails to pay rent or any other charge when due for a period of five (5) days after notice from Landlord. The notice required by this Paragraph is intended to satisfy any and all notice requirements imposed by law on Landlord and provided that such notice is in the form required and delivered by the method required by such laws shall be in lieu of and not in addition to any such requirement;

(c) If Tenant fails to perform any of Tenant’s non-monetary obligations under this Lease for a period of thirty (30) days after written notice from Landlord; provided that if more than thirty (30) days are required to complete such performance, Tenant shall not be in default if Tenant commences such performance within the thirty (30)-day period and thereafter diligently pursues its completion. However, Landlord shall not be required to give such notice if Tenant’s failure to perform constitutes a non-curable breach of this Lease. The notice required by this Paragraph is intended to satisfy any and all notice requirements imposed by law on Landlord and is not in addition to any such requirement.

(d) (i) If Tenant makes a general assignment or general arrangement for the benefit of creditors; (ii) if a voluntary petition for adjudication of bankruptcy or for reorganization or rearrangement is filed by Tenant and is not dismissed within thirty (30) days; (iii) if a trustee or receiver is appointed to take possession of substantially all of Tenant’s assets located at the Premises or of Tenant’s interest in this Lease and possession is not restored to Tenant within thirty (30) days; or (iv) if substantially all of Tenant’s assets located at the Premises or of Tenant’s interest in this Lease is subjected to attachment, execution or other judicial seizure which is not discharged within thirty (30) days. If a court of competent jurisdiction determines that any of the

Exhibit 10.23

acts described in this subparagraph (d) is not a default under this Lease, and a trustee is appointed to take possession (or if Tenant remains a debtor in possession) and such trustee or Tenant transfers Tenant’s interest hereunder, then Landlord shall receive, as Additional Rent, the excess, if any of the rent (or any other consideration) paid in connection with such assignment or sublease over the rent payable by Tenant under this Lease.

(e) Notwithstanding Section 10.02(c) above, if Tenant fails to reasonably respond in a timely manner to a Landlord request pursuant to Section 3.03 (a) (security deposit), Section 11.03 (SNDA) or Section 11.04 (estoppel), or Section 11.05 (financial statements), Landlord shall give an additional written notice to Tenant pursuant to Section 10.02 (c), but the time period for Tenant’s response shall be reduced from 30 days to ten (10) days.

Section 10.03. Remedies . On the occurrence and continuance of an Event of Default by Tenant, after notice to Tenant and all applicable grace periods, Landlord may, at any time thereafter, with or without notice or demand and without limiting Landlord in the exercise of any right or remedy which Landlord may have:

(a) Terminate Tenant’s right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Tenant shall immediately surrender possession of the Premises to Landlord. In such event, subject to the Landlord’s duty to mitigate, Landlord shall be entitled to recover from Tenant all damages incurred by Landlord by reason of Tenant’s default, including (i) the worth at the time of the award of the unpaid Base Rent, Additional Rent and other charges which Landlord had earned at the time of the termination; (ii) the worth at the time of the award of the amount by which the unpaid Base Rent, Additional Rent and other charges which Landlord would have earned after termination until the time of the award exceeds the amount of such rental loss that Landlord could have reasonably avoided; (iii) the worth at the time of the award of the amount by which the unpaid Base Rent, and other charges which Tenant would have paid for the balance of the Lease Term after the time of award exceeds the amount of such rental loss that Landlord could have reasonably avoided; and (iv) the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation or alteration of the Premises, Landlord’s reasonable attorneys’ fee incurred in connection therewith, and any real estate commission paid or payable. As used in subparts (i) and (ii) above, the “worth at the time of the award” is computed by allowing interest on unpaid amounts at the rate of Prime + 4% per annum, or such lesser amount as may then be the maximum lawful rate. As used in subpart (iii) above, the “worth at the time of the award” is computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of the award, plus one percent (1%). If Tenant has abandoned the Premises, Landlord shall have the option of (i) retaking possession of the Premises and recovering from Tenant the amount specified in this Section 10.03(a), or (ii) proceeding under Section 10.03(b);

(b) Maintain Tenant’s right to possession, in which case this Lease shall continue in effect whether or not Tenant has abandoned the Premises. In such event, Landlord shall be entitled to enforce all of Landlord’s rights and remedies under this Lease, including the right to recover the rent as it becomes due;

(c) Pursue any other remedy now or hereafter available to Landlord under the laws or judicial decisions of the state in which the Premises is located.

Section 10.04. [Reserved]

Section 10.05. Cumulative Remedies. Landlord’s exercise of any right or remedy shall not prevent it from exercising any other right or remedy.

Section 10.06. Obligation to Mitigate Damages. Both the Landlord and the Tenant shall have the obligation to take reasonable steps to mitigate their damages caused by any default under this Lease.

ARTICLE ELEVEN. PROTECTION OF LENDERS.

Section 11.01. Subordination . Landlord shall have the right to subordinate this Lease to any ground lease, deed of trust or mortgage encumbering the Premises, any advances made on the security thereof and any renewals, modifications, consolidations, replacements or extensions thereof, whenever made or recorded, so long as Tenant’s interests and quiet enjoyment are not disturbed. Tenant shall cooperate with Landlord and any lender which is acquiring a security interest in the Premises or the Lease. Tenant shall execute such further reasonable documents and assurances as such lender may require, provided that Tenant’s obligations under this Lease shall not be increased in any material way (the performance of ministerial acts shall not be deemed material), and Tenant shall not be deprived of its rights under this Lease. Tenant’s right to quiet possession of the Premises during the Lease Term shall not be disturbed if Tenant pays the rent and performs all of Tenant’s obligations under this Lease and is not otherwise in default. If any ground lessor, beneficiary or mortgagee elects to have this Lease prior to the lien of its ground lease, deed of trust or mortgage and gives written notice thereof to Tenant, this Lease shall be deemed prior to such ground lease, deed of trust or mortgage whether this Lease is dated prior or subsequent to the date of said ground lease, deed of trust or mortgage or the date of recording thereof.

Exhibit 10.23

Section 11.02. Attornment. If Landlord’s interest in the Premises is acquired by any ground lessor, beneficiary under a deed of trust, mortgagee, or purchaser at a foreclosure sale, Tenant shall attorn to the transferee or successor to Landlord’s interest in the Premises and recognize such transferee or successor as Landlord under this Lease. Tenant waives the protection of any statute or rule of law which gives or purports to give Tenant any right to terminate this Lease or surrender possession of the Premises upon the transfer of Landlord’s interest.

Section 11.03. Signing of Documents . Tenant shall sign and deliver any reasonable instrument or documents to evidence any such attornment or subordination or agreement to do so. If Tenant fails to do so or to provide objections to the proposed form within ten (10) business days after written request, Tenant shall be in default of this Lease. Landlord and Tenant hereby agree to execute a Subordination, Nondisturbance and Attornment Agreement substantially in the form of the attached Exhibit “E”, and a Lender’s Estoppel Certificate substantially in the form of the attached Exhibit “D” .

Section 11.04. Estoppel Certificates.

(a) Not more frequently than once per calendar year, unless the Property is being actively marketed, upon Landlord’s written request, Tenant shall execute, acknowledge and deliver to Landlord a written statement in a form attached hereto as Exhibit “B” certifying: (i) that none of the terms or provisions of this Lease have been changed (or if they have been changed, stating how they have been changed); (ii) that this Lease has not been cancelled or terminated; (iii) the last date of payment of the Base Rent and other charges and the time period covered by such payment; (iv) that Landlord is not in default under this Lease (or, if Landlord is claimed to be in default, stating why); Tenant shall deliver such statement to Landlord, or otherwise respond, within ten (10) business days after Landlord’s request. Landlord may give any such statement by Tenant to any prospective purchaser or encumbrancer of the Premises. Such purchaser or encumbrancer may rely conclusively upon such statement as true and correct.

(b) If Tenant does not deliver or otherwise repond to the request regarding such statement to Landlord within such ten (10) business day period, Tenant shall be in default of this Lease.

Section 11.05. Tenant’s Financial Condition . Within ten (10) days after written request from Landlord, Tenant shall deliver to Landlord such financial statements as Landlord reasonably requests and which Tenant has available in the ordinary course of Tenant’s business (at a minimum, annual audited financial statements), in the net worth and profitability of Tenant or any assignee, subtenant, or guarantor of Tenant. In addition, Tenant shall deliver to any lender designated by Landlord these same financial statements to facilitate the financing or refinancing of the Premises. Tenant represents and warrants to Landlord that each such financial statement is a true and accurate statement as of the date of such statement. All financial statements shall be confidential and shall be used only for the purposes set forth in this Lease. If Tenant does not deliver such statement to Landlord within such ten (10) day period, Tenant shall be in default of this Lease. Notwithstanding any language herein to the contrary, this paragraph shall apply only in the event that neither Tenant nor its guarantor, if any, is a publicly traded corporation.

ARTICLE TWELVE: LEGAL COSTS

Section 12.01. Legal Proceedings . If Tenant or Landlord shall be in breach or default under this Lease, such party (the “Defaulting Party”) shall reimburse the other party (the “Nondefaulting Party”) upon demand for any reasonable costs or expenses that the Nondefaulting Party incurs in connection with any breach or default of the Defaulting Party under this Lease, whether or not suit is commenced or judgment entered. Such costs shall include reasonable legal fees and costs incurred for the negotiation of a settlement, enforcement of rights or otherwise. Furthermore, if legal proceeding for breach of or to enforce the provisions of this Lease is commenced, or for a declaration of or review, including proceedings in bankruptcy, the court in such action shall award to the party in whose favor a judgment is entered, a reasonable sum as attorneys’ fees and costs at trial, upon appeal. The losing party in such action shall pay such attorneys’ fees and costs.

Tenant shall also indemnify Landlord against and hold Landlord harmless from all costs, expenses, demands and liability Landlord may incur if Landlord becomes or is made a party to any claim or action (a) instituted by Tenant against any third party, or by any third party against Tenant, or by or against any person holding any interest under or using the Premises by license of or agreement with Tenant; (b) for foreclosure of any lien for labor or material furnished to or for Tenant or such other person; (c) otherwise arising out of or resulting from any act or transaction of Tenant or such other person; or (d) necessary to protect Landlord’s interest under this Lease in a bankruptcy proceeding, or other proceeding under Title 11 of the United States Code, as amended. Tenant shall defend Landlord against any such claim or action at Tenant’s expense with counsel reasonably acceptable to Landlord or, at Landlord’s election, Tenant shall reimburse Landlord for any reasonable legal fees or costs Landlord incurs in any such claim or action.

Exhibit 10.23

Landlord shall also indemnify Landlord against and hold Tenant harmless from all costs, expenses, demands and liability Tenant may incur if Tenant becomes or is made a party to any claim or action (a) instituted by Landlord against any third party, or by any third party against Landlord, or by or against any person holding any interest under or using the Premises or Park by lease, license of or agreement with Landlord; (b) for foreclosure of any lien for labor or material furnished to or for Landlord or such other person; (c) otherwise arising out of or resulting from any act or transaction of Landlord or such other person; or (d) necessary to protect Tenant’s interest under this Lease in a bankruptcy proceeding, or other proceeding under Title 11 of the United States Code, as amended. Landlord shall defend Tenant against any such claim or action at Landlord’s expense with counsel reasonably acceptable to Tenant or, at Tenant’s election, Landlord shall reimburse Tenant for any reasonable legal fees or costs Tenant incurs in any such claim or action.

Section 12.02. Landlord’s Consent . Tenant shall pay Landlord’s reasonable attorneys’ fees incurred in connection with Tenant’s request for Landlord’s consent under Article Nine (Assignment and Subletting), or in connection with any other act which Tenant proposes to do and which requires Landlord’s consent, up to the maximum amount of five hundred dollars ($500.00) per consent.

ARTICLE THIRTEEN: MISCELLANEOUS PROVISIONS

Section 13.01. Non-Discrimination . Tenant promises, and it is a condition to the continuance of this Lease, that there will be no discrimination against, or segregation of, any person or group of persons on the basis of race, color, sex, creed, national origin or ancestry in the leasing, subleasing, transferring, occupancy, tenure or use of the Premises or any portion thereof.

Section 13.02. Landlord’s Liability; Certain Duties.

(a) As used in this Lease, the term “Landlord” means only the current owner or owners of the fee title to the Premises or the leasehold estate under a ground lease of the Premises at the time in question. Each Landlord is obligated to perform the obligations of Landlord under this Lease only during the time such Landlord owns such interest or title. Any Landlord who transfers its title or interest is relieved of all liability with respect to the obligations of Landlord under this Lease to be performed on or after the date of transfer, except for defaults then existing, provided the successor landlord assumes all obligations hereunder. However, each Landlord shall deliver to its transferee all funds that Tenant previously paid if such funds have not yet been applied under the terms of this Lease.

(b) Tenant shall give written notice of any failure by Landlord to perform any of its obligations under this Lease to Landlord and to any ground lessor, mortgagee or beneficiary under any deed of trust encumbering the Premises whose name and address have been furnished to Tenant in writing. Landlord shall not be in default under this Lease unless Landlord (or such ground lessor, mortgagee or beneficiary) fails to cure such non-performance within thirty (30) days after receipt of Tenant’s notice. However, if such non-performance reasonably requires more than thirty (30) days to cure, Landlord shall not be in default if such cure is commenced within such thirty (30) day period and thereafter diligently pursued to completion.

(c) Notwithstanding any term or provision herein to the contrary, the liability of Landlord for the performance of its duties and obligations under this Lease is limited to Landlord’s interest in the Premises and Park, and neither the Landlord nor its partners, shareholders, officers or other principals shall have any personal liability under this Lease.

Section 13.03. Severability . A determination by a court of competent jurisdiction that any provision of this Lease or any part thereof is illegal or unenforceable shall not cancel or invalidate the remainder of such provision or this Lease, which shall remain in full force and effect.

Section 13.04. Interpretation . The captions of the Articles or Sections of this Lease are to assist the parties in reading this Lease and are not a part of the terms or provisions of this Lease. Whenever required by the context of this Lease, the singular shall include the plural and the plural shall include the singular. The masculine, feminine and neuter genders shall each include the other. In any provision relating to the conduct, acts or omissions of either the Landlord or Tenant, the terms “Landlord” or “Tenant” shall include their respective agents, employees, contractors, invitees, successors or others using the Premises with the express or implied permission of either such party.

Section 13.05. Incorporation of Prior Agreements; Modifications . This Lease is the only agreement between the parties pertaining to the lease of the Premises and no other agreements are effective. All amendments to this Lease shall be in writing and signed by all parties. Any other attempted amendment shall be void.

Section 13.06. Notices . All notices required or permitted under this Lease shall be in writing and shall be personally delivered, sent by facsimile, sent by overnight express delivery, or sent by registered mail, return receipt requested, postage

Exhibit 10.23

prepaid. All notices shall be effective upon personal delivery, facsimile receipt, or first attempted delivery by USPS or overnight express delivery service. Either party may change its notice address upon written notice to the other party.

Notices to Tenant shall be delivered to:

TriVascular, Inc.

c/o Boston Scientific Corporation, Inc.

Mr. Robert Maclntyre

One Boston Scientific Place

Natick, Massachusetts 01760

Tel: (508) 650-8000

Fax: (508) 647-2337

with a facsimile copy to:

Marcia C. Robinson, Esq.

Bingham McCutchen LLP

150 Federal Street

Boston, MA 02110

Tel: (617) 951-8535

Fax: (617) 951-8736

Notice to Landlord shall be delivered to:

Carmel River, LLC

Carlsen Investments, LLC

Rieger Investments, LLC

c/o PDC Properties, Inc.

8395 Jackson Road, Suite F

Sacramento, CA 95826

(916) 381-5195 Tel

(916) 381-2566 Fax

with a facsimile copy to:

Martin R. Boersma, Esq.

Panattoni Law Firm

8413 Jackson Road, Suite C

Sacramento, CA 95826

(916) 381-6171 Tel

(916) 290-9811 Fax

Section 13.07. Waivers . All waivers must be in writing and signed by the waiving party. Landlord’s failure to enforce any provision of this Lease or its acceptance of rent shall not be a waiver and shall not prevent Landlord from enforcing that provision or any other provision of this Lease in the future. No statement on a payment check from Tenant or in a letter accompanying a payment check shall be binding on Landlord. Landlord may, with or without notice to Tenant, negotiate such check without being bound to the conditions of such statement.

Section 13.08. No Recordation . Tenant shall not record this Lease without prior written consent from Landlord. However, either Landlord or Tenant may require that a “Short Form” memorandum of this Lease executed by both parties be recorded. The party requiring such recording shall pay all transfer taxes and recording fees.

Section 13.09. Binding Effect; Choice of Law. This Lease binds any party who legally acquires any rights or interest in this Lease from Landlord or Tenant. However, Landlord shall have no obligation to Tenant’s successor unless the rights or interests of Tenant’s successor are acquired in accordance with the terms of this Lease. The laws of the state in which the Premises is located shall govern this Lease. Tenant represents it is a California corporation in good standing. Carmel River, LLC , represents it is a Delaware limited liability company in good standing, and authorized to do business in California. Carlsen Investments, LLC, represents it is a California limited liability company in good standing. Rieger Investments, LLC, represents it is a Delaware limited liability company in good standing, and authorized to do business in California.

Exhibit 10.23

Section 13.10. Authority. If Tenant is a corporation, each person signing this Lease on behalf of Tenant represents and warrants that he has full authority to do so and that this Lease binds the corporation.

Section 13.11. Joint and Several Liability. All parties signing this Lease as Tenant shall be jointly and severally liable for all obligations of Tenant.

Section 13.12. Force Majeure. If Landlord cannot perform any of its obligations due to events beyond Landlord’s control, the time provided for performing such obligations shall be extended by a period of time equal to the duration of such events. Events beyond Landlord’s control include, but are not limited to, lack of building permits, acts of God, riot, war, civil commotion, Tenant delay, labor disputes, strikes, fire, flood or other casualty, shortages of labor or material, government restriction, delay, or regulation, and weather conditions causing delay (“Force Majeure”).

Section 13.13. Execution of Lease. This Lease may be executed in counterparts and, when all counterpart documents are executed, the counterparts shall constitute a single binding instrument. Landlord’s delivery of this Lease to Tenant shall not be deemed to be an offer to lease and shall not be binding upon either party until executed and delivered by both parties.

Section 13.14. Survivial. All representations and warranties of Landlord shall survive the termination of the Lease for one (1) year, all representations and warranties of Tenant made in Section 5.03, entitled Hazardous Materials shall survive the termination of the Lease for one (1) year.

ARTICLE FOURTEEN: BROKERS

Section 14.01. Broker’s Fee . Any real estate commission paid by Landlord shall be pursuant to a separate agreement. Nothing contained in this Lease shall impose any obligation on Landlord or Tenant to pay a commission or fee to any party other than to Brokers.

Section 14.02. Agency Disclosure; No Other Brokers . Landlord and Tenant each warrant that they have dealt with no other real estate broker(s) in connection with this transaction except the brokers identified in Section 1.08.

ARTICLE FIFTEEN: COMPLIANCE

The parties hereto agree to comply with all applicable federal, state and local laws, regulations, codes, ordinances and administrative orders having jurisdiction over the parties, property or the subject matter of this Agreement, including, but not limited to, the 1964 Civil Rights Act and all amendments thereto, the Foreign Investment in Real Property Tax Act, the Comprehensive Environmental Response Compensation and Liability Act, and The Americans With Disabilities Act.

ADDITIONAL PROVISIONS MAY BE SET FORTH IN A RIDER OR RIDERS ATTACHED HERETO.

Landlord and Tenant have signed this Lease at the place and on the dates specified adjacent to their signatures below.




“LANDLORD”

CARMEL RIVER, LLC,
a Delaware limited liability company





By:	/s/ Carl D. Panattoni
	Carl D. Panattoni, Trustee of the Panattoni Living Trust, dated April 8, 1998, Managing Member





CARLSEN INVESTMENTS, LLC, a California limited liability company

Exhibit 10.23





By:	/s/ James Carlsen
Name:	James Carlsen, Managing Member





RIEGER INVESTMENTS, LLC, a Delaware limited liability company





By:	/s/ Jacklyn Shelby
Name:	Jacklyn Shelby, Managing Member





	“TENANT”

	TRIVASCULAR, INC., a California corporation

By:	/s/ James H. Taylor Jr. 6/22/05
Name:	James H. Taylor Jr.
Title:	Executive V.P. Operations

By:	/s/ Charles E. Pappalardo
Name:	Charles E. Pappalardo
Title:	Vice President Global Facilities

RIDER(S) TO

LEASE AGREEMENT

ARTICLE SIXTEEN: RENEWAL OPTION.

Exhibit 10.23

A. GRANT OF OPTION. Provided Tenant is not in an Event of a Default, and Tenant or Tenant’s Affiliate is physically occupying, the Premises at the time of such election, Tenant may renew this Lease for one (1) additional period of five (5) years (“Option to Renew”) on the terms and conditions as provided in this Lease (except as set forth below), by delivering written notice of the exercise thereof to Landlord not later than six (6) months before the expiration of the Term (the “Renewal Notice Deadline”). On or before one (1) month prior to the commencement date of the extended Term, Landlord and Tenant shall execute an amendment to this Lease extending the Term on the same terms and conditions as provided in this Lease, except as follows:

(1) The Base Rent payable during the extended Term shall be the then 95% of prevailing market rental rate, including annual Base Rent escalations of $.02 per square foot every 12 months during the extended Term (with the first such increase effective the 13 th month of the extended Term), for space of equivalent quality, size, utility and location in the Santa Rosa market, taking into account all relevant factors (“Market Rate”), determined as stated herein and in accordance with paragraph (B) below; provided, however, that Base Rent payable during the first year of such extended Term shall in no event be less than $.78 per square foot, increased thereafter as stated herein.

(2) Tenant shall have no further renewal options unless expressly granted by Landlord in writing;

(3) Landlord shall lease to Tenant the Premises in their then-current condition; and

(4) The determination of Market Rate shall take into account the size and credit worthiness of Tenant as well as any concessions granted to tenants in the Santa Rosa marketplace at that time, including but not limited to, free rent and tenant improvement allowances.

B. DETERMINATION OF MARKET RENT . Upon notification from Tenant of the exercise of its renewal option, Landlord shall within ten (10) business days thereafter notify Tenant in writing of the proposed Market Rate applicable to the extended Term; Tenant shall within ten (10) business days following receipt of such notice from Landlord, notify Landlord in writing of the acceptance or rejection of the proposed Market Rate. If Tenant fails to respond to Landlord’s determination of Market Rate within said ten (10) business-day period, Tenant shall be deemed to have rejected Landlord’s designation of Market Rate for all purposes. In the event of rejection by Tenant, the Market Rate for the renewal Term shall be determined as follows:

(1) Within ten (10) business days following notification of Tenant’s rejection (or expiration of the ten (10) business day Tenant response period), Landlord and Tenant shall each appoint a broker. Any broker appointed hereunder shall be impartial, shall have at least ten (10) years’ experience as a real estate broker involved in flex building transactions in the Sonoma County area and shall be licensed to perform brokerage services in the State in which the Premises are located. If either party does not appoint a broker within the ten (10) business day period, then the other party may apply to the presiding judge of the Sonoma County Superior Court for such appointment, which appointment shall be conclusive on all parties and nonappealable. The brokers so appointed shall meet promptly and attempt to agree on the Market Rate for the renewal Term. The determination of Market Rate by the two brokers, if they agree, shall be binding on Landlord and Tenant.(2) If the two brokers cannot agree upon the Market Rate for the renewal Term within ten (10) business days following their appointment, then the two brokers shall select a third broker, but if they are unable to agree on a third broker within five (5) business days, then either Landlord or Tenant may apply to the presiding judge of the Sonoma County Superior Court for such appointment, which appointment shall be conclusive on all parties and nonappealable.

(3) The first two (2) brokers selected hereunder shall each deliver a signed, brief written report of each broker’s respective opinion to Tenant, Landlord, and third broker within ten (10) business days after the third broker’s appointment. The third broker must choose one of the two opinions of market rent and may not average the determinations. The opinion chosen by the third broker shall be binding on Landlord and Tenant. The fee of the broker initially selected by Tenant shall be paid by Tenant, the fee of the broker initially selected by Landlord shall be paid by Landlord, and the fee of any third broker and any expenses of the third broker (except attorneys’ fees, which shall be borne by the party incurring the same) shall be shared equally by Tenant and Landlord.

(4) If the determination proceedings are initiated as provided above in order to determine the Market Rate which is applicable to the renewal term, the decision and award of the brokers as to such Market Rate shall be final, conclusive, and binding on the parties, absent settlement by agreement of the parties prior to the rendering by the brokers of any such decision and award. If the Market Rate is not finally determined prior to the commencement of the renewal Term, Tenant shall pay Base Rent equal to the previous month’s Base Rent until the final determination of the Market Rate for the renewal Term occurs as provided above. If final determination of such Market Rate is different from the amount paid by Tenant, Tenant shall promptly pay to Landlord any additional Base Rent.

C. OPTIONS ARE PERSONAL. The Options to Renew granted to Tenant in this Article are personal to Tenant named herein, except to Tenant affiliates and successors, cannot be assigned to a third party as part of an assignment of this Lease and can only be exercised by the Tenant named herein if the named Tenant is in actual physical occupancy of the Premises on the

Exhibit 10.23

date that Tenant exercises the Option to Renew. At any time that Tenant ceases to physically occupy in excess of one-half of the Premises, the Option to Renew set forth in this Article shall automatically terminate.

ARTICLE SEVENTEEN: TENANT IMPROVEMENTS . Landlord shall, at Landlord’s sole cost, insure that all systems, such as electrical, plumbing, and HVAC, shall be in good operating condition upon the commencement of the Lease Term. Landlord shall also be responsible, at Landlord’s cost, to repair all existing roof leaks and remove existing mold or mildew resulting from such leaks (“Landlord’s Work”). Landlord shall engage Clayton Group Services, or a similar company that provides occupational health, safety and environmental risk information to perform an environmental assessment of the mold and mildew included in Landlord’s Work (the “Air Quality Assessment”). Landlord shall not perform Landlord’s Work until the Air Quality Assessment has been performed and suggested remediation, if any, has been delivered to Landlord and Tenant. All fees and permits necessary for Landlord’s Work (including but not limited to electrical, mechanical, and fire and life safety equipment) will be at Landlord’s expense. Any fees and permits necessary for Tenant’s installation of Tenant’s equipment, furniture and fixtures (including but not limited to electrical, mechanical, crane, racking, emissions, effluent, and fire and life safety equipment) shall be Tenant’s sole responsibility and cost.

(a) Landlord hereby appoints Chetta Sinclair-Diaz as Landlord’s representative to act for Landlord in all construction matters. Tenant hereby appoints Tom Hensley as Tenant’s representative to act for Tenant in all construction matters. All inquiries, requests, instructions, authorizations and other communications with respect to construction matters shall be related to Landlord’s representative or Tenant’s representative, as the case may be. Neither party will [ILLEGIBLE] and will not give any instructions or authorizations to, any other employee or agent of the other party, including the other party’s architects, engineers, and contractors or any of their agents or employees, with regard to matters covered by this Lease. Either Landlord or Tenant may change its representative at any time by written notice to the other.

b) Tenant shall retain its own specialty contractors to perform the work necessary to outfit the Premises and install Tenant’s fixtures and equipment (the “Tenant’s Work”). The Tenant’s Work shall include, but not be limited to, data cabling, telephone and data equipment, security, antennas, signs, audio/visual equipment, furniture systems, racking, electrical wiring and hookup to Tenant’s equipment. Tenant’s contractor(s) and Landlord’s contractor(s) shall work in harmony during the period of Landlord’s Work. Tenant and Tenant’s contractors shall have access to the Premises during the construction period to install cabling and for the purpose of inspecting the work in progress. Tenant’s contractors shall be qualified and appropriately licensed and shall provide evidence of liability insurance coverage, in the same amounts and including the same additional insureds, as Tenant’s coverage pursuant to this Lease (provided that the deductibles for such contractor insurance shall not exceed $5,000 unless mutually agreed between Landlord and Tenant on a contractor by contractor basis), prior to entry upon the Premises. Landlord’s representative shall maintain control of the jobsite until the Commencement Date hereunder. Landlord shall notify Tenant if any Tenant Work is interfering with the Landlord’s Work.

ARTICLE EIGHTEEN: [RESERVED].

ARTICLE NINETEEN: RIGHT OF FIRST REFUSAL TO PURCHASE BUILDING. Provided Tenant has not committed an Event of Default of any of the terms or covenants of this Lease following notice and expiration of any applicable cure period, Tenant shall have a right of first refusal (“Right of First Refusal to Purchase”) during the Term of this Lease to purchase the Building.

(a) Tenant shall have ten (10) business days to accept or reject the purchase of the Building after delivery by Landlord to Tenant of a written purchase agreement (“Offer”), fully executed by Landlord and a third party, to purchase the Building.

(b) If Tenant does not deliver to Landlord, within the ten (10) business day period, a copy of the Offer signed by Tenant, then Tenant’s Right of First Refusal to Purchase shall be of no further force or effect.

(c ) In the event that Tenant exercises the Right of First Refusal to Purchase by delivering to Landlord a copy of the Offer, executed by Tenant, then Landlord shall also execute the Offer with Tenant, and Tenant shall purchase the Building on the terms contained in the Offer. In the event Tenant timely delivers the Offer to Landlord, but later does not timely consummate the transaction, Landlord shall have all of the remedies against Tenant which are contained in the Offer, and this Right of First Refusal to Purchase shall automatically terminate and be of no further force or effect.

(d) The Right of First Refusal to Purchase granted to Tenant in this Article cannot be assigned to a third party, except as part of an approved assignment of this Lease. At any time that Tenant or Tenant’s affiliate ceases to physically occupy all of the Premises, the Right of First Refusal to Purchase set forth in this Article shall automatically terminate.

(e) In the event that Tenant does not elect to exercise the Right of First Refusal to Purchase and the sale to the third party is not consummated as presented to Tenant, then Tenant’s Right of First Refusal to Purchase shall still be in effect and Landlord shall again be required to abide by this Article Nineteen.

ARTICLE TWENTY: ROOF ACCESS AND CONDUIT ACCESS.

Exhibit 10.23

Tenant shall have the right to use a portion of the roof space and conduits within the Building, subject to Landlord’s reasonable approval, at no additional cost to Tenant, for its HVAC and communication equipment. Tenant shall be responsible for all costs related to the installation, maintenance, removal, electrical power, and use of the equipment, including any damage to the Building, roof structure, or roof membrane. Tenant shall notify Landlord prior to any roof access, to enable Landlord to have a representative present to observe Tenant’s work, and Landlord may require Landlord’s contractors to perform any roof penetrations, at Tenant’s cost, to prevent invalidation of Landlord’s roof warranty.

ARTICLE TWENTY-ONE: CONDITIONS PRECEDENT TO EFFECTIVENESS OF LEASE.

The parties acknowledge and agree the effectiveness of this Lease shall be specifically conditioned upon Landlord’s termination of the existing lease with Agilent Technologies for the Building, Agilent’s payment to Landlord of an agreed penalty amount, and Landlord’s lender’s approval of this Lease, and Tenant’s execution of a Subordination, Non-disturbance, and Attornment Agreement acceptable to Landlord’s lender, all of which Landlord estimates shall occur on or before the Commencement Date of the Lease Term herein.

Exhibit “A”

Premises, Building, Project and Park Description

Exhibit 10.23

Exhibit 10.23

Exhibit 10.23

Exhibit 10.23

Exhibit “B”

FORM OF LANDLORD’S ESTOPPEL CERTIFICATE




To:




		Re: [Property Address]

( “Tenant” ) certifies as follows:

1. The undersigned is the Tenant under that certain lease dated , (the “Lease”), executed by (“Landlord”) as Landlord and the undersigned as Tenant, covering a portion of the property located at (the “Property”).

2. Pursuant to the Lease, Tenant has leased approximately square feet of space (the “Premises”) at the Property and has paid to Landlord a security deposit of $ . The term of the Lease commenced on , and the expiration date of the Lease is , . Tenant has paid rent through , . The next rental payment in the amount of $ is due on , . Tenant is required to pay percent ( %) of all annual operating expenses for the Property.

3. The Lease provides for an option to extend the term of the Lease for years, at a rental rate for such extension term as set forth in the Lease. Except as expressly provided in the Lease, and other documents attached hereto, Tenant does not have any right or option to renew or extend the term of the Lease, to lease other space at the Property, nor any preferential right to purchase all or any part of the Premises or the Property.

4. Complete copies of the Lease and all amendments, modifications and supplements thereto are attached hereto and the Lease, as so amended, modified and supplemented, is in full force and effect, and represents the entire agreement between Tenant and Landlord with respect to the Premises and the Property. There are no amendments, modifications or supplements to the Lease, whether oral or written, except as attached hereto.

5. All space and improvements leased by Tenant have been completed and furnished in accordance with the provisions of the Lease, Tenant has been paid any amount owing under the Lease with respect thereto, and Tenant has accepted and taken possession of the Premises.

6. Landlord is not in any respect in default in the performance of the terms and provisions of the Lease. Tenant is not in any respect in default under the Lease and has not assigned, transferred or hypothecated the Lease or any interest therein or subleased all or any portion of the Premises.

7. There are no offsets or credits against rentals payable under the Lease and no free periods or rental concessions have been granted to Tenant, except as follows:

This Certificate is given to with the understanding that will rely hereon in connection with the conveyance of the Property of which the Premises constitute a part. Following any such conveyance, Tenant agrees that the Lease shall remain in full force and effect and shall bind and inure to the benefit of as if no purchase had occurred.

Exhibit 10.23

DATED AS OF: , 2005.




TENANT:
	a

	By:
		Its:

Exhibit “C”

Signage

In accordance with Section 5.04 of this Lease, Landlord will allow Tenant to install signage that is reasonably acceptable to Landlord, not to be unreasonably withheld of delayed. Subject to the County of Sonoma and Landlord’s reasonable consent to the design, Tenant shall be permitted to install signage on the exterior roofline of the building identifying Tenant as a tenant in the building. Tenant shall also be permitted to install a sign or wall to disguise the emergency generator. Furthermore, Tenant shall be allowed to install its name on the monument sign located on the North side of the driveway which is the entrance to the Project on Brickway Blvd. All signage will be at the expense of the Tenant and subject to appropriate permits and approvals by regulatory authorities having jurisdiction.

At the expiration or earlier termination of the term, Tenant shall remove any sign and restore the area on which it was located.

Exhibit “D”

Form of Lender’s Estoppel Certificate

TENANT ESTOPPEL CERTIFICATE

UNION BANK OF CALIFORNIA, N.A.




Re: Lease Dated:		<Date of Lease>
[Original Landlord:]		<Name of Original Landlord>
[Original Tenant:]		<Name of Original Tenant>
[Current Landlord:]		<Name of Current Landlord>
[Current Tenant:]		<Name of Current Tenant>
Property:		<Address of Collateral Property>
Premises:		<Identification of Leased Premises (free text input)>
Commencement Date:		<Starting date of Lease/Sublease>
Termination Date:		<Ending date of Lease/Sublease>
Current Monthly Rent:		<Current Monthly Rent ($dollars)>
Security Deposit:		<Amount of Security Deposit ($dollars)>

Ladies and Gentlemen:

The undersigned hereby states, declares, represents and warrants to Union Bank of California, N. A. (“Bank”) as follows:

Exhibit 10.23

1. Attached hereto as Exhibit “A” is a true, correct and complete copy of the above-referenced Lease including any amendments thereto. The Lease has not been amended (or further amended) or supplemented except to the extent set forth below:

2. Tenant’s only interest in the Property is the leasehold estate created under the Lease and Tenant has no option to purchase or right of first refusal with respect to the Property or any portion thereof except to the extent set forth below:

3. All rent, any expense reimbursement charges and any other amounts required to be paid by Tenant under the Lease are current and have been paid in full through the current month, but not more than 30 days in advance of their due dates except as identified below:




Tenant Estoppel Certificate (08/14/02)
CORE DOCUMENT (12/10/02)

4. Tenant has not assigned or encumbered its interest in the Lease or sublet all or any portion of the Premises except to the extent set forth below:

5. Tenant has accepted the Premises and all construction of improvements required to be performed or paid by Landlord under the Lease has been completed except to the extent set forth below:

6. The Lease has been duly authorized, executed and delivered by Tenant, is in full force and effect, and contains the entire agreement between Landlord and Tenant with respect to the lease of the Premises.

7. The term of the Lease commenced as of the commencement date indicated above and shall expire on the termination date indicated above unless sooner terminated pursuant to the terms thereof.

8. Tenant has no right or option to renew or extend the term of the Lease or to enlarge the Premises except as set forth in the Lease.

9. The amount of monthly rent currently due and the security deposit (if any) paid by Tenant is as set forth above. No interest is due Tenant on such security deposit, and no other amount has been paid by Tenant to or for the account of Landlord, the return of which Tenant would be entitled to upon the expiration of the Lease.

10. Tenant has not received any written notice of any assignment, mortgage or pledge of Landlord’s interest under the Lease or of the rents or other amounts payable thereunder.

11. No default, or any event or condition which with the passing of time or giving of notice, or both, would constitute a default on the part of either Tenant or, to the best of Tenant’s knowledge, Landlord, exists under the Lease.

12. To the best of Tenant’s knowledge, no claim against Tenant or dispute exists between Tenant and Landlord under the Lease. Tenant has no knowledge of any claim, offset or defense against Landlord under the Lease.

13. All insurance required of Tenant under the Lease, if any, has been obtained by Tenant and all premiums now due have been paid.

14. There has not been filed by or against Tenant, and Tenant is not aware of, any pending or threatened petition in bankruptcy (voluntary or otherwise) or any assignment for the benefit of creditors.

15. Tenant is aware that <Name of Borrowers> has obtained from Bank or applied to Bank for a loan (the “Loan”) secured by, among other things, a Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing (the “Deed of Trust”) in favor of Bank encumbering the Property and all improvements now or hereafter situated on the Property.

16. During the term of the Loan, Tenant will not enter into any agreement with Landlord to amend, modify or extend the Lease or any interest of Tenant thereunder without the prior written consent of Bank and any such purported agreement shall not be valid or effective against Bank without its prior written consent.




Tenant Estoppel Certificate (08/14/02)
CORE DOCUMENT (12/10/02)

17. Tenant acknowledges that Bank is relying on this Tenant Estoppel Certificate in considering a Loan to <Name of Borrower> . Tenant represents and warrants to Bank that this Tenant Estoppel Certificate is a valid and authorized certificate of

Exhibit 10.23

Tenant and the person(s) executing this Tenant Estoppel Certificate on behalf of Tenant have the authority to do so. This Tenant Estoppel Certificate shall inure to the benefit of Bank and its successors and assigns.

Dated this day of .




[NAME OF TENANT]

By:
Name:
Title:

By:
Name:
Title:




Tenant Estoppel Certificate (08/14/02)
CORE DOCUMENT (12/10/02)

EXHIBIT “A”

ATTACH COPY OF LEASE WITH ALL AMENDMENTS.

Exhibit “E”

Subordination, Nondisturbance and Attornment Agreement

RECORDING REQUESTED BY

UNION BANK OF CALIFORNIA, N.A.

AND WHEN RECORDED MAIL TO:

UNION BANK OF CALIFORNIA, N.A.

Attn.:

__________________________________________

Space above this line for Recorder’s use.

Exhibit 10.23

[SUBORDINATION,] NONDISTURBANCE AND ATTORNMENT AGREEMENT

THIS [SUBORDINATION,] NONDISTURBANCE AND ATTORNMENT AGREEMENT (the “Agreement”) is made as of <<Month Day, Year>> by and between Union Bank of California, N.A. (“Bank”) and <<Name of Tenant>> (“Tenant”).

RECITALS:

A. Bank has made or has agreed to make a loan (the “Loan”) to <<Name of Borrower>>, a <<Type of Entity>> (“Borrower”) evidenced by, among other things, a debt instrument executed or to be executed by Borrower in favor of Bank in the principal amount of the Loan (as amended from time to time, the “Note”).

B. The Note and certain other obligations of Borrower under the Loan are or will be secured by, among other things, a Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing (as amended from time to time, the “Deed of Trust”). The Deed of Trust, executed or to be executed by [Borrower] [<<Name of Collateral Owner>>, a <<Type of Entity>> (“Collateral Owner”)] in favor of Bank, and previously recorded or to be recorded concurrently herewith, encumbers the estate of [Borrower] [Collateral Owner] in certain real property and improvements commonly known as << Address of Collateral Property >>, and more particularly described on Exhibit A attached hereto (the “Property”).

C. [Borrower] [Collateral Owner] has leased a portion of the Property to Tenant subject to the terms and conditions of a lease dated <<Month Day, Year>> (together with any amendments executed prior to the date hereof, the “Lease”).

PARAGRAPH D FOR SNDA ONLY:

D. As a condition to making the Loan, Bank requires that Tenant subordinate the Lease to the Deed of Trust and the lien thereof and attorn to Bank as provided below. Tenant is willing to provide such subordination and attornment provided Bank agrees not to disturb Tenant’s right to possession under the Lease as provided below.

PARAGRAPH D FOR NDA ONLY:

D. Tenant and Bank wish to enter into the agreement set forth below.




Tenant Estoppel Certificate (08/14/02)
CORE DOCUMENT (12/10/02)

Exhibit 10.23

AGREEMENT:

For good and valuable consideration, Tenant and Bank agree as follows:

PARAGRAPH 1 FOR SNDA ONLY. FOR NDA, DELETE THIS PARAGRAPH AND RENUMBER REMAINING PARAGRAPHS:

1. SUBORDINATION. Tenant hereby subordinates the Lease and all rights, remedies and options of Tenant thereunder, including without limitation any option to purchase or right of first refusal to purchase the Property or any part thereof or interest therein, to the Deed of Trust and to the lien thereof and to all sums secured thereby and advances made thereunder with the same force and effect as if the Deed of Trust had been executed, delivered and recorded prior to the execution and delivery of the Lease.

2. NON DISTURBANCE. [FOR SNDA ONLY : Bank will not join Tenant as a party in any Foreclosure unless the joinder is necessary or desirable to pursue its remedies under the Deed of Trust, and provided that such joinder shall not result in the termination of the Lease or disturb Tenant’s possession of the Premises.] In the event of a Foreclosure (defined below), Bank agrees that the leasehold interest of Tenant under the Lease shall not be terminated by reason of the Foreclosure, but rather the Lease shall continue in full force and effect and Bank shall recognize and accept Tenant as tenant under the Lease subject to the provisions of the Lease except as otherwise provided below; provided that, if Tenant shall then be in default under the Lease beyond any notice, grace or cure period, at Bank’s option the Lease shall be terminated by reason of the Foreclosure and Bank shall have no obligation to Tenant under the Lease. As used in this Agreement, “Foreclosure” means any non-judicial or judicial foreclosure or other enforcement of the remedies of the Deed of Trust, or any deed or other transfer in lieu thereof.

3. ATTORNMENT. In the event of a transfer of [Borrower’s] [Collateral Owner’s] interest in the Property to a Purchaser (defined below), Tenant agrees that the Lease shall continue in full force and effect and Tenant agrees to attorn to the Purchaser as its landlord under the Lease and to be bound by all of the provisions of the Lease for the balance of the term thereof; provided that, the Purchaser shall not be:

3.1 Liable for any act or omission of any Prior Landlord (defined below) or subject to any offsets or defenses which Tenant might have against any Prior Landlord;

3.2 Liable for the return of any rental security deposit, or bound by any payment of rents, additional rents or other sums which Tenant may have paid more than one month in advance to any Prior Landlord, except to the extent such sums are actually received by Purchaser;

3.3 Bound by any amendment to the Lease, made without Bank’s prior written consent;

3.4 Liable for obligations under the Lease the cost of which exceed the value of its interest in the Property or for obligations which accrue after Purchaser has sold or otherwise transferred its interest in the Property;

3.5 Bound to install, construct or pay for any improvements on the Property, or bound to restore the Property after a casualty for a cost in excess of proceeds recovered under any insurance required to be carried under the Lease, or bound to restore the Property after a taking for a cost in excess of any condemnation award;

3.6 Bound by any restriction on competition beyond the Property;

3.7 Bound by any notice of termination, cancellation or surrender of the Lease made without Bank’s prior written consent;

3.8 Bound by any environmental representation, warranty, covenant or indemnity contained in the Lease;




Tenant Estoppel Certificate (08/14/02)
CORE DOCUMENT (12/10/02)

3.9 Bound by any option to purchase or right of first refusal with respect to the Property or any portion thereof; and

3.10 Bound by any representation or warranty contained in the Lease

This attornment shall be immediately effective and self operative, without the execution of any further instrument, upon Purchaser’s acquisition of [Borrower’s] [Collateral Owner’s] interest in the Property. As used in this Agreement, “Purchaser” means any transferee, including Bank, of [Borrower’s] [Collateral Owner’s] interest in the Property pursuant to a Foreclosure, and the successors and assigns of such transferee, and “Prior Landlord” means any landlord, including [Borrower] [Collateral Owner], under the Lease prior in time to Purchaser.

Exhibit 10.23

4. NOTICE TO TENANT. After written notice is given to Tenant by Bank that Borrower is in default under the Loan and that the rentals under the Lease should be paid to Bank pursuant to the terms of the Deed of Trust, Tenant shall thereafter pay to Bank all rent and all other sums due [Borrower] [Collateral Owner] under the Lease.

5. NOTICE TO LENDER AND RIGHT TO CURE. Tenant shall provide written notice to Bank of any default by [Borrower] [Collateral Owner] under the Lease and Tenant agrees that no notice of termination of the Lease or of an abatement of rent shall be effective unless Bank shall have received written notice of default giving rise to such termination or abatement and shall have failed within 60 days after receipt of such notice to cure such default, or if such default cannot be cured within 60 days, shall have failed within 60 days after receipt of such notice to commence and thereafter diligently pursue any action necessary to cure such default, including without limitation any action to obtain possession of the Property. Notwithstanding the foregoing, Bank shall have no obligation to cure any such default.

6. MISCELLANEOUS. This Agreement shall be binding upon and inure to the benefit of Bank and Tenant and their respective successors and assigns. This Agreement shall be governed and interpreted under the laws of the state where the Property is located. This Agreement is the entire agreement of the parties and supersedes any prior agreement with respect to its subject matter, and no provision of this Agreement may be waived or modified except in a writing signed by all parties. If any lawsuit, arbitration or other proceeding is brought under this Agreement, the prevailing party shall be entitled to recover the reasonable fees and costs of its attorneys in such proceeding. If any provision of this Agreement is held to be invalid or unenforceable in any respect, this Agreement shall be construed without such provision. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which taken together shall constitute one and the same document. Tenant represents and warrants to Bank that this Agreement is a valid and binding agreement of Tenant and the person(s) executing this Agreement on behalf of Tenant have the authority to do so.

INSERT THE FOLLOWING ONLY IF REAL ESTATE COLLATERAL IS LOCATED IN OREGON:

UNDER OREGON LAW, MOST AGREEMENTS, PROMISES, AND COMMITMENTS MADE BY BANK AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE DEBTOR’S RESIDENCE, MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY BANK TO BE ENFORCEABLE.

INSERT THE FOLLOWING ONLY IF REAL ESTATE COLLATERAL IS LOCATED IN WASHINGTON:

ORAL AGREEMENTS OR ORAL COMMITMENTS TO LONE MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.




Tenant Estoppel Certificate (08/14/02)
CORE DOCUMENT (12/10/02)

IN WITNESS WHEREOF, Bank and Tenant have duly executed this Agreement as of the date first above written.

Exhibit 10.23

BANK:

Union Bank of California, N.A.

By:

Name:

Title:

TENANT:

<<Name of Tenant/Sublessee>>

By:

Name:

Title:

By:

Name:

Title:




Tenant Estoppel Certificate (08/14/02)
CORE DOCUMENT (12/10/02)

EXHIBIT “A”

LEGAL DESCRIPTION OF PROPERTY

[INSERT LEGAL DESCRIPTION OF COLLATERAL PROPERTY]




Tenant Estoppel Certificate (08/14/02)
CORE DOCUMENT (12/10/02)

NOTARY ACKNOWLEDGMENT

[INSERT NOTARY ACKNOWLEDGMENTS FOR APPLICABLE STATE]




Tenant Estoppel Certificate (08/14/02)
CORE DOCUMENT (12/10/02)

Exhibit 10.23

Exhibit “F”

Lease Guaranty

GUARANTY

FOR VALUE RECEIVED, and in consideration of, and as an inducement for the execution and delivery of that certain Lease Agreement, dated June 16, 2005 (the “Lease”) leasing the Premises located in the City of Santa Rosa, County of Sonoma, California, by Carmel River, LLC, a Delaware limited liability company, Carlsen Investments, LLC, a California limited liability company, and Rieger Investments, LLC, a Delaware limited liability company (collectively defined as “Landlord”) to TriVascular, Inc., a California corporation, the Tenant therein named (“Tenant”), the undersigned (the “Guarantor”) hereby guarantees to Landlord (i) the full and prompt payment of Rent, including but not limited to the Base Rent, Additional Rent and any and all other sums and charges payable by Tenant under the Lease, and the Guarantor hereby covenants and agrees to and with Landlord, that if default shall at any time be made by Tenant in the payment of any such Base Rent, Additional Rent or any and all other sums and charges payable by Tenant under the Lease and Tenant shall fail to cure such default within any applicable grace period, the Guarantor will pay such Rent and other sums and charges to the Landlord, and any arrears thereof; (ii) the performance of Tenant’s obligations under Section 5.03 of the Lease, entitled Hazardous Materials; and (iii) the performance of Tenant’s obligations under Section 6.06 of the Lease, entitled Condition upon Termination.

This Guaranty is an absolute and unconditional guaranty of payment and performance of those Sections of the Lease described above in (i), (ii) and (iii). It shall be enforceable against the Guarantor without the necessity of any suit or proceedings on Landlord’s part of any kind or nature whatsoever against Tenant, and without the necessity of any notice of nonpayment or of any notice of acceptance of this Guaranty or of any other notice or demand to which the Guarantor might otherwise be entitled, all of which the Guarantor hereby expressly waives; and the Guarantor hereby expressly agrees that the validity of this Guaranty and the obligations of the Guarantor thereunder shall in no way be terminated, affected, diminished or impaired by reason of the assertion or the failure to assert by Landlord against Tenant, or against Tenant’s successors or assigns, of any of the rights or remedies reserved to Landlord pursuant to the provisions of the Lease or by relief of Tenant from any of Tenant’s obligations under the Lease or otherwise (including, but not by way of limitation, the rejection by Tenant of the Lease in connection with proceedings under the bankruptcy laws now or hereafter in effect).

This Guaranty shall be a continuing guaranty and the liability of the Guarantor hereunder shall in no way be affected, modified or diminished by reason of any assignment, renewal, modification or extension of the Lease or by reason of any modification or waiver of or change in any of the terms, covenants, conditions or provisions of the Lease, or by reason of any extension of time that may be granted by Landlord to Tenant, or a changed or different use of the Premises consented to in writing by Landlord, or by reason of any dealings or transactions or matters or things occurring between Landlord and Tenant, whether or not notice thereof is given to the Guarantor.

All of the Landlord’s rights and remedies under the Lease or under this Guaranty are intended to be distinct, separate and cumulative and no such right and remedy therein or herein mentioned is intended to be in exclusion of or a waiver of any of the others. All capitalized terms used herein, unless otherwise defined herein, shall have the same meanings as defined in the Lease. This Guaranty shall be governed by the laws of the State of California and Guarantor hereby consents to the jurisdiction of the State of California in resolution of any conflicts pertaining hereto.

WITNESS the execution hereof under seal this 23rd day of June, 2005.




WITNESS:	GUARANTOR:

Pamela Campis	BOSTON SCIENTIFIC CORPORATION INC.

	By:	/s/ James H. Taylor Jr.
		Name:	James H. Taylor Jr.
		Title:	Executive V.P. Operations

Exhibit 10.23.1

CONSENT, ASSIGNMENT, FIRST AMENDMENT TO LEASE AND

NON-DISTURBANCE AGREEMENT

THIS CONSENT, ASSIGNMENT, FIRST AMENDMENT TO LEASE AND NON-DISTURBANCE AGREEMENT (“Amendment”) is made effective this 28th day of March, 2008, between CARMEL RIVER, LLC, a Delaware limited liability company, CARLSEN INVESTMENTS, LLC, a California limited liability company, and RIEGER INVESTMENTS, LLC, a Delaware limited liability company (collectively, “Landlord”), BOSTON SCIENTIFIC SANTA ROSA CORP., (formerly known as Trivascular, Inc.), a California corporation (“TV”), and BOSTON SCIENTIFIC CORPORATION, a Delaware corporation (“BSC”).

RECITALS

A. Landlord, and TV, as Tenant, are parties to a written lease agreement dated June 16, 2005 (as amended and in effect on the date hereof, the “Lease”), respecting a total of 110, 250 square feet of warehouse and office space located at 3910 Brickway Boulevard, Santa Rosa, California (the “Premises”). BSC is the guarantor (“Guarantor”) of the Lease pursuant to that certain guaranty dated June 23, 2005 (“Guaranty”). Boston Scientific Corporation herein is the same entity named as Boston Scientific Corporation, Inc., in the Lease and Guaranty;

B. TV desires to assign its interest as Tenant under the Lease to BSC after which an affiliate of BSC shall sell (the “TV Sale”) all of the issued and outstanding shares of TV to TV2 Holding Company, a Delaware Corporation, and upon the TV Sale, the name of TV shall be changed to Trivascular2, Inc.;

C. Simultaneously with the TV Sale, BSC desires to sublease the Premises to TV and desires the option to assign its interest as Tenant under the Lease to TV;

D. Landlord, BSC and TV desire to assure the possession of the Premises by Subtenant (as defined herein) irrespective of a termination of the Lease for the reasons set forth in Section 6 herein; and

E. Landlord and BSC desire to amend the Lease, on the terms and conditions contained in this Amendment.

AGREEMENT

NOW THEREFORE, in consideration of the mutual covenants and agreements contained herein, and for other valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:

1. Definitions. Unless otherwise specifically defined herein, each term used herein that is defined in the Lease has the meaning assigned to such term in the Lease.

2. Assignment of Tenant’s Interest in Lease. Effective on the date stated above, TV presently and absolutely assigns all of its right, title, and interest as Tenant under the Lease to BSC, and BSC accepts such assignment and agrees to be fully liable for Tenant’s obligations under the Lease accruing from and after such assignment. Landlord hereby approves of such assignment. The parties acknowledge and agree BSC’s Guaranty shall remain in full effect, and shall not merge with, or be affected by, BSC’s interest as Tenant under the Lease.

3. Consent to Sublease. Pursuant to Section 9.01 and Section 9.05 of the Lease, Landlord hereby consents to a sublease of the entire Premises by BSC to TV or an affiliate of TV (“Subtenant”) pursuant to a sublease agreement (the “Sublease”) on substantially the same terms and conditions as the Lease.

4. Notice to Subtenant. Landlord hereby agrees in the event of BSC’s default under the Lease, Landlord shall give Subtenant the same notice(s) of default (each a “Default Notice”) that Landlord gives to BSC at the same time that Landlord gives such notice(s) to BSC.

5. Subtenant’s Right to Cure. Subtenant shall have the right, at any time BSC is the Tenant under the Lease, to cure any defaults by BSC under the Lease.

6. Possession of Subtenant. Landlord hereby agrees that if the Lease is terminated prior to the expiration of the Sublease by reason of (i) any default of Tenant under the Lease that is not capable of being cured by Subtenant, including the defaults set forth in Section 10.02(d) of the Lease, or (ii) any default of Tenant under the Lease for which Landlord has failed to give Subtenant a Default Notice in the manner set forth in Section 4 hereof, then (x) the Subtenant’s possession of the Premises shall not be disturbed, (y) the tenancy of Subtenant at the Premises shall continue with the same force and effect as if Landlord, as

Exhibit 10.23.1

landlord, and Subtenant, as tenant, had entered into a lease as of the date of the termination of the Lease containing the same terms and conditions as those contained in the Lease, including the rights of renewal thereof, for a term equal to the unexpired term of the Lease, and (z) within fifteen (15) days after the date of the termination of the Lease, Landlord, as landlord, and Subtenant, as tenant, shall enter into a written lease confirming Subtenant’s tenancy and containing the same terms and conditions as those contained in the Lease, including the rights of renewal thereof, for a term equal to the unexpired term of the Lease.

The parties hereto acknowledge (i) that the payment of money, performance of repair, replacement and maintenance obligations, and the provision of evidence of insurance are curable defaults, and (ii) that the provisions set forth in this Section 6 are expressly for the benefit of Subtenant and shall be enforceable by Subtenant notwithstanding the TV Sale and the subsequent change of TV’s name from Boston Scientific Santa Rosa Corp. to Trivascular2, Inc.

7. Consent to Assignment to TV . Pursuant to Section 9.01 and Section 9.05 of the Lease, Landlord hereby consents to an assignment of the Lease to Subtenant at any time during the Term of the Lease; provided BSC remains as the Guarantor through February 28, 2013 , and BSC concurrently confirms to Landlord, in writing, that the Guaranty continues in full force and effect until such date. Upon such assignment, BSC shall be released and relieved of all of its obligations as Tenant (but not as Guarantor) under the Lease notwithstanding the provisions of Section 9.03 of the Lease.

8. Lease Section 1.05—Lease Term . The parties acknowledge and agree the Lease Term is hereby extended from February 28, 2011, to February 28, 2013 .

9. Lease Section 1.12—Base Rent . The parties acknowledge and agree the Base Rent for the extended Lease Term shall be as follows:




Months	Monthly Rent
3/1/2011 to 2/28/2012	$	85,995
3/1/2012 to 2/28/2013	$	88,200

10. Lease Section 1.07—Guarantor. The parties acknowledge and agree BSC, pursuant to the Guaranty, shall continue to guaranty all of the obligations of Tenant pursuant to the Lease through and including February 28, 2013 , at which time the Guaranty shall terminate and be of no further force and effect and BSC shall have no further liability thereunder.

11. Lease Section 9.02—Tenant’s Affiliate . Regarding Section 9.02 of the Lease, the Landlord acknowledges and agrees that the right of the Tenant under the Lease to assign the Lease or sublease the Premises without Landlord’s consent to a Tenant’s Affiliate shall be in full force and effect notwithstanding an assignment of the Lease from BSC to Subtenant as permitted hereunder.

12. Lease Addendum Article Sixteen—Option to Renew. Regarding Article 16 of the Lease, the parties acknowledge and agree the Option to Renew is still in full force and effect, notwithstanding anything to the contrary contained in Section 16.A and Section 16.C of the Lease, BSC may exercise the Option to Renew, or alternatively, if BSC has assigned the Lease to Subtenant as permitted hereunder, Subtenant as assignee may exercise the Option to Renew, in each case on the terms and conditions set forth in Article 16 of the Lease. If the Option to Renew is exercised, the extended Term of the Lease shall run from March 1, 2013 to February 28 , 2018. The physical occupancy requirement set forth in Section 16.A and Section 16.C of the Lease may be met by BSC or Subtenant. In the event the Option to Renew is exercised, BSC shall only be responsible, under the Guaranty, for its obligations regarding the period ending February 28, 2013 , at which time the Guaranty shall terminate and be of no further force and effect and BSC shall have no further liability or obligation thereunder.

13. Lease Addendum Article Nineteen—Right of First Refusal to Purchase Building. Regarding Article 19 of the Lease, the parties acknowledge and agree the Right of First Refusal to Purchase is still in full force and effect notwithstanding anything to the contrary contained in Section 19(d) of the Lease, and may be exercised by BSC as Tenant or by the Subtenant (as provided herein), in each case on the terms and conditions set forth in Article 19 of the Lease. If BSC exercises the Right of First Refusal to Purchase, BSC may require Landlord to deed the property directly to Subtenant. Alternatively, BSC may assign the Right of First Refusal to Subtenant, separately from an assignment of the Lease provided Subtenant is still subtenant of the Premises at the time of such assignment, or as part of an assignment of the Lease, and Subtenant may exercise the Right of First Refusal to Purchase. Landlord hereby consents to any such assignment of the Right of First Refusal to Purchase to Subtenant, provided Subtenant is still subtenant of the Premises at the time of such assignment. In accordance with Section 19(c) of the Lease, in the event Subtenant timely delivers the Offer to Landlord, but later does not timely consummate the transaction, Landlord shall have all of the remedies against Subtenant which are contained in the Offer, and the Right of First Refusal to Purchase shall automatically terminate and be of no further force or effect. The physical occupancy requirement set forth in Section 19(d) of the Lease may be met by BSC or Subtenant.

Exhibit 10.23.1

14. Counterparts and Facsimile. This Amendment may be signed in counterparts, all of which shall constitute one instrument. Signatures transmitted by facsimile shall be binding as originals.

15. Other Provisions Unchanged. Except as expressly amended herein, all of the provisions, conditions and covenants of the Lease, and the Guaranty, shall remain unchanged and continue in full force and effect.

IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of the date first written above.




Landlord:

CARMEL RIVER, LLC,
a Delaware limited liability company

By:		/s/ Carl D. Panattoni
		Carl D. Panattoni, Trustee of the Panattoni Living Trust, dated April 8, 1998, Managing Member

CARLSEN INVESTMENTS, LLC, a California limited liability company

By:		/s/ James Carlsen
		James Carlsen, Managing Member

RIEGER INVESTMENTS, LLC, a Delaware limited liability company

By:		/s/ Jacklyn Shelby
		Jacklyn Shelby, Managing Member

Tenant:

Exiting Tenant:

BOSTON SCIENTIFIC SANTA ROSA CORP., a California corporation

By:		/s/ Lawrence J. Knopf
Name:		Lawrence J. Knopf
Title:		Assistant Secretary

Exhibit 10.23.1




New Tenant:

BOSTON SCIENTIFIC CORPORATION, a Delaware corporation

By:		/s/ Paul LaViolette
Name:		Paul LaViolette
Title:		Chief Operating Officer

Guarantor:

BOSTON SCIENTIFIC CORPORATION, a Delaware corporation

By:		/s/ Paul LaViolette
Name:		Paul LaViolette
Title:		Chief Operating Officer

Exhibit 10.23.2

SECOND AMENDMENT TO LEASE

THIS SECOND AMENDMENT TO LEASE (this “ Amendment ”) is dated as of December _, 2011 (the “ Effective Date ”) by and between Sonoma Airport Properties LLC, a California limited liability company (“ Landlord ”), TriVascular, Inc., a California corporation (“ TV ”) and Boston Scientific Corporation, a Delaware corporation (“ BSC ” or “ Tenant ”).

RECITALS:

WHEREAS , Carmel River, LLC, a Delaware limited liability company, Carlsen Investments, LLC, a California limited liability company, and Rieger Investments, LLC, a Delaware limited liability company (collectively, “ Original Landlord ”) entered into that certain Lease Agreement dated June 16, 2005 (the “ Original Lease ”) with TV as the original tenant (TV, in that capacity, “ Original Tenant ”), pursuant to which Original Tenant leased from Original Landlord a total of 110,250 square feet of warehouse and office space located at 3910 Brickway Boulevard, Santa Rosa, California (the “ Premises ”).

WHEREAS , Original Landlord and Boston Scientific Santa Rosa Corp., a California corporation (formerly known as TriVascular, Inc., i.e., the same legal entity as the Original Tenant) (“ BSSRC ”) and BSC entered into that certain Consent, Assignment, First Amendment To Lease and Non-Disturbance Agreement (the “ First Amendment ”) dated as of March 28, 2008, pursuant to which (i) BSSRC assigned its right, title and interest under the Original Lease, as the tenant thereunder, to BSC and (ii) other terms and conditions of the Original Lease were amended. The Original Lease as amended by the First Amendment and this Second Amendment is referenced herein as the “ Lease .”

WHEREAS , BSC subleased the Premises to TV (then known as TriVascular2, Inc., a California corporation) pursuant to that certain Sublease Agreement dated as of March 28, 2008 (the “ Sublease ”).

WHEREAS , Landlord has succeeded to the interest of Original Landlord as the owner of the Premises and the landlord under the Lease.

WHEREAS , the Original Lease, as amended by the First Amendment, by its terms expires on February 28, 2013, and the parties desire to extend the term of the Lease and to modify certain other terms and provisions of the Lease and BSC desires to assign the Lease to TV effective as of March 1, 2013 and TV desires to accept such assignment, all as more particularly set forth herein.

NOW, THEREFORE , in consideration of the mutual covenants and agreements of the parties, and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties agree as follows:

1. Recitals; Defined Terms . The foregoing recitals are true and are incorporated herein by this reference as though set forth in full. Unless otherwise expressly defined herein, all initially-capitalized terms used herein shall have the meanings ascribed to them in the Lease.

2. Assignment of BSC’s Interest in the Lease . Effective as of March 1, 2013, (a) BSC presently and absolutely assigns all of its right, title and interest as tenant under the Lease to TV, (b) TV accepts such assignment and expressly assumes all obligations under the Lease and (c) TV agrees to be fully liable for the obligations of “Tenant” under the Lease, including, without limitation, any and all liabilities for any tenant defaults existing as the date of the assignment or otherwise (as between BSC and TV, however, the terms of the Sublease shall prevail regarding any tenant defaults before the date of the assignment). Notwithstanding anything to the contrary in the Lease or the Sublease, no further agreements shall be necessary to effect the assignment, which will automatically occur on March 1, 2013. Accordingly, the Sublease will automatically terminate as of 11:59 p.m. on February 28, 2013. BSC will return to TV the Security Deposit (as defined in the Sublease) pursuant to the terms of the Sublease on or before March 31, 2013. Landlord hereby affirms that (i) as of February 28, 2013, BSC shall be released and relieved of all of its obligations as tenant under the Lease notwithstanding anything to the contrary in the Lease, (ii) the Guaranty dated June 16, 2005 by BSC in favor of Landlord will terminate on February 28, 2013 and BSC will have no further obligations whatsoever as guarantor, (iii) the right of TV to assign the Lease or sublease the Premises without Landlord’s consent to a Tenant’s Affiliate pursuant to Section 9.02 of the Lease shall be in full force and effect notwithstanding this assignment and (iv) the Right of First Refusal to Purchase will still be in full force and effect notwithstanding anything to the contrary contained in the Lease, and may be exercised by TV as tenant (or any Tenant Affiliate, as applicable) on the terms and conditions set forth in Article 19 of the Lease.

3. Term of Lease . The Term of the Lease shall be extended for an additional period of five (5) years commencing on March 1, 2013, and continuing through February 28, 2018, inclusive (the “ Extended Term ”).

4. Monthly Base Rent . The Base Rent for the Extended Term shall be as follows:

Exhibit 10.23.2



Months	Monthly Rent
3/1/2013 to 2/28/2014	$	88,200	($0.80/sf)
3/1/2014 to 2/28/2015	$	90,405	($0.82/sf)
3/1/2015 to 2/28/2016	$	92,610	($0.84/sf)
3/1/2016 to 2/28/2017	$	94,815	($0.86/sf)
3/1/2017 to 2/28/2018	$	97,020	($0.88/sf)

5. Additional Rent . In addition to TV’s obligation to pay the Base Rent as provided above, (a) Tenant shall be obligated to pay any and all additional rent and other charges payable under the terms of the Lease as computed and provided for under the terms of the Lease (except as otherwise amended by Section 6 of this Amendment) during the balance of the initial Term and (b) TV as tenant shall be obligated to do so during the entire Extended Term.

6. Free Base Rent Period . In consideration of Tenant’s election to extend the Lease pursuant to this Amendment, Landlord has agreed that the Tenant shall be entitled to a free Base Rent period for the months of October, November and December of 2011 (the “ Free Base Rent Period ”). During the Free Base Rent Period, Tenant shall have no obligation to pay any Base Rent but Tenant shall remain obligated to pay all other Additional Rent as required under Article Four of the Lease (except as otherwise amended by Section 6 of this Amendment). As of the Effective Date, Tenant has already paid Landlord (and TV has paid to Tenant pursuant to the terms of the Sublease) the Base Rent for the months of October, November and December of 2011 (with such Base Rent payments totaling $257,985.00 or $85,995.00 for each month). Upon written direction from Tenant, Landlord shall provide a check to TV, or any other entity that TV shall designate, refunding the amount of the Base Rent for the months of October, November and December of 2011 in the total amount of $257,985.00.

7. Waiver of Outstanding Common Area Costs; Revised Estimate of Common Area Costs Effective January 1, 2012 . In further consideration of the election to extend the Lease pursuant to this Amendment, Landlord has agreed to waive any obligation Tenant has to pay any Common Area costs for the years of 2009, 2010 and 2011 over and above the amount of $15,426.59 per month (and TV shall also receive the benefit of this waiver under the Sublease). Thus, for the years of 2009 and 2010, the cumulative excess amount of Common Area costs (in excess of the $15,426.59 per month estimated cost) previously due in the amount of $61,257.74 is hereby waived. Furthermore, any excess amount of Common Area costs for the year of 2011 (in excess of the $15,426.59 per month estimate) is also waived. Tenant acknowledges that Tenant shall remain obligated to pay Common Area costs for the year 2011 pursuant to Section 4.05(e) of the Lease, provided, however, that such costs shall in no event exceed the $15,426.59 per month cost estimate. Landlord and Tenant acknowledge and agree that no waiver of any Common Area costs shall be applicable commencing January 1, 2012, and that the estimated monthly amount of Common Area costs effective as of January 1, 2012, shall be $18,500.00.

8. Option to Renew . TV as tenant (or its assignee or Tenant’s Affiliate, if applicable) shall have one (1) option to extend the Term of the Lease beyond the Extended Term provided in Section 2 of this Amendment pursuant to the terms and provisions of Article 16 of the Lease except that the parties hereto agree that said Article 16 is hereby amended to: (i) acknowledge that the additional extended term referenced in this paragraph shall be for the period commencing on March 1, 2018 through February 28, 2023; (ii) the Renewal Notice Deadline (as referenced in Section A of Article 16) shall be no later than six (6) months before the expiration of the Extended Term (or February 28, 2018); and (iii) the last sentence of Subsection (A)(1) of Article 16 shall be modified to read in part, “...provided, however, that Base Rent payable during the first year of such extended Term shall in no event be less than $.84 per square foot, increased thereafter as stated herein.” Aside from the option to renew provided in this Section 7, TV as tenant (or its assignee or Tenant’s Affiliate, if applicable) shall have no further right to extend the term of the Lease.

9. AS-IS Condition . TV acknowledges that TV has been occupying the Premises pursuant to the Sublease and TV accepts the Premises in its AS-IS condition and “WITH ALL FAULTS” for the Extended Term and that, except for Landlord’s ongoing maintenance obligations pursuant to Section 6.03 of the Lease, repair obligations pursuant to Article 7 of the Lease and compliance obligations pursuant to Article 15 of the Lease, Landlord shall have no obligation to improve, remodel, alter, repair, replace or otherwise modify the Premises or provide or pay for any tenant improvements or brokerage commissions during the Extended Term.

10. Status .

a. Tenant Status . As a material inducement to Landlord entering into this Amendment, Tenant and TV certify to Landlord that as of the Effective Date: (i) the Lease, as modified hereby, and the Sublease contain the entire agreement between the parties hereto relating to the Premises and that there are no other agreements between the parties relating to the Premises, the Lease, the Sublease or the Project which are not contained herein or in the Lease or the Sublease; (ii) to the best of Tenant’s and TV’s knowledge, Landlord is not in default in any respect in any of the terms, covenants and conditions of the Lease; and

Exhibit 10.23.2

(iii) to the best of Tenant’s and TV’s knowledge, neither Tenant nor TV has any setoffs, counterclaims or defenses against Landlord under the Lease or the Sublease.

b. Landlord Status . As a material inducement to Tenant and TV entering into this Amendment, Landlord certifies to Tenant and TV that as of the Effective Date: (i) the Lease, as modified hereby, and the Sublease contain the entire agreement between the parties hereto relating to the Premises and that there are no other agreements between the parties relating to the Premises, the Lease, the Sublease or the Project which are not contained herein or in the Lease or the Sublease; (ii) to the best of Landlord’s knowledge, neither Tenant nor TV is in default in any respect in any of the terms, covenants and conditions of the Lease; and (iii) to the best of Landlord’s knowledge, Landlord has no claims against Tenant or TV under the Lease.

11. Confidentiality . The parties covenant and agree to keep the terms and conditions of the Lease and this Amendment in confidence and expressly agree not to disclose the terms of the Lease or this Amendment to any person whatsoever, including, without limitation, the general public; provided, however, that the parties may disclose such information to their respective employees, attorneys, or accountants provided such recipient agrees to keep such information confidential, as required by this Section 11.

12. No Broker . Landlord, Tenant and TV each represent and warrant to the others that it has had no dealings with any broker, finder, or similar person who is or might be entitled to a commission or other fee in connection with this Amendment. Each party shall indemnify, defend, protect and hold harmless the other parties from and against any and all obligations or liabilities to pay any real estate broker’s commission, finder’s fee, or other compensation to any person or entity arising from or in connection with this Amendment which results from any act or agreement of such party.

13. Conflict . This Amendment is and shall be construed as a part of the Lease. In case of any inconsistency between this Amendment and the Lease, the provisions containing such inconsistency shall first be reconciled with one another to the maximum extent possible and, then to the extent of any remaining inconsistency, the terms of this Amendment shall be controlling.

14. Force and Effect . Except as set forth in this Amendment, the terms and conditions of the Lease shall remain unchanged and in full force and effect.

15. Counterparts; Authority; Electronic Signatures . The parties agree that this Amendment may be executed in multiple counterparts which, when signed by all parties, shall constitute a binding agreement. The parties further represent and warrant that each natural person who is executing this Amendment on its behalf has the full power and authority to execute this Amendment and to bind it to the terms hereof. Signatures to this Amendment transmitted by telecopy or electronic mail shall be valid and effective to bind the party so signing. Each party agrees to promptly deliver an execution original of this Amendment with its actual signature to the other party, but a failure to do so shall not affect the enforceability of this Amendment, it being expressly agreed that each party to this Amendment shall be bound by its own telecopied or electronically-mailed signature and shall accept the telecopied or electronically-mailed signature of the other party to this Amendment.

Exhibit 10.23.2

IN WITNESS WHEREOF , the undersigned have executed this Amendment as of the date indicated above.




LANDLORD:		TV:

SONOMA AIRPORT PROPERTIES LLC,		TRIVASCULAR, INC.,
a California limited liability company		a California corporation

By:	/s/ RON PROFILI	By:	/s/ Michael Kramer
Name:	RON PROFILI	Name:	Michael Kramer
Title:	MANAGING MEMBER	Title:	Chief Financial Officer

BSC:

BOSTON SCIENTIFIC CORPORATION,
a Delaware corporation

By:	/s/ ED ZIELINSKI
Name:	ED ZIELINSKI
Title:	VICE PRESIDENT GLOBAL
	REAL ESTATE AND FACILITIES

Exhibit 12.1



		Endologix, Inc.
		Computation of Ratios of Earnings to Fixed Charges
		(in thousands)

		Year Ended December 31,

		2017			2016			2015			2014			2013			2012
EARNINGS:
Loss before income taxes		$	(66,859	)	$	(154,179	)	$	(59,761	)	$	(32,480	)	$	(16,078	)	$	(35,243	)
Plus: Fixed charges (see below)		$	23,185		$	16,954		$	8,229		$	6,617		$	521		$	203
Total earnings/(loss) to cover fixed charges		$	(43,674	)	$	(137,225	)	$	(51,532	)	$	(25,863	)	$	(15,557	)	$	(35,040	)

FIXED CHARGES:
Interest expense		$	22,064		$	15,841		$	7,476		$	5,709		$	321		$	7
Interest portion of rental expense (1)		$	1,121		$	1,113		$	753		$	908		$	200		$	196
Total Fixed charges		$	23,185		$	16,954		$	8,229		$	6,617		$	521		$	203
Preferred stock dividends		$	—		$	—		$	—		$	—		$	—		$	—
Combined fixed charges and preferred stock dividends		$	23,185		$	16,954		$	8,229		$	6,617		$	521		$	203

RATIO OF EARNINGS TO FIXED CHARGES		--			--			--			--			--			--
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS		--			--			--			--			--			--

DEFICIENCY OF EARNINGS TO COVER FIXED CHARGES		$	(66,859	)	$	(154,179	)	$	(59,761	)	$	(32,480	)	$	(16,078	)	$	(35,243	)

DEFICIENCY OF EARNINGS TO COVER COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS		$	(66,859	)	$	(154,179	)	$	(59,761	)	$	(32,480	)	$	(16,078	)	$	(35,243	)

(1	)	Amounts represent those portions of rent expense (one-third) that are reasonable approximations of interest costs.

Exhibit 21.1

LIST OF SUBSIDIARIES


1.	CVD/RMS Acquisition Corp., a Delaware corporation.


2.	Nellix, Inc., a Delaware corporation.


3.	ELGX International Holdings GP, a Cayman Islands company.


4.	Endologix International Holdings B.V., a Dutch corporation.


5.	ELGX South Korea Ltd.


6.	Endologix International B.V., a Dutch corporation.


7.	Endologix New Zealand Co., a New Zealand unlimited liability company.


8.	Endologix Bermuda L.P., a Bermuda partnership.


9.	Endologix Italia S.r.l., an Italian corporation.

10. Endologix Singapore Private Limited, a Singaporean limited private company.

11. Endologix Poland sp. zo.o, a Polish limited company.

12. TriVascular Technologies, Inc., a Delaware corporation.

13. TriVascular, Inc., a California corporation.

14. TriVascular Sales LLC, a Texas limited liability company.

15. TriVascular Germany GmbH, a German limited liability company.

16. TriVascular Switzerland Sarl, a Swiss limited liability company.

17. TriVascular Italia Sarl, an Italian limited liability company.

18. TriVascular Canada, LLC, a Delaware limited liability company.

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors

Endologix, Inc.:

We consent to the incorporation by reference in the registration statements (Nos. 333-221401, 333-219758, 333‑214537, 333-206208, 333-190393, 333-187258, 333-168465, 333-160317, 333-152774, 333-136370, 333-122491, 333-114465, 333-52482, 333-72531, 333-59305, 333-42161, and 333-07959) on Form S-8, and (Nos. 333-217602, 333-207615, 333-181762, 333-171639, 333-159078, 333-133598, 333-107286, 333-35343, 333-33997, 333-71053, 333-52474, 333-90960, 333-126710, and 333-114140) on Form S-3 of Endologix, Inc. of our reports dated February 28, 2018, with respect to the consolidated balance sheets of Endologix, Inc. and subsidiaries as of December 31, 2017 and 2016, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2017, the related consolidated financial statement schedule, and the effectiveness of internal control over financial reporting as of December 31, 2017, which reports appear in the December 31, 2017 annual report on Form 10‑K of Endologix, Inc.

/s/ KPMG LLP

March 13, 2018

Irvine, California

Exhibit 31.1

Certification

I, John McDermott, certify that:


1.	I have reviewed this Annual Report on Form 10-K of Endologix, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principals;


c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.



March 13, 2018	By:	/s/ JOHN MCDERMOTT
		John McDermott
		Chief Executive Officer

Exhibit 31.2

Certification

I, Vaseem Mahboob, certify that:


1.	I have reviewed this Annual Report on Form 10-K of Endologix, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principals;


c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.



March 13, 2018	By:	/s/ VASEEM MAHBOOB
		Vaseem Mahboob
		Chief Financial Officer

Exhibit 32.1

CERTIFICATION

In connection with the Annual Report of Endologix, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John McDermott, Chief Executive Officer and Chairman of the Board, certify, pursuant to Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange Act of 1934 (15 U.S.C. 78m or 780(d)) and 18 U.S.C. Section 1350, that to the best of my knowledge:


(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ JOHN MCDERMOTT

John McDermott

Chief Executive Officer

This certification accompanies this Report pursuant to Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934.

Date: March 13, 2018

Exhibit 32.2

CERTIFICATION

In connection with the Annual Report of Endologix, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Vaseem Mahboob, Chief Financial Officer of the Company, certify, pursuant to Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange Act of 1934 (15 U.S.C. 78m or 780(d)) and 18 U.S.C. Section 1350, that to the best of my knowledge:


(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ VASEEM MAHBOOB

Vaseem Mahboob

Chief Financial Officer

Date: March 13, 2018