Super Micro Computer, Inc. (Form: 10-Q, Received: 05/07/2010 17:17:09)

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2010

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

For the transition period from to

Commission file number 001-33383

Super Micro Computer, Inc.

(Exact name of Registrant as specified in its charter)

Delaware

77-0353939

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification Number)

980 Rock Avenue

San Jose, CA 95131

(Address of principal executive offices)

(408) 503-8000

(Registrant’s telephone number, including area code)

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 ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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 ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, 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.

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

As of April 30, 2010 there were 36,621,416 shares of the registrant’s common stock, $0.001 par value, outstanding, which is the only class of common or voting stock of the registrant issued.

Table of Contents

FORM 10-Q

SUPER MICRO COMPUTER, INC.

INDEX


		Page Number
PART I	FINANCIAL INFORMATION

ITEM 1:	Financial Statements	3

	Condensed Consolidated Balance Sheets (unaudited) as of March 31, 2010 and June 30, 2009	3

	Condensed Consolidated Statements of Operations (unaudited) for the Three and Nine Months Ended March 31, 2010 and 2009	4

	Condensed Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended March 31, 2010 and 2009	5

	Notes to Condensed Consolidated Financial Statements (unaudited)	6

ITEM 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

ITEM 3:	Quantitative and Qualitative Disclosures About Market Risks	35

ITEM 4:	Controls and Procedures	36

PART II	OTHER INFORMATION

ITEM 1:	Legal Proceedings	37

ITEM 1A:	Risk Factors	38

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	57

ITEM 3.	Defaults upon Senior Securities	57

ITEM 4.	Removed and Reserved	57

ITEM 5.	Other Information	57

ITEM 6:	Exhibits	58

	Signatures	59

PART I: FINANCIAL INFORMATION

Item 1.

SUPER MICRO COMPUTER, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

(unaudited)


	March 31, 2010			June 30, 2009
ASSETS
Current assets:
Cash and cash equivalents	$	66,731		$	70,295
Short-term investments		445			347
Accounts receivable, net of allowances of $1,106 and $1,068 at March 31, 2010 and June 30, 2009, respectively (including amounts receivable from a related party of $425 and $280 at March 31, 2010 and June 30, 2009, respectively)		63,868			45,709
Inventory, net		144,412			90,044
Deferred income taxes-current		9,250			8,644
Prepaid income taxes		3,620			3,256
Prepaid expenses and other current assets		1,939			1,723

Total current assets		290,265			220,018
Long-term investments		6,004			14,355
Property, plant and equipment, net		44,396			44,960
Deferred income taxes-noncurrent		2,746			1,917
Restricted assets-noncurrent		222			1,766
Other assets		138			119

Total assets	$	343,771		$	283,135

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable (including amounts due to a related party of $35,530 and $21,455 at March 31, 2010 and June 30, 2009, respectively)	$	103,491		$	73,532
Accrued liabilities		18,198			13,918
Income taxes payable		132			—
Advances from receivable financing arrangements		1,690			1,220
Current portion of capital lease obligations		35			42
Current portion of long-term debt		—			319

Total current liabilities		123,546			89,031
Long-term capital lease obligations-net of current portion		43			66
Long-term debt-net of current portion		—			9,675
Other long-term liabilities		7,753			5,741

Total liabilities		131,342			104,513
Commitments and contingencies (Note 14)
Stockholders’ equity:
Common stock and additional paid-in capital, $0.001 par value
Authorized shares: 100,000,000
Issued shares: 37,040,866 and 35,218,284 and outstanding shares: 36,595,838 and 34,773,256 at March 31, 2010 and June 30, 2009, respectively		95,974			81,893
Deferred stock-based compensation		—			(110	)
Treasury stock (at cost), 445,028 shares at March 31, 2010 and June 30, 2009		(2,030	)		(2,030	)
Accumulated other comprehensive loss		(385	)		(801	)
Retained earnings		118,870			99,670

Total stockholders’ equity		212,429			178,622

Total liabilities and stockholders’ equity	$	343,771		$	283,135

See accompanying notes to condensed consolidated financial statements.

SUPER MICRO COMPUTER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

(unaudited)


	Three Months Ended March 31,						Nine Months Ended March 31,
	2010			2009			2010			2009
Net sales (including related party sales of $2,693 and $1,687 in the three months ended March 31, 2010 and 2009, respectively, and $6,774 and $4,446 in the nine months ended March 31, 2010 and 2009, respectively)	$	189,276		$	109,540		$	519,774		$	382,156
Cost of sales (including related party purchases of $31,815 and $16,843 in the three months ended March 31, 2010 and 2009, respectively, and $99,312 and $72,385 in the nine months ended March 31, 2010 and 2009, respectively)		160,011			93,213			435,691			313,901

Gross profit		29,265			16,327			84,083			68,255


Operating expenses:
Research and development		9,757			8,632			27,138			25,678
Sales and marketing		5,513			3,999			15,185			13,047
General and administrative		3,461			3,281			11,310			10,001
Provision for litigation loss		—			—			1,089			—

Total operating expenses		18,731			15,912			54,722			48,726

Income from operations		10,534			415			29,361			19,529
Interest income		19			50			77			422
Interest expense		(66	)		(208	)		(289	)		(710	)

Income before income tax provision		10,487			257			29,149			19,241
Income tax provision (benefit)		2,754			(974	)		9,949			5,492

Net income	$	7,733		$	1,231		$	19,200		$	13,749


Net income per common share:
Basic	$	0.21		$	0.03		$	0.53		$	0.39
Diluted	$	0.18		$	0.03		$	0.47		$	0.35
Weighted-average shares used in calculation of net income per common share:
Basic		36,219,222			34,684,369			35,563,187			34,046,037
Diluted		41,733,900			38,125,658			40,212,441			38,651,542

See accompanying notes to condensed consolidated financial statements.

SUPER MICRO COMPUTER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Nine Months Ended March 31,
	2010			2009
OPERATING ACTIVITIES:
Net income	$	19,200		$	13,749
Reconciliation of net income to net cash provided by operating activities:
Depreciation and amortization		3,416			2,643
Stock-based compensation expense		4,778			3,978
Excess tax benefits from stock-based compensation		(1,361	)		—
Allowance for doubtful accounts		426			276
Allowance for sales returns		3,875			3,343
Provision for inventory		1,809			815
Loss on disposal of property, plant and equipment		1			18
Deferred income taxes		(1,705	)		(151	)
Gain on short-term investments		(1	)		—
Changes in operating assets and liabilities:
Accounts receivable, net (including changes in related party balances of $(145) and $64 during the nine months ended March 31, 2010 and 2009, respectively)		(22,460	)		3,111
Inventories		(56,177	)		1,939
Prepaid expenses and other assets		(339	)		352
Accounts payable (including changes in related party balances of $14,075 and ($7,491) during the nine months ended March 31, 2010 and 2009, respectively)		29,995			(20,212	)
Prepaid income taxes/income taxes payable		4,069			2,290
Accrued liabilities		4,280			1,494
Other long-term liabilities		2,012			(197	)

Net cash provided by (used in) operating activities		(8,182	)		13,448

INVESTING ACTIVITIES:
Restricted assets		1,544			(32	)
Proceeds from investments		8,940			885
Purchases of property, plant and equipment		(2,785	)		(2,759	)

Net cash provided by (used in) investing activities		7,699			(1,906	)

FINANCING ACTIVITIES:
Proceeds from exercise of stock options		5,112			1,935
Excess tax benefits from stock-based compensation		1,361			—
Repayment of long-term debt		(9,994	)		(209	)
Payment of obligations under capital leases		(30	)		(46	)
Advances under receivable financing arrangements		470			29
Payments to acquire treasury stock		—			(2,030	)

Net cash used in financing activities		(3,081	)		(321	)

Net increase (decrease) in cash and cash equivalents		(3,564	)		11,221
Cash and cash equivalents at beginning of period		70,295			51,481

Cash and cash equivalents at end of period	$	66,731		$	62,702


Supplemental disclosure of cash flow information:
Cash paid for interest	$	290		$	691
Cash paid for taxes	$	6,036		$	3,826
Non-cash investing and financing activities:
Reversal of deferred stock-based compensation for cancellation of stock options	$	—		$	3
Accrued costs for property, plant and equipment purchases	$	411		$	720
Changes in fair values of investments	$	686		$	(577	)

See accompanying notes to condensed consolidated financial statements.

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Organization

Super Micro Computer, Inc. was incorporated in 1993. Super Micro Computer is a global leader in server technology and green computing innovation. Super Micro Computer develops and provides high performance server solutions based upon an innovative, modular and open-standard architecture. Super Micro Computer has wholly owned subsidiaries in the Netherlands, Taiwan, Cayman Islands and California, United States.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The unaudited condensed consolidated financial statements included herein have been prepared by Super Micro Computer, Inc. pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”) and include the accounts of Super Micro Computer, Inc. and its wholly-owned subsidiaries (collectively “Super Micro” or the “Company”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with United States generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the fiscal year ended June 30, 2009 included in its Annual Report on Form 10-K, as filed on August 31, 2009 with the SEC (the “Annual Report”).

The unaudited condensed consolidated financial statements included herein reflect all adjustments, including normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the consolidated financial position, results of operations and cash flows for the periods presented. The condensed consolidated results of operations for the three and nine months ended March 31, 2010 and 2009 are not necessarily indicative of the results that may be expected for future quarters or for the year ending June 30, 2010.

Principles of Consolidation

The condensed consolidated financial statements reflect the condensed consolidated balance sheets, results of operations and cash flows of Super Micro Computer, Inc. and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated.

Reclassifications

The balance for other assets in the prior period condensed consolidated statement of cash flows has been reclassified to combine with prepaid expense and other assets to conform with the current period presentation.

Fair Value Measurements

The Company accounts for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. The Company categorizes each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:

•

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

•

Level 2 - Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly; and

•

Level 3 - Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 3. Recently Issued Accounting Standards

In June 2008, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance which requires participating securities, such as unvested restricted stock awards containing nonforfeitable rights to receive dividends, whether paid or unpaid, to be included in the computation of earnings per share pursuant to the two-class method. The two-class method requires entities to allocate both distributed and undistributed earnings to common shareholders and holders of participating securities. All prior period earnings per share data is required to be adjusted retrospectively to conform with the new guidance. The impact of the Company’s adoption of this standard in the three and nine months ended March 31, 2010 and 2009 is described in Note 6.

Effective April 1, 2009, the Company adopted the FASB’s updated guidance related to subsequent events, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The updated guidance initially required the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date — that is, whether that date represents the date the financial statements were issued or were available to be issued. However, in February 2010, the FASB amended the guidance to remove the requirement to disclose the date through which subsequent events were evaluated. Adoption of the updated guidance did not have a material impact on the Company’s consolidated financial position and results of operations.

In June 2009, the FASB issued authoritative guidance on the consolidation of variable interest entities, which is effective for fiscal years beginning after November 15, 2009 and interim periods therein and thereafter. The new guidance requires revised evaluations of whether entities represent variable interest entities, ongoing assessments of control over such entities, and additional disclosures for variable interests. The Company is still evaluating the impact, if any, that the adoption of this standard may have on its financial position or results of operations.

In October 2009, the FASB issued authoritative guidance on revenue recognition, which is effective prospectively for fiscal years beginning on or after June 15, 2010, with earlier adoption permitted. The new guidance modifies the criteria for recognizing revenue in multiple element arrangements and the scope of what constitutes a non-software deliverable. The Company is currently assessing the impact, if any, of this guidance on its consolidated financial position and results of operations.

In January 2010, the FASB issued authoritative guidance on Fair Value Measurements and Disclosures — Improving Disclosures About Fair Value Measurements. The new guidance requires new disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements. It also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. The new disclosures and clarifications of existing disclosures was effective in the Company’s second quarter of fiscal year 2010, except for the disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements, which are effective for the Company’s first quarter of fiscal year 2011. Other than requiring additional disclosures, the adoption of this standard will not have a material impact on the Company’s consolidated financial position and results of operations.

Note 4. Stock-based Compensation and Stockholders’ Equity

Stock Option Plan

In August 2006, the Board of Directors approved the 2006 Equity Incentive Plan (the “2006 Plan”) and reserved for issuance 4,000,000 shares of common stock for the granting of stock options, stock appreciation rights, restricted stock awards, restricted stock units and other equity-based awards. The number of shares reserved automatically increases on July 1 each year through 2016, by an amount equal to the smaller of (a) three percent of the number of shares of stock issued and outstanding on the immediately preceding June 30, or (b) a lesser amount determined by the Board of Directors. The 2006 Plan was approved by the stockholders of the Company in January 2007. The exercise price per share for incentive stock options granted to employees owning shares representing more than 10% of the Company at the time of grant cannot be less than 110% of the fair value. Nonqualified stock options and incentive stock options granted to all other persons shall be granted at a price not less than 100% of the fair value. Options generally expire ten years after the date of grant and options vest over four years; 25% at the end of one year and one sixteenth per quarter thereafter. In the three and nine months ended March 31, 2010, the Company granted options for the purchase of 472,680 and 1,152,570 shares under the 2006 Plan. At March 31, 2010, 883,412 shares of common stock are available for future grant.

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Restricted Stock Awards

Restricted stock awards are share awards that provide the rights to a set number of shares of the Company’s stock on the grant date. In August 2008, the Compensation Committee of the Board of Directors of the Company (the “Committee”) approved the terms of an agreement (the “Option Exercise Agreement”) with Charles Liang, a director and President and Chief Executive Officer of the Company, pursuant to which Mr. Liang exercised a fully vested option previously granted to him for the purchase of 925,000 shares. The option was exercised using a “net-exercise” procedure in which he was issued a number of shares representing the spread between the option exercise price and the then current market value of the shares subject to the option (898,205 shares based upon the market value as of the date of exercise). The shares issued upon exercise of the option are subject to vesting over a five-year vesting period. Vesting of the shares subject to the award may accelerate in certain circumstances pursuant to the terms of the Option Exercise Agreement. The Company determined that there was no incremental fair value of the option exchanged for the award.

In November 2008, the Committee approved the terms of an Option Exercise Agreement with Chiu-Chu Liang, a director and Vice President of Operations & Treasurer of the Company and Shiow-Meei Liaw, Senior Warehouse Manager of the Company, pursuant to which they exercised fully vested options previously granted to them for the purchase of 185,263 and 92,631 shares, respectively. They exercised the options using a “net-exercise” procedure in which they were issued a number of shares representing the spread between the option exercise price and the then current market value of the shares subject to the option (182,611 and 91,305 shares, respectively, based upon the market value as of the date of exercise). The shares issued upon exercise of the options are subject to vesting over a two-year vesting period. Vesting of the shares subject to the awards may accelerate in certain circumstances pursuant to the terms of the applicable Option Exercise Agreement. The Company determined that there was no incremental fair value of the option exchanged for the awards.

Determining Fair Value

Valuation and amortization method — The Company estimates the fair value of stock options granted using the Black-Scholes-option-pricing formula and a single option award approach. This fair value is then amortized ratably over the requisite service periods of the awards, which is generally the vesting period.

Expected Term — The Company’s expected term represents the period that the Company’s stock-based awards are expected to be outstanding and was determined based on an analysis of the relevant peer companies’ post-vest termination rates and the exercise factors.

Expected Volatility — Expected volatility is based on a combination of the implied and historical volatility for its peer group and the Company’s historical volatility for the stock options granted prior to September 30, 2009. For stock options granted after September 30, 2009, expected volatility is based solely on the Company’s historical volatility.

Expected Dividend — The Black-Scholes valuation model calls for a single expected dividend yield as an input and the Company has no plans to pay dividends.

Risk-Free Interest Rate — The risk-free interest rate used in the Black-Scholes valuation method is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of option.

Estimated Forfeitures — The estimated forfeiture rate is based on the Company’s historical forfeiture rates and the estimate is revised in subsequent periods if actual forfeitures differ from the estimate.

The fair value of stock option grants for the three and nine months ended March 31, 2010 and 2009 was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:


	Three Months Ended March 31,						Nine Months Ended March 31,
	2010			2009			2010			2009
Risk-free interest rate		1.88% - 1.93	%		1.42% - 3.01	%		1.88% - 2.10	%		1.42% - 3.09	%
Expected life		4.08 years			4.07 -10 years			4.06 -4.08 years			4.07 -10 years
Dividend yield		0	%		0	%		0	%		0	%
Volatility		52.96% - 53.03	%		53.61% - 69.62	%		52.96% - 55.01	%		48.16% - 69.62	%
Weighted-average fair value	$	5.11		$	2.98		$	4.23		$	2.99

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

The following table shows total stock-based compensation expense included in the condensed consolidated statements of operations for the three and nine month periods ended March 31, 2010 and 2009 (in thousands).


	Three Months Ended March 31,				Nine Months Ended March 31,
	2010		2009		2010		2009
Cost of sales	$	108	$	145	$	410	$	421
Research and development		901		675		2,327		1,871
Sales and marketing		172		201		625		589
General and administrative		359		412		1,416		1,097

Stock-based compensation expense	$	1,540	$	1,433	$	4,778	$	3,978

The cash flows resulting from the tax benefits for tax deductions resulting from the exercise of stock options in excess of the compensation expense recorded for those options (excess tax benefits) issued or modified since July 1, 2006 are classified as cash from financing activities. Excess tax benefits for stock options issued prior to July 1, 2006 are classified as cash from operating activities. The Company had $245,000 and $1,361,000 of excess tax benefits in the three and nine months ended March 31, 2010, respectively, and had no excess tax benefits in the three and nine months ended March 31, 2009 for options issued since July 1, 2006. Excess tax benefits for stock options issued prior to July 1, 2006 continue to be classified as cash from operating activities.

Stock Option and Awards Activity

The following table summarizes stock option activity during the nine months ended March 31, 2010 under all stock option plans:


	Number of Shares		Weighted Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding at July 1, 2009	12,672,645		$	5.17	6.17	$	40,760
Granted	1,152,570		$	9.75
Exercised	(1,505,984	)	$	3.39
Forfeited or cancelled	(98,429	)	$	7.68

Outstanding at March 31, 2010	12,220,802		$	5.80	5.96	$	140,361
Vested and expected to vest at March 31, 2010	11,613,372		$	5.67	5.80	$	134,788
Exercisable at March 31, 2010	8,192,317		$	4.70	4.54	$	103,047

The total intrinsic value of options exercised was $7,118,000 and $12,005,000 for the three and nine months ended March 31, 2010, respectively, and $340,000 and $26,336,000 for the three and nine months ended March 31, 2009, respectively. Stock-based compensation expense in the three and nine months ended March 31, 2010 was $1,540,000 and $4,668,000, respectively, and $1,305,000 and $3,537,000 for the three and nine months ended March 31, 2009, respectively. As of March 31, 2010, the Company’s total unrecognized compensation cost related to non-vested stock-based awards granted since July 1, 2006 to employees and non-employee directors was approximately $12,706,000, which will be recognized over a weighted-average vesting period of approximately 2.57 years.

The weighted-average fair value per share of options granted during fiscal year 2005 and 2006, and accounted for using the intrinsic value measurement was $4.58. The intrinsic value per share is being recognized as compensation expense over the applicable vesting period (which equals the service period). The Company amortized $0 and $110,000 of stock-based compensation in the three and nine months ended March 31, 2010, respectively, and $128,000 and $441,000 in the three and nine months ended March 31, 2009, respectively. The Company had fully amortized the deferred stock-based compensation related to these options since December 31, 2009.

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

The following table summarizes the Company’s restricted stock award activity for the nine months ended March 31, 2010:


	Restricted Stock Awards
	Number of Shares		Weighted Average Grant Date Fair Value Per Share
Nonvested stock at July 1, 2009	1,172,121		$	9.39
Granted	—			—
Vested	(316,598	)	$	8.32
Forfeited	—			—

Nonvested stock at March 31, 2010	855,523		$	9.79

The intrinsic value of restricted stock awards vested was $0 and $2,633,000 for the three and nine months ended March 31, 2010, respectively, and $0 for both three and nine months ended March 31, 2009. The total intrinsic value of the outstanding restricted stock awards was $8,376,000 as of March 31, 2010. There is no incremental fair value to be recognized as compensation expense in connection with the unvested restricted stock awards of 855,523 shares.

Note 5. Comprehensive Income

The components of comprehensive income, net of taxes, are as follows (in thousands):


	Three Months Ended March 31,				Nine Months Ended March 31,
	2010		2009		2010		2009
Net income	$	7,733	$	1,231	$	19,200	$	13,749
Unrealized gains or (losses) on investments, net of taxes		—		75		416		(350	)

Total comprehensive income	$	7,733	$	1,306	$	19,616	$	13,399

Note 6. Net Income Per Common Share

The Company’s restricted share awards subject to repurchase and settled in shares of common stock upon vesting have the nonforfeitable right to receive dividends on an equal basis with common stock and therefore are considered participating securities that must be included in the calculation of net income per share using the two-class method. Under the two-class method, basic and diluted net income per common share is determined by calculating net income per share for common stock and participating securities based on participation rights in undistributed earnings. Diluted net income per common share also considers the dilutive effect of in-the-money stock options, calculated using the treasury stock method. Under the treasury stock method, the amount of assumed proceeds from unexercised stock options includes the amount of compensation cost attributable to future services not yet recognized, assumed proceeds from the exercise of the options, and the incremental income tax benefit or liability as if the options were exercised during the period.

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

The computation of basic and diluted net income per common share using the two-class method is as follows (in thousands, except per share amounts):


	Three Months Ended March 31,						Nine Months Ended March 31,
	2010			2009			2010			2009
Basic net income per common share calculation
Net income	$	7,733		$	1,231		$	19,200		$	13,749
Less: Undistributed earnings allocated to participating securities		(178	)		(40	)		(451	)		(331	)

Net income attributable to common shares—basic	$	7,555		$	1,191		$	18,749		$	13,418

Weighted-average number of common shares used to compute basic net income per common share		36,219			34,684			35,563			34,046

Basic net income per common share	$	0.21		$	0.03		$	0.53		$	0.39

Diluted net income per common share calculation
Net income attributable to the Company	$	7,733		$	1,231		$	19,200		$	13,749
Less: Undistributed earnings allocated to participating securities		(155	)		(37	)		(400	)		(293	)

Net income attributable to common shares—diluted	$	7,578		$	1,194		$	18,800		$	13,456

Weighted-average number of common shares used to compute basic net income per common share		36,219			34,684			35,563			34,046
Dilutive effect of options to purchase common stock		5,515			3,442			4,649			4,606

Weighted-average number of common shares used to compute diluted net income attributable per common share		41,734			38,126			40,212			38,652

Diluted net income per common share	$	0.18		$	0.03		$	0.47		$	0.35

As a result of the adoption of the guidance for determining whether instruments granted in share-based payment transactions are participating securities, basic net income per common share has been recast from $0.04 to $0.03 and $0.40 to $0.39 for the three and nine months ended March 31, 2009, respectively. All other basic and diluted net income per common share amounts presented were not impacted by the adoption of this standard.

For the three and nine months ended March 31, 2010 and 2009, the Company had stock options outstanding that could potentially dilute basic earnings per common share in the future, but were excluded from the computation of diluted net income per common share in the periods presented, as their effect would have been anti-dilutive. The shares of common stock issuable upon exercise of such anti-dilutive outstanding stock options were 1,133,000 and 2,677,000 for the three and nine months ended March 31, 2010, respectively, and 4,918,000 and 4,194,000 for the three and nine months ended March 31, 2009, respectively.

Note 7. Balance Sheet Components (in thousands)

Inventories:


	March 31, 2010		June 30, 2009
Finished goods	$	98,464	$	60,012
Work in process		2,703		794
Purchased parts and raw materials		43,245		29,238

Total inventories, net	$	144,412	$	90,044

The Company recorded a provision for excess and obsolete inventory totaling $659,000 and $1,809,000 in the three and nine months ended March 31, 2010, respectively, and $488,000 and $815,000 in the three and nine months ended March 31, 2009, respectively.

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Property, Plant and Equipment:


	March 31, 2010			June 30, 2009
Land	$	19,220		$	19,220
Buildings		19,108			19,108
Building and leasehold improvements		3,236			2,955
Machinery and equipment		12,198			10,218
Furniture and fixtures		2,790			2,684
Purchased software		2,051			1,679

		58,603			55,864
Accumulated depreciation and amortization		(14,207	)		(10,904	)

Property, plant and equipment, net	$	44,396		$	44,960

The cost of assets under capital leases was $272,000 as of March 31, 2010 and June 30, 2009, and related accumulated amortization was $142,000 and $100,000, respectively.

Restricted Assets:

Restricted assets consist primarily of certificates of deposits pledged as security for one irrevocable letter of credit of $121,000 as of March 31, 2010 and for two irrevocable letters of credit of $121,000 and $1,540,000 as of June 30, 2009. In February 2008, the Company obtained an irrevocable standby letter of credit required by the landlord of its office lease totaling $121,000. In March 2008, the Company posted a bond in the amount of $3,080,000 which related to the Digitechnic lawsuit (see Note 14) and was collateralized by an irrevocable standby letter of credit totaling $1,540,000. The Company entered into a settlement agreement with Digitechnic in December 2009 and the irrevocable standby letter of credit was cancelled in March 2010.

Product Warranties:


	Three Months Ended March 31,						Nine Months Ended March 31,
	2010			2009			2010			2009
Balance, beginning of period	$	3,878		$	3,420		$	3,579		$	2,920
Provision for warranty		2,045			1,559			5,654			5,232
Costs charged to accrual		(1,630	)		(1,520	)		(4,661	)		(4,795	)
Change in estimated liability for pre-existing warranties		(162	)		18			(441	)		120

Balance, end of period	$	4,131		$	3,477		$	4,131		$	3,477

Note 8. Short-term and Long-term Investments

As of March 31, 2010 and June 30, 2009, the Company held approximately $6,390,000 and $14,644,000, respectively, of auction-rate securities (“auction rate securities”), net of unrealized losses, representing its interest in auction rate preferred shares in a closed end mutual fund invested in municipal securities and student loans guaranteed by the Federal Family Education Loan Program; such auction rate securities were rated AAA/Aaa or Baa at March 31, 2010 and June 30, 2009. These auction rate preferred shares have no stated maturity date and the stated maturity dates for these auction rate student loans range from 2010 to 2040.

During February 2008, the auctions for these auction rate securities began to fail to obtain sufficient bids to establish a clearing rate and the securities were not saleable in the auction, thereby losing the short-term liquidity previously provided by the auction process. As a result, as of March 31, 2010 and June 30, 2009, $6,004,000 and $14,355,000 of these auction rate securities have been classified as long-term available-for-sale investments, respectively, and the remaining $386,000 and $289,000 has been classified as short-term available-for-sale investments, respectively, because the stated maturity for this securities occur in September and June 2010, respectively.

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

The Company has used a discounted cash flow model to estimate the fair value of the auction rate securities as of March 31, 2010 and June 30, 2009. The material factors used in preparing the discounted cash flow model are 1) the discount rate utilized to present value the cash flows, 2) the time period until redemption and 3) the estimated rate of return. Management derives the estimates by obtaining input from market data on the applicable discount rate, estimated time to maturity and estimated rate of return. The changes in fair value have been primarily due to changes in the estimated rate of return and a change in the estimated redemption period. Changes in these estimates or in the market conditions for these investments are likely in the future based upon the then current market conditions for these investments and may affect the fair value of these investments. Based on this assessment of fair value, the Company determined there was a temporary change in fair value of its auction rate securities of an increase of $0 and $686,000 during the three and nine months ended March 31, 2010, respectively, and an increase of $122,000 and a decrease of $577,000 during the three and nine months ended March 31, 2009, respectively, and a cumulative total decline of $635,000 and $1,321,000 as of March 31, 2010 and June 30, 2009, respectively. That amount has been recorded as a component of other comprehensive income. As of March 31, 2010 and June 30, 2009, the Company has recorded an accumulated unrealized loss of $385,000 and $801,000, net of deferred income taxes, on both long-term and short-term auction rate securities. The Company deems this loss to be temporary as it will not likely be required to sell the securities before their anticipated recovery and the Company has the intent and financial ability to hold these investments until recovery of cost.

Although the investment impairment is considered to be temporary, these investments are not currently liquid and in the event the Company needs to access these funds, the Company will not be able to do so without a loss of principal. The Company plans to continue to monitor the liquidity situation in the marketplace and the creditworthiness of its holdings and will perform periodic impairment analyses. During the three and nine months ended March 31, 2010, approximately $200,000 and $8,940,000 of these auction rate securities were redeemed at par.

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 9. Fair Value Disclosure

The financial assets of the Company measured at fair value on a recurring basis are cash equivalents, short-term and long-term investments. The Company’s money market funds are classified within Level 1 of the fair value hierarchy which is based on quoted market prices of the identical underlying securities in active markets. Certificates of deposits are classified within Level 2 of the fair value hierarchy which is based on observable inputs to quoted market prices, benchmark yields, reported trades, broker/dealer quotes or alternative pricing sources with reasonable levels of price transparency. The Company’s short-term and long-term auction rate securities investments are classified within Level 3 of the fair value hierarchy which did not have observable inputs for its auction rate securities as of March 31, 2010. The Company methodology for valuing these investments is the discounted cash flow model and is described in Note 8 of Notes to Condensed Consolidated Financial Statements.

The following table sets forth the Company’s cash equivalents, short-term and long-term investments as of March 31, 2010 which are measured at fair value on a recurring basis by level within the fair value hierarchy. These are classified based on the lowest level of input that is significant to the fair value measurement, (in thousands):


	Level 1		Level 2		Level 3		Asset at Fair Value
Money market funds	$	33,831	$	—	$	—	$	33,831
Certificates of deposits		—		281		—		281
Auction rate securities		—		—		6,390		6,390

Total	$	33,831	$	281	$	6,390	$	40,502

The above table excludes $32,900,000 of cash held by the Company. Money market funds of $18,000,000 and $60,035,000 were transferred out from Level 1 to cash balance during the three and nine months ended March 31, 2010, respectively, and $200,000 and $8,940,000 of the auction rate securities were redeemed at par and transferred into Level 1 from Level 3 during the three and nine months ended March 31, 2010, respectively.

The following table provides a reconciliation of the Company’s financial assets measured at fair value on a recurring basis, consisting of long-term auction rate securities, using significant unobservable inputs (Level 3) for the three and nine months ended March 31, 2010 and 2009 (in thousands):


	Three Months Ended March 31,						Nine Months Ended March 31,
	2010			2009			2010			2009
Balance as of beginning of period	$	6,590		$	14,557		$	14,644		$	16,106
Total realized gains or (losses) included in net income		—			—			—			—
Total unrealized gains or (losses) included in other comprehensive income		—			122			686			(577	)
Sales and settlements at par		(200	)		(35	)		(8,940	)		(885	)
Transfers in and/or out of Level 3		—			—			—			—

Balance as of end of period	$	6,390		$	14,644		$	6,390		$	14,644

The following is a summary of the Company’s short-term investments as of March 31, 2010 and June 30, 2009 (in thousands):


	March 31, 2010
	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Fair Value
Certificate of deposit	$	59	$	—	$	—		$	59
Auction rate securities		400		—		(14	)		386

Total	$	459	$	—	$	(14	)	$	445

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)


	June 30, 2009
	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Fair Value
Certificate of deposit	$	58	$	—	$	—		$	58
Auction rate securities		300		—		(11	)		289

Total	$	358	$	—	$	(11	)	$	347

The following is a summary of the Company’s long-term investments as of March 31, 2010 and June 30, 2009 (in thousands):


	March 31, 2010
	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Fair Value
Auction rate securities	$	6,625	$	—	$	(621	)	$	6,004

	June 30, 2009
	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Fair Value
Auction rate securities	$	15,665	$	—	$	(1,310	)	$	14,355

Note 10. Advances from Receivable Financing Arrangements

The Company has accounts receivable financing agreements with certain financing companies whereby the financing companies pay the Company for sales transactions that have been pre-approved by these financing companies. The financing companies then collect the receivable from the customers. Such sales transactions totaled approximately $5,685,000 and $19,705,000 for the three and nine months ended March 31, 2010, respectively, and $4,697,000 and $17,130,000 for the three and nine months ended March 31, 2009, respectively. At March 31, 2010 and June 30, 2009, approximately $1,690,000 and $1,220,000, respectively, remained uncollected from customers subject to these arrangements. Such amounts have been recorded as advances from receivable financing arrangements as the Company has obligations to repurchase inventories seized by the financing companies from defaulting customers. Historically, the Company has not been required to repurchase inventories from the financing companies. These financing arrangements bear interest at rates ranging from 11.70% to 13.80% and 11.10% to 14.76% per annum, depending on the customers’ credit ratings, at March 31, 2010 and June 30, 2009, respectively.

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 11. Long-term Obligations

Long-term obligations consisted of the following (in thousands):


	March 31, 2010			June 30, 2009
Building loans	$	—		$	9,994
Capital leases		78			108

Total		78			10,102
Current portion		(35	)		(361	)

Long-term portion	$	43		$	9,741

In April 2004, the Company borrowed $4,275,000 from a bank to purchase a building in San Jose, California. The loan is secured by the property purchased and principal and interest are payable monthly through May 1, 2029. As of June 30, 2009, the total outstanding borrowings were $3,826,00 with interest at 7.23% per annum through July 2012 and then it is adjusted every five years to equal the index of 5-Year United States Treasury Notes as publish in the Wall Street Journal plus 2.75% per annum. In August 2009, the Company repaid the loan and accrued interest for $3,981,000 including a pre-payment penalty of $153,000.

In September 2005, the Company borrowed $6,930,000 from a bank to purchase a building in San Jose, California. The loan is secured by the property purchased. The loan is repayable in equal monthly installments through September 2025. As of June 30, 2009, the total outstanding borrowings were $6,168,000 with interest at 5.77% per annum through September 2010, and then it is adjusted every five years to equal the index of 5-Year United States Treasury Notes plus 1.65% per annum. In July 2009, the Company repaid the loan and accrued interest for $6,191,000 without a pre-payment penalty.

As of June 30, 2009, the gross cost and net book value of the land, building and related improvements collateralizing the borrowings were approximately $17,126,000 and $16,153,000, respectively.

In February 2008, the Company obtained an irrevocable standby letter of credit required by the landlord of its office lease totaling $121,000 that expires on September 1, 2010. As of March 31, 2010, the Company had an unused revolving line of credit totaling $5,000,000 that matures on December 15, 2010 with an interest rate at Prime Rate plus 0.5% per annum. As of March 31, 2010, the Company was in compliance with the financial covenants associated with the line of credit.

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 12. Related-party and Other Transactions

Ablecom Technology Inc. — Ablecom, a Taiwan corporation, together with its subsidiaries (“Ablecom”), is one of the Company’s major contract manufacturers. Ablecom’s chief executive officer, Steve Liang, is the brother of Charles Liang, the Company’s President, Chief Executive Officer and Chairman of the Board of Directors, and owns approximately 2.0% of the Company’s common stock. Charles Liang served as a Director of Ablecom during the Company’s fiscal 2006, but is no longer serving in such capacity. In addition, Charles Liang and his wife, also an officer of the Company, collectively own approximately 10.5% of Ablecom while Steve Liang and other family members own approximately 42.6% of Ablecom at March 31, 2010.

The Company has product design and manufacturing services agreements (“product design and manufacturing agreements”) and a distribution agreement (“distribution agreement”) with Ablecom.

Under the product design and manufacturing agreements, the Company outsources a portion of its design activities and a significant part of its manufacturing of components such as server chassis to Ablecom. Ablecom agrees to design products according to the Company’s specifications. Additionally, Ablecom agrees to build the tools needed to manufacture the products. Under the product design and manufacturing agreements, the Company commits to purchase a minimum quantity over a set period. The purchase price of the products manufactured by Ablecom is negotiated on a purchase order by purchase order basis at each purchase date. However, a fixed charge is added to the price of each unit purchased until the agreed minimum number of units is purchased. In August 2007, the Company entered into a new product development, manufacturing and service agreement with Ablecom. Under the new agreement, the Company has agreed to pay for the cost of blade server tooling and engineering services and will pay for those items when the work has been completed. In this case no fixed charge is added to future purchases for reimbursement of tooling costs. In September 2009, the Company entered into a similar product development agreement with Ablecom. Under this agreement, the Company has agreed to pay for the cost of chassis and related product tooling and engineering services and will pay for those items when the work has been completed. In this case no fixed charge is added to future purchases for reimbursement of tooling costs. For the three and nine months ended March 31, 2010, the Company made payments for tooling of $1,163,000 and $1,982,000 to Ablecom, respectively, and engineering services of $215,000 and $421,000 to Ablecom, respectively. For the three and nine months ended March 31, 2009, the Company made payments for tooling of $540,000 and $1,059,000 to Ablecom, respectively, and engineering services of $63,000 to Ablecom for both three and nine months ended March 31, 2009.

Under the distribution agreement, Ablecom purchases server products from the Company for distribution in Taiwan. The Company believes that the pricing and terms under the distribution agreement are similar to the pricing and terms of distribution arrangements the Company has with similar, third party distributors.

Ablecom’s net sales to the Company and its net sales of the Company’s products to others comprise a substantial majority of Ablecom’s net sales. For the three and nine months ended March 31, 2010, the Company purchased products from Ablecom totaling approximately $31,815,000 and $99,312,000, respectively, which included tooling expenses of $821,000 and $836,000, respectively, and engineering services of $124,000 for both three and nine months ended March 31, 2010. For the three and nine months ended March 31, 2010, the Company sold products to Ablecom totaling approximately $2,693,000 and $6,774,000, respectively. For the three and nine months ended March 31, 2009, the Company purchased products from Ablecom totaling approximately $16,843,000 and $72,385,000, respectively, which included tooling expenses of $9,000 and $21,000, respectively. For the three and nine months ended March 31, 2009, the Company sold products to Ablecom totaling approximately $1,687,000 and $4,446,000, respectively.

Amounts owed to the Company by Ablecom as of March 31, 2010 and June 30, 2009, were approximately $425,000 and $280,000, respectively. Amounts owed to Ablecom by the Company as of March 31, 2010 and June 30, 2009, were approximately $35,530,000 and $21,455,000, respectively. Historically, the Company has paid Ablecom the majority of invoiced dollars between 56 and 108 days of invoice. For the three and nine months ended March 31, 2010, the Company received $141,000 and $147,000, respectively, from Ablecom for penalty charges and paid approximately $667,000 and $1,913,000, respectively, in tooling assets and miscellaneous costs to Ablecom. For the three and nine months ended March 31, 2009, the Company received no penalty charges from Ablecom and paid approximately $1,044,000 and $2,029,000, respectively, in tooling assets and miscellaneous costs to Ablecom.

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

The Company’s exposure to loss as a result of its involvement with Ablecom is limited to (a) potential losses on its purchase orders in the event of an unforeseen decline in the market price and/or demand of the Company’s products such that the Company incurs a loss on the sale or cannot sell the products and (b) potential losses on outstanding accounts receivable from Ablecom in the event of an unforeseen deterioration in the financial condition of Ablecom such that Ablecom defaults on its payable to the Company. Outstanding purchase orders with Ablecom were $38,234,000 and $21,578,000 at March 31, 2010 and June 30, 2009, respectively, representing the maximum exposure to loss relating to (a) above. The Company does not have any direct or indirect guarantees of losses of Ablecom.

Note 13. Income Taxes

The Company recorded provisions (benefit) for income taxes of $2,754,000 and $9,949,000 for the three and nine months ended March 31, 2010, respectively, and $(974,000) and $5,492,000 for the three and nine months ended March 31, 2009, respectively. The effective tax rate of 26.3% in the three months ended March 31, 2010 was less than the statutory rate of approximately 39.0% due to discrete permanent items that reduced taxable income, such as: the release of uncertain tax positions liabilities where the statute of limitations had lapsed, the impact of stock option deductions and research and development credits. The effective tax rate of (379.0%) in the three months ended March 31, 2009 was primarily due to the impact of applying a lower annual effective tax rate for the year during a quarter with a loss before income taxes.

As of March 31, 2010, the Company had a liability for gross unrecognized tax benefits of $6,012,000, substantially all of which, if recognized, would affect the Company’s effective tax rate. During the three and nine months ended March 31, 2010, there was no material change in the total amount of the liability for gross unrecognized tax benefits.

At March 31, 2010, the Company had a liability for accrued interest and penalties related to the unrecognized tax benefits of $473,000. During the three and nine months ended March 31, 2010, there was no material change in the total amount of the liability for accrued interest and penalties related to the unrecognized tax benefits.

The Company files U.S. federal, U.S. state, and foreign income tax returns. The Company is generally no longer subject to tax examinations for years prior to the fiscal year beginning July 1, 2003.

In connection with the regular examination of the Company’s California tax returns for the fiscal years ended June 30, 2002 and 2003 the Franchise Tax Board has presented certain adjustments to the amounts reflected by the Company on those returns. The timing of the resolution and/or closure on audits is expected to be in the first quarter of fiscal year 2011. The Company does not believe that its unrecognized tax benefits will materially change in the next 12 months.

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 14. Commitments and Contingencies

Litigation and Claims — The Company was a defendant in a lawsuit with Digitechnic, S.A. (“Digitechnic”), a former customer, before the Bobigny Commercial Court in Paris, France, in which Digitechnic alleged that certain products purchased from the Company were defective. In September 2003, the Bobigny Commercial Court found in favor of Digitechnic and awarded damages totaling $1,178,000. The Company accrued for these damages in its consolidated financial statements as of June 30, 2004, as the best estimate of its loss in this situation. In February 2005, the Paris Court of Appeals reversed the trial court’s ruling, dismissed all of Digitechnic’s claims and awarded $11,000 to the Company for legal expenses. Accordingly, the Company reversed the $1,178,000 accrued in fiscal 2005. Digitechnic appealed the Paris Court of Appeals decision to the French Supreme Court and asked for $2,416,000 for damages. On February 13, 2007, the French Supreme Court reversed the decision of the Paris Court of Appeals, ordering a new hearing before a different panel of the Paris Court of Appeals. In March 2008, the Company posted a bond in the amount of $3,080,000 required by the court. The bond was collateralized by an irrevocable standby letter of credit totaling $1,540,000. In October 2009, the Paris Court of Appeals awarded damages of approximately $1,089,000 against the Company. A provision of $1,089,000 for litigation loss was recorded in the nine months ended March 31, 2010. The Company entered into a settlement agreement with Digitechnic, pursuant to which the Company made a payment of $1,055,000 in December 2009.

In addition to the above, the Company is involved in various legal proceedings arising from the normal course of business activities. In management’s opinion, resolution of these matters is not expected to have a material adverse impact on the Company’s consolidated results of operations, cash flows or the Company’s financial position. However, depending on the amount and timing, an unfavorable resolution of a matter could materially affect the Company’s future results of operations, cash flows or financial position in a particular period.

Lease Commitments — The Company leases offices and equipment under non-cancelable operating leases which expire at various dates through 2016. In addition, the Company leases certain of its equipment under capital leases.

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 15. Segment Reporting

The Company operates in one operating segment that develops and provides high performance server solutions based upon an innovative, modular and open-standard architecture. The Company’s chief operating decision maker is the Chief Executive Officer.

International net sales are based on the country to which the products were shipped. The following is a summary for the three and nine months ended March 31, 2010 and 2009, of net sales by geographic region (in thousands):


	Three Months Ended March 31,				Nine Months Ended March 31,
	2010		2009		2010		2009
Net sales:
United States	$	112,359	$	65,536	$	310,855	$	244,581
Europe		40,419		25,699		112,582		83,644
Asia		29,425		13,172		78,262		42,543
Other		7,073		5,133		18,075		11,388

	$	189,276	$	109,540	$	519,774	$	382,156

The Company’s long-lived assets located outside the United States are not significant.

The following is a summary of net sales by product type (dollars in thousands):


	Three Months Ended March 31,								Nine Months Ended March 31,
	2010				2009				2010				2009
	Amount		Percent of Revenues		Amount		Percent of Net Sales		Amount		Percent of Net Sales		Amount		Percent of Net Sales
Server systems	$	63,577	33.6	%	$	42,845	39.1	%	$	180,218	34.7	%	$	151,364	39.6	%
Subsystems and accessories		125,699	66.4	%		66,695	60.9	%		339,556	65.3	%		230,792	60.4	%

Total	$	189,276	100.0	%	$	109,540	100.0	%	$	519,774	100.0	%	$	382,156	100.0	%

Subsystems and accessories are comprised of serverboards, chassis and accessories. Server systems constitute an assembly of subsystems and accessories done by the Company. No customer represented greater than 10% of the Company’s total net sales nor did net sales in any country other than the United States represent greater than 10% of the Company’s total net sales. Net sales amounts previously disclosed by geography have been combined to conform to the current presentation.

Note 16. Subsequent Events

In May 2010, the Company entered into an agreement to purchase land and buildings consisting of approximately 167,000 square feet of space in San Jose, California adjacent to the Company’s current headquarters. The purchase price is approximately $18.5 million. Consummation of the purchase is subject to customary closing conditions and is expected to close in June 2010.

In accordance with FASB’s authoritative guidance on subsequent events, the Company has evaluated subsequent events through the date of issuance of the unaudited condensed consolidated financial statements. During this period the Company did not have any material recognizable subsequent events. However, the Company did have a nonrecognizable subsequent event related to the purchase of real property described above.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This section and other parts of this Form 10-Q contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended that involve risks and uncertainties. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology including “would,” “could,” “may,” “will,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue,” the negative of these terms or other comparable terminology. In evaluating these statements, you should specifically consider various factors, including the risks described under “Risk Factors” below and in other parts of this Form 10-Q as well as in our other filings with the SEC. These factors may cause our actual results to differ materially from those anticipated or implied in the forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. We cannot guarantee future results, levels of activity, performance or achievements.

Overview

We are a global leader in server technology and green computing innovation. We develop and provide high performance server solutions based on an innovative, modular and open-standard architecture. We have wholly owned subsidiaries in the Netherlands, Taiwan, Cayman Islands and California, United States. Our solutions include a range of complete rackmount, workstation, storage, graphic processing unit and blade server systems, as well as subsystems and accessories which can be used by distributors, OEMs and end customers to assemble server systems. To date, we have generated the majority of our net sales from subsystems. Since 2000, we have gradually shifted our focus and resources to designing, developing, manufacturing and selling application optimized server systems. In recent years our growth in net sales has been driven by the growth in the market for application optimized server systems. Net sales of optimized servers were $63.6 million and $180.2 million for the three and nine months ended March 31, 2010, respectively, and $42.8 million and $151.4 million for the three and nine months ended March 31, 2009, respectively. Net sales of subsystems and accessories were $125.7 million and $339.6 million for the three and nine months ended March 31, 2010, respectively, and $66.7 million and $230.8 million for the three and nine months ended March 31, 2009, respectively.

We commenced operations in 1993 and have been profitable every year since inception. Our net sales were $189.3 million and $519.8 million for the three and nine months ended March 31, 2010, respectively and $109.5 million and $382.2 million for the three and nine months ended March 31, 2009, respectively. Our net income was $7.7 million and $19.2 million for the three and nine months ended March 31, 2010, respectively, and $1.2 million and $13.7 million for the three and nine months ended March 31, 2009, respectively. Our increase in profitability in the three and nine months ended March 31, 2010 was primarily attributable to the increase in our net sales of our subsystems and accessories and server systems offset in part by a decline in gross margins across our product lines as we grew market share during a time of economic recovery and an increase in operating expenses of $1.1 million for a provision for litigation loss (see Note 14 of Notes to Condensed Consolidated Financial Statements).

We sell our server systems and subsystems and accessories primarily through distributors and to a lesser extent to OEMs as well as through our direct sales force. We derived approximately 69.4% and 68.7% of our net sales from products sold to distributors, and 30.6% and 31.3% from sales to OEMs and to end customers for the three and nine months ended March 31, 2010, respectively. We derived approximately 65.9% and 64.8% of our net sales from products sold to distributors, and 34.1% and 35.2% from sales to OEMs and to end customers for the three and nine months ended March 31, 2009, respectively. None of our customers accounted for 10% or more of our net sales in the three and nine months ended March 31, 2010 and 2009. We derived approximately 59.4% and 59.8% of our net sales from customers in the United States for the three and nine months ended March 31, 2010, respectively, and approximately 59.8% and 64.0% of our net sales from customers in the United States for the three and nine months ended March 31, 2009, respectively. We derived approximately 40.6% and 40.2% of our net sales from customers outside the United States for the three and nine months ended March 31, 2010, respectively and approximately 40.2% and 36.0% of our net sales from customers outside the United States for the three and nine months ended March 31, 2009, respectively.

We perform the majority of our research and development efforts in-house. Research and development expenses represented approximately 5.2% of our net sales for both three and nine months ended March 31, 2010, respectively, compared to approximately 7.8% and 6.8% of our net sales for the three and nine months ended March 31, 2009, respectively.

We use several suppliers and contract manufacturers to design and manufacture subsystems and accessories in accordance with our specifications, with most final assembly and testing performed at our manufacturing facility in San Jose, California. This arrangement enables us to maintain our cost structure and to benefit from our suppliers’ and contract manufacturers’ research and development and economies of scale.

One of our key suppliers is Ablecom, a related party, which supplies us with contract design and manufacturing support. For the three and nine months ended March 31, 2010, our purchases from Ablecom represented approximately 19.9% and 22.8% of our cost of sales, respectively, compared to approximately 18.1% and 23.1% of our cost of sales for the three and nine months ended March 31, 2009, respectively. The increase in percentage of cost of sales in the three months ended March 31, 2010 was primarily related to a higher volume of chassis purchases from Ablecom in the three months ended March 31, 2010 in order to support our growth. The decrease in percentage of cost of sales in the nine months ended March 31, 2010 was primarily related to higher product mix of subsystems and accessories which were purchased from other suppliers in the nine months ended March 31, 2010. Ablecom’s sales to us constitute a substantial majority of Ablecom’s net sales. We continue to maintain our manufacturing relationship with Ablecom in Asia in an effort to reduce our product costs and do not have any current plans to reduce our reliance on Ablecom product purchases. In addition to providing a larger volume of contract manufacturing services for us, Ablecom continues to warehouse for us a number of components and subassemblies manufactured by multiple suppliers prior to shipment to our facilities in the U.S. and Europe. We typically negotiate the price of products that we purchase from Ablecom on a quarterly basis; however, either party may re-negotiate the price of products with each order. As a result of our relationship with Ablecom, it is possible that Ablecom may in the future sell products to us at a price higher or lower than we could obtain from an unrelated third party supplier. This may result in our future reporting of gross profit as a percentage of net sales that is less than or in excess of what we might have obtained absent our relationship with Ablecom.

In order to continue to increase our net sales and profits, we believe that we must continue to develop flexible and customizable server solutions and be among the first to market with new features and products. We measure our financial success based on various indicators, including growth in net sales, gross profit as a percentage of net sales, operating income as a percentage of net sales, levels of inventory, and days sales outstanding, or DSOs. In connection with these efforts, we monitor daily and weekly sales and shipment reports. Among the key non-financial indicators of our success is our ability to rapidly introduce new products and deliver the latest application optimized server solutions. In this regard, we work closely with microprocessor and other component vendors to take advantage of new technologies as they are introduced. Historically, our ability to introduce new products rapidly has allowed us to benefit from the introduction of new microprocessors and as a result we monitor the introduction cycles of Intel and AMD carefully. This also impacts our research and development expenditures. For example, Intel introduced its Nehalem line of microprocessors in March of 2009. Our results for the quarter ended March 31, 2009 were in part adversely impacted by customer order delays in anticipation of the introduction and research and development expenditures necessary for us to prepare for the introduction. Subsequently, we benefited from the introduction with an increase in sales of these products. We also solicit input from our customers to understand their future needs as we design and develop our products.

Other Financial Highlights

The following is a summary of other financial highlights of the third quarter of fiscal year 2010:

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We generated (used) cash flows from operations of ($19.7) million and ($8.2) million during the three and nine months ended March 31, 2010, respectively, and $3.5 million and $13.4 million during the three and nine months ended March 31, 2009, respectively. We experienced continued growth in our working capital during the three and nine months ended March 31, 2010 to support the growth of our business. Our cash and cash equivalents, together with our investments, were $73.2 million at the end of the third quarter of fiscal year 2010, compared with $85.0 million at the end of fiscal year 2009.

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Days sales outstanding in accounts receivable (“DSO”) at the end of the third quarter of fiscal year 2010 was 29 days, compared with 34 days at the end of fiscal year 2009.

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Our inventory balance was $144.4 million at the end of the third quarter of fiscal year 2010, compared with $90.0 million at the end of fiscal year 2009. Days sales of inventory (“DSI”) at the end of the third quarter of fiscal year 2010 was 80 days, compared with 76 days at the end of fiscal year 2009. Our purchase commitments with contract manufacturers and suppliers were $79.3 million at the end of the third quarter of fiscal year 2010 and $52.1 million at the end of fiscal year 2009.

We believe that our cash position, our balance sheet, our visibility into our supply chain and our financing capabilities position us well to manage through the current economic recovery.

Fiscal Year

Our fiscal year ends on June 30. References to fiscal year 2010, for example, refer to the fiscal year ending June 30, 2010.

Revenues and Expenses

Net sales. Net sales consist of sales of our server solutions, including server systems, subsystems and accessories. The main factors which impact our net sales are unit volumes shipped and average selling prices. The prices for server systems range widely depending upon the configuration, and the prices for our subsystems and accessories vary based on the type. As with most electronics-based products, average selling prices typically are highest at the time of introduction of new products which utilize the latest technology and tend to decrease over time as such products mature in the market and are replaced by next generation products.

Cost of sales. Cost of sales primarily consists of the costs to manufacture our products, including the costs of materials, contract manufacturing, shipping, personnel and related expenses, equipment and facility expenses, warranty costs and inventory excess and obsolete provisions. The primary factors that impact our cost of sales are the mix of products sold and cost of materials, which include raw material costs, shipping costs and salary and benefits related to production. Cost of sales as a percentage of net sales may increase over time if decreases in average selling prices are not offset by corresponding decreases in our costs. Our cost of sales, as a percentage of net sales, is generally lower on server systems than on subsystems and accessories. Because we do not have long-term fixed supply agreements, our cost of sales is subject to change based on market conditions.

Research and development expenses. Research and development expenses consist of the personnel and related expenses of our research and development teams, and materials and supplies, consulting services, third party testing services and equipment and facility expenses related to our research and development activities. All research and development costs are expensed as incurred. We occasionally receive non-recurring engineering, or NRE funding from certain suppliers and customers towards our development efforts. Under these programs, we are reimbursed for certain research and development costs that we incur as part of the joint development of our products and those of our suppliers and customers. These amounts offset a portion of the related research and development expenses and have the effect of reducing our reported research and development expenses.

Sales and marketing expenses. Sales and marketing expenses consist primarily of salaries and commissions for our sales and marketing personnel, costs for tradeshows, independent sales representative fees and marketing programs. From time to time, we receive cooperative marketing funding from certain suppliers. Under these programs, we are reimbursed for certain marketing costs that we incur as part of the joint promotion of our products and those of our suppliers. These amounts offset a portion of the related expenses and have the effect of reducing our reported sales and marketing expenses. Similarly, we from time to time offer our distributors cooperative marketing funding which has the effect of increasing our expenses. The timing, magnitude and estimated usage of our programs and those of our suppliers can result in significant variations in reported sales and marketing expenses from period to period. Spending on cooperative marketing, either by us or our suppliers, typically increases in connection with significant product releases by us or our suppliers.

General and administrative expenses. General and administrative expenses consist primarily of general corporate costs, including personnel expenses, financial reporting, corporate governance and compliance and outside legal, audit and tax fees.

Provision for litigation loss. Loss from litigation relates to an action filed in France by Digitechnic, S.A., a former customer, alleging that certain products purchased from us were defective. In September 2003, the court found in favor of Digitechnic and awarded damages totaling $1.2 million. In February 2005, the court of appeals dismissed the claims. Digitechnic appealed the decision to the French supreme court and asked for $2.4 million for damages. On February 13, 2007, the French Supreme Court reversed the decision of the Paris Court of Appeals, ordering a new hearing before a different panel of the Paris Court of Appeals. In October 2009, the Paris Court of Appeals awarded damages of approximately $1.1 million against the Company. A provision of $1.1 million for litigation loss was recorded in the nine months ended March 31, 2010. The Company entered into a settlement agreement with Digitechnic, pursuant to which the Company made a payment of $1.1 million in December 2009.

Interest and other income, net. Interest and other income, net represents the net of our interest income on investments or interest expense on the building loans for our owned facilities offset by interest earned on our cash and investments balances.

Income tax provision. Our income tax provision is based on our taxable income generated in the jurisdictions in which we operate, currently primarily the United States and the Netherlands and to a lesser extent, Taiwan. Our effective tax rate differs from the statutory rate primarily due to tax benefit of tax exempt interest income, research and development tax credits and the domestic production activities deduction.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses. We evaluate our estimates on an on-going basis, including those related to allowances for doubtful accounts and sales returns, cooperative marketing accruals, investment valuations, inventory valuations, income taxes, warranty obligations and stock-based compensation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making the judgments we make about the carrying values of assets and liabilities that are not readily apparent from other sources. Because these estimates can vary depending on the situation, actual results may differ from the estimates.

We believe the following are our most critical accounting policies as they require our more significant judgments in the preparation of our financial statements.

Revenue recognition. We recognize revenue from sales of products, when persuasive evidence of an arrangement exists, shipment has occurred and title has transferred, the sales price is fixed or determinable, collection of the resulting receivable is reasonably assured, and all significant obligations have been met. Generally this occurs at the time of shipment when risk of loss and title has passed to the customer. Our standard arrangement with our customers includes a signed purchase order or contract, free-on-board shipping point terms, except for a few customers who have free-on-board destination terms, and revenue is recognized when the products arrive at the destination, 30 to 60 days payment terms, and no customer acceptance provisions. We generally do not provide for non-warranty rights of return except for products which have “Out-of-box” failure, where customers could return these products for credit within 30 days of receiving the items. Certain distributors and OEMs are also permitted to return products in unopened boxes, limited to purchases over a specified period of time, generally within 60 to 90 days of the purchase, or to products in the distributor’s or OEM’s inventory at certain times (such as the termination of the agreement or product obsolescence). In addition, we have a sale arrangement with an OEM that has limited product return rights. To estimate reserves for future sales returns, we regularly review our history of actual returns for each major product line. We also communicate regularly with our distributors to gather information about end customer satisfaction, and to determine the volume of inventory in the channel. Reserves for future returns are adjusted as necessary, based on returns experience, returns expectations and communication with our distributors.

Probability of collection is assessed on a customer-by-customer basis. Customers are subjected to a credit review process that evaluates the customers’ financial position and ability to pay. If it is determined from the outset of an arrangement that collection is not probable based upon the review process, the customers are required to pay cash in advance of shipment. We also make estimates of the uncollectibility of accounts receivables, analyzing accounts receivable and historical bad debts, customer concentrations, customer-credit-worthiness, current economic trends and changes in customer payment terms to evaluate the adequacy of the allowance for doubtful accounts. On a quarterly basis, we evaluate aged items in the accounts receivable aging report and provide an allowance in an amount we deem adequate for doubtful accounts. If management were to make different judgments or utilize different estimates, material differences in the amount of our reported operating expenses could result. We provide for price protection to certain distributors. We assess the market competition and product technology obsolescence, and make price adjustments based on our judgment. Upon each announcement of price reductions, the accrual for price protection is calculated based on our distributors’ inventory on hand. Such reserves are recorded as a reduction to revenue at the time we reduce the product prices. Credits that we issued pursuant to these provisions were $9,000 and $95,000 for the three and nine months ended March 31, 2010, respectively, and $101,000 and $324,000 for the three and nine months ended March 31, 2009, respectively. We do not commit to future price reductions with any of our customers.

We have an immaterial amount of service revenue relating to non-warranty repairs, which is recognized upon shipment of the repaired units to customers. Service revenue has been less than 10% of net sales for all periods presented and is not separately disclosed.

Cooperative marketing accruals. We have arrangements with resellers of our products to reimburse the resellers for cooperative marketing costs meeting specified criteria. We accrue the cooperative marketing costs based on these arrangements and our estimate for resellers’ claims for marketing activities. We record marketing costs meeting such specified criteria within sales and marketing expenses in the accompanying condensed consolidated statements of operations. For those marketing costs that do not meet the specified criteria, the amounts are recorded as a reduction to sales in the accompanying condensed consolidated statements of operations.

Impairment of short-term and long-term investments. Impairment of short-term and long-term investments relates to the unrealized loss on the carrying value of our investments in auction rate securities; such securities were rated AAA at the date of purchase. The liquidity and fair value of these securities has been negatively impacted by the uncertainty in the credit markets and exposure of these securities to the financial condition of bond insurance companies. We have received all interest payments due on these instruments on a timely basis. Each of these securities has been subject to auction processes for which there had been insufficient bidders on the scheduled rollover dates and the auctions have subsequently failed. When these securities lost the short-term liquidity previously provided by the auction processes, we reclassified these securities as long-term investments. For the securities with the stated maturity less than a year, the securities were classified as short-term available-for-sale investments. We have used a discounted cash flow model to estimate the fair value of these investments as of March 31, 2010 and June 30, 2009. The material factors used in preparing the discounted cash flow model are 1) the discount rate utilized to present value the cash flows, 2) the time period until redemption and 3) the estimated rate of return. Management derives the estimates by obtaining input from market data on the applicable discount rate, estimated time to maturity and estimated rate of return. The changes in fair value have been primarily due to changes in the estimated rate of return and a change in the estimated period to liquidity. The fair value of our investment portfolio may change between 2% to 4% by increasing or decreasing the rate of return used by 1% or by increasing or decreasing the term used by 1 year. Changes in these estimates or in the market conditions for these investments are likely in the future based upon the then current market conditions for these investments and may affect the fair value of these investments. As of March 31, 2010 and June 30, 2009 we have recorded an accumulated unrealized loss of $385,000 and $801,000, net of deferred income taxes, on the securities, respectively. We deem this loss to be temporary as we determined that we will not likely be required to sell the securities before their anticipated recovery and we have the intent and ability to hold our investments until recovery of cost.

Product warranties. We offer product warranties ranging from 15 to 39 months against any defective product. We accrue for estimated returns of defective products at the time revenue is recognized, based on historical warranty experience and recent trends. We monitor warranty obligations and may make revisions to our warranty reserve if actual costs of product repair and replacement are significantly higher or lower than estimated. Accruals for anticipated future warranty costs are charged to cost of sales and included in accrued liabilities. The liability for product warranties was $4.1 million as of March 31, 2010, compared with $3.6 million as of June 30, 2009. The provision for warranty reserve was $2.0 million and $5.7 million in the three and nine months ended March 31, 2010, respectively, and $1.6 million and $5.2 million in the three and nine months ended March 31, 2009, respectively. Our estimates and assumptions used have been historically close to actual. The change in estimated liability for pre-existing warranties was $0.2 million decrease and $0.4 million decrease in the three and nine months ended March 31, 2010, respectively and $18,000 increase and $0.1 million increase in the three and nine months ended March 31, 2009, respectively. As we experienced an increase in net sales in the three months ended March 31, 2010, the provision for warranty reserve increased $0.5 million compared to the three months ended March 31, 2009, respectively. If in future periods, we experience or anticipate an increase or decrease in warranty claims as a result of new product introductions or change in unit volumes compared with our historical experience, or if the cost of servicing warranty claims is greater or lesser than expected, we intend to adjust our estimates appropriately.

Inventory valuation. Inventory is valued at the lower of cost or market. We evaluate inventory on a quarterly basis for lower of cost or market and excess and obsolescence and, as necessary, write down the valuation of units to lower of cost or market or for excess and obsolescence based upon the number of units that are unlikely to be sold based upon estimated demand for the following twelve months. This evaluation takes into account matters including expected demand, anticipated sales price, product obsolescence and other factors. If actual future demand for our products is less than currently forecasted, additional inventory adjustments may be required. Once a reserve is established, it is maintained until the product to which it relates is sold or scrapped. If a unit that has been written down is subsequently sold, the cost associated with the revenue from this unit is reduced to the extent of the write down, resulting in an increase in gross profit. We monitor the extent to which previously written down inventory is sold at amounts greater or less than carrying value, and based on this analysis, adjust our estimate for determining future write downs. If in future periods, we experience or anticipate a change in recovery rate compared with our historical experience, our gross margin would be affected. Our provision for inventory was $0.7 million and $1.8 million in the three and nine months ended March 31, 2010, respectively, and $0.5 million and $0.8 million in the three and nine months ended March 31, 2009, respectively.

Accounting for income taxes. We account for income taxes under an asset and liability approach. Deferred income taxes reflect the impact of temporary differences between assets and liabilities recognized for financial reporting purposes and such amounts recognized for income tax reporting purposes, net operating loss carry-forwards and other tax credits measured by applying currently enacted tax laws. Valuation allowances are provided when necessary to reduce deferred tax assets to an amount that is more likely than not to be realized.

We recognize the tax liability for uncertain income tax positions on the income tax return based on the two-step process. The first step is to determine whether it is more likely than not that each income tax position would be sustained upon audit. The second step is to estimate and measure the tax benefit as the amount that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority. Estimating these amounts requires us to determine the probability of various possible outcomes. We evaluate these uncertain tax positions on a quarterly basis. This evaluation is based on the consideration of several factors, including changes in facts or circumstances, changes in applicable tax law, settlement of issues under audit and new exposures. If we later determine that our exposure is lower or that the liability is not sufficient to cover our revised expectations, we adjust the liability and effect a related change in our tax provision during the period in which we make such determination. See Note 13 of Notes to Condensed Consolidated Financial Statements for the impact on our condensed consolidated financial statements.

Stock-based compensation. Effective July 1, 2006, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period. Prior to July 1, 2006, we have recorded compensation expense for stock options with exercise prices less than the fair value of the underlying common stock at the option grant date. Amortization of deferred stock compensation, resulting from such stock options granted to employees and directors, when the exercise price of our stock options was less than the deemed market price of the underlying stock on the date of the grant, for the three and nine months ended March 31, 2010 was $0 and $0.1 million, respectively, compared to $0.1 million and $0.4 million for the three and nine months ended March 31, 2009, respectively. Since July 1, 2006, the Company measures the cost of employee services received in exchange for an award of equity instruments, including stock options, based on the grant-date fair value of the award. That cost will be recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period). Compensation expense for options granted to employees after July 1, 2006, was $1.5 million and $4.7 million for the three and nine months ended March 31, 2010, respectively, and $1.3 million and $3.5 million for the three and nine months ended March 31, 2009, respectively.

As of March 31, 2010, the total unrecognized compensation cost, adjusted for estimated forfeitures, related to unvested stock options granted since July 1, 2006 to employees and non-employee directors, was $12.7 million, which is expected to be recognized as an expense over a weighted-average period of approximately 2.57 years. See Note 4 of Notes to Condensed Consolidated Financial Statements for additional information.

We estimated the fair value of stock options granted using a Black-Scholes option-pricing model and a single option award approach. This model requires us to make estimates and assumptions with respect to the expected term of the option, the expected volatility of the price of our common stock and the expected forfeiture rate. The fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period.

The expected term represents the period that our stock-based awards are expected to be outstanding and was determined based on an analysis of the relevant peer companies’ post-vest termination rates and exercise behavior. The expected volatility is based on a combination of the implied and historical volatility of our relevant peer group for the stock options granted prior to September 30, 2009. For stock options granted after September 30, 2009, expected volatility is based solely on our historical volatility. In addition, forfeitures of share-based awards are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. We use historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest.

Variable interest entities. We have analyzed our relationship with Ablecom and its subsidiaries and we have concluded that Ablecom is a variable interest entity in accordance with applicable accounting standards and guidance; however, we are not the primary beneficiary of Ablecom and therefore, we do not consolidate Ablecom. In performing our analysis, we considered our explicit arrangements with Ablecom including the supplier and distributor arrangements. Also, as a result of the substantial related party relationship between the two companies, we considered whether any implicit arrangements exist that would cause us to protect those related parties’ interests in Ablecom from suffering losses. We determined that no implicit arrangements exist with Ablecom or its shareholders. Such an arrangement would be inconsistent with the fiduciary duty that we have towards our stockholders who do not own shares in Ablecom. In June 2009, the FASB issued authoritative guidance on the consolidation of variable interest entities, which is effective for fiscal years beginning after November 15, 2009 and interim periods therein and thereafter. The new guidance requires revised evaluations of whether entities represent variable interest entities, ongoing assessments of control over such entities, and additional disclosures for variable interests. We are still evaluating the impact, if any, that the adoption of this standard may have on our financial position or results of operations.

Results of Operations

The following table sets forth our financial results, as a percentage of net sales for the periods indicated:


	Three Months Ended March 31,				Nine Months Ended March 31,
	2010		2009		2010		2009
Net sales	100.0	%	100.0	%	100.0	%	100.0	%
Cost of sales	84.5		85.1		83.8		82.1

Gross profit	15.5		14.9		16.2		17.9

Operating expenses:
Research and development	5.2		7.8		5.2		6.8
Sales and marketing	2.9		3.7		2.9		3.4
General and administrative	1.8		3.0		2.2		2.6
Provision of litigation loss	—		—		0.2		—

Total operating expenses	9.9		14.5		10.5		12.8

Income from operations	5.6		0.4		5.7		5.1
Interest income	—		—		—		0.1
Interest expense	(0.1	)	(0.2	)	(0.1	)	(0.2	)

Income before income tax provision	5.5		0.2		5.6		5.0
Income tax provision	1.4		(0.9	)	1.9		1.4

Net income	4.1	%	1.1	%	3.7	%	3.6	%

Comparison of Three Months Ended March 31, 2010 and 2009

Net sales. Net sales increased by $79.7 million, or 72.8%, to $189.3 million from $109.5 million, for the three months ended March 31, 2010 and 2009, respectively. This increase was due primarily to an increase in unit volumes of subsystems and accessories and average selling prices of server systems. For the three months ended March 31, 2010, the approximate number of server system units sold increased 10.3% to 43,000 compared to 39,000 for the three months ended March 31, 2009. The average selling price of server system units increased 36.4% to approximately $1,500 in the three months ended March 31, 2010 compared to approximately $1,100 in the three months ended March 31, 2009. The average selling prices of our server systems increased principally due to higher average selling prices of 6000 Series configuration of servers which incorporated additional features such as higher density, memory and hard disk drive capacity. Sales of server systems increased by $20.7 million or 48.4% from the three months ended March 31, 2009 to the three months ended March 31, 2010, primarily due to higher sales of 6000 Series configuration of servers. Sales of server systems represented 33.6% of our net sales for the three months ended March 31, 2010 as compared to 39.1% of our net sales for the three months ended March 31, 2009. For the three months ended March 31, 2010, the approximate number of subsystems and accessories units sold increased 69.0% to 840,000 compared to 497,000 for the three months ended March 31, 2009. Sales of subsystems and accessories units increased by $59.0 million or 88.5% from the three months ended March 31, 2009 to the three months ended March 31, 2010, primarily due to higher sales to distributors and resellers. Sales of subsystems and accessories represented 66.4% of our net sales for the three months ended March 31, 2010 as compared to 60.9% of our net sales for the three months ended March 31, 2009. We believe that the increase in our net sales in the three months ended March 31, 2010 was primarily attributable to the continuing improvement in the global economy. In particular, comparisons of our results for the quarter ended March 31, 2010 against the quarter ended March 31, 2009 reflect a comparison against our worst performing quarter during the global downturn. As a result, the amount of the percentage increases do not reflect a trend expected to continue in future periods. For the three months ended March 31, 2010 and 2009, we derived approximately 69.4% and 65.9%, respectively, of our net sales from products sold to distributors and we derived approximately 30.6% and 34.1%, respectively, from sales to OEMs and to end customers. For the three months ended March 31, 2010, customers in the United States, Europe, and Asia accounted for approximately 59.4%, 21.4% and 15.5%, of our net sales, respectively, as compared to 59.8%, 23.5% and 12.0%, respectively, for the three months ended March 31, 2009.

Cost of sales. Cost of sales increased by $66.8 million, or 71.7%, to $160.0 million from $93.2 million, for the three months ended March 31, 2010 and 2009, respectively. Cost of sales as a percentage of net sales was 84.5% and 85.1% for the three months ended March 31, 2010 and 2009, respectively. The increase in absolute dollars of cost of sales was primarily attributable to the increase in net sales, an increase of $1.6 million in freight-in charges, an increase of $0.5 million in provision for warranty reserve and an increase of $0.2 million in provision for inventory reserve. The higher cost of sales as a percentage of net sales was primarily due to a lower percentage of sales from server systems, a higher percentage of sales to internet data centers and a higher percentage of sales of subsystem and accessories as we grew market share during a time of economic recovery. In the three months ended March 31, 2010, we recorded a $2.0 million expense, or 1.1% of net sales, related to the provision for warranty reserve as compared to $1.6 million, or 1.4% of net sales, in the three months ended March 31, 2009. The increase in the provision for warranty reserve was primarily due to higher net sales in the three months ended March 31, 2010. If in future periods we experience or anticipate an increase or decrease in warranty claims as a result of new product introductions or change in unit volumes compared with our historical experience, or if the cost of servicing warranty claims is greater or lesser than expected, our gross margin would be affected. In the three months ended March 31, 2010, we recorded a $0.7 million expense, or 0.3% of net sales, related to the inventory provision as compared to $0.5 million expense, or 0.4% of net sales, in the three months ended March 31, 2009. The increase in the inventory provision was primarily for our older products as we go through product transitions.

Research and development expenses. Research and development expenses increased by $1.1 million, or 13.0%, to $9.8 million from $8.6 million for the three months ended March 31, 2010 and 2009, respectively. Research and development expenses were 5.2% and 7.8% of net sales for the three months ended March 31, 2010 and 2009, respectively. The increase in absolute dollars was primarily due to an increase of $1.5 million in compensation and benefits resulting from growth in research and development personnel and an increase of $0.3 million in development costs associated with new products offset in part by an increase of $0.8 million in non-recurring engineering funding from certain suppliers and customers.

Research and development expenses include stock-based compensation expense of $0.9 million and $0.7 million for the three months ended March 31, 2010 and 2009, respectively. The increase in absolute dollars was primarily due to the growth in research and development personnel related to expanded product development initiatives.

Sales and marketing expenses. Sales and marketing expenses increased by $1.5 million, or 37.9%, to $5.5 million from $4.0 million, for the three months ended March 31, 2010 and 2009, respectively. Sales and marketing expenses were 2.9% and 3.7% of net sales for the three months ended March 31, 2010 and 2009, respectively. The increase in absolute dollars was primarily due to an increase of $0.6 million in compensation and benefits resulting from growth in sales and marketing personnel, an increase of $0.3 million in cooperative marketing funding to customers, an increase of $0.2 million in advertising and promotion expenses and a decrease of $0.2 million in marketing co-op funding from vendors.

Sales and marketing expenses include stock-based compensation expense of $0.2 million for both three months ended March 31, 2010 and 2009.

General and administrative expenses. General and administrative expenses increased by $0.2 million, or 5.5%, to $3.5 million from $3.3 million, for the three months ended March 31, 2010 and 2009, respectively. General and administrative expenses were 1.8% and 3.0% of net sales for three months ended March 31, 2010 and 2009, respectively. The increase in absolute dollar was primarily due to an increase of $0.3 million in bad debt expenses and an increase of $0.2 million in compensation and benefits offset in part by a decrease of $0.1 million in insurance expenses.

General and administrative expenses include stock-based compensation expense of $0.4 million for both three months ended March 31, 2010 and 2009, respectively.

Interest and other expense, net. Interest and other expense, net changed by $0.1 million, to $47,000 of expense from $0.2 million of expense, for the three months ended March 31, 2010 compared to the three months ended March 31, 2009, respectively, of which $0.1 million and $0.2 million was interest expense for the three months ended March 31, 2010 and 2009, respectively. The net change was primarily due to lower interest expense as the Company paid off our outstanding building loans in July and August 2009. We expect the interest expenses will increase in the future as we intend to obtain financing to purchase properties in San Jose, California and Asia during the quarter ending June 30, 2010.

Provision for income taxes. Provision for income taxes was $2.8 million and ($1.0) million benefit for the three months ended March 31, 2010 and 2009, respectively. The effective tax rate of 26.3% for the three months ended March 31, 2010 was less than the statutory rate of approximately 39% due to discrete permanent items that reduced taxable income, such as: the release of uncertain tax positions liabilities where the statute of limitations had lapsed, the impact of stock option deductions and research and development credits. The effective tax rate of (379.0%) for the three months ended March 31, 2009 was primarily due to the impact of applying a lower annual effective tax rate for the year during a quarter with a loss before income taxes.

Comparison of Nine Months Ended March 31, 2010 and 2009

Net sales. Net sales increased by $137.6 million, or 36.0%, to $520.0 million from $382.2 million, for the nine months ended March 31, 2010 and 2009, respectively. This increase was due primarily to an increase in unit volumes of subsystems and accessories and average selling prices of server systems. For the nine months ended March 31, 2010, the approximate number of server system units sold increased 3.2% to 128,000 compared to 124,000 for the nine months ended March 31, 2010 and 2009. The average selling price of server system units increased 16.7% to approximately $1,400 in the nine months ended March 31, 2010 compared to approximately $1,200 in the nine months ended March 31, 2009. The average selling prices of our server systems increased principally due to higher average selling prices of 6000 Series configuration of servers which incorporated additional features offset in part by declines in average selling prices of more mature products to OEMs and end customers. Sales of server systems increased by $28.9 million or 19.1% from the nine months ended March 31, 2009 to the nine months ended March 31, 2010, primarily due to higher sales of our 6000 Series configuration of servers offset in part by lower sales of more mature products to OEMs and end customers. Sales of server systems represented 34.7% of our net sales for the nine months ended March 31, 2010 as compared to 39.6% of our net sales for the nine months ended March 31, 2009. For the nine months ended March 31, 2010, the approximate number of subsystems and accessories units sold increased 28.0% to 2,298,000 compared to 1,795,000 for the nine months ended March 31, 2009. Sales of subsystems and accessories increased by $108.8 million or 47.1% from the nine months ended March 31, 2009 to the nine months ended March 31, 2010, primarily due to higher sales to distributors and resellers. Sales of subsystems and accessories represented 65.3% of our net sales for the nine months ended March 31, 2010 as compared to 60.4% of our net sales for the nine months ended March 31, 2009. For the nine months ended March 31, 2010 and 2009, we derived approximately 68.7% and 64.8%, respectively, of our net sales from products sold to distributors and we derived approximately 31.3% and 35.2%, respectively, from sales to OEMs and to end customers. For the nine months ended March 31, 2010, customers in the United States, Europe and Asia accounted for approximately 59.8%, 21.7% and 15.0%, of our net sales, respectively, as compared to 64.0%, 21.9% and 11.1%, respectively, for the nine months ended March 31, 2009.

Cost of sales. Cost of sales increased by $121.8 million, or 38.8%, to $435.7 million from $313.9 million, for the nine months ended March 31, 2010 and 2009, respectively. Cost of sales as a percentage of net sales was 83.8% and 82.1% for the nine months ended March 31, 2010 and 2009, respectively. The increase in absolute dollars of cost of sales was primarily attributable to the increase in net sales, an increase of $2.3 million in freight-in charges, an increase of $1.0 million in provision for inventory reserve and an increase of $0.4 million in provision for warranty reserve. The higher cost of sales as a percentage of net sales was primarily due to a lower percentage of sales from server systems and a higher percentage of sales of subsystem and accessories as we grew market share during the economic recovery. In the nine months ended March 31, 2010, we recorded a $1.8 million expense, or 0.3% of net sales, related to the inventory provision as compared to $0.8 million, or 0.2% of net sales, in the nine months ended March 31, 2009. The increase in the inventory provision was primarily for our older products as we go through product transitions. In the nine months ended March 31, 2010, we recorded a $5.7 million expense, or 1.1% of net sales, related to the provision for warranty reserve as compared to $5.2 million, or 1.4% of net sales, in the nine months ended March 31, 2009. The increase in the provision for warranty reserve was primarily due to higher net sales in the nine months ended March 31, 2010. If in future periods we experience or anticipate an increase or decrease in warranty claims as a result of new product introductions or change in unit volumes compared with our historical experience, or if the cost of servicing warranty claims is greater or lesser than expected, our gross margin would be affected.

Research and development expenses. Research and development expenses increased by $1.5 million, or 5.7%, to $27.1 million from $25.7 million, for the nine months ended March 31, 2010 and 2009, respectively. Research and development expenses were 5.2% and 6.8% of net sales for the nine months ended March 31, 2010 and 2009, respectively. The increase in absolute dollars was primarily due to an increase of $3.0 million in compensation and benefits resulting from growth in research and development personnel, including higher stock-based compensation expense offset in part by an increase of $1.5 million in non-recurring engineering funding from certain suppliers and customers.

Research and development expenses include stock-based compensation expense of $2.3 million and $1.9 million for the nine months ended March 31, 2010 and 2009, respectively. The increase in absolute dollars was primarily due to the growth in research and development personnel related to expanded product development initiatives.

Sales and marketing expenses. Sales and marketing expenses increased by $2.1 million, or 16.4%, to $15.2 million from $13.0 million, for the nine months ended March 31, 2010 and 2009, respectively. Sales and marketing expenses were 2.9% and 3.4% of net sales for the nine months ended March 31, 2010 and 2009, respectively. The increase in absolute dollars was primarily due to an increase of $1.3 million in compensation and benefits resulting from growth in sales and marketing personnel, including higher stock-based compensation expense, a decrease of $0.6 million in cooperative marketing funding from vendors and an increase of $0.3 million in cooperative marketing funding to customers.

Sales and marketing expenses include stock-based compensation expense of $0.6 million for both nine months ended March 31, 2010 and 2009, respectively.

General and administrative expenses. General and administrative expenses increased by $1.3 million, or 13.1%, to $11.3 million from $10.0 million, for the nine months ended March 31, 2010 and 2009. General and administrative expenses were 2.2% and 2.6% of net sales for the nine months ended March 31, 2010 and 2009, respectively. The increase in absolute dollars was primarily due to an increase of $0.8 million in compensation and benefits, including higher stock-based compensation expense, an increase of $0.2 million in professional fees related to audit and tax activities performed in the nine months ended March 31, 2010 and an increase of $0.1 million in bad debt expenses.

General and administrative expenses include stock-based compensation expense of $1.4 million and $1.1 million for the nine months ended March 31, 2010 and 2009, respectively.

Provision for litigation loss. Loss from litigation increased to $1.1 million from $0, for the nine months ended March 31, 2010 and 2009, respectively. The increase was related to the Digitechnic lawsuit. In October 2009, the Paris Court of Appeals awarded damages of approximately $1.1 million against the Company. A provision of $1.1 million for litigation loss was recorded in the nine months ended March 31, 2010, and the Company paid off the amount in December 2009. (See Note 14 of Notes to Condensed Consolidated Financial Statements.)

Interest and other expense, net. Interest and other expense, changed by $0.1 million, to $0.2 million of expense from $0.3 million of expense, for the nine months ended March 31, 2010 compared to the same period in 2009, respectively, of which $0.3 million and $0.7 million was interest expense for the nine months ended March 31, 2010 and 2009, respectively. The net change was due to lower interest income of $0.3 million resulting from lower interest rates and lower interest expense of $0.4 million as the Company paid off our outstanding building loans in July and August 2009. We expect the interest expenses will increase in the future as we intend to obtain financing to purchase properties in San Jose, California and Asia during the quarter ending June 30, 2010.

Provision for income taxes. Provision for income taxes increased by $4.5 million, or 81.2%, to $9.9 million from $5.5 million, for the nine months ended March 31, 2010 and 2009, respectively. The effective tax rate was 34.1% and 28.5% for the nine months ended March 31, 2010 and 2009, respectively. The increase in the effective tax rate was primarily due to the expiration of the federal research and development tax credit in the nine months ended March 31, 2010.

Liquidity and Capital Resources

Since our inception, we have financed our growth primarily with funds generated from operations and from the proceeds of our initial public offering. Our cash and cash equivalents and short-term investments were $67.2 million and $70.6 million as of March 31, 2010 and June 30, 2009, respectively.

Operating Activities. Net cash provided by (used in) operating activities was ($8.2) million and $13.4 million for the nine months ended March 31, 2010 and 2009, respectively. Net cash used in our operating activities for the nine months ended March 31, 2010 consisted of our net income of $19.2 million, an increase in inventory of $56.2 million and an increase in accounts receivable of $22.5 million, which was substantially offset by an increase in accounts payable of $30.0 million, stock-based compensation expense of $4.8 million, an increase in accrued liabilities of $4.3 million, an increase in prepaid income taxes/income tax payable of $4.1 million, an allowance for sales returns of $3.9 million and a depreciation expense of $3.4 million.

The increase for the nine months ended March 31, 2010 in accounts receivable was primarily due to higher net sales during the nine months ended March 31, 2010. The increase for the nine months ended March 31, 2010 in inventory, accounts payable and accrued liabilities was due to an increase in demand for our products resulting from a recovering economy and to support the growth of the Company. We anticipate that accounts receivable, sales returns, inventory and accounts payable will continue to increase to the extent we continue to grow our product lines and our business.

Net cash provided by operating activities for the nine months ended March 31, 2009 was primarily due to our net income of $13.7 million, stock-based compensation expense of $4.0 million, an allowance for sales returns of $3.3 million, a decrease in accounts receivable of $3.1 million, an increase in prepaid income taxes/income taxes payable of $2.3 million, a decrease in inventory of $1.9 million and an increase in accrued liabilities of $1.5 million, which was substantially offset by a decrease in accounts payable of $20.2 million.

The decreases for the nine months ended March 31, 2009 in accounts receivable and sales returns were primarily due to lower net sales in the three months ended March 31, 2009 and timing of customer payments. The decrease for the nine months ended March 31, 2009 in inventory was primarily due to our reduction of X7 products as new X8 Nahalem products were launched at the end of the quarter. The decreases for the nine months ended March 31, 2009 in accounts payable was primarily due to lower inventory purchases and timing of payments to our vendors. The increase for the nine months ended March 31, 2009 in accrued liabilities was primarily due to an increase in accrued employee benefits, accrued warranty expense and accrued customers’ credit related to customers’ prepayment for products to be shipped in the fourth quarter of fiscal year 2009.

Investing activities . Net cash provided by (used in) our investing activities was $7.7 million and ($1.9) million for the nine months ended March 31, 2010 and 2009, respectively. In the nine months ended March 31, 2010, the redemption at par of investments in auction rate securities of $8.9 million and the release of the restricted funds from an irrevocable standby letter of credit of $1.5 million were offset in part by the purchase of property, plant and equipment of $2.8 million. In the nine months ended March 31, 2009, $2.8 million was related to the purchase of property, plant and equipment offset in part by the redemption at par of investments in auction rate securities of $0.9 million. We have historically owned our manufacturing facilities and have leased off-shore offices. The expansion of our manufacturing capability as to date has not been capital intensive as our internal manufacturing is limited to assembly and test. We expect the net cash used in our investing activities will increase significantly in the quarter ending June 30, 2010 as we entered into an agreement to purchase land and buildings in San Jose, California in May 2010 and intend to invest in a property in Asia during the quarter ending June 30, 2010 in order to expand our assembly and test capabilities to support our business growth.

Financing activities . Net cash used in our financing activities was $3.1 million and $0.3 million for the nine months ended March 31, 2010 and 2009, respectively. In the nine months ended March 31, 2009, we repurchased 445,028 shares of treasury stock for $2.0 million. In the nine months ended March 31, 2010 and 2009, $5.1 million and $1.9 million, respectively, was related to the proceeds from exercise of stock options. In the nine months ended March 31, 2010, $1.4 million was related to the excess tax benefits from stock-based compensation. We repaid $10.0 million and $0.2 million in loans for the nine months ended March 31, 2010 and 2009, respectively. We expect the net cash provided by financing activities will increase in the quarter ending June 30, 2010 as we intend to obtain financing to purchase properties in San Jose, California and Asia during the quarter ending June 30, 2010.

We have historically generated cash from our operating activities as we have grown. We expect to experience continued growth in our working capital requirements as we continue to expand our business. We intend to fund this continued expansion through cash generated by operations. We anticipate that working capital will constitute a material use of our cash resources. We have sufficient cash on hand to continue to operate in the next 12 months.

Other factors affecting liquidity and capital resources

As of March 31, 2010, we had an unused revolving line of credit totaling $5.0 million that matures on December 15, 2010 with an interest rate at Prime Rate plus 0.5% per annum. As of March 31, 2010, we were in compliance with the financial covenants associated with the line of credit.

In addition, we have historically paid our contract manufacturers within 41 to 75 days of invoice and Ablecom between 56 and 108 days of invoice. Ablecom, a Taiwan corporation, is one of our major contract manufacturers and a related party. As of March 31, 2010 and June 30, 2009 amounts owed to Ablecom by us were approximately $35.5 million and $21.5 million, respectively.

In February 2008, we leased an office building of approximately 246,000 square feet in Fremont, California with total payment obligations of approximately $8.8 million over the next 5.3 years as of March 31, 2010. We also obtained an irrevocable standby letter of credit required by the landlord of the office lease totaling $121,000. This amount has been classified as a noncurrent restricted asset as of March 31, 2010.

As of March 31, 2010, we held approximately $6.4 million of auction rate securities, net of unrealized losses, representing our interest in auction rate preferred shares in a closed end mutual fund invested in municipal securities and auction rate student loans guaranteed by the Federal Family Education Loan Program; such auction rate securities were rated AAA/Aaa or Baa at March 31, 2010. These auction rate preferred shares have no stated maturity date and stated maturity dates for these auction rate student loans range from 2010 to 2040. During February 2008, the auctions for these auction rate securities began to fail to obtain sufficient bids to establish a clearing rate and were not saleable in the auction, thereby losing the short-term liquidity previously provided by the auction process. As a result, as of March 31, 2010, $6.0 million of these auction rate securities have been classified as long-term available-for-sale investments. The remaining $0.4 million of auction rate student loan was classified as a short-term available-for-sale investment because the stated maturity for these securities occur in September 2010. Based on our assessment of fair value at March 31, 2010, we have recorded an accumulated unrealized loss of $0.4 million, net of deferred income taxes, on both long-term and short-term auction rate securities. The unrealized loss was deemed to be temporary and has been recorded as a component of accumulated other comprehensive loss. Although we have determined that we will not likely be required to sell the securities before the anticipated recovery and we have the intent and ability to hold these investments until successful auctions occur, these investments are not currently liquid and in the event we need to access these funds, we will not be able to do so without a loss of principal. There can be no assurances that these investments will be settled in the short term or that they will not become other-than-temporarily impaired subsequent to March 31, 2010, as the market for these investments is presently uncertain. In any event, we do not have a present need to access these funds for operational purposes. We will continue to monitor and evaluate these investments as there is no assurance as to when the market for these investments will allow us to liquidate them. We may be required to record impairment charges in periods subsequent to March 31, 2010 with respect to these securities and, if a liquid market does not develop for these investments, we could be required to hold them to maturity. During the three and nine months ended March 31, 2010, approximately $0.2 million and $8.9 million of these auction rate securities were redeemed at par.

In May 2010, we entered into an agreement to purchase land and buildings with approximately 167,000 square feet of space in San Jose, California adjacent to our headquarters. The purchase price is approximately $18.5 million. Consummation of the purchase is subject to customary closing conditions and is expected to close in June 2010. We intend to obtain financing to purchase these properties.

Our long-term future capital requirements will depend on many factors, including our level of revenues, the timing and extent of spending to support our product development efforts, the expansion of sales and marketing activities, the timing of our introductions of new products, the costs to ensure access to adequate manufacturing capacity and the continuing market acceptance of our products. We could be required, or could elect, to seek additional funding through public or private equity or debt financing and additional funds may not be available on terms acceptable to us or at all.

Contractual Obligations

The following table describes our contractual obligations as of March 31, 2010:


	Payments Due by Period
	Less Than 1 Year		1 to 3 Years		3 to 5 Years		More Than 5 Years		Total
	(in thousands)
Operating leases	$	2,489	$	4,020	$	4,011	$	928	$	11,448
Capital leases, including interest		37		44		2		—		83
License arrangement		842		911		797		—		2,550
Purchase commitments		79,338		—		—		—		79,338

Total	$	82,706	$	4,975	$	4,810	$	928	$	93,419

The table above excludes liabilities for deferred rent of $0.9 million, deferred revenue for warranty services of $1.5 million and unrecognized tax benefits and related interest and penalties accrual of $6.0 million. We have not provided a detailed estimate of the payment timing of unrecognized tax benefits due to the uncertainty of when the related tax settlements will become due.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Item 3.

Quantitative and Qualitative Disclosure About Market Risks

Interest Rate Risk

The primary objectives of our investment activities are to preserve principal, provide liquidity and maximize income without significantly increasing the risk. Some of the securities we invest in are subject to market risk. This means that a change in prevailing interest rates may cause the fair value of the investment to fluctuate. To minimize this risk, we maintain our portfolio of cash equivalents and short-term investments in money market funds and certificates of deposit. Since our results of operations are not dependent on investments, the risk associated with fluctuating interest rates is limited to our investment portfolio, and we believe that a 10% change in interest rates would not have a significant impact on our results of operations. As of March 31, 2010, our investments were in money market funds, certificates of deposits and auction rate securities (see Liquidity Risk below).

We had $10.0 million of indebtedness under our credit facilities as of June 30, 2009, and no indebtedness under our credit facilities as of March 31, 2010. We paid off the building loans in July and August 2009 totaling $10.2 million including a prepayment penalty of $0.2 million.

Liquidity Risk

Although we have determined that we will not likely be required to sell the securities before the anticipated recovery and we have the intent and ability to hold our investments until successful auctions occur, these investments are not currently liquid and in the event we need to access these funds, we will not be able to do so without a loss of principal. There can be no assurances that these investments will be settled in the short term or that they will not become other-than-temporarily impaired subsequent to March 31, 2010, as the market for these investments is presently uncertain. In any event, we do not have a present need to access these funds for operational purposes. We will continue to monitor and evaluate these investments as there is no assurance as to when the market for these investments will allow us to liquidate them. We may be required to record impairment charges in periods subsequent to March 31, 2010 with respect to these securities and, if a liquid market does not develop for these investments, we could be required to hold them to maturity.

Foreign Currency Risk

To date, our international customer and supplier agreements have been denominated solely in U.S. dollars, and accordingly, we have not been exposed to foreign currency exchange rate fluctuations from customer agreements, and do not currently engage in foreign currency hedging transactions. However, the functional currency of our operations in the Netherlands and Taiwan is the U.S. dollar and our local accounts are maintained in the local currency in the Netherlands and Taiwan, respectively, and thus we are subject to foreign currency exchange rate fluctuations associated with re-measurement to U.S. dollars. Such fluctuations have not been significant historically. For example, foreign exchange gain was $93,000 and $73,000 for the three and nine months ended March 31, 2010, respectively, and $24,000 and $27,000 for the three and nine months ended March 31, 2009, respectively. We do not currently engage in foreign currency hedging transactions.

Item 4.

Controls and Procedures

Evaluation of Effectiveness of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, the Company evaluated the effectiveness of its disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The evaluation considered the procedures designed to ensure that information required to be disclosed by us in the reports filed or submitted by the Company under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and communicated to our management as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2010.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting as defined in Exchange Act Rule 13a-15(f) during the quarter ended March 31, 2010 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

PART II: OTHER INFORMATION

Item 1.

Legal Proceedings.

We were subject to a suit brought by Digitechnic, S.A. which was filed in the Bobigny Commercial Court in Paris, in 1999. The claims involve allegations of damages stemming from allegedly defective products. In September 2003, the Bobigny Commercial Court awarded damages of approximately $1.2 million against us. In February 2005, the Paris Court of Appeals reversed the trial court’s ruling, dismissed all of Digitechnic’s claims and awarded costs to us. Digitechnic appealed the decision to the French Supreme Court and asked for $2.4 million for damages. On February 13, 2007, the French Supreme Court reversed the decision of the Paris Court of Appeals, ordering a new hearing before a different panel of the Paris Court of Appeals. In March 2008, we posted a bond in the amount of $3.1 million required by the court. The bond was collateralized by an irrevocable standby letter of credit totaling $1.5 million. In October 2009, the Paris Court of Appeals awarded damages of approximately $1.1 million against the Company. A provision of $1.1 million for litigation loss was recorded in the nine months ended March 31, 2010. The Company entered into a settlement agreement with Digitechnic, pursuant to which the Company made a payment of $1.1 million in December 2009.

In addition to the above, from time to time, we may be involved in various legal proceedings arising from the normal course of business activities. In our opinion, resolution of these and the above matters is not expected to have a material adverse impact on our consolidated results of operations, cash flows or our financial position. However, depending on the amount and timing, an unfavorable resolution of a matter could materially affect our future results of operations, cash flows or financial position in a particular period.

Item 1a.

Risk Factors.

The Risk Factors included in our Annual Report on Form 10-K for the year ended June 30, 2009 have not materially changed. You should carefully consider the following risk factors, as well as the other information in this Form 10-Q, before deciding whether to invest in shares of our common stock. If any of the following risks actually occurs, our business, financial condition and results of operations would suffer. In this case, the trading price of our common stock would likely decline and you might lose all or part of your investment in our common stock. Additional risks that we currently do not know about or that we currently believe to be immaterial may also impair our business operations.

Risks Related to Our Business and Industry

Our operating results may be adversely affected if the economic recovery is not sustained.

Our results of operations for the fiscal year 2009 were adversely impacted by reduced information technology spending in light of the economic downturn and have improved in fiscal year 2010 as the economy has begun to recover. Although we cannot predict the level of such reductions or the impact on our business in future periods, if the economic recovery is not sustained, we could experience:

•

Reduced demand for our products as a result of continued constraints on IT-related capital spending and limitations on available financing;

•

Increased price competition for our products;

•

Risk of excess and obsolete inventories;

•

Excess facilities and manufacturing capacity;

•

Higher overhead costs as a percentage of revenue and higher interest expense; and

•

Risk of uncollectible accounts receivable.

Our operating results may also be affected by uncertain or changing economic conditions relating to specific geographical or product market segments. If global economic and market conditions, or economic conditions in the United States or other key markets, remain uncertain or persist, spread, or deteriorate further, we may experience material negative impacts on our business, operating results, and financial condition.

Our significant growth makes it difficult to evaluate our current business and future prospects and may increase the risk of your investment.

Although we have been operating since 1993, our significant growth in revenues over time makes it difficult to evaluate our current business and future prospects. You must consider our business and prospects in light of the risks and difficulties we encounter as a rapidly growing technology company in a very competitive market. These risks and difficulties include, but are not limited to, the risks identified in this section and in particular the following factors:

•

our focus on a single market, the market for application optimized server systems, subsystems and accessories;

•

our increasing focus on the sales of server systems as compared to subsystems and accessories;

•

the success of our blade server systems, which were first introduced in September 2007;

•

the difficulties we face in managing rapid growth in personnel and operations;

•

the timing and success of new products and new technologies introduced by us and our competitors;

•

our ability to build brand awareness in a highly competitive market; and

•

our ability to market new and existing products on our own and with our partners.

We may not be able to successfully address any of these risks or others. Failure to do so adequately could seriously harm our business and cause our operating results to suffer.

Our quarterly operating results will likely fluctuate in the future, which could cause rapid declines in our stock price.

As our business continues to grow, we believe that our quarterly operating results will be subject to greater fluctuation due to various factors, many of which are beyond our control. Factors that may affect quarterly operating results in the future include:

•

our ability to attract new customers, retain existing customers and increase sales to such customers;

•

unpredictability of the timing and size of customer orders, since most of our customers purchase our products on a purchase order basis rather than pursuant to a long term contract;

•

fluctuations in availability and costs associated with materials needed to satisfy customer requirements;

•

variability of our margins based on the mix of server systems, subsystems and accessories we sell;

•

variability of operating expenses as a percentage of net sales;

•

the timing of the introduction of new products by leading microprocessor vendors and other suppliers;

•

our ability to introduce new and innovative server solutions that appeal to our customers;

•

our ability to address technology issues as they arise, improve our products’ functionality and expand our product offerings;

•

changes in our product pricing policies, including those made in response to new product announcements and pricing changes of our competitors;

•

mix of whether customer purchases are of full systems or subsystems and accessories and whether made directly or through indirect sales channels;

•

fluctuations based upon seasonality, with the quarters ending March 31 and September 30 typically being weaker;

•

the rate of expansion, domestically and internationally;

•

the effectiveness of our sales force and the efforts of our distributors;

•

the effect of mergers and acquisitions among our competitors, suppliers or partners;

•

general economic conditions in our geographic markets; and

•

impact of regulatory changes on our cost of doing business.

Accordingly, it is difficult for us to accurately forecast our growth and results of operations on a quarterly basis. If we fail to meet expectations of investors or analysts, our stock price may fall rapidly and without notice. Furthermore, the fluctuation of quarterly operating results may render less meaningful period-to-period comparisons of our operating results, and you should not rely upon them as an indication of future performance.

If the demand for application optimized server solutions does not continue to develop as we anticipate, demand for our server solutions may not grow as we expect.

The success of our business depends on the continued adoption of application optimized server solutions by businesses for running their critical business applications. The market for application optimized server solutions has begun to develop in recent years. As the market for general purpose servers has grown and matured, leading general purpose server vendors have focused on providing a limited range of models that could be mass produced, thereby creating an opportunity for the development of a market focused on more application optimized servers. This new market has been marked by frequent introductions of new technologies and products. Many of these technologies and products have not yet gained, and may not gain, significant customer acceptance. We expect to devote significant resources to identifying new market trends and developing products to meet anticipated customer demand for application optimized server solutions. Ultimately, however, customers may not purchase application optimized server solutions and instead select general purpose lower-cost server, subsystems and accessories. We are also part of a broader market for server solutions and demand for these server solutions may decline or fail to grow as we expect. Accordingly, we can not assure you that demand for the type of server solutions we offer and plan to offer will continue to develop as we anticipate, or at all.

Our future financial performance will depend on the timely introduction and widespread acceptance of new server solutions and increased functionality of our existing server solutions.

Our future financial performance will depend on our ability to meet customer specifications and requirements by enhancing our current server solutions and developing server solutions with new and better functionality. The success of new features and new server solutions depends on several factors, including their timely introduction and market acceptance. We may not be successful in developing enhancements or new server solutions, or in timely bringing them to market. Customers may also defer purchases of our existing products pending the introduction of anticipated new products. For example, we experienced customer order delays in advance of Intel’s Nehalem microprocessor release at the end of the quarter ended March 31, 2009. If our new server solutions are not competitive with solutions offered by other vendors, we may not be perceived as a technology leader and could miss market opportunities. If we are unable to enhance the functionality of our server solutions or introduce new server solutions which achieve widespread market acceptance, our reputation will be damaged, the value of our brand will diminish, and our business will suffer. In addition, uncertainties about the timing and nature of new features and products could result in increases in our research and development expenses with no assurance of future sales.

We may not be able to successfully manage our planned growth and expansion.

Over time we expect to continue to make investments to pursue new customers and expand our product offerings to grow our business rapidly. In connection with this growth, we expect that our annual operating expenses will increase significantly if the economy continues to improve and as we invest in sales and marketing, research and development, manufacturing and production infrastructure, and strengthen customer service and support resources for our customers. Our failure to expand operational and financial systems timely or efficiently could result in additional operating inefficiencies, which could increase our costs and expenses more than we had planned and prevent us from successfully executing our business plan. We may not be able to offset the costs of operation expansion by leveraging the economies of scale from our growth in negotiations with our suppliers and contract manufacturers. Additionally, if we do increase our operating expenses in anticipation of the growth of our business and this growth does not meet our expectations, our financial results will be negatively impacted.

If our business grows, we will have to manage additional product design projects, materials procurement processes, and sales efforts and marketing for an increasing number of SKUs, as well as expand the number and scope of our relationships with suppliers, distributors and end customers. If we fail to manage these additional responsibilities and relationships successfully, we may incur significant costs, which may negatively impact our operating results.

Additionally, in our efforts to be first to market with new products with innovative functionality and features, we may devote significant research and development resources to products and product features for which a market does not develop quickly, or at all. If we are not able to predict market trends accurately, we may not benefit from such research and development activities, and our results of operations may suffer.

The market in which we participate is highly competitive, and if we do not compete effectively, we may not be able to increase our market penetration, grow our net sales or improve our gross margins.

The market for server solutions is intensely competitive and rapidly changing. Barriers to entry in our market are relatively low and we expect increased challenges from existing as well as new competitors. Some of our principal competitors offer server solutions at a lower price, which has resulted in pricing pressures on sales of our server solutions. We expect further downward pricing pressure from our competitors and expect that we will have to price some of our server solutions aggressively to increase our market share with respect to those products. If we are unable to maintain the margins on our server solutions, our operating results could be negatively impacted. In addition, if we do not develop new innovative server solutions, or enhance the reliability, performance, efficiency and other features of our existing server solutions, our customers may turn to our competitors for alternatives. In addition, pricing pressures and increased competition generally may also result in reduced sales, lower margins or the failure of our products to achieve or maintain widespread market acceptance, any of which could have a material adverse effect on our business, results of operations and financial condition.

Our principal competitors include global technology companies such as Dell, Inc., Hewlett-Packard Company, International Business Machines Corporation and Intel. In addition, we also compete with a number of smaller vendors who also sell application optimized servers and original design manufacturers, or ODMs, such as Quanta Computer Incorporated. ODMs sell server solutions marketed or sold under a third party brand.

Many of our competitors enjoy substantial competitive advantages, such as:

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greater name recognition and deeper market penetration;

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longer operating histories;

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larger sales and marketing organizations and research and development teams and budgets;

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more established relationships with customers, contract manufacturers and suppliers and better channels to reach larger customer bases;

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larger customer service and support organizations with greater geographic scope;

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a broader and more diversified array of products and services; and

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substantially greater financial, technical and other resources.

As a result, our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards or customer requirements. Competitors may seek to copy our innovations and use cost advantages from greater size to compete aggressively with us on price. Certain customers are also current or prospective competitors and as a result, assistance that we provide to them as customers may ultimately result in increased competitive pressure against us. Furthermore, because of these advantages, even if our application optimized server solutions are more effective than the products that our competitors offer, potential customers might accept competitive products in lieu of purchasing our products. The challenges we face from larger competitors will become even greater if consolidation or collaboration between or among our competitors occurs in our industry. For all of these reasons, we may not be able to compete successfully against our current or future competitors, and if we do not compete effectively, our ability to increase our net sales may be impaired.

As we increasingly target larger customers, our customer base may become less diversified, our cost of sales may increase, and our sales may be less predictable.

We expect that as our business continues to grow, we will be increasingly dependent upon larger sales to new customer to maintain our rate of growth and that selling our server solutions to larger customers will create new challenges. However, if certain customers buy our products in greater volumes, and their business becomes a larger percentage of our net sales, we may grow increasingly dependent on those customers to maintain our growth. If our largest customers do not purchase our products at the levels or in the timeframes that we expect, our ability to maintain or grow our net sales will be adversely affected.

Additionally, as we and our distribution partners focus increasingly on selling to larger customers and attracting larger orders, we expect greater costs of sales. Our sales cycle may become longer and more expensive, as larger customers typically spend more time negotiating contracts than smaller customers. In addition, larger customers often seek to gain greater pricing concessions, as well as greater levels of support in the implementation and use of our server solutions. These factors can result in lower margins for our products.

Increased sales to larger companies may also cause fluctuations in results of operations. A larger customer may seek to fulfill all or substantially all of its requirements in a single order, and not make another purchase for a significant period of time. Accordingly, a significant increase in revenue during the period in which we recognize the revenue from the sale may be followed by a period of time during which the customer purchases none or few of our products. A significant decline in net sales in periods following a significant order could adversely affect our stock price.

We must work closely with our suppliers to make timely new product introductions.

We rely on our close working relationships with our suppliers, including Intel and AMD, to anticipate and deliver new products on a timely basis when new generation materials and core components are made available. Intel and AMD are the only suppliers of the microprocessors we use in our server systems. If we are not able to maintain our relationships with our suppliers or continue to leverage their research and development capabilities to develop new technologies desired by our customers, our ability to quickly offer advanced technology and product innovations to our customers would be impaired. We have no long term agreements that obligate our suppliers to continue to work with us or to supply us with products.

Our suppliers’ failure to improve the functionality and performance of materials and core components for our products may impair or delay our ability to deliver innovative products to our customers.

We need our material and core component suppliers, such as Intel and AMD, to provide us with core components that are innovative, reliable and attractive to our customers. Due to the pace of innovation in our industry, many of our customers may delay or reduce purchase decisions until they believe that they are receiving best of breed products that will not be rendered obsolete by an impending technological development. Accordingly, demand for new server systems that incorporate new products and features is significantly impacted by our suppliers’ new product introduction schedules and the functionality, performance and reliability of those new products. If our materials and core component suppliers fail to deliver new and improved materials and core components for our products, we may not be able to satisfy customer demand for our products in a timely manner, or at all. If our suppliers’ components do not function properly, we may incur additional costs and our relationships with our customers may be adversely affected.

Our time to market advantage is dependent upon our suppliers’ ability to continue to introduce improved components for our products.

We are dependent upon our material and core component suppliers, such as Intel and AMD, to continue to introduce improved products with additional features that our customers will find attractive. If the pace of innovation from our suppliers slows, our products may face increased competition if our competitors are able to introduce products that use the latest technology offered by other suppliers in the industry. This price competition could lead to reduced margins and could adversely affect our results of operations.

As our business grows and if the economy does not improve, we expect that we may be exposed to greater customer credit risks.

Historically, we have offered limited credit terms to our customers. As our customer base expands, as our orders increase in size, and as we obtain more direct customers, we expect to offer increased credit terms and flexible payment programs to our customers. Doing so may subject us to increased credit risk, higher accounts receivable with longer days outstanding, and increases in charges or reserves, which could have a material adverse effect on our business, results of operations and financial condition. Likewise, if the economic recovery does not continue, we could be exposed to greater credit risk.

Our ability to develop our brand is critical to our ability to grow.

We believe that acceptance of our server solutions by an expanding customer base depends in large part on increasing awareness of the Supermicro brand and that brand recognition will be even more important as competition in our market develops. In particular, we expect an increasing proportion of our sales to come from sales of server systems, the sales of which we believe may be particularly impacted by brand strength. Successful promotion of our brand will depend largely on the effectiveness of our marketing efforts and on our ability to develop reliable and useful products at competitive prices. To date, we have not devoted significant resources to building our brand, and have limited experience in increasing customer awareness of our brand. Our future brand promotion activities, including any expansion of our cooperative marketing programs with strategic partners, may involve significant expense and may not generate desired levels of increased revenue, and even if such activities generate some increased revenue, such increased revenue may not offset the expenses we incurred in endeavoring to build our brand. If we fail to successfully promote and maintain our brand, or incur substantial expenses in our attempts to promote and maintain our brand, we may fail to attract enough new customers or retain our existing customers to the extent necessary to realize a sufficient return on our brand-building efforts, and as a result our operating results and financial condition could suffer.

We principally rely on indirect sales channels for the sale and distribution of our products and any disruption in these channels could adversely affect our sales.

Historically, a substantial majority of our revenues have resulted from sales of our products through third party distributors and resellers, which sales accounted for approximately 69.4% and 68.7% of our net sales in the three and nine months ended March 31, 2010, respectively, compare to approximately 65.9% and 64.8% of our net sales in the three and nine months ended March 31, 2009, respectively. We depend on our distributors to assist us in promoting market acceptance of our products and anticipate that a majority of our revenues will continue to result from sales through indirect channels. To maintain and potentially increase our revenue and profitability, we will have to successfully preserve and expand our existing distribution relationships as well as develop new distribution relationships. Our distributors also sell products offered by our competitors and may elect to focus their efforts on these sales. If our competitors offer our distributors more favorable terms or have more products available to meet the needs of their customers, or utilize the leverage of broader product lines sold through the distributors, those distributors may de-emphasize or decline to carry our products. In addition, our distributors’ order decision-making process is complex and involves several factors, including end customer demand, warehouse allocation and marketing resources, which can make it difficult to accurately predict total sales for the quarter until late in the quarter. We also do not control the pricing or discounts offered by distributors to end customers. To maintain our participation in distributors’ marketing programs, in the past we have provided cooperative marketing arrangements or made short-term pricing concessions. The discontinuation of cooperative marketing arrangements or pricing concessions could have a negative effect on our business. Our distributors could also modify their business practices, such as payment terms, inventory levels or order patterns. If we are unable to maintain successful relationships with distributors or expand our distribution channels or we experience unexpected changes in payment terms, inventory levels or other practices by our distributors, our business will suffer.

We may be unable to accurately predict future sales through our distributors, which could harm our ability to efficiently manage our resources to match market demand.

Since a significant portion of our sales are made through domestic and international distributors, our financial results, quarterly product sales, trends and comparisons are affected by fluctuations in the buying patterns of end customers and our distributors, and by the changes in inventory levels of our products held by these distributors. We generally record revenue based upon a “sell-in” model which means that we generally record revenue upon shipment to our distributors. For more information regarding our revenue recognition policies, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies.” While we attempt to assist our distributors in maintaining targeted stocking level of our products, we may not consistently be accurate or successful. This process involves the exercise of judgment and use of assumptions as to future uncertainties including end customer demand. Our distributors also have various rights to return products which could, among other things, result in our having to repurchase inventory which has declined in value or is obsolete. Consequently, actual results could differ from our estimates. Inventory levels of our products held by our distributors may exceed or fall below the levels we consider desirable on a going-forward basis. This could adversely affect our distributors or our ability to efficiently manage or invest in internal resources, such as manufacturing and shipping capacity, to meet the demand for our products.

If we are required to change the timing of our revenue recognition, our net sales and net income could decrease.

We currently record revenue based upon a “sell-in” model with revenues generally recorded upon shipment of products to our distributors. This is in contrast to a “sell-through” model pursuant to which revenues are generally recognized upon sale of products by distributors to their customers. This requires that we maintain a reserve to cover the estimated costs of any returns or exercises of stock rotation rights, which we estimate primarily based on our historical experience. If facts and circumstances change such that the rate of returns of our products exceeds our historical experience, we may have to increase our reserve, which, in turn, would cause our revenue to decline. Similarly, if facts and circumstances change such that we are no longer able to determine reasonable estimates of our sales returns, we would be required to defer our revenue recognition until the point of sale from the distributors to their customers. Any such change may negatively impact our net sales or net income for particular periods and cause a decline in our stock price. For additional information regarding our revenue recognition policies, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies.”

The average selling prices for our existing server solutions are subject to decline if customers do not continue to purchase our latest generation products, which could harm our results of operations.

As with most electronics based products, average selling prices of servers typically are highest at the time of introduction of new products, which utilize the latest technology, and tend to decrease over time as such products become commoditized and are ultimately replaced by even newer generation products. Although we have not been impacted by this phenomenon to any material extent to date, we experienced greater pricing pressure in the quarter ended March 31, 2009 in anticipation of the release of new products incorporating Intel’s Nehalem microprocessor. However, as our business continues to grow, we may increasingly be subject to this industry risk. We cannot predict the timing or amount of any decline in the average selling prices of our server solutions that we may experience in the future. In some instances, our agreements with our distributors limit our ability to reduce prices unless we make such price reductions available to them, or price protect their inventory. If we are unable to decrease per unit manufacturing costs faster than the rate at which average selling prices continue to decline, our business, financial condition and results of operations will be harmed.

Our cost structure and ability to deliver server solutions to customers in a timely manner may be adversely affected by volatility of the market for core components and materials for our products.

Prices of materials and core components utilized in the manufacture of our server solutions, such as serverboards, chassis, central processing units, or CPUs, memory and hard drives represent a significant portion of our cost of sales. We generally do not enter into long-term supply contracts for these materials and core components, but instead purchase these materials and components on a purchase order basis. Prices of these core components and materials are volatile, and, as a result, it is difficult to predict expense levels and operating results. In addition, if our business growth renders it necessary or appropriate to transition to longer term contracts with materials and core component suppliers, our costs may increase and our gross margins could correspondingly decrease.

Because we often acquire materials and core components on an as needed basis, we may be limited in our ability to effectively and efficiently respond to customer orders because of the then-current availability or the terms and pricing of materials and core components. Our industry has experienced materials shortages and delivery delays in the past, and we may experience shortages or delays of critical materials in the future. From time to time, we have been forced to delay the introduction of certain of our products or the fulfillment of customer orders as a result of shortages of materials and core components. If shortages or delays arise, the prices of these materials and core components may increase or the materials and core components may not be available at all. In addition, in the event of shortages, some of our larger competitors may have greater abilities to obtain materials and core components due to their larger purchasing power. We may not be able to secure enough core components or materials at reasonable prices or of acceptable quality to build new products to meet customer demand, which could adversely affect our business and financial results.

We may lose sales or incur unexpected expenses relating to insufficient, excess or obsolete inventory.

As a result of our strategy to provide greater choice and customization of our products to our customers, we are required to maintain a high level of inventory. If we fail to maintain sufficient inventory, we may not be able to meet demand for our products on a timely basis, and our sales may suffer. If we overestimate customer demand for our products, we could experience excess inventory of our products and be unable to sell those products at a reasonable price, or at all. As a result, we may need to record higher inventory reserves. If we are later able to sell such products at a profit, it may increase the quarterly variances in our operating results. Additionally, the rapid pace of innovation in our industry could render significant portions of our existing inventory obsolete. Certain of our distributors and OEMs have rights to return products, limited to purchases over a specified period of time, generally within 60 to 90 days of the purchase, or to products in the distributor’s or OEM’s inventory at certain times, such as termination of the agreement or product obsolescence. Any returns under these arrangements could result in additional obsolete inventory. In addition, server systems, subsystems and accessories that have been customized and later returned by those of our customers and partners who have return rights or stock rotation rights may be unusable for other purposes or may require reformation at additional cost to be made ready for sale to other customers. Excess or obsolete inventory levels for these or other reasons could result in unexpected expenses or increases in our reserves against potential future charges which would adversely affect our business and financial results. For example, during the three and nine months ended March 31, 2010, we recorded inventory write-downs charged to cost of sales of $0.7 million and $1.8 million, respectively, for excess and obsolete inventory. For additional information regarding customer return rights, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies — Revenue Recognition.”

Our focus on internal development and customizable server solutions could delay our introduction of new products and result in increased costs.

Our strategy is to rely to a significant degree on internally developed components, even when third party components may be available. We believe this allows us to develop products with a greater range of features and functionality and allows us to develop solutions that are more customized to customer needs. However, if not properly managed, this reliance on internally developed components may be more costly than use of third party components, thereby making our products less price competitive or reducing our margins. In addition, our reliance on internal development may lead to delays in the introduction of new products and impair our ability to introduce products rapidly to market. We may also experience increases in our inventory costs and obsolete inventory, thereby reducing our margins.

Our research and development expenditures, as a percentage of our net sales, are considerably higher than many of our competitors and our earnings will depend upon maintaining revenues and margins that offset these expenditures.

Our strategy is to focus on being consistently rapid-to-market with flexible and customizable server systems that take advantage of our own internal development and the latest technologies offered by microprocessor manufacturers and other component vendors. Consistent with this strategy, we spend higher amounts, as a percentage of revenues, on research and development costs than many of our competitors. If we can not sell our products in sufficient volume and with adequate gross margins to compensate for such investment in research and development, our earnings may be materially and adversely affected.

If our limited number of contract manufacturers or suppliers of materials and core components fail to meet our requirements, we may be unable to meet customer demand for our products, which could decrease our revenues and earnings.

We purchase many sophisticated materials and core components from one or a limited number of qualified suppliers and rely on a limited number of contract manufacturers to provide value added design, manufacturing, assembly and test services. We generally do not have long-term agreements with these vendors, and instead obtain key materials and services through purchase order arrangements. We have no contractual assurances from any contract manufacturer that adequate capacity will be available to us to meet future demand for our products.

Consequently, we are vulnerable to any disruptions in supply with respect to the materials and core components provided by limited-source suppliers, and we are at risk of being harmed by discontinuations of design, manufacturing, assembly or testing services from our contract manufacturers. We have occasionally experienced delivery delays from our suppliers and contract manufacturers because of high industry demand or because of inability to meet our quality or delivery requirements. For example, in the quarter ended September 30, 2006, we experienced delays in the delivery of printed circuit board material as a result of the loss of two of our five printer circuit board vendors. One of the vendors filed for bankruptcy and the other changed its business model and ceased supplying us. The delays in delivery of the materials resulted in a reduction of net sales for the quarter of approximately two to three million dollars. If our relationships with our suppliers and contract manufactures are negatively impacted by late payments or other issues, we may not receive timely delivery of materials and core components. If we were to lose any of our current supply or contract manufacturing relationships, the process of identifying and qualifying a new supplier or contract manufacturer who will meet our quality and delivery requirements, and who will appropriately safeguard our intellectual property, may require a significant investment of time and resources, adversely affecting our ability to satisfy customer purchase orders and delaying our ability to rapidly introduce new products to market. Similarly, if any of our suppliers were to cancel or materially change contracts or commitments to us or fail to meet the quality or delivery requirements needed to satisfy customer demand for our products, our reputation and relationships with customers could be damaged. We could lose orders, be unable to develop or sell some products cost-effectively or on a timely basis, if at all, and have significantly decreased revenues, margins and earnings, which would have a material adverse effect on our business.

Our failure to deliver high quality server solutions could damage our reputation and diminish demand for our products.

Our server solutions are critical to our customers’ business operations. Our customers require our server solutions to perform at a high level, contain valuable features and be extremely reliable. The design of our server solutions is sophisticated and complex, and the process for manufacturing, assembling and testing our server solutions is challenging. Occasionally, our design or manufacturing processes may fail to deliver products of the quality that our customers require. For example, in 2000, a vendor provided us with a defective capacitor that failed under certain heavy use applications. As a result, our product needed to be repaired. Though the vendor agreed to pay for a large percentage of the costs of the repairs, we incurred costs in connection with the recall and diverted resources from other projects.

New flaws or limitations in our server solutions may be detected in the future. Part of our strategy is to bring new products to market quickly, and first-generation products may have a higher likelihood of containing undetected flaws. If our customers discover defects or other performance problems with our products, our customers’ businesses, and our reputation, may be damaged. Customers may elect to delay or withhold payment for defective or underperforming server solutions, request remedial action, terminate contracts for untimely delivery, or elect not to order additional server solutions, which could result in an increase in our provision for doubtful accounts, an increase in collection cycles for accounts receivable or subject us to the expense and risk of litigation. We may incur expense in recalling, refurbishing or repairing defective server solutions. If we do not properly address customer concerns about our products, our reputation and relationships with our customers may be harmed. For all of these reasons, customer dissatisfaction with the quality of our products could substantially impair our ability to grow our business.

Conflicts of interest may arise between us and Ablecom Technology Inc., one of our major contract manufacturers, and those conflicts may adversely affect our operations.

We use Ablecom, a related party, for contract design and manufacturing coordination support. We work with Ablecom to optimize modular designs for our chassis and certain of other components. Our purchases from Ablecom represented approximately 19.9% and 22.8% of our cost of sales for the three and nine months ended March 31, 2010, respectively, and approximately 18.1% and 23.1% of our cost of sales for the three and nine months ended March 31, 2009, respectively. Ablecom’s sales to us constitute a substantial majority of Ablecom’s net sales. Ablecom is a privately-held Taiwan-based company.

Steve Liang, Ablecom’s Chief Executive Officer and largest shareholder, is the brother of Charles Liang, our President, Chief Executive Officer and Chairman of the Board. Charles Liang, and his spouse, Chiu-Chu (Sara) Liu Liang, our Vice President of Operations, Treasurer and director, jointly own approximately 10.5% of Ablecom’s outstanding common stock. Charles Liang served as a director of Ablecom during our fiscal 2006, but is not currently serving in such capacity. Mr. Charles Liang, Ms. Liang, Mr. Steve Liang and relatives of these individuals own 53.1% of Ablecom’s outstanding common stock. Mr. and Mrs. Charles Liang, as directors, officers and significant stockholders, and Mr. Liaw, as an officer, director and significant stockholder, of the Company, have considerable influence over the management of our business relationships. Accordingly, we may be disadvantaged by their economic interests as stockholders of Ablecom and their personal relationship with Ablecom’s Chief Executive Officer. We may not negotiate or enforce contractual terms as aggressively with Ablecom as we might with an unrelated party, and the commercial terms of our agreements may be less favorable than we might obtain in negotiations with third parties. If our business dealings with Ablecom are not as favorable to us as arms-length transactions, our results of operations may be harmed.

In addition, our relationships with Ablecom could be adversely affected by declines in our stock price or divestments by Ablecom of its shares of our common stock. Steve Liang, Ablecom’s Chief Executive Officer, held approximately 2.0% of our outstanding common stock as of March 31, 2010. If the value of the shares that Steve Liang holds should decline, by decrease in our stock price or by disposition of the shares, if Steve Liang ceases to have significant influence over Ablecom, or if those of our stockholders who hold shares of Ablecom cease to hold a majority of the outstanding shares of Ablecom, the terms and conditions of our agreements with Ablecom may not be as favorable as those in our existing contracts. As a result, our costs could increase and adversely affect our margins and results of operations.

Our relationship with Ablecom may allow us to benefit from favorable pricing which may result in reported results more favorable than we might report in the absence of our relationship.

Although we generally re-negotiate the price of products that we purchase from Ablecom on a quarterly basis, pursuant to our agreements with Ablecom either party may re-negotiate the price of products for each order. As a result of our relationship with Ablecom, it is possible that Ablecom may in the future sell products to us at a price lower than we could obtain from an unrelated third party supplier. This may result in future reporting of gross profit as a percentage of net sales that is less than or in excess of what we might have obtained absent our relationship with Ablecom.

Our reliance on Ablecom could be subject to risks associated with our reliance on a limited source of contract manufacturing services and inventory warehousing.

We continue to maintain our manufacturing relationship with Ablecom in Asia. In order to provide a larger volume of contract manufacturing services for us, Ablecom will continue to warehouse for us an increasing number of components and subassemblies manufactured by multiple suppliers prior to shipment to our facilities in the U.S. and Europe. We also anticipate that we will continue to lease office space from Ablecom in Taiwan to support the research and development efforts we are undertaking.

If we or Ablecom fail to manage the contract manufacturing services and warehouse operations in Asia, we may experience delays in our ability to fulfill customer orders. Similarly, if Ablecom’s facility in Asia is subject to damage, destruction or other disruptions, our inventory may be damaged or destroyed, and we may be unable to find adequate alternative providers of contract manufacturing services in the time that we or our customers require. We could lose orders and be unable to develop or sell some products cost-effectively or on a timely basis, if at all.

Currently, we purchase contract manufacturing services primarily for our chassis and power supply products from Ablecom. If our commercial relationship with Ablecom were to deteriorate or terminate, establishing direct relationships with those entities supplying Ablecom with key materials for our products or identifying and negotiating agreements with alternative providers of warehouse and contract manufacturing services might take a considerable amount of time and require a significant investment of resources. Pursuant to our agreements with Ablecom and subject to certain exceptions, Ablecom has the exclusive right to be our supplier of the specific products developed under such agreements. As a result, if we are unable to obtain such products from Ablecom on terms acceptable to us, we may need to identify a new supplier, change our design and acquire new tooling, all of which could result in delays in our product availability and increased costs. If we need to use other suppliers, we may not be able to establish business arrangements that are, individually or in the aggregate, as favorable as the terms and conditions we have established with Ablecom. If any of these things should occur, our net sales, margins and earnings could significantly decrease, which would have a material adverse effect on our business.

We are increasing our operations in Taiwan, China and the Netherlands and could be subject to risks of doing business in the region.

We intend to increase our business operations in Europe and Asia, and particularly in the Netherlands, Taiwan and China. As a result, our exposure to the business risks presented by the economies and regulatory environments of Asia will increase. For example, the validity, enforceability and scope of protection of intellectual property is uncertain and evolving in the Netherlands, Taiwan and China, and our intellectual property rights may not be protected under the laws of the Netherlands, Taiwan and China to the same extent as under laws of the United States. If our intellectual property is misappropriated, we may experience unfair competition and declining sales or be forced to incur increased costs of enforcing our intellectual property rights, both of which would adversely affect our net sales, gross margins and results of operations.

Our growth into markets outside the United States exposes us to risks inherent in international business operations.

We market and sell our systems and components both domestically and outside the United States. We intend to expand our international sales efforts, especially into Asia, but our international expansion efforts may not be successful. Our international operations expose us to risks and challenges that we would otherwise not face if we conducted our business only in the United States, such as:

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heightened price sensitivity from customers in emerging markets;

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our ability to establish local manufacturing, support and service functions, and to form channel relationships with resellers in non-U.S. markets;

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localization of our systems and components, including translation into foreign languages and the associated expenses;

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compliance with multiple, conflicting and changing governmental laws and regulations;

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foreign currency fluctuations;

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limited visibility into sales of our products by our distributors;

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laws favoring local competitors;

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weaker legal protections of intellectual property rights and mechanisms for enforcing those rights;

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market disruptions created by public health crises in regions outside the U.S., such as Avian flu, SARS and other diseases;

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difficulties in staffing and managing foreign operations, including challenges presented by relationships with workers’ councils and labor unions; and

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changing regional economic and political conditions.

These factors could limit our future international sales or otherwise adversely impact our operations.

We have in the past entered into plea and settlement agreements with the government relating to violations of export control and related laws; if we fail to comply with laws and regulations restricting dealings with sanctioned countries, we may be subject to future civil or criminal penalties, which may have a material adverse effect on our business or ability to do business outside the U.S.

In 2006, we entered into certain plea and settlement agreement with government agencies relating to export control and related law violations for activities that occurred in the 2001 to 2003 timeframe. We believe we are currently in compliance in all material respects with applicable export related laws and regulations. However, if our export compliance program is not effective, or if we are subject to any future claims regarding violation of export control and economic sanctions laws, we could be subject to civil or criminal penalties, which could lead to a material fine or other sanctions, including loss of export privileges, that may have a material adverse effect on our business, financial condition, results of operation and future prospects. In addition, these plea and settlement agreements and any future violations could have an adverse impact on our ability to sell our products to U.S. federal, state and local government and related entities.

Any failure to protect our intellectual property rights, trade secrets and technical know-how could impair our brand and our competitiveness.

Our ability to prevent competitors from gaining access to our technology is essential to our success. If we fail to protect our intellectual property rights adequately, we may lose an important advantage in the markets in which we compete. Trademark, patent, copyright and trade secret laws in the United States and other jurisdictions as well as our internal confidentiality procedures and contractual provisions are the core of our efforts to protect our proprietary technology and our brand. Our patents and other intellectual property rights may be challenged by others or invalidated through administrative process or litigation, and we may initiate claims or litigation against third parties for infringement of our proprietary rights. Such administrative proceedings and litigation are inherently uncertain and divert resources that could be put towards other business priorities. We may not be able to obtain a favorable outcome and may spend considerable resources in our efforts to defend and protect our intellectual property.

Furthermore, legal standards relating to the validity, enforceability and scope of protection of intellectual property rights are uncertain. Effective patent, trademark, copyright and trade secret protection may not be available to us in every country in which our products are available. The laws of some foreign countries may not be as protective of intellectual property rights as those in the United States, and mechanisms for enforcement of intellectual property rights may be inadequate.

Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our intellectual property and using our technology for their competitive advantage. Any such infringement or misappropriation could have a material adverse effect on our business, results of operations and financial condition.

Resolution of claims that we have violated or may violate the intellectual property rights of others could require us to indemnify our customers, resellers or vendors, redesign our products, or pay significant royalties to third parties, and materially harm our business.

Our industry is marked by a large number of patents, copyrights, trade secrets and trademarks and by frequent litigation based on allegations of infringement or other violation of intellectual property rights. Third-parties have in the past sent us correspondence regarding their intellectual property and in the future we may receive claims that our products infringe or violate third parties’ intellectual property rights. For example, we were subject to a lawsuit filed in 2005 by Rackable Systems, Inc. In May 2007, we settled the claims on terms which had no adverse effect on our business, financial condition and result of operations. In addition, increasingly non-operating companies are purchasing patents and bringing claims against technology companies. We are currently subject to one such claim and recently settled another. Successful intellectual property claims against us from others could result in significant financial liability or prevent us from operating our business or portions of our business as we currently conduct it or as we may later conduct it. In addition, resolution of claims may require us to redesign our technology, to obtain licenses to use intellectual property belonging to third parties, which we may not be able to obtain on reasonable terms, to cease using the technology covered by those rights, and to indemnify our customers, resellers or vendors. Any claim, regardless of its merits, could be expensive and time consuming to defend against, and divert the attention of our technical and management resources.

If we lose Charles Liang, our President, Chief Executive Officer and Chairman, or any other key employee or are unable to attract additional key employees, we may not be able to implement our business strategy in a timely manner.

Our future success depends in large part upon the continued service of our executive management team and other key employees. In particular, Charles Liang, our President, Chief Executive Officer and Chairman of the Board, is critical to the overall management of our company as well as to the development of our culture and our strategic direction. Mr. Liang co-founded our company and has been our Chief Executive Officer since our inception. His experience in running our business and his personal involvement in key relationships with suppliers, customers and strategic partners are extremely valuable to our company. We currently do not have a succession plan for the replacement of Mr. Liang if it were to become necessary. Additionally, we are particularly dependent on the continued service of our existing research and development personnel because of the complexity of our products and technologies. Our employment arrangements with our executives and employees do not require them to provide services to us for any specific length of time, and they can terminate their employment with us at any time, with or without notice, without penalty. The loss of services of any of these executives or of one or more other key members of our team could seriously harm our business.

To execute our growth plan, we must attract additional highly qualified personnel, including additional engineers and executive staff. Competition for qualified personnel is intense, especially in San Jose, where we are headquartered. We have experienced in the past and may continue to experience difficulty in hiring and retaining highly skilled employees with appropriate qualifications. In particular, we are currently working to add personnel in our finance, accounting and general administration departments, which have historically had limited budgets and staffing. If we are unable to attract and integrate additional key employees in a manner that enables us to scale our business and operations effectively, or if we do not maintain competitive compensation policies to retain our employees, our ability to operate effectively and efficiently could be limited.

Any failure to adequately expand our sales force will impede our growth.

Though we expect to continue to rely primarily on third party distributors to sell our server solutions, we expect that, over time, our direct sales force will grow. Competition for direct sales personnel with the advanced sales skills and technical knowledge we need is intense. Our ability to grow our revenue in the future will depend, in large part, on our success in recruiting, training, retaining and successfully managing sufficient qualified direct sales personnel. New hires require significant training and may take six months or longer before they reach full productivity. Our recent hires and planned hires may not become as productive as we would like, and we may be unable to hire sufficient numbers of qualified individuals in the future in the markets where we do business. If we are unable to hire and develop sufficient numbers of productive sales personnel, sales of our server solutions will suffer.

Our direct sales efforts may create confusion for our end customers and harm our relationships with our distributors and OEMs.

Though our direct sales efforts have historically been limited and focused on customers who typically do not buy from distributors or OEMs, we expect our direct sales force to grow as our business grows. As our direct sales force becomes larger, our direct sales efforts may lead to conflicts with our distributors and OEMs, who may view our direct sales efforts as undermining their efforts to sell our products. If a distributor or OEM deems our direct sales efforts to be inappropriate, the distributor or OEM may not effectively market our products, may emphasize alternative products from competitors, or may seek to terminate our business relationship. Disruptions in our distribution channels could cause our revenues to decrease or fail to grow as expected. Our failure to implement an effective direct sales strategy that maintains and expands our relationships with our distributors and OEMs could lead to a decline in sales and adversely affect our results of operations.

Backlog does not provide a substantial portion of our net sales in any quarter.

Our net sales are difficult to forecast because we do not have sufficient backlog of unfilled orders to meet our quarterly net sales targets at the beginning of a quarter. Rather, a majority of our net sales in any quarter depend upon customer orders that we receive and fulfill in that quarter. Because our expense levels are based in part on our expectations as to future net sales and to a large extent are fixed in the short term, we might be unable to adjust spending in time to compensate for any shortfall in net sales. Accordingly, any significant shortfall of revenues in relation to our expectations would harm our operating results.

Our business and operations are especially subject to the risks of earthquakes other natural catastrophic events.

Our corporate headquarters, including our most significant research and development and manufacturing operations, are located in the Silicon Valley area of Northern California, a region known for seismic activity. We do not currently have a comprehensive disaster recovery program and as a result, a significant natural disaster, such as an earthquake, could have a material adverse impact on our business, operating results, and financial condition. Although we are in the process of preparing such a program, there is no assurance that it will be effective in the event of such a disaster.

Market demand for our products may decrease as a result of changes in general economic conditions, as well as incidents of terrorism, war and other social and political instability.

Our net sales and gross profit depend largely on general economic conditions and, in particular, the strength of demand for our server solutions in the markets in which we are doing business. From time to time, customers and potential customers have elected not to make purchases of our products due to reduced budgets and uncertainty about the future, and, in the case of distributors, declining demand from their customers for their solutions in which they integrate our products. Similarly, from time to time, acts of terrorism, in particular in the United States, have had a negative impact on information technology spending. High fuel prices and turmoil in the Middle East and elsewhere have increased uncertainty in the United States and our other markets. Should the current conflicts in the Middle East and in other parts of the world suppress economic activity in the United States or globally, our customers may delay or reduce their purchases on information technology, which would result in lower demand for our products and adversely affect our results of operations.

We invest in auction rate securities that are subject to market risk and the recent problems in the financial markets could adversely affect the value and liquidity of our assets.

During February 2008, the auctions for these auction rate securities began to fail to obtain sufficient bids to establish a clearing rate and were not saleable in the auction, thereby losing the short-term liquidity previously provided by the auction process. As a result, as of March 31, 2010, $6.0 million of these auction rate securities have been classified as long-term available-for-sale investments. The remaining $0.4 million of auction rate student loan was classified as a short-term available-for-sale investment because the stated maturity for these securities occur in September 2010.

Based on our assessment of fair value at March 31, 2010, we have recorded an accumulated unrealized loss of $0.4 million, net of deferred income taxes, on both long-term and short-term auction rate securities. The unrealized loss was deemed to be temporary and has been recorded as a component of accumulated other comprehensive loss.

Although we have determined that we will not likely be required to sell the securities before their anticipated recovery and we have the intent and ability to hold our investments until successful auctions occur, these investments are not currently liquid and in the event we need to access these funds, we will not be able to do so without a loss of principal. There can be no assurances that these investments will be settled in the short term or that they will not become other-than-temporarily impaired subsequent to March 31, 2010, as the market for these investments is presently uncertain. In any event, we do not have a present need to access these funds for operational purposes. We will continue to monitor and evaluate these investments as there is no assurance as to when the market for these investments will allow us to liquidate them. We may be required to record impairment charges in periods subsequent to March 31, 2010 with respect to these securities and, if a liquid market does not develop for these investments, we could be required to hold them to maturity. During the three and nine months ended March 31, 2010, approximately $0.2 million and $8.9 million of auction rate securities were redeemed at par, respectively.

If we are unable to favorably assess the effectiveness of our internal control over financial reporting, or if our independent auditors are unable to provide an unqualified attestation report on our internal control over financial reporting, our stock price could be adversely affected.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, our management is required to report on the effectiveness of our internal control over financial reporting in our annual reports. In addition, our independent auditors must attest to and report on the effectiveness of our internal control over financial reporting. The rules governing the standards that must be met for management to assess our internal control over financial reporting are complex, and require significant documentation, testing and possible remediation. As a result, our efforts to comply with Section 404 have required the commitment of significant managerial and financial resources. As we are committed to maintaining high standards of public disclosure, our efforts to comply with Section 404 are ongoing, and we are continuously in the process of reviewing, documenting and testing our internal control over financial reporting, which will result in continued commitment of significant financial and managerial resources.

During fiscal year 2008, as part of its evaluation of our internal control over financial reporting, our management determined that we had a material weakness in the operation of controls designed to ensure that changes in classification of amounts, or classifications of amounts associated with new transactions, between cash flows from operating activities, investing activities and financing activities in the consolidated statement of cash flows are appropriate. We concluded that the material weakness had been remediated as of June 30, 2008. As defined in Public Company Accounting Oversight Board Auditing Standard No. 5, a material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. We strive to maintain effective internal controls over financial reporting in order to prevent and detect material misstatements in our annual and quarterly financial statements and prevent fraud. We cannot assure, however, that such efforts will be effective. If we fail to maintain effective internal controls in future periods, our operating results, financial position and stock price could be adversely affected.

Our operations involve the use of hazardous and toxic materials, and we must comply with environmental laws and regulations, which can be expensive, and may affect our business and operating results.

We are subject to federal, state and local regulations relating to the use, handling, storage, disposal and human exposure to hazardous and toxic materials. If we were to violate or become liable under environmental laws in the future as a result of our inability to obtain permits, human error, accident, equipment failure or other causes, we could be subject to fines, costs, or civil or criminal sanctions, face third party property damage or personal injury claims or be required to incur substantial investigation or remediation costs, which could be material, or experience disruptions in our operations, any of which could have a material adverse effect on our business. In addition, environmental laws could become more stringent over time imposing greater compliance costs and increasing risks and penalties associated with violations, which could harm our business.

We also face increasing complexity in our product design as we adjust to new and future requirements relating to the materials composition of our products, including the restrictions on lead and other hazardous substances applicable to specified electronic products placed on the market in the European Union (Restriction on the Use of Hazardous Substances Directive 2002/95/EC, also known as the RoHS Directive). We are also subject to laws and regulations such as California’s “Proposition 65” which requires that clear and reasonable warnings be given to consumers who are exposed to certain chemicals deemed by the State of California to be dangerous, such as lead. In June 2007, we entered into a settlement agreement regarding this claim, and the terms thereof had no adverse effect on our business, financial condition and result of operations. We expect that our operations will be affected by other new environmental laws and regulations on an ongoing basis. Although we cannot predict the ultimate impact of any such new laws and regulations, they will likely result in additional costs, and could require that we change the design and/or manufacturing of our products, any of which could have a material adverse effect on our business.

Risks Related to Owning Our Stock

The trading price of our common stock is likely to be volatile, and you might not be able to sell your shares at or above the price at which you purchased the shares.

The trading prices of technology company securities in general have been highly volatile. Accordingly, the trading price of our common stock is likely to be subject to wide fluctuations. Factors, in addition to those outlined elsewhere in this prospectus, that may affect the trading price of our common stock include:

•

actual or anticipated variations in our operating results;

•

announcements of technological innovations, new products or product enhancements, strategic alliances or significant agreements by us or by our competitors;

•

changes in recommendations by any securities analysts that elect to follow our common stock;

•

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

•

the loss of a key customer;

•

the loss of key personnel;

•

technological advancements rendering our products less valuable;

•

lawsuits filed against us;

•

changes in operating performance and stock market valuations of other companies that sell similar products;

•

price and volume fluctuations in the overall stock market;

•

market conditions in our industry, the industries of our customers and the economy as a whole; and

•

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

Future sales of shares by existing stockholders could cause our stock price to decline.

Attempts by existing stockholders to sell substantial amounts of our common stock in the public market could cause the trading price of our common stock to decline significantly. As of March 31, 20010, we had approximately 36.6 million shares of common stock outstanding, net of treasury stock. All of these shares are eligible for sale in the public market, including approximately 11.1 million shares held by directors, executive officers and other affiliates, which are subject to volume limitations under Rule 144 under the Securities Act. In addition, approximately 0.9 million shares subject to outstanding options and reserved for future issuance under our stock option plans are eligible for sale in the public market to the extent permitted by the provisions of various vesting agreements and Rules 144 and 701 under the Securities Act. If these additional shares are sold, or if it is perceived that they will be sold in the public market, the trading price of our common stock could decline.

If securities analysts do not publish research or reports about our business or if they downgrade our stock, the price of our stock could decline.

The research and reports that industry or financial analysts publish about us or our business likely have an effect on the trading price of our common stock. If an industry analyst decides not to cover our company, or if an industry analyst decides to cease covering our company at some point in the future, we could lose visibility in the market, which in turn could cause our stock price to decline. If an industry analyst downgrades our stock, our stock price would likely decline rapidly in response.

The concentration of our capital stock ownership with insiders will likely limit your ability to influence corporate matters.

As of April 30, 2010, our executive officers, directors, current five percent or greater stockholders and affiliated entities together beneficially owned approximately 37.1 percent of our common stock outstanding, net of treasury stock. As a result, these stockholders, acting together, will have significant influence over all matters that require approval by our stockholders, including the election of directors and approval of significant corporate transactions. Corporate action might be taken even if other stockholders, including those who purchase shares in this offering, oppose them. This concentration of ownership might also have the effect of delaying or preventing a change of control of our company that other stockholders may view as beneficial.

Provisions of our certificate of incorporation and bylaws and Delaware law might discourage, delay or prevent a change of control of our company or changes in our management and, as a result, depress the trading price of our common stock.

Our certificate of incorporation and bylaws contain provisions that could discourage, delay or prevent a change in control of our company or changes in our management that the stockholders of our company may deem advantageous. These provisions:

•

establish a classified board of directors so that not all members of our board are elected at one time;

•

require super-majority voting to amend some provisions in our certificate of incorporation and bylaws;

•

authorize the issuance of “blank check” preferred stock that our board could issue to increase the number of outstanding shares and to discourage a takeover attempt;

•

limit the ability of our stockholders to call special meetings of stockholders;

•

prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders;

•

provide that the board of directors is expressly authorized to adopt, or to alter or repeal our bylaws; and

•

establish advance notice requirements for nominations for election to our board or for proposing matters that can be acted upon by stockholders at stockholder meetings.

In addition, we are subject to Section 203 of the Delaware General Corporation Law, which, subject to some exceptions, prohibits “business combinations” between a Delaware corporation and an “interested stockholder,” which is generally defined as a stockholder who becomes a beneficial owner of 15% or more of a Delaware corporation’s voting stock for a three-year period following the date that the stockholder became an interested stockholder. Section 203 could have the effect of delaying, deferring or preventing a change in control that our stockholders might consider to be in their best interests.

These anti-takeover defenses could discourage, delay or prevent a transaction involving a change in control of our company. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and cause us to take corporate actions other than those you desire.

We do not expect to pay any cash dividends for the foreseeable future.

We do not anticipate that we will pay any cash dividends to holders of our common stock in the foreseeable future. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Investors seeking cash dividends in the foreseeable future should not purchase our common stock.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

Not applicable.

Item 3.

Default Upon Senior Securities.

Not applicable.

Item 4.

Removed and Reserved

Not applicable.

Item 5.

Other Information.

In May 2010, the Company entered into an agreement for purchase of properties located at 1781 and 1785 and 1797 Fox Drive and 801 and 821 Fox Lane, San Jose, California, consisting of approximately 167,000 square feet of space. The purchase price is approximately $18.5 million. Consummation of the purchase is subject to customary closing conditions and the transaction is expected to close in June 2010.

Item 6.

Exhibits

(a) Exhibits.


10.31		Agreement of Purchase and Sale of Properties on Fox Lane and Fox Drive, San Jose, California

31.1		Certification of Charles Liang, President and Chief Executive Officer of the Registrant pursuant to Section 302, as adopted pursuant to the Sarbanes-Oxley Act of 2002

31.2		Certification of Howard Hideshima, Chief Financial Officer and Secretary of the Registrant pursuant to Section 302, as adopted pursuant to the Sarbanes-Oxley Act of 2002

32.1		Certification of Charles Liang, President and Chief Executive Officer of the Registrant pursuant to Section 906, as adopted pursuant to the Sarbanes-Oxley Act of 2002

32.2		Certification of Howard Hideshima, Chief Financial Officer and Secretary of the Registrant pursuant to Section 906, as adopted pursuant to the Sarbanes-Oxley Act of 2002

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		SUPER MICRO COMPUTER, INC.

Date: May 7, 2010		/s/ C HARLES L IANG
		Charles Liang
		President, Chief Executive Officer and Chairman of the Board
		(Principal Executive Officer)

Date: May 7, 2010		/s/ H OWARD H IDESHIMA
		Howard Hideshima
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

Exhibit 10.31

PURCHASE AGREEMENT AND ESCROW INSTRUCTIONS

By and Between

THE IRVINE COMPANY LLC,

a Delaware limited liability company,

and

CALIFORNIA DIVERSIFIED LLC,

a Delaware limited liability company

as Sellers

and

SUPER MICRO COMPUTER, INC.

a Delaware corporation

as Buyer

801 and 821 Fox Lane, and 1797 and 1781 and 1785 Fox Drive,

San Jose, California

TABLE OF CONTENTS


			Page No.
1.	Purchase and Sale		1
2.	Escrow		2
3.	Closing of Escrow		2
4.	Purchase Price		2
	(a)	Deposit	2
	(b)	Cash at Closing	2
5.	Costs, Prorations and Credits		3
	(a)	Closing Costs	3
	(b)	Items To Be Prorated or Credited	3
	(c)	Proration Amounts	4
	(d)	Items Not To Be Prorated	4
	(e)	Survival	5
6.	Closing Documents		5
	(a)	Seller’s Deliveries	5
	(b)	Buyer’s Deliveries	6
	(c)	Closing Transition	6
7.	Operation of Property		6
	(a)	Tenants Performance	6
	(b)	Leases	7
	(c)	Service Contracts	7
8.	Conditions to Closing		7
	(a)	Conditions to Buyer’s Obligation	7
	(b)	Conditions to Seller’s Obligations	9
9.	Assignment by Buyer		10
10.	Time of the Essence and Escrow Cancellation		10
11.	Termination Rights		10
	(a)	Buyer’s Right To Terminate	10
	(b)	Seller’s Right To Terminate	11
	(c)	Buyer’s Failure/Liquidated Damages	11
	(d)	Seller’s Failure	12
12.	Seller’s Representations and Warranties; Disclosures		12
	(a)	Representations Regarding Seller’s Authority	12
	(b)	Litigation	13
	(c)	Survival; Discovery Before Closing	13
	(d)	Limitations	14
	(e)	Limitations	14
13.	Buyer’s Representations, Warranties, Covenants and Acknowledgments		15
	(a)	Prior Investigations And Buyer Satisfaction	15
	(b)	Reliance Upon Reports and Investigations; As-Is	16
	(c)	Release and Indemnity	17
	(d)	1542 Waiver	18
	(e)	Receipt Of Documents	18
14.	Damage and Destruction		18
15.	Condemnation		19


16.	Non-Foreign Status of Seller	19
17.	Survivability of Covenants	19
18.	Brokers’ Commissions	19
19.	Waiver, Consent and Remedies	20
20.	Waiver of Jury Trial; Judicial Reference	20
21.	Attorneys’ Fees	21
22.	Authority to Bind	21
23.	Further Documents and Acts	21
24.	Notices	21
25.	Gender and Number	22
26.	Entire Agreement	22
27.	Captions	22
28.	Governing Law	22
29.	OFAC	22
31.	Invalidity of Provisions	22
32.	Amendments	22
33.	Counterparts	23
34.	No Recordation	23
35.	No Offer	23
36.	Date of Performance	23
37.	Section 1031 Exchange	23

TABLE OF EXHIBITS


A		Legal Description of the Property
B		Description of Leases
C		Escrow General Provisions
D		Grant Deed
E		Assignment and Assumption of Leases
F		Bill of Sale
G		Assignment and Assumption of Rights and Permits
H		Non-Foreign Affidavit
I		Entry Permit
J		Schedule of Diligence Documents
K		Estoppel Certificate

PURCHASE AGREEMENT AND ESCROW INSTRUCTIONS

PROPERTY:

801 and 821 Fox Lane, and 1797 and

1781 and 1785 Fox Drive,

San Jose, California

ESCROW:

THIS PURCHASE AGREEMENT AND ESCROW INSTRUCTIONS (this “ Agreement ”) is entered into as of May 6, 2010 (the “ Execution Date ”), by and between THE IRVINE COMPANY LLC, a Delaware limited liability company (“ Irvine ”), and CALIFORNIA DIVERSIFIED LLC, a Delaware limited liability company (“ Diversified ”) (Irvine and Diversified may be referred to herein collectively as, “ Seller ”), and SUPER MICRO COMPUTER, INC., a Delaware corporation (“ Buyer ”).

R E C I T A L S :

A. Diversified is the owner of that certain real property commonly known as and located at 801 and 821 Fox Lane and 1797 Fox Drive, and Irvine is the owner of that certain real property commonly known as and located at 1781 and 1785 Fox Drive, all situated in the City of San Jose, County of Santa Clara, State of California, consisting of the land described in EXHIBIT A attached hereto and by this reference incorporated herein (the “ Land ”), together with the improvements located thereon consisting of three buildings of approximately 90,145 square feet at 801 and 821 Fox Lane (the “ 801 Building ”), approximately 49,782 square feet at 1797 Fox Drive (the “ 1797 Building ”) and approximately 26,907 square feet at 1781 and 1785 Fox Drive (the “ 1781 Building ”) (the “ Improvements ”), and together with all personal property, fixtures and equipment to the extent owned by Seller and located upon the Land and within the Improvements and used in connection with the Land and the Improvements (the “ Personal Property ”) (the Land, the Improvements and the Personal Property may be referred to herein collectively as the “ Property ”).

B. The 801 Building is leased to two tenants (the “ Tenants ”) pursuant to the leases (the “ Leases ”) described on EXHIBIT B attached hereto and incorporated herein by this reference. The 1797 Building and the 1781 Building are currently vacant.

C. Buyer desires to purchase the Property and Seller has agreed to sell and convey the Property to Buyer, on the terms and conditions set forth below.

A G R E E M E N T S :

NOW, THEREFORE, in consideration of the mutual covenants and conditions set forth herein, the parties hereby agree as follows:

1. Purchase and Sale . Upon all of the terms and conditions contained herein, Buyer hereby agrees to purchase the Property from Seller, and Seller hereby agrees to sell the Property to Buyer.

2. Escrow . Within two (2) business days after this Agreement has been executed and delivered by and among the parties hereto, Seller shall open an escrow (“ Escrow ”) with First American Title Insurance Company, One First American Way, Santa Ana, California 92707 (“ Escrowholder ”), by delivering a fully executed copy of this Agreement to Escrowholder. The parties agree to be bound by the standard escrow General Provisions attached hereto as EXHIBIT C to the extent not inconsistent with this Agreement, and shall execute and deliver to Escrowholder such other reasonable or customary supplemental escrow instructions or other instruments as may be required by Escrowholder or the parties hereto in order to consummate the sale described herein, so long as the same are not inconsistent with this Agreement. The attached EXHIBIT C shall not amend or supersede any provision of this Agreement.

3. Closing of Escrow . The closing (“ Closing ”) of the purchase and sale of the Property shall take place through Escrow, on or before the date (the “ Closing Date ”) which is forty-five (45) days following the Execution Date, but in no event later than June 21, 2010 (“ Outside Closing Date ”). When all required funds and instruments have been deposited into Escrow by the appropriate parties, and when all other conditions to Closing have been fulfilled, Escrowholder shall cause the Grant Deed in the form attached hereto as EXHIBIT D (the “ Grant Deed ”) to be recorded in the Official Records of Santa Clara County, California.

4. Purchase Price . The purchase price for the Property (the “ Purchase Price ”) shall be the amount of EIGHTEEN MILLION FIVE HUNDRED EIGHTEEN THOUSAND FIVE HUNDRED SEVENTY FOUR DOLLARS ($18,518,574.00). The Purchase Price shall be payable as follows:

(a) Deposit . Within two (2) business days following the Execution Date, Buyer shall deposit in cash or by federal funds wire transfer into Escrow the sum of TWO HUNDRED THOUSAND DOLLARS ($200,000.00) (the “ Deposit ”). The Deposit shall be held by Escrowholder and shall be applied towards the Purchase Price upon Closing, subject, however, to being released to Seller as liquidated damages as provided in Section 11(c) below or returned to Buyer as provided in Sections 11(a), 11(b), 14 or 15 below. Escrowholder shall invest the Deposit in an interest bearing account. Any accrued interest on the Deposit shall be disbursed to Seller at the Closing with Buyer receiving a credit to the Purchase Price at the Closing in the amount on such accrued interest; and such accrued interest shall be subject to being disbursed to Seller as liquidated damages as provided in Section 11(c) below or returned to Buyer as provided in Sections 11(a), 11(b), 14 or 15 below. If Buyer fails to timely deliver the Deposit to Escrowholder, this Agreement shall terminate and be of no further force or effect.

(b) Cash at Closing . Cash or a federal funds wire transfer in the full amount of the Purchase Price, together with any additional amounts and costs and prorations chargeable to Buyer as provided below, less the amount of the Deposit, shall be deposited by Buyer into Escrow no later than the close of business of Escrowholder on the business day preceding the date of the Closing. Said funds so deposited by Buyer shall be disbursed by Escrowholder to Seller upon the Closing, less the costs and prorations chargeable to Seller under Section 5 below.

5. Costs, Prorations and Credits .

(a) Closing Costs . Seller shall pay the fees and charges of Escrowholder. Seller shall bear the cost of all documentary county transfer taxes, and the premium for the ALTA standard coverage portion of the “ Title Policy ” (as defined in Section 8(a)(iv) below). Buyer shall pay the entire cost of, and shall be responsible for obtaining, any extended coverage, lender’s or other title policy or endorsements in excess of the Title Policy, together with any surveys required in connection therewith. Buyers failure or inability to obtain any such item, policy or endorsement by the Closing Date shall not be a condition precedent to or result in any delay of Closing. Buyer and Seller shall each pay one-half ( ¹ / 2 ) of the City transfer taxes. Buyer and Seller shall each bear their own respective legal, accounting and other consultant fees, charges and costs, if any, incurred in connection with this transaction. All recording costs or fees and all other costs or expenses not otherwise provided for in this Agreement shall be apportioned or allocated by Escrowholder between Buyer and Seller in the manner customary in Santa Clara County.

(b) Items To Be Prorated or Credited . The following amounts shall be prorated between Seller and Buyer through Escrow, as of the Closing, using customary escrow procedures.

(i) Rents . All rentals and other Tenant charges and reimbursements including, without limitation, estimated or actual payments (“ Expense Rents ”) of operating expenses, common area expenses, insurance costs, tax costs or any similar reimbursement payments (collectively, “ Rents ”), for the month in which the Closing occurs shall be prorated on a per diem basis based upon the number of days in such month, with all Rents through and including the date prior to the date of Closing being prorated in favor of Seller, and all Rents from and after, and including, the date of the Closing being prorated in favor of Buyer. Expense Rents collected by Seller from the Tenants on an estimated basis and subject to reconciliation on an annual (or other periodic) basis shall be prorated based upon the estimated amount paid monthly by Tenants. Any reconciliation amounts billed on account of Expense Rents for the annual (or other) period in which the Closing occurs shall be prorated on a per diem basis upon such reconciliation following the end of the annual (or other) period, provided, however, that to the extent that Seller is able to provide to Buyer an analysis of actual expenses incurred with respect to the Property through the end of the calendar month preceding the date of the Closing and on account of which estimated Expense Rents have been paid by Tenants, then Buyer and Seller shall adjust such reconciliation amount upon the Closing. Any such adjustment shall be based on the amount by which such actual expenses of the Property through the end of the calendar month preceding the Closing vary from the estimated Expense Rent paid by the Tenants for such period. If such adjustment occurs at the time of the Closing, then the reconciliation amount for the month in which Closing occurs shall be adjusted between the parties following reconciliation at the end of the annual (or other) period. Prepaid Rents, if any, for any month following the month in which the Closing occurs shall be credited to Buyer at the Closing. All Rents received by Buyer from a Tenant after the Closing shall be applied first to Rents due and payable by such Tenant for the month in which the Closing occurs and amounts due for any months thereafter, and then to delinquent Rents. To the extent that Buyer collects any amounts allocable to delinquent Rents, such amounts shall be paid to Seller by Buyer promptly upon receipt. Seller reserves the right to institute an action against any Tenant for delinquent Rents which are payable for periods prior to the date of the Closing, to the extent of the same have not been paid as of the Closing, provided, however, that following the date of the Closing, in no event shall Seller have or assert any right to evict or dispossess any Tenant as part of any such action.

(ii) Taxes And Assessments . Except to the extent the same are paid by the Tenants, all current property taxes and all current general and special bonds and assessments on the Property shall be prorated based upon the latest available tax information, without regard to any reassessments or subsequent changes, with Seller being responsible for all current taxes and general and special assessments allocable to the period through the date preceding the date of the Closing and Buyer being responsible for all such current property taxes and general and special assessments allocable to the period from and after and including the date of the Closing. Any real property taxes levied under the Supplemental Tax Roll as a result of this sale, whether prior to the normal assessment date or otherwise, shall be paid solely by Buyer.

(iii) Security Deposits . The current balance of all security deposits held pursuant to the Leases, if and to the extent that such Deposits are in Seller’s actual possession and have not otherwise been applied by Seller to any obligations of the Tenants, shall be credited against the Purchase Price upon the Closing, and from and after the Closing, Buyer shall assume full responsibility for all security deposits to be refunded to the Tenants pursuant to the Leases.

(c) Proration Amounts . Seller and Buyer shall determine the amount of the prorations set forth above prior to the Closing, and shall provide the amounts so determined to the Escrowholder for use at the time of Closing. To the extent any of the foregoing prorations cannot be completed at the time of the Closing, or to the extent that the information to determine the full amount of prorations as of the date of the Closing is not available, the parties agree to adjust the prorations as soon as reasonably possible following the Closing and when such information is available, but no further adjustments to prorations shall be made following the date which is six (6) months following the Closing except to the extent necessary to address any reconciliations of Expense Rent not completed as of the end of such six (6) month period.

(d) Items Not To Be Prorated . The following items shall not be prorated as of the Closing:

(i) Insurance policies of Seller related to the Property will be terminated as of the date of the Closing, and Buyer shall be responsible for providing replacement insurance policies for the Property and providing evidence to Escrowholder of such replacement policies to the extent required by any lender or the Tenants pursuant to the Leases, provided, however, that any insurance policies maintained by the Tenants pursuant to the Leases shall not be terminated by Seller upon the Closing and Buyer shall be responsible upon or after the Closing for obtaining amendments to or new certificates of insurance identifying Buyer as the additional insured to the extent the landlord under the Leases is required to be named as an additional insured;

(ii) Utilities maintained by Seller, including, telephone, electricity, water and gas, shall be terminated by Seller on the date of Closing, and Buyer shall be responsible for all necessary actions to arrange for utilities to be transferred into the name of Buyer as of the date of the Closing, including the posting of any required deposits, provided, however, that any utilities established or provided under the name of and billed directly to any of the Tenants shall not be terminated by Seller. If, for any reason, the utility service is unable to transfer service from Seller to Buyer until after the date of the Closing, then all utility charges shall be prorated after the Closing upon receipt of the utility bill for the period including the Closing on a per diem basis.

(iii) Amounts payable under service contracts and agreements to which Seller is a party shall not be prorated, and all such service contracts and agreements shall be terminated by Seller as of the date of the Closing.

(e) Survival . The provisions of this Section 5 shall survive the Closing.

6. Closing Documents .

(a) Seller’s Deliveries . On or before the close of business of Escrowholder on the business day preceding the date of the Closing, Seller shall deliver to Escrowholder executed and, where appropriate, acknowledged originals of the following documents for use in connection with the Closing:

(i) The Grant Deed;

(ii) Three counterparts of an Assignment and Assumption of Leases (the “ Lease Assignment ”) in substantially the form attached hereto as EXHIBIT E , assigning all of the landlord’s right, title and interest in and to the Leases to Buyer;

(iii) Three originals of a Bill of Sale (the “ Bill of Sale ”) in substantially the form attached hereto as EXHIBIT F , conveying all of Seller’s right, title and interest in and to the Personal Property, if any, to Buyer;

(iv) Three counterparts of an Assignment and Assumption of Rights and Permits (the “ Rights Assignment ”) substantially in the form attached hereto as EXHIBIT G , assigning to Buyer all of Seller’s rights in and to all permits and approvals regarding the Property as more particularly described in the Rights Assignment; and

(v) An original Non-Foreign Affidavit in substantially the form attached hereto as EXHIBIT H ;

(vi) A California FTB 593 C;

(vii) An executed letter notifying Tenants of the sale of the Property to Buyer and instructing Tenant to pay future Rents under the Leases to Buyer; and

(viii) Such further instruments as may be reasonably required by Escrowholder in connection with the Closing.

(b) Buyer’s Deliveries . On or before the close of business of Escrowholder on the business day immediately preceding the date of the Closing, Buyer shall deliver to Escrowholder executed and, where appropriate, acknowledged originals of the following documents, together with all the remaining funds required for the Closing from Buyer in accordance with Section 4(b) of this Agreement:

(i) Three counterparts of the Lease Assignment pursuant to which Buyer assumes the obligations of the landlord under the Leases;

(ii) Three counterparts of the Rights Assignment pursuant to which Buyer assumes the obligations the owner of the Property as to all permits and approvals; and

(iii) Such further instruments as may be reasonably required by Escrowholder in connection with the Closing.

(c) Closing Transition . Upon or promptly following the Closing, Seller shall deliver to Buyer the originals of the Leases as well as copies or originals of all Tenant files for the Tenants, and otherwise cause its representatives or managing agents to be available to Buyer on a commercially reasonable basis to permit a coordinated transition of the management and operation of the Property to Buyer or its managing agent. Upon or promptly following the Closing, Seller shall also make available to Buyer its books and records with respect to the Property only, to the extent necessary to permit Buyer to complete the Expense Rent reconciliations for the annual (or other) reconciliation period in which the Closing occurs.

7. Operation of Property . From and after the date of this Agreement, Seller shall continue to maintain and operate the Property consistent with Seller’s management and operating practices with respect to the Property prior to the date of this Agreement, except as otherwise expressly set forth in this Section 7.

(a) Tenants’ Performance . Seller shall use commercially reasonable efforts to cause all Tenants to continue to perform their respective maintenance and repair obligations with respect to the Property, provided, however, that Seller shall have no obligation following the Execution Date and until the date of the Closing to take any legal action against any Tenant to enforce Lease obligations. Seller shall provide notice to Buyer of any default by any of the Tenants under the Leases as to which Seller provides notice of default to any of the Tenants, and shall consult with Buyer as to the enforcement of the remedies of the landlord under the Leases as to any such default, provided, however, that the final determination of the actions to be taken prior to the Closing by Seller as the landlord under the Leases with respect to any such defaults shall be made by Seller.

(b) Leases . From and after the Execution Date, Seller shall not enter into any new Lease, nor amend or, except as to the enforcement of remedies with respect to a Lease pursuant to Section 7(a) above, terminate, any existing Lease for any portion of the Property without the prior written consent of Buyer, which consent shall not be unreasonably withheld. In the event that Seller desires to enter into any new lease, or to amend or terminate any existing Lease, for any portion of the Property, Seller shall provide notice of the proposed terms of the same to Buyer, and Buyer shall approve or disapprove the same within five (5) days following Buyer’s receipt of Seller’s notice. If Buyer fails to timely notify Seller of Buyer’s approval or disapproval of the terms of any such proposed lease, amendment or termination, Buyer shall be deemed to have approved the same. Buyer shall be responsible for any and all leasing commissions, free rent concessions and tenant improvement allowances pertaining to any new lease or any amendment to any existing Lease entered into following the Execution Date.

(c) Service Contracts . Except to the extent required to address an emergency situation, following the Execution Date, Seller shall not enter into any new service contract regarding the Property which would survive the Closing, which without Buyer’s prior written approval, which approval shall not be unreasonably withheld. Seller shall take such actions as may be required to terminate as of the date of the Closing all service contracts as to the Property.

8. Conditions to Closing . The respective obligations of Buyer and Seller to complete the purchase and sale of the Property are subject to satisfaction of the conditions precedent set forth below for their respective benefit at or prior to Closing.

(a) Conditions to Buyer’s Obligation . Buyer’s obligation to purchase the Property shall be subject to satisfaction of the following conditions:

(i) Seller’s Default . Seller shall not be in default of any material obligation under this Agreement, and no event shall have occurred which would constitute a material breach of Seller’s representations or warranties contained in this Agreement.

(ii) Transfer and Possession . Seller shall have deposited into Escrow an executed and recordable Grant Deed.

(iii) Title Approval . Buyer shall have approved the condition of title as provided in this Section 8(a)(iii). Prior to the Execution Date, Seller has provided Buyer with commitments for title insurance covering the Property (collectively, the “ Title Report ”) issued by First American Title Insurance Company (“ Title Company ”) dated as of April 9, 2010 under its order numbers NCS-437052-SA1 as to the 1781 Building, and NCS-436608-SA1 as to the 801 Building and the 1797 Building, together with copies of all documents referred to as exceptions therein. Buyer shall take title to the Property pursuant to this Agreement subject to matters described in Section 8(a)(iv), and to all other matters of record shown on said Title Report or listed as exceptions to coverage therein except such matters as Buyer shall expressly disapprove by giving written notice (“ Title Objection Notice ”) to Seller on or before the “ Approval Date ” (as defined in Section 8(a)(v) below), which notice shall specify reasonable grounds for each such matter so disapproved. In the event Buyer elects to obtain an extended coverage ALTA owner’s or lender’s title insurance policy, and such extended coverage policy requires an ALTA survey (all of which shall be at Buyer’s sole cost and expense), Buyer shall take title to matters disclosed by such ALTA survey except only such matters as Buyer expressly disapproves in writing by that date specified above for approval of the Title Report. Seller shall have five (5) business days from its receipt of Buyer’s Title Objection Notice within which to notify Buyer in writing as to whether it shall cause the removal of any title exception objected to by Buyer in its Title Objection Notice on or before the Closing Date, provided that Seller shall have no obligation to remove any such title exception to which Buyer has objected. The failure by Seller to give Buyer written notice of Seller’s election to remove any title exception to which Buyer has objected at the time and in the manner herein provided shall be deemed an election by Seller not to remove such exception. In the event that Seller either elects not to remove or is deemed to have elected not to remove such disapproved title exception, Buyer may terminate this Agreement pursuant to Section 11(a) below. Should Buyer fail to provide a Title Objection Notice within the time and in the manner set forth above, the Title Report and all exceptions to title and any other matter referred to therein shall be deemed approved by Buyer.

(iv) Title Insurance . The Title Company shall be committed to deliver to Buyer an ALTA standard coverage owner’s policy with regional exceptions dated as of the Closing, insuring Buyer in an amount equal to the Purchase Price. The foregoing title policy (the “ Title Policy ”) shall show title to the Property vested in Buyer subject only to:

(A) Current real property taxes and all current general and special bonds or assessments;

(B) All matters set forth in the Grant Deed;

(D) All recorded covenants, conditions and restrictions and other matters shown on the Title Report that are set forth above or that have been approved or deemed approved by Buyer;

(E) All matters caused by Buyer or its contractors, employees, agents, or representatives;

(F) All other matters affecting title to the Property approved in writing or deemed approved by Buyer, which approval shall not unreasonably be withheld, delayed or conditioned;

(v) Inspection and Soil Tests . Buyer shall have approved of the condition of the Property as provided in this Section 8(a)(v) on or before the date (the “ Approval Date ”) which is the thirty (30) days from and after the Execution Date, which approval shall not be unreasonably withheld. Subject to the rights of the Tenants, Buyer shall be entitled to enter upon the Property for purposes of its physical inspection of the Property by the execution of two (2) copies of the entry permit in the form and with the content of EXHIBIT I hereto (the “ Entry Permit ”), granting Buyer a license to enter the Property. During the inspection period described in this Section 8(a)(v) and pursuant to the terms of the Entry Permit, Buyer agrees to conduct, and shall be entitled to enter the Property at any reasonable time and following reasonable notice of not less than one (1) business day to Seller for the purpose of conducting, customary reviews and investigations of the Property to the extent deemed reasonably necessary or appropriate by Buyer, including, without limitation, soil, physical, engineering, geological, seismic, environmental, studies, inspections and testing, reviews of the Leases, zoning, rental status and income, operating expenses, property taxes and assessments, use limitations, physical constraints, and surrounding uses, and other legal, economic, and physical aspects of the Property, and to inspect and survey the Property, subject to complying with the terms and conditions of the Entry Permit. Buyer and Seller agree that Buyer’s agreement to conduct such reviews and investigations of the Property represents fair and adequate consideration, together with all of the other mutual covenants and conditions set forth herein, for Seller’s agreement to provide Buyer the right to purchase the Property in accordance with and pursuant to the terms and provisions of this Agreement. As provided in the Entry Permit, if Buyer intends to perform any soil borings, groundwater sampling or other intrusive testing, Buyer shall submit for Seller’s approval a work plan and a list of intended contractors and Buyer shall not perform any such soil borings, groundwater sampling or other intrusive testing without Seller’s prior written approval. Buyer shall be deemed to have approved the Property and all of the foregoing reviews and investigations pertaining to the Property unless it has delivered to Seller on or before the Approval Date written notice of disapproval specifying reasonable grounds for each matter so disapproved. Seller shall make available to Buyer for inspection from and after the opening of Escrow and prior to the Approval Date at Seller’s offices in the County in which the Property is located, copies of the documents and materials specified in EXHIBIT J attached hereto and incorporated herein by this reference. As more particularly provided in Section 13(a) of this Agreement, Seller makes no representation or warranty whatsoever concerning the accuracy or completeness of any reports, studies or other information provided by Seller to Buyer pursuant to this Section 8(a)(v) and EXHIBIT J .

(vi) Seller shall have provided to Buyer an estoppel certificate (the “ Estoppel Certificate ”) in substantially the form attached hereto as EXHIBIT K from each of the Tenants on or before the Closing Date, provided, however, that if any Tenant fails to timely deliver an Estoppel Certificate, Seller may, but shall not be obligated to, provide a Seller’s Estoppel Certificate in substantially the form attached hereto as EXHIBIT K modified to reflect (A) that the same is being provided by Seller and not by a Tenant and (B) that the same shall be of no force and effect if following delivery of the same by Seller the Tenant thereafter provides an Estoppel Certificate not inconsistent with the Seller’s Estoppel Certificate provided as to such Tenant’s Lease, and the provision of such Seller’s Estoppel Certificate shall satisfy the condition set forth in this Section 8(a)(vi).

(b) Conditions to Seller’s Obligations . Seller’s obligation to sell the Property shall be subject to satisfaction of the following conditions:

(i) Buyer’s Default . Buyer shall not be in default of any material obligation under this Agreement nor under the Entry Permit, and no event shall have occurred which would constitute a material breach of Buyer’s representations or warranties contained in this Agreement.

(ii) Entity Verification . Buyer shall have delivered to Seller, in form reasonably acceptable to Seller, (A) a current certificate of good standing from the California Secretary of State confirming that Buyer is a corporation in good standing in the State of California, and (B) a copy of its formation document or other reasonable materials evidencing that the persons executing this Agreement and the various documents required to be delivered by Buyer are duly authorized to execute such documents. Such materials shall be delivered within two (2) business days after the Execution Date, and evidence that such documents are still in full force and effect shall be delivered not earlier than ten (10) business days nor later than three (3) business days prior to the Closing. Buyer agrees that it shall deliver all such materials in the time and manner provided in this paragraph. In the event Buyer assigns its interest under this Agreement as may be permitted under Section 9 below, then the successor Buyer shall supply similar (or comparable) materials verifying the same (or comparable) conditions.

(iii) Outside Closing Date . Except as the result of Seller’s own breach of its obligations under this Agreement, the Closing shall not have occurred by the Closing Date.

9. Assignment by Buyer . Buyer may not assign its interest under this Agreement without the express prior written consent of Seller, which consent may be given or withheld by Seller in its sole and absolute discretion, and any such attempted assignment made in violation of this provision shall be null and void. Notwithstanding the foregoing, Buyer may, with Seller’s prior written consent (which consent shall not be unreasonably withheld) and pursuant to an assignment, assumption and consent agreement either provided or approved by Seller, assign its interest under this Agreement to an entity controlled by, under common control, or controlling Buyer. No such permitted assignment shall relieve Buyer from any of its obligations under this Agreement. Buyer shall advise Seller of any proposed assignment not later than ten (10) days prior to the Closing Date. In addition, in the event any such proposed assignment involves an assignment to an entity regarding which the Title Company will require a certificate or other evidence of formation, registration or good standing, Buyer shall provide such certificate or evidence to Seller and the Title Company not later than ten (10) days prior to the Closing Date.

10. Time of the Essence and Escrow Cancellation . Time is of the essence of every provision of this Agreement in which time is an element. Failure by any party to perform any obligation within the time and on the terms and conditions required hereunder shall discharge the other party’s duties and obligations to perform hereunder upon written notice or demand from the other party.

11. Termination Rights . The parties shall have the right to terminate this Agreement as follows:

(a) Buyer’s Right To Terminate . In the event there is a failure of a condition to Buyer’s obligation as set forth in Section 8(a) above, Buyer may terminate this Agreement by giving written notice to Escrowholder and Seller not later than the first to occur of (i) the Closing Date, or (ii) ten (10) days after the condition has failed. For purposes of this Section 11(a), a condition shall be deemed to have failed: (A) as to conditions requiring approval by Buyer, on the date Buyer has given Seller written notice of disapproval of any item which Buyer has the right to approve under Section 8(a); or (B) as to conditions which Seller has an opportunity to cure under this Agreement, the earliest of (I) the last date on which Seller can cure the disapproved item under Section 8(a), (II) the date that Seller is deemed to have elected not to cure, or (III) the date on which Seller gives Buyer written notice that it will not cure the disapproved item. Failure by Buyer to terminate as provided in this Section shall be deemed a waiver of the condition which has failed. If such condition required approval by Buyer, such failure to terminate shall also be deemed an approval of the previously disapproved item. If Buyer terminates as provided in this Section 11(a), Buyer shall pay all title and escrow cancellation charges, and the Deposit and all accrued interest thereon (less such cancellation charges) shall be promptly refunded to Buyer; provided, however, that if such cancellation related to a default by Seller, Seller shall pay the cancellation charges.

(b) Seller’s Right To Terminate . In the event of a failure of a condition to Seller’s obligation as set forth in Section 8(b) above, Seller may terminate this Agreement by giving written notice to Escrowholder and Buyer at any time prior to the Closing. Failure of Seller to terminate as provided in this Section shall be deemed a waiver by Seller of the condition which has failed, and if such condition required approval by Seller, such failure shall be deemed an approval of the previously disapproved item. If Seller terminates based upon a failure of the conditions relating to a default by Buyer, Buyer shall pay all title and escrow cancellation charges, and the Deposit and all accrued interest thereon shall be retained by Seller as provided in Section 11(c) below. If Seller terminates based upon a failure of any condition not relating to a breach by Buyer, Seller shall pay all title and escrow cancellation charges, and the Deposit and all accrued interest thereon shall be promptly refunded to Buyer.

(c) Buyer’s Failure/Liquidated Damages . If Buyer fails to deposit any required sums or documents by the prescribed time or in the prescribed manner or to perform any other covenant when due hereunder, or if Buyer commits any other breach of this Agreement or the Entry Permit, then Seller, at its option, may terminate this Agreement and Escrow by giving written notice to Buyer and Escrowholder. Upon such notice, Escrow shall be cancelled, all instruments deposited with Escrowholder for recordation or delivery at the Closing shall be returned to the respective parties who deposited same, and Buyer shall pay all title and escrow cancellation charges and fees.

IN ADDITION, SELLER AND BUYER AGREE THAT, BASED UPON THE CIRCUMSTANCES NOW EXISTING, KNOWN OR UNKNOWN, IT WOULD BE EXCESSIVELY COSTLY AND IMPRACTICABLE TO ESTABLISH SELLER’S DAMAGES BY REASON OF BUYER’S DEFAULT RESULTING IN A FAILURE OF BUYER TO PURCHASE THE PROPERTY, AND, THEREFORE, BUYER AND SELLER AGREE THAT IT WOULD BE REASONABLE TO AWARD SELLER LIQUIDATED DAMAGES IN THE AMOUNT OF THE DEPOSIT SPECIFIED IN SECTION 4 PLUS ANY ACCRUED INTEREST ON SAID DEPOSIT. BY THEIR RESPECTIVE INITIALS SET FORTH BELOW, SELLER AND BUYER ACKNOWLEDGE AND AGREE THAT THE DEPOSIT, PLUS ANY INTEREST ACCRUED ON THE DEPOSIT, IS REASONABLE AS LIQUIDATED DAMAGES FOR A DEFAULT OF BUYER THAT RESULTS IN A FAILURE OF BUYER TO PURCHASE THE PROPERTY AND SHALL BE IN LIEU OF ANY OTHER RELIEF, RIGHT OR REMEDY, AT LAW OR IN EQUITY, TO WHICH SELLER MIGHT OTHERWISE BE ENTITLED BY A REASON OF A BUYER’S DEFAULT THAT RESULTS IN A FAILURE OF BUYER TO PURCHASE THE PROPERTY, BUT NOTHING CONTAINED HEREIN SHALL LIMIT SELLER’S RIGHTS AND REMEDIES FOR BUYER’S DEFAULT OCCURRING AFTER THE CLOSE OF ESCROW, FOR BUYER’S DEFAULT UNDER OBLIGATIONS WHICH ARE INTENDED TO SURVIVE A TERMINATION OF THIS AGREEMENT OR FOR BUYER’S DEFAULT UNDER THE ENTRY PERMIT. FOLLOWING A DEFAULT BY BUYER THAT RESULTS IN A FAILURE OF BUYER TO PURCHASE THE PROPERTY, ESCROWHOLDER SHALL DISBURSE THE DEPOSIT PLUS ACCRUED INTEREST THEREON TO SELLER AS LIQUIDATED DAMAGES UPON THE WRITTEN DEMAND OF SELLER ALONE. THE RETENTION OF THE DEPOSIT BY SELLER PLUS ACCRUED INTEREST AS LIQUIDATED DAMAGES AS HEREIN PROVIDED IS NOT INTENDED AS A FORFEITURE OR PENALTY WITHIN THE MEANING OF CALIFORNIA CIVIL CODE SECTIONS 3275 OR 3369, BUT IS INTENDED TO CONSTITUTE LIQUIDATED DAMAGES TO SELLER PURSUANT TO CALIFORNIA CIVIL CODE SECTIONS 1671, 1676 AND 1677.



		Buyer’s				Seller’s
		Initials				Initials

(d) Seller’s Failure . Except as specifically provided in this Agreement with regard to Buyer’s right to terminate and receive a refund of the Deposit, in the event of a default by Seller of its obligations under this Agreement, Buyer’s sole and exclusive remedy shall be an action for specific performance of this Agreement, which action shall be brought, if at all, within ninety (90) days following Seller’s default, and Buyer hereby waives and relinquishes all claims for damages, including but not limited to lost profits, arising by reason of Seller’s default. If an action for specific performance on account of Seller’s default is not timely commenced, or if prior to commencing such action Buyer requests the release of the Deposit to it from Escrowholder, then Buyer shall have no further right to, and shall be deemed to have waived any action against Seller on account of its default under this Agreement.

12. Seller’s Representations and Warranties; Disclosures . Seller makes the following representations and warranties, each of which is material and being relied upon by Buyer, and is true in all respects as of the Execution Date and, subject to the provisions of this Section 12, shall be true in all respects as of the Closing.

(a) Representations Regarding Seller’s Authority .

(i) Seller has the legal power, right and authority to enter into this Agreement and the instruments referenced herein, and to consummate the transaction contemplated herein;

(ii) All requisite action has been taken by Seller in connection with entering into this Agreement, the instruments referenced herein, and the consummation of the transaction contemplated hereby. No consent of any partner, member, shareholder, trustee, trustor, beneficiary, creditor, investor, judicial or administrative body, governmental authority or other party is required;

(iii) The individuals executing this Agreement and the instruments referenced herein on behalf of Seller have the legal power, right and actual authority to bind Seller to the terms and conditions hereof and thereof; and

(iv) Neither the execution and delivery of this Agreement and the documents and instruments referenced herein, nor the incurrence of the obligations set forth herein, nor the consummation of the transaction contemplated herein, nor compliance with the terms of this Agreement and the documents and instruments referenced herein, conflict with or result in the material breach of any terms, conditions or provisions of, or constitute a default under, any agreement or instrument to which Seller is a party.

(v) From and after the Execution Date and continuing until the Closing Date, Seller shall not sell, assign or convey, any right, title or interest whatsoever in and to the Property other than the creation of easements which would not unreasonably interfere with the use and occupancy of the Property, nor create or permit any new monetary lien, encumbrance or charge upon the Property (other than Permitted Exceptions) which will not be paid, discharged or otherwise removed on or before the Closing Date.

(b) Litigation . Seller has not been served with any actions or proceedings affecting Seller or the Property that would adversely affect Seller’s ability to perform its obligations under this Agreement, or which would materially and adversely affect Buyer’s proposed use of the Property after the Closing, in any court or by or before any federal, state, county or municipal department, commission, board, bureau or agency or other governmental and/or quasi-governmental instrumentality, nor does Seller have any knowledge that any such action or proceeding or claim underlying any such action or proceeding, has been asserted.

(c) Survival; Discovery Before Closing . The foregoing representations and warranties, and the right of Buyer to commence any action on account of the foregoing representations, shall survive the Closing for a period of one (1) year only, after which such representations and warranties shall expire and be of no further force or effect, and Buyer shall have no further right to commence any action thereon . As used herein, the phrase “Seller’s knowledge” or “knowledge” of Seller shall mean the present actual knowledge, without any duty of investigation or inspection, of the following individuals: Carol Olander and Stephanie Miller. If, subsequent to the Execution Date and prior to the Closing, Seller or Buyer becomes aware that any representations and warranties set forth in this Agreement are, were or have become incorrect, the same shall not constitute a breach by Seller of any of its representations or warranties set forth herein or be deemed to be a default by Seller in its obligations under this Agreement, but instead shall constitute a failure of a condition precedent to Buyer’s obligations hereunder. Seller shall promptly notify Buyer in writing of any changes discovered by Seller, and the representations and warranties set forth herein shall be supplemented by such changes. Buyer shall have ten (10) business days following Buyer’s receipt of written notice from Seller of any changes in Seller’s representations or warranties, or Buyer’s discovery of any such changes, to approve or disapprove any such changes, which approval shall not be unreasonably withheld or conditioned. If applicable, the Closing Date shall be extended by the number of days necessary to give Buyer ten (10) business days to respond to such notice. Buyer’s failure to notify Seller in writing of its disapproval within such ten (10) business day period or the occurrence of the Closing after either Buyer’s receipt of such notice or Buyer’s discovery of any changes in Seller’s representations or warranties shall be deemed Buyer’s approval of such new information.

(d) Limitations . Buyer’s sole and exclusive remedy for a breach by Seller of the representations and warranties contained in this Section 12 discovered by Buyer after the Closing, and as to which Buyer otherwise satisfies the requirements of this Section as to the one (1) year survival period and the requirement to commence an action on account of such breach within such one (1) year period, shall be to pursue an action against Seller for actual damages incurred as a result of Seller’s breach, provided, however, that the maximum amount of any such actual damages that Buyer shall be entitled to recover in any such action shall be the lesser of (i) an amount equal to the impact of such breach on the value of the Property or the ability of Buyer to use the Property for its intended purposes, or (ii) an amount equal to Five Hundred Thousand Dollars ($500,000). Except as specifically stated in the preceding sentence, Buyer hereby waives and relinquishes all claims for damages arising from any breach by Seller of the representations or warranties contained in this Section 12. In no event shall Buyer be entitled to recover any amounts under this Section 12 for lost profits or other consequential damages.

(e) Disclosures . Seller hereby discloses to Buyer that the following conditions exist with respect to the Property, and that repairs may be required with respect to the same, and that Seller shall not be responsible for such repairs except as otherwise expressly provided in this Section 12(e):

(i) The repair of a glass roof screen at the 801 Building;

(ii) The repair of HVAC units no. 8 and 9 at the 801 Building;

(iii) The monument sign at the 1797 Building has been damaged and is in need of repair;

(iv) Certain parking lot light poles at the 1797 Building and the 1781 Building need to be replaced or repaired;

(v) Sidewalk repairs may be needed due to lifting from tree roots at the 1797 Building;

(vi) One of the Tenants asserts that HVAC facilities need to be installed at the 801 Building to address the lack of heat in a conference area, which installation Seller believes was to be completed by the Tenant as part of its tenant improvement work if such Tenant so elected; and

(vii) There are certain unused and abandoned HVAC units located on the roof of the 801 Building.

The repairs described in clauses (i), (ii) and (iii), above, as well as the replacement of up to ten (10) of the damaged or deteriorated (but still in place) parking lot light poles described in clause (iv), above, will be undertaken by Seller at its cost. Notwithstanding the foregoing, in the event that Seller is unable to complete all such repairs prior to the Closing, Seller may elect either to enter upon the Property after the Closing and to complete such work or any portion thereof remaining to be completed as of the Closing (and Buyer hereby grants Seller the right to enter upon the Property following the Closing for such purpose), or to provide to Buyer a credit for the cost of any work remaining to be completed at the time of the Closing, in which case, such repairs not then completed by Seller and as to which a credit is provided to Buyer shall be completed by Buyer following the Closing.

13. Buyer’s Representations, Warranties, Covenants and Acknowledgments . In addition to its obligations elsewhere contained in this Agreement, Buyer hereby represents, warrants, acknowledges and agrees in favor of Seller, as follows:

(a) Prior Investigations And Buyer Satisfaction . BUYER IS, OR WILL BE BY THE END OF BUYER’S REVIEWS AND INSPECTIONS PURSUANT TO SECTION 8(A)(V), FAMILIAR WITH THE PROPERTY AND HAS MADE OR WILL MAKE SUCH INDEPENDENT INVESTIGATIONS AS BUYER DEEMS NECESSARY OR APPROPRIATE CONCERNING: THE CONDITION AND SUITABILITY FOR USE BY BUYER OF THE PROPERTY, INCLUDING BUT NOT LIMITED TO ANY DESIRED INVESTIGATIONS OR ANALYSES OF PRESENT OR FUTURE LAWS, STATUTES, RULES, REGULATIONS, ORDINANCES, LIMITATIONS, RESTRICTIONS OR REQUIREMENTS CONCERNING THE USE, DENSITY, LOCATION OR SUITABILITY OF THE PROPERTY OR ANY EXISTING OR PROPOSED DEVELOPMENT OR CONDITION THEREOF (COLLECTIVELY “ REGULATIONS ”), INCLUDING BUT NOT LIMITED TO ZONING, SUBDIVISION, ENVIRONMENTAL OR OTHER SUCH REGULATIONS; THE NECESSITY OR AVAILABILITY OF ANY GENERAL OR SPECIFIC PLAN AMENDMENTS, REZONING, ZONE VARIANCES, CONDITIONAL USE PERMITS, BUILDING PERMITS, ENVIRONMENTAL IMPACT REPORTS, OR ANY OTHER GOVERNMENTAL PERMITS, APPROVALS OR ACTS (COLLECTIVELY, THE “ PERMITS ”); THE ECONOMIC VALUE OF THE PROPERTY; THE SIZE, DIMENSIONS, OR LOCATION OF THE PROPERTY; THE AVAILABILITY, FUNCTIONALITY OR ADEQUACY OF ACCESS TO AND PARKING UPON THE PROPERTY, OR OF WATER, ELECTRICITY, GAS, TELECOMMUNICATIONS SERVICE, SEWAGE OR ANY OTHER UTILITIES SERVING THE PROPERTY; THE PRESENCE OR ADEQUACY OF INFRASTRUCTURE, SUBDRAIN OR OTHER IMPROVEMENTS ON, NEAR OR CONCERNING THE PROPERTY; THE CONDITION OF SOILS AND STRUCTURAL SOUNDNESS, COMPACTION, FOUNDATIONAL SUPPORT, OR SITE WORK DONE IN CONNECTION WITH THE DEVELOPMENT OF THE PROPERTY; THE CONDITION OF ALL PHYSICAL IMPROVEMENTS UPON AND THE CONDITION AND FUNCTIONALITY OF ALL EQUIPMENT, FIXTURES AND FACILITIES UPON OR WITHIN THE PROPERTY, AND THE ARCHITECTURAL AND ENGINEERING ELEMENTS OF ALL SUCH IMPROVEMENTS, EQUIPMENT AND FIXTURES, INCLUDING WITHOUT LIMITATION THE ROOF, WALLS, FLOOR SLABS, WINDOWS AND FRAMES, MAN AND VEHICLE DOORS, DRAINS, CONDUITS, ELECTRICAL SWITCHGEAR, LIGHTING, PLUMBING, MECHANICAL, ELECTRICAL, FIRE AND LIFE SAFETY, AND HEATING AIR CONDITIONING AND VENTILATION SYSTEMS, AND FLOOR AND WALL COVERINGS; ANY SURFACE, SOIL, SUBSOIL, GEOLOGIC, SEISMIC, DRAINAGE, OR WATER OR MOISTURE CONDITIONS OR OTHER PHYSICAL CONDITIONS OF OR AFFECTING THE PROPERTY, SUCH AS CLIMATE, DRAINAGE, AIR, WATER OR MINERALS OR THE PRESENCE OR EXISTENCE OF ANY CONTAMINANTS OR “ HAZARDOUS MATERIALS ” (AS DEFINED BELOW) ON, UNDER, IN OR AROUND THE PROPERTY; THE EXISTENCE OF ANY SPECIAL ENVIRONMENTAL, HISTORICAL, TRANSPORTATION, OR OTHER CONDITION OR REQUIREMENT ON, AFFECTING OR RELATED TO THE PROPERTY WHICH MIGHT IMPAIR OR IMPOSE REQUIREMENTS OR COSTS UPON BUYER’S CONTEMPLATED USE OF OR INVESTMENT IN THE PROPERTY; THE EXTENT OR CONDITION OF TITLE TO THE PROPERTY; AND ALL OTHER MATTERS CONCERNING THE CONDITION, USE, DEVELOPMENT, SALE OR LEASING OF THE PROPERTY, WHETHER KNOWN OR UNKNOWN. FOR PURPOSES OF THIS AGREEMENT, “ HAZARDOUS MATERIALS ” SHALL MEAN SUBSTANCES DEFINED AS “HAZARDOUS SUBSTANCES,” “HAZARDOUS MATERIALS,” OR “TOXIC SUBSTANCES” IN THE COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY ACT OF 1980, AS AMENDED, 42 U.S.C. SEC. 9601, ET. SEQ., THE HAZARDOUS MATERIALS TRANSPORTATION ACT, 49 U.S.C. SECTION 1901, ET. SEQ., THE RESOURCE CONSERVATION AND RECOVERY ACT, 42 U.S.C. SECTION 6901, ET. SEQ., AND THOSE SUBSTANCES DEFINED AS “HAZARDOUS WASTES” IN SECTION 25117 OF THE CALIFORNIA HEALTH & SAFETY CODE OR AS “HAZARDOUS SUBSTANCES” IN SECTION 25316 OF THE CALIFORNIA HEALTH & SAFETY CODE, AND IN THE REGULATIONS ADOPTED AND PUBLICATIONS PROMULGATED PURSUANT TO SUCH LAWS, OR AS SUCH LAWS OR REGULATIONS MAY BE FURTHER AMENDED, MODIFIED OR SUPPLEMENTED FROM TIME TO TIME.

(b) Reliance Upon Reports and Investigations; As-Is . BUYER AGREES THAT SELLER HAS NOT AND WILL NOT WARRANT THE ACCURACY OR COMPLETENESS OF THE VARIOUS REPORTS, PLANS AND SPECIFICATIONS, IF ANY, GIVEN BY SELLER OR SELLER’S AGENTS TO BUYER, AND BUYER AGREES TO VERIFY AND ESTABLISH THE ACCURACY AND COMPLETENESS THEREOF TO BUYER’S OWN SATISFACTION. EXCEPT AS EXPRESSLY SET FORTH IN SECTION 12 OF THIS AGREEMENT, BUYER IS RELYING SOLELY UPON ITS OWN INSPECTION, INVESTIGATION AND ANALYSES OF THE PROPERTY AND IS NOT RELYING IN ANY WAY UPON ANY REPRESENTATIONS, STATEMENTS, AGREEMENTS, WARRANTIES, STUDIES, REPORTS, DESCRIPTIONS, GUIDELINES OR OTHER INFORMATION OR MATERIAL FURNISHED BY SELLER OR ITS REPRESENTATIVES, WHETHER ORAL OR WRITTEN, EXPRESS OR IMPLIED, OF ANY NATURE WHATSOEVER REGARDING ANY SUCH MATTERS. EXCEPT AS EXPRESSLY SET FORTH IN SECTION 12 OF THIS AGREEMENT, BUYER WILL ACQUIRE THE PROPERTY, IF AT ALL, “AS IS”, IN ITS PRESENT STATE AND CONDITION, WITHOUT REPRESENTATION OR WARRANTY BY SELLER OR ITS REPRESENTATIVES AS TO ANY MATTER. EXCEPT AS SPECIFICALLY PROVIDED IN SECTION 8(A) CONCERNING CONDITIONS TO BUYER’S OBLIGATIONS, NO PATENT OR LATENT CONDITION AFFECTING THE PROPERTY IN ANY WAY, SUCH AS BUT NOT LIMITED TO THE MATTERS LISTED IN THIS SECTION 13 WHETHER OR NOT KNOWN OR DISCOVERABLE OR HEREAFTER DISCOVERED, SHALL AFFECT BUYER’S OBLIGATION TO PURCHASE THE PROPERTY, NOR SHALL GIVE RISE TO ANY RIGHT OF DAMAGES, RESCISSION OR OTHERWISE AGAINST SELLER.

(c) Release and Indemnity . BUYER ON ITS BEHALF AND ON BEHALF OF ITS SUCCESSORS AND ASSIGNS HEREBY WAIVES AND UNCONDITIONALLY RELEASES AND DISCHARGES, SELLER AND EACH OF ITS DIVISIONS, SUBSIDIARIES, MEMBERS, PARTNERS AND AFFILIATES, AND ALL OF THEIR RESPECTIVE EMPLOYEES, OFFICERS, SHAREHOLDERS, DIRECTORS, AGENTS, REPRESENTATIVES AND PROFESSIONAL CONSULTANTS AND ALL OF THEIR RESPECTIVE SUCCESSORS AND ASSIGNS (COLLECTIVELY, THE “ RELEASED PARTIES ”) FROM AND AGAINST ANY AND ALL LIABILITIES, LOSSES, CLAIMS, DEMANDS, COSTS (INCLUDING ATTORNEYS’, CONSULTANT AND EXPERT FEES), EXPENSES AND PENALTIES ARISING FROM, RELATING TO OR CAUSED BY (I) ANY OR ALL OF THE MATTERS DESCRIBED IN THIS SECTION 13 AND OTHER MATTERS RELATING TO THE USE, CONDITION OR DEVELOPMENT OF THE PROPERTY AND SURROUNDING PROPERTY AS DESCRIBED IN THIS AGREEMENT AND (II) THE ENVIRONMENTAL CONDITION OF THE PROPERTY OR THE EXISTENCE UPON, UNDER OR AROUND THE PROPERTY AT THE TIME OF CLOSING OR AT ANY TIME FOLLOWING THE CLOSING, OR THE DISCOVERY AFTER THE CLOSING, OF ANY HAZARDOUS MATERIALS. BUYER FURTHER AGREES TO ASSUME, AND TO INDEMNIFY, DEFEND AND HOLD HARMLESS THE RELEASED PARTIES FROM, ALL RESPONSIBILITY FOLLOWING THE CLOSING WITH RESPECT TO THE REMEDIATION OF ANY HAZARDOUS MATERIALS, WHETHER RELEASED OR DISCOVERED AFTER THE CLOSING OR EXISTING PRIOR TO THE CLOSING, AND REQUIRED BY LAW OR ANY GOVERNMENTAL AUTHORITY HAVING JURISDICTION OR FOR ANY OTHER REASON.

(d) 1542 Waiver . BUYER ACKNOWLEDGES THAT IT HAS BEEN ADVISED BY ITS LEGAL COUNSEL AND IS FAMILIAR WITH THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542, WHICH PROVIDES 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.”

BUYER BEING AWARE OF SAID CODE SECTION, HEREBY EXPRESSLY WAIVES ANY RIGHT IT MAY HAVE THEREUNDER, AS WELL AS UNDER ANY OTHER STATUTE OR COMMON LAW PRINCIPLE OF SIMILAR EFFECT, WITH RESPECT TO THE RELEASES SET FORTH IN THIS SECTION 13.



		Buyer’s				Seller’s
		Initials				Initials

(e) Receipt Of Documents . Buyer has received, read and understood, or prior to the approval date will receive, read and understand, and from and after the closing agrees to be bound by the terms and conditions of all matters of record affecting the property.

14. Damage and Destruction . If at any time prior to the Closing, a material portion of the Improvements is damaged or destroyed by any casualty, either Seller or Buyer may terminate this Agreement and cancel Escrow by giving written notice to Escrowholder and the other party. Thereupon, all instruments shall be returned to the respective parties who deposited the same, Seller shall pay all title and Escrow cancellation charges, all other funds then deposited by Buyer in Escrow, including all accrued interest thereon, and any funds paid outside of Escrow by Buyer shall be returned to Buyer, and each party shall be excused from any further obligations hereunder or liability to the other party. Should neither party elect to terminate this Agreement as aforesaid, there shall be no price adjustment as a result of such damage or destruction, and Seller shall assign to Buyer all insurance proceeds, or the right to receive the same, payable or due on account of such damage or destruction, except as to any portion of such insurance proceeds payable on account of lost rental revenue for the period prior to the Closing. If the portion of the Property which is the subject of such damage or destruction is not a material portion of the Property, then this Agreement shall remain in full force and effect and Seller shall assign to Buyer all insurance proceeds, or the right to receive the same, payable or due on account of such damage or destruction, except as to any portion of such insurance proceeds payable on account of lost rental revenue for the period prior to the Closing. For purposes of this Agreement, a material portion of the Improvements shall mean damage to or destruction of the Improvements the cost of repair of which would exceed Five Hundred Thousand Dollars ($500,000.00), as reasonably determined by Seller or a contractor selected by Seller.

15. Condemnation . If at any time prior to the Closing, legal proceedings are commenced under the power of eminent domain with respect to a material portion of the Property, either Seller or Buyer may terminate this Agreement and cancel Escrow by giving written notice to Escrowholder and the other party. Thereupon, all instruments shall be returned to the respective parties who deposited same, Seller shall pay all title and Escrow cancellation charges, all other funds then deposited by Buyer in Escrow, including all accrued interest thereon, and any funds paid outside of Escrow by Buyer shall be returned to Buyer, and each party shall be excused from any further obligations hereunder or liability to the other party. In the event of such termination, Buyer shall have no right to participate in the receipt of any condemnation proceeds from the taking. Should neither party elect to terminate this Agreement as aforesaid, there shall be no price adjustment as a result of the taking, and Seller shall not be entitled to any condemnation award as may be attributable to the Property. If the portion of the Property to be taken under power of eminent domain is not a material portion of the Property then this Agreement shall remain in full force and effect and Seller shall assign to Buyer upon the closing any and all rights to any condemnation proceeds from such taking. For purposes of this Agreement, a material portion of the Property shall mean more than ten percent (10%) of the area of the Land or more than ten percent (10%) of the square footage of the Improvements upon the Land.

16. Non-Foreign Status of Seller . In accordance with Section 1445 of the Internal Revenue Code, Seller hereby represents, warrants and certifies to Buyer, under penalty of perjury, that Seller is not now, and at the Closing will not be, a “foreign person” (that is, a foreign corporation, foreign partnership, foreign trust or foreign estate, as those terms are defined in the Internal Revenue Code and regulations promulgated thereunder), and that Buyer need not withhold tax at the Closing as a result of this transfer.

17. Survivability of Covenants . All covenants of Buyer or Seller which are expressly provided hereunder to be performed in whole or in part after the Closing, and all representations, warranties, waivers, releases, agreements to defend and hold harmless and indemnities by either party to the other, shall survive the Closing and be binding upon and inure to the benefit of the respective parties hereto and their respective heirs, successors and permitted assigns. Any agreements, understandings, warranties or representations not expressly contained herein shall in no way bind either Seller or Buyer. Seller and Buyer each expressly waives any right of rescission and all claims for damages by reason of any statement, representation, warranty, promise and/or agreement, if any, not contained in or attached to this Agreement.

18. Brokers’ Commissions . Seller has employed the services of CB Richard Ellis (“ Seller’s Broker ”), and Buyer has employed the services of Colliers Parrish International, Inc. (“ Buyer’s Broker ”) in connection with this transaction, and Seller shall have the sole responsibility and obligation (pursuant to a separate agreement) for payment at (and conditioned upon) the Closing of a broker’s commission to Seller’s Broker (which shall be shared with Buyer’s Broker as a cooperating broker). Except as provided in the foregoing sentence, each of the parties represents to the other that no brokerage commission, finder’s fee or other similar compensation of any kind is due or owing to any person or entity in connection with the transactions covered by this Agreement. Each party agrees to and does hereby indemnify and hold the other harmless from and against any and all costs, liabilities, losses, damages, claims, causes of action or proceedings which may result from any broker, agent, finder, or similar person, licensed or otherwise, claiming through, under or by reason of the conduct of the indemnifying party in connection with the transactions covered by this Agreement.

19. Waiver, Consent and Remedies . Each provision of this Agreement to be performed by Buyer and/or Seller shall be deemed both a covenant and a condition and shall be a material consideration for the other party’s performance hereunder, and any breach thereof by either party shall be deemed a material default hereunder by such party. Either party may specifically and expressly waive in writing any portion of this Agreement or any breach thereof, but no such waiver shall constitute a further or continuing waiver of any preceding or succeeding breach of the same or any other provision. A waiving party may at any time thereafter require further compliance by the other party with any breach or provision so waived. The consent by one party to any act by the other for which such consent was required shall not be deemed to imply consent or waiver of the necessity of obtaining such consent for the same or any similar acts in the future. No waiver or consent shall be implied from silence or any failure of a party to act, except as otherwise specified in this Agreement. Except as otherwise specified in this Agreement, all rights, remedies, undertakings, obligations, options, covenants, conditions and agreements contained in this Agreement shall be cumulative and no one of them shall be exclusive of any other.

20. Waiver of Jury Trial; Judicial Reference .

(a) BUYER AND SELLER EACH ACKNOWLEDGES THAT IT IS AWARE OF AND HAS HAD THE ADVICE OF COUNSEL OF ITS CHOICE WITH RESPECT TO ITS RIGHT TO TRIAL BY JURY, AND EACH PARTY DOES HEREBY EXPRESSLY AND KNOWINGLY WAIVE AND RELEASE, TO THE EXTENT NOW OR HEREAFTER PERMITTED BY LAW, ALL SUCH RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER PARTY HERETO AGAINST THE OTHER (AND/OR AGAINST ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, OR SUBSIDIARY OR AFFILIATED ENTITIES) ON ANY MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT.

(b) In the event that the jury waiver provisions of Section 20(a) are not enforceable under California law, then the provisions of this Section 20(b) shall apply. It is the desire and intention of the parties to agree upon a mechanism and procedure under which controversies and disputes arising out of this Agreement or related to the Property or the transactions contemplated under this Agreement will be resolved in a prompt and expeditious manner. Accordingly, except with respect to prejudgment remedy of attachment, any action, proceeding or counterclaim brought by either party hereto against the other (and/or against its officers, directors, employees, agents or subsidiary or affiliated entities) on any matters whatsoever arising out of or in any way connected with this Agreement shall be heard and resolved by a referee under the provisions of the California Code of Civil Procedure, Sections 638 – 645.1, inclusive (as same may be amended, or any successor statute(s) thereto) (the “ Referee Sections ”). Any fee to initiate the judicial reference proceedings shall be paid by the party initiating such procedure; provided however, that the costs and fees, including any initiation fee, of such proceeding shall ultimately be borne in accordance with Section 21 below. The venue of the proceedings shall be in the county in which the Property is located. Within 10 days of receipt by any party of a written request to resolve any dispute or controversy pursuant to this Section 20(b), the parties shall agree upon a single referee who shall try all issues, whether of fact or law, and report a finding and judgment on such issues as required by the Referee Sections. If the parties are unable to agree upon a referee within such 10 day period, then any party may thereafter file a lawsuit in the County in which the Property is located for the purpose of appointment of a referee under California Code of Civil Procedure Sections 639 and 640, as same may be amended or any successor statute(s) thereto. If the referee is appointed by the court, the referee shall be a neutral and impartial retired judge with substantial experience in the relevant matters to be determined, from JAMS, the American Arbitration Association or similar mediation/arbitration entity. The proposed referee may be challenged by any party for any of the grounds listed in Section 641 of the California Code of Civil Procedure, as same may be amended or any successor statute(s) thereto. The referee shall have the power to decide all issues of fact and law and report his or her decision on such issues, and to issue all recognized remedies available at law or in equity for any cause of action that is before the referee, including an award of attorneys’ fees and costs in accordance with California law. The referee shall not, however, have the power to award punitive damages, nor any other damages which are not permitted by the express provisions of this Agreement, and the parties hereby waive any right to recover any such damages. The referee shall oversee discovery and may enforce all discovery orders in the same manner as any trial court judge, with rights to regulate discovery and to issue and enforce subpoenas, protective orders and other limitations on discovery available under California law; provided, however, that the referee shall limit discovery to that which is essential to the effective prosecution or defense of the action, and in no event shall discovery by either party include more than one non-expert witness deposition unless both parties otherwise agree. The reference proceeding shall be conducted in accordance with California law (including the rules of evidence), and in all regards, the referee shall follow California law applicable at the time of the reference proceeding. In accordance with Section 644 of the California Code of Civil procedure, the decision of the referee upon the whole issue must stand as the decision of the court, and upon the filing of the statement of decision with the clerk of the court, or with the judge if there is no clerk, judgment may be entered thereon in the same manner as if the action had been tried by the court. The parties shall promptly and diligently cooperate with one another and the referee, and shall perform such acts as may be necessary to obtain a prompt and expeditious resolution of the dispute or controversy in accordance with the terms of this Section 20(b). To the extent that no pending lawsuit has been filed to obtain the appointment of a referee, any party, after the issuance of the decision of the referee, may apply to the court of the county in which the Property is located for confirmation by the court of the decision of the referee in the same manner as a petition for confirmation of an arbitration award pursuant to Code of Civil Procedure Section 1285 et seq. (as same may be amended or any successor statute(s) thereto).

21. Attorneys’ Fees . In the event of any declaratory or other legal or equitable action instituted between Seller, Buyer and/or Escrowholder in connection with this Agreement, then as between Buyer and Seller the prevailing party shall be entitled to recover from the losing party all of its costs and expenses, including court costs and reasonable attorneys’ fees.

22. Authority to Bind . Each of the individuals signing this Agreement on behalf of any entity thereby specifically represents and warrants that such signatories, either collectively or individually, have the authority to bind that entity to all provisions of this Agreement.

23. Further Documents and Acts . Each of the parties hereto agrees to cooperate in good faith with each other, and to execute and deliver such further documents and perform such other acts as may be reasonably necessary or appropriate to consummate and carry into effect the transactions contemplated under this Agreement.

24. Notices . Any notice, request, demand, consent, approval or other communication required or permitted hereunder or by law shall be validly given or made only if in writing and delivered in person or by independent courier service to the other party at the address(es) below, or deposited in the United States mail, duly certified or registered (return receipt requested), postage prepaid, and addressed to the party for whom intended, as follows:


If to Seller:		THE IRVINE COMPANY LLC
		111 Innovation Drive
		Irvine, CA 92671
		Attention: John Turner
		Email: jturner@irvinecompany.com

Copy to:		THE IRVINE COMPANY LLC
		111 Innovation Drive
		Irvine, CA 92617
		Attention: General Counsel, Commercial Land Sales
		Email: jwallace@irvinecompany.com

And a Copy to:		NOSSAMAN LLP
		18101 Von Karman Avenue, Suite 1800
		Irvine, CA 92612
		Attention: Kenneth S. Kramer, Esq.
		Email: kkramer@nossaman.com

If to Buyer:		SUPER MICRO COMPUTER, INC.
		980 Rock Avenue
		San Jose, CA 95131
		Attention: General Counsel
		Email: Roberta@supermicro.com


Copy to:		COLLIERS PARISH INTERNATIONAL, INC.
		450 W. Santa Clara Street
		San Jose, CA 95113
		Attention: Michael L. Rosendin, SIOR CCIM/Dion Campisi
		Email: mrosendin@colliersparish.com ; dcampisi@colliersparish.com

Any party may from time to time, by written notice to the other as provided above, designate a different address which shall be substituted for that specified above. If any notice or other document is sent by mail as aforesaid, the same shall be deemed served or delivered forty-eight (48) hours after mailing thereof as above specified. Notice by any other method shall be deemed served or delivered upon actual receipt at the address or fax number listed above.

25. Gender and Number . In this Agreement (unless the context requires otherwise), the masculine, feminine and neuter genders and the singular and the plural shall be deemed to include one another, as appropriate. If more than one party executes this Agreement as Buyer, then the obligations and liabilities of all such parties under this Agreement shall be joint and several.

26. Entire Agreement . This Agreement and its exhibits constitute the entire agreement between the parties hereto pertaining to the subject matter hereof, and the final, complete and exclusive expression of the terms and conditions thereof. Prior agreements, representations, warranties, negotiations and understandings of the parties hereto, oral or written, express or implied, are hereby superseded and merged herein.

27. Captions . The captions used herein are for convenience only and are not a part of this Agreement and do not in any way limit or amplify the terms and provisions hereof.

28. Governing Law . This Agreement and the exhibits attached hereto have been negotiated and executed in the State of California and shall be governed by and construed under the laws of the State of California.

29. OFAC . Neither Buyer nor any its officers, directors, employees, shareholders, partners, members or other principles is listed as a Specially Designated National on the list of such persons and entities issued by the U.S. Treasury Office of Foreign Asset Control.

31. Invalidity of Provisions . If any provision of this Agreement as applied to either party or to any circumstance shall be adjudged by a court of competent jurisdiction to be void or unenforceable for any reason, the same shall in no way affect (to the maximum extent permissible by law) any other provision of this Agreement, the application of any such provision under circumstances different from those adjudicated by the court, or the validity or enforceability of the Agreement as a whole.

32. Amendments . No addition to or modification of any provision contained in this Agreement shall be effective unless fully set forth in writing and signed by both Buyer and Seller.

33. Counterparts . This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute but one and the same instrument.

34. No Recordation . Neither Buyer nor Seller shall, without the consent of the other, record this Agreement, or a short form or memorandum thereof, or take any other action which would materially and adversely affect the marketability of Seller’s title to the Property.

35. No Offer . Submission of this Agreement by Seller to Buyer shall not be deemed an offer by Seller to sell the Property. Seller shall not be bound hereby in any manner until its delivery to Buyer of an executed copy hereof signed by Seller, already having been signed by Buyer, and until such delivery Seller reserves the right to show, offer for sale and sell the Property to other prospective buyers.

36. Date of Performance . If the date on which any performance required hereunder falls on a Saturday, Sunday or generally recognized federal or banking holiday, then such performance shall be required as of the next following business day.

37. Section 1031 Exchange . Buyer or Seller may elect to consummate the transaction contemplated in this Agreement as to all of the Property or one or more of the 801, 1791 and/or 1797 Buildings, as part of a so-called like-kind exchange (the “ Exchange ”) pursuant to Section 1031 of the Internal Revenue Code of 1986, as amended (the “ Code ”). In the event either party so elects, then each party agrees to cooperate in such exchange, provided that: (a) the Closing shall not be delayed or affected by reason of the Exchange nor shall the consummation or accomplishment of the Exchange be a condition precedent or condition subsequent to either party’s obligations under this Agreement; (b) the Exchange shall be effected through a qualified intermediary and neither party shall be required to acquire or hold title to any real property for purposes of consummating the Exchange; and (c) the party initiating the Exchange shall pay any additional costs that would not otherwise have been incurred by Buyer or Seller had the transaction contemplated by this Agreement not been consummated through the Exchange. Neither party shall, by this Agreement or acquiescence to the Exchange, have it rights under this Agreement affected or diminished in any manner, or be responsible for compliance with or be deemed to have warranted to the other party that the Exchange in fact complies with Section 1031 of the Code.

IN WITNESS WHEREOF, the parties have executed this Purchase Agreement and Escrow Instructions as of the date first above written.

SELLER:


THE IRVINE COMPANY LLC,
a Delaware limited liability company

By:		/s/ Gregory P. Lindstrom
		Gregory P. Lindstrom
		Executive Vice President, Corporate Administration


By:	/s/ Douglas G. Holte
		Douglas G. Holte
		President, Office Properties


CALIFORNIA DIVERSIFIED LLC,
a Delaware limited liability company

By:		/s/ Gregory P. Lindstrom
		Gregory P. Lindstrom
		Executive Vice President, Corporate Administration The Irvine Company, Its Authorized Signatory

By:		/s/ Douglas G. Holte
		Douglas G. Holte
		Senior Vice President

BUYER:


SUPER MICRO COMPUTER, INC.,
a Delaware corporation

By:		/s/ Robert Aeschliman
		Robert Aeschliman
		General Counsel

The undersigned Escrowholder accepts the foregoing Purchase Agreement and Escrow Instructions and agrees to act as Escrowholder under this Agreement in strict accordance with its terms:

FIRST AMERICAN TITLE INSURANCE COMPANY


By:
		Name:
		Title:

Date:

LEGAL DESCRIPTION OF THE PROPERTY

EXHIBIT A

to Purchase Agreement

PARCEL A:

PARCEL ONE:

PARCEL 1, AS SHOWN ON THAT CERTAIN PARCEL MAP FILED FOR RECORD IN THE OFFICE OF THE RECORDER OF THE COUNTY OF SANTA CLARA, STATE OF CALIFORNIA ON JULY 17, 1984 IN BOOK 531 OF MAPS, AT PAGES 43 AND 44, AND AS AMENDED BY CERTIFICATE OF CORRECTION RECORDED ON DECEMBER 19, 1985 IN BOOK J553, PAGE 848.

PARCEL TWO:

AN EASEMENT FOR STORM DRAINAGE PURPOSES ON, OVER AND UNDER THE FOLLOWING DESCRIBED PARCEL OF LAND:

BEING THE EASTERLY 20.00 FEET OF THE NORTHERLY 20.00 FEET OF PARCEL 1, AS SHOWN UPON THAT CERTAIN MAP ENTITLED, “PARCEL MAP” WHICH MAP WAS FILED FOR RECORD IN THE OFFICE OF THE RECORDER OF THE COUNTY OF SANTA CLARA, STATE OF CALIFORNIA ON MAY 23, 1983 IN BOOK 513 OF MAPS, AT PAGES 8 AND 9.

PARCEL THREE:

A RIGHT-OF-WAY FOR ALL PURPOSES, OVER AND ACROSS THE FOLLOWING DESCRIBED LAND:

BEGINNING AT AN IRON PIPE DRIVEN IN THE WESTERLY LINE OF THE MILPITAS ROAD AT A POINT DISTANT NORTH 30° 10’ WEST 6.14 CHAINS FROM THE POINT OF INTERSECTION OF SAID WESTERLY LINE OF SAID ROAD WITH THE WESTERLY LINE OF THE LAND AND RIGHT-OF-WAY OF THE SOUTHERN PACIFIC COMPANY; AND RUNNING THENCE SOUTH 59° 35’ WEST 42.45 CHAINS TO A STAKE MARKED F.3 STANDING IN THE WESTERLY LINE OF LANDS NOW OR FORMERLY OF MRS. JULIA A. FOX AND IN THE EASTERLY LINE OF THE CAYOTE CHANNEL AS CONDEMNED 150 FEET WIDE, BY THE COUNTY OF SANTA CLARA, AND BEING A STRIP OF LAND 20 FEET WIDE OF 10 FEET IN EACH SIDE OF THE ABOVE DESCRIBED CENTER LINE. COURSES TRUE. VARIATED 17 ³ / 4 ° EAST SURVEYED OCTOBER 1909, BY CHAS. HERRMANN OF HERMANN BROS., SURVEYORS AND C.E. SAN JOSE, CALIFORNIA, AS GRANTED BY JULIA A. FOX, ET UX IN DEED RECORDED ON NOVEMBER 10, 1909 IN BOOK 352 OF DEEDS AT PAGE 71.

EXHIBIT A

to Purchase Agreement

PARCEL B:

PARCEL ONE:

ALL OF PARCEL 1, AS SHOWN ON THAT CERTAIN MAP ENTITLED PARCEL MAP, BEING ALL OF LOTS 4 & 5 OF TRACT NO. 7422, ACCORDING TO THE MAP THEREOF RECORDED IN BOOK 511 OF MAPS, AT PAGES 20 THROUGH 23, SANTA CLARA COUNTY RECORDS, WHICH MAP WAS FILED FOR RECORD IN THE OFFICE OF THE RECORDER OF THE COUNTY OF SANTA CLARA, STATE OF CALIFORNIA ON MAY 23, 1983, IN BOOK 513 OF MAPS PAGE(S) 8 AND 9.

PARCEL TWO:

AN EASEMENT 24.00 FEET IN WIDTH, FOR THE PURPOSES OF “MUTUAL INGRESS/EGRESS,” OVER THE SOUTHERLY PORTION OF PARCEL 2, AS SHOWN UPON THAT CERTAIN MAP ENTITLED, “PARCEL MAP BEING ALL OF LOTS 4 & 5 OF TRACT NO. 7422, ACCORDING TO THE MAP THEREOF RECORDED IN BOOK 511 OF MAPS AT PAGES 20 THROUGH 23, SANTA CLARA COUNTY RECORDS,” WHICH MAP WAS FILED FOR RECORD IN THE OFFICE OF THE RECORDER OF THE COUNTY OF SANTA CLARA, STATE OF CALIFORNIA ON MAY 23, 1983 IN BOOK 513 OF MAPS, AT PAGES 8 AND 9.

APN: 237-15-189 (Affects: Parcel A) and 237-03-049 (Affects: Parcel B)

PARCEL C:

PARCEL ONE:

ALL OF PARCEL 2, AS SHOWN UPON THAT CERTAIN MAP ENTITLED, “PARCEL MAP BEING ALL OF LOTS 4 AND 5 OF TRACT NO. 7422, ACCORDING TO THE MAP THEREOF RECORDED IN BOOK 511 OF MAPS AT PAGES 20 THROUGH 23, SANTA CLARA COUNTY RECORDS”, WHICH MAP WAS FILED FOR RECORD IN THE OFFICE OF THE RECORDER OF THE COUNTY OF SANTA CLARA, STATE OF CALIFORNIA ON MAY 23, 1983 IN BOOK 513 OF MAPS, AT PAGES 8 AND 9.

PARCEL TWO:

AN EASEMENT 24.00 FEET IN WIDTH FOR THE PURPOSE OF “MUTUAL INGRESS/EGRESS” OVER THE WESTERLY AND NORTHWESTERLY PORTIONS OF PARCEL 1, AS SHOWN UPON THAT CERTAIN MAP ENTITLED, “PARCEL MAP BEING ALL OF LOTS 4 AND 5 OF TRACT NO. 7422, ACCORDING TO THE MAP THEREOF RECORDED IN BOOK 511 OF MAPS, AT PAGES 20 THROUGH 23, SANTA CLARA COUNTY RECORDS; WHICH MAP WAS FILED FOR RECORD IN THE OFFICE OF THE RECORDER OF THE COUNTY OF SANTA CLARA, STATE OF CALIFORNIA ON MAY 23, 1983 IN BOOK 513 OF MAPS, AT PAGES 8 AND 9.

APN: 237-03-077

EXHIBIT A

to Purchase Agreement

DESCRIPTION OF LEASES

EXHIBIT B

to Purchase Agreement

DESCRIPTION OF LEASES

Lease dated June 6, 2005, by and between WW/LJ Gateways Ltd., as Landlord, and Micrus Corporation, as Tenant.

Lease dated January 11, 2000, by and between WW & LJ Gateways Ltd., as Landlord, and Immersion Corporation, as Tenant.

First Amendment to Lease dated March 17, 2004, by and between WW & LJ Gateways, Ltd., as Landlord, and Immersion Corporation, as Tenant.

Second Amendment to Lease dated January 15, 2009, by and between The Irvine Company LLC, as Landlord, and Immersion Corporation, as Tenant.

License dated March 30, 2010, by and between Immersion Corporation, as Licensor, and CAE Healthcare USA, Inc., as Licensee.

Consent to License dated as of April 13, 2010, by and among The Irvine Company LLC, as Landlord, Immersion Corporation, as Tenant, and CAE Healthcare USA, Inc., as Licensee.

EXHIBIT B

to Purchase Agreement

ESCROW GENERAL PROVISIONS

EXHIBIT C

to Purchase Agreement

FIRST AMERICAN TITLE INSURANCE COMPANY

The parties understand and acknowledge:

1.	S PECIAL D ISCLOSURES :

A.	D EPOSIT OF F UNDS & D ISBURSEMENTS

Unless directed in writing to establish a separate, interest-bearing account together with all necessary taxpayer reporting information, all funds shall be deposited in general escrow accounts in a federally insured financial institution including those affiliated with Escrow Holder (“depositories”). All disbursements shall be made by Escrow Holder’s check or by wire transfer unless otherwise instructed in writing. The Good Funds Law (California Insurance Code 12413.1) mandates that Escrow Holder may not disburse funds until the funds are, in fact, available in Escrow Holder’s account. Wire transfers are immediately disbursable upon confirmation of receipt. Funds deposited by a cashier’s or certified check are generally available on the next banking day following deposit. Funds deposited by a personal check and other types of instruments may not be available until confirmation from Escrow Holder’s bank which can vary from 2 to 10 days.

B.	D ISCLOSURE OF P OSSIBLE B ENEFITS TO E SCROW H OLDER

As a result of Escrow Holder maintaining its general escrow accounts with the depositories, Escrow Holder may receive certain financial benefits such as an array of bank services, accommodations, loans or other business transactions from the depositories (“collateral benefits”). All collateral benefits shall accrue to the sole benefit of Escrow Holder and Escrow Holder shall have no obligation to account to the parties to this escrow for the value of any such collateral benefits.

C.	M ISCELLANEOUS F EES

Escrow Holder may incur certain additional costs on behalf of the parties for services performed, or fees charged, by third parties. The fees charged by Escrow Holder for services including, but not limited to, wire transfers, overnight delivery/courier services, recording fees, notary fees, etc. may include a mark up over the direct cost of such services to reflect the averaging of direct, administrative and overhead charges of Escrow Holder for such services which shall, in no event, exceed $10 for each markup.

D.	M ETHOD TO D ELIVER P AYOFF TO L ENDERS /L IENHOLDERS

To minimize the amount of interest due on any existing loan or lien, Escrow Holder will deliver the payoff funds to the lender/lienholder in an expeditious manner as demanded by the lender/lienholder using (a) personal delivery, (b) wire transfer, or (c) overnight delivery service, unless otherwise directed in writing by the affected party.

2.	P RORATIONS & A DJUSTMENTS

The term “close of escrow” means the date on which documents are recorded. All prorations and/or adjustments shall be made to the close of escrow based on the number of actual days, unless otherwise instructed in writing.

3.	C ONTINGENCY P ERIODS

Escrow Holder shall not be responsible for monitoring contingency time periods between the parties. The parties shall execute such documents as may be requested by Escrow Holder to confirm the status of any such periods.

4.	R EPORTS

As an accommodation, Escrow Holder may agree to transmit orders for inspection, termite, disclosure and other reports if requested, in writing or orally, by the parties or their agents. Escrow Holder shall deliver copies of any such reports as directed. Escrow Holder is not responsible for reviewing such reports or advising the parties of the content of same.

5.	I NFORMATION FROM A FFILIATED C OMPANIES

Escrow Holder may provide the parties’ information to and from its affiliates in connection with the offering of products and services from these affiliates.

6.	R ECORDATION OF D OCUMENTS

Escrow Holder is authorized to record documents delivered through escrow which are necessary or proper for the issuance of the requested title insurance policy(ies). Buyer will provide a completed Preliminary Change of Ownership Report form (“PCOR”). If Buyer fails to provide the PCOR, Escrow Holder shall close escrow and charge Buyer any additional fee incurred for recording the documents without the PCOR. Escrow Holder is released from any liability in connection with same.

7.	P ERSONAL P ROPERTY T AXES

No examination, UCC search, insurance as to personal property and/or the payment of personal property taxes is required unless otherwise instructed in writing.

8.	R EAL P ROPERTY T AXES

Real property taxes are prorated based on the most current available tax statement from the tax collector’s office. Supplemental taxes may be assessed as a result of a change in ownership or completion of construction. Adjustments due either party based on the actual new tax bill issued after close of escrow or a supplemental tax bill will be made by the parties outside of escrow and Escrow Holder is released of any liability in connection with such adjustments. The first installment of California real property taxes is due November 1 ^st (delinquent December 10 ^th ) and the second installment is due February 1 ^st (delinquent April 10 ^th ). If a tax bill is not received from the County at least 30 days prior to the due date, buyer should contact the County Tax Collector’s office and request one. Escrow Holder is not responsible for same.

9.	C ANCELLATION OF E SCROW

(a) Any party desiring to cancel this escrow shall deliver written notice of cancellation to Escrow Holder. Within a reasonable time after receipt of such notice, Escrow Holder shall send by regular mail to the address on the escrow instructions, one copy of said notice to the other party(ies). Unless written objection to cancellation is delivered to Escrow Holder by a party within 10 days after date of mailing, Escrow Holder is authorized, at its option, to comply with the notice and terminate the escrow. If a written objection is received by Escrow Holder, Escrow Holder is authorized, at its option, to hold all funds and documents in escrow (subject to the funds held fee) and to take no other action until otherwise directed by either the parties’ mutual written instructions or a final order of a court of competent jurisdiction. If no action is taken on this escrow within 6 months after the closing date specified in the escrow instructions, Escrow Holder’s obligations shall, at its option, terminate. Upon termination of this escrow, the parties shall pay all fees, charges and reimbursements due to Escrow Holder and all documents and remaining funds held in escrow shall be returned to the parties depositing same.

(b) Notwithstanding the foregoing paragraph, Escrow Holder shall have the right to unilaterally terminate any escrow which is subject to the provisions of the Equity Purchaser Law (CA Civil Code Section 1695 et seq.) and may return all documents and funds without any consent by or notice to the buyer.

10.

C ONFLICTING I NSTRUCTIONS & D ISPUTES

If Escrow Holder becomes aware of any conflicting demands or claims concerning this escrow, Escrow Holder shall have the right to discontinue all further acts on Escrow Holder’s part until the conflict is resolved to Escrow Holder’s satisfaction. Escrow Holder has the right at its option to file an action in interpleader requiring the parties to litigate their claims/rights. If such an action is filed, the parties jointly and severally agree (a) to pay Escrow Holder’s cancellation charges, costs (including the funds held fees) and reasonable attorneys’ fees, and (b) that Escrow Holder is fully released and discharged from all further obligations under the escrow. If an action is brought involving this escrow and/or Escrow Holder, the party(ies) involved in the action agree to indemnify and hold the Escrow Holder harmless against liabilities, damages and costs incurred by Escrow Holder (including reasonable attorneys’ fees and costs) except to the extent that such liabilities, damages and costs were caused by the negligence or willful misconduct of Escrow Holder.


THIS COMPANY CONDUCTS ESCROW BUSINESS UNDER CERTIFICATE OF AUTHORITY ISSUED BY THE STATE OF CALIFORNIA DEPARTMENT OF INSURANCE.
©2005 First American Title Insurance Company	Page 1 of 2 Pages	Form 1610
(7/5/2006)

EXHIBIT C

to Purchase Agreement

11.

U SURY

Escrow Holder is not to be concerned with usury as to any loans or encumbrances in this escrow and is hereby released of any responsibility and/or liability therefore.

12.

A MENDMENTS TO E SCROW I NSTRUCTIONS

Any amendment to the escrow instructions must be in writing, executed by all parties and accepted by Escrow Holder. Escrow Holder may, at its sole option, elect to accept and act upon oral instructions from the parties. If requested by Escrow Holder the parties agree to confirm said instructions in writing as soon as practicable. The escrow instructions as amended shall constitute the entire escrow agreement between the Escrow Holder and the parties hereto with respect to the subject matter of the escrow.

13.

I NSURANCE P OLICIES

In all matters relating to insurance, Escrow Holder may assume that each policy is in force and that the necessary premium has been paid. Escrow Holder is not responsible for obtaining fire, hazard or liability insurance, unless Escrow Holder has received specific written instructions to obtain such insurance prior to close of escrow from the parties or their respective lenders.

14.

C OPIES OF D OCUMENTS ; A UTHORIZATION TO R ELEASE

Escrow Holder is authorized to rely upon copies of documents, which include facsimile, electronic, NCR, or photocopies as if they were an originally executed document. If requested by Escrow Holder, the originals of such documents shall be delivered to Escrow Holder. Escrow Holder may withhold documents and/or funds due to the party until such originals are delivered. Documents to be recorded MUST contain original signatures. Escrow Holder may furnish copies of any and all documents to the lender(s), real estate broker(s), attorney(s) and/or accountant(s) involved in this transaction upon their request. Delivery of documents by escrow to a real estate broker or agent who is so designated in the purchase agreement shall be deemed delivery to the principal.

15.

E XECUTION IN C OUNTERPART

The escrow instructions and any amendments may be executed in one or more counterparts, each of which shall be deemed an original, and all of which taken together shall constitute the same instruction.

16.

T AX R EPORTING , W ITHHOLDING & D ISCLOSURE

The parties are advised to seek independent advice concerning the tax consequences of this transaction, including but not limited to, their withholding, reporting and disclosure obligations. Escrow Holder does not provide tax or legal advice and the parties agree to hold Escrow holder harmless from any loss or damage that the parties may incur as a result of their failure to comply with federal and/or state tax laws. WITHHOLDING OBLIGATIONS ARE THE EXCLUSIVE OBLIGATIONS OF THE PARTIES. ESCROW HOLDER IS NOT RESPONSIBLE TO PERFORM THESE OBLIGATIONS UNLESS ESCROW HOLDER AGREES IN WRITING.

A.	T AXPAYER I DENTIFICATION N UMBER R EPORTING

Federal law requires Escrow Holder to report seller’s social security number or tax identification number (both numbers are hereafter referred to as the “TIN”), forwarding address, and the gross sales price to the Internal Revenue Service (“IRS”). To comply with the USA PATRIOT Act, certain taxpayer identification information (including, but not limited to, the TIN) may be required by Escrow Holder from certain persons or entities involved (directly or indirectly) in the transaction prior to closing.

Escrow cannot be closed nor any documents recorded until the information is provided and certified as to its accuracy to Escrow Holder. The parties agree to promptly obtain and provide such information as requested by Escrow Holder.

B.	State Withholding & Reporting

Under California law (Rev & Tax Code §18662), a buyer may be required to withhold and deliver to the Franchise Tax Board (FTB) an amount equal to 3.33% of the sales price in the case of disposition of California real property interest (“Real Property”) by either: 1) a seller who is an individual, trust or estate or when the disbursement instructions authorize the proceeds to be sent to a financial intermediary of seller; OR 2) a corporate seller that has no permanent place of business in California immediately after the transfer of title to the Real Property. Buyer may be subject to a penalty (equal to the greater of 10% of the amount required to be withheld or $500) for failing to withhold and transmit the funds to FTB in the time required by law. Buyer is not required to withhold any amount and will not be subject to penalty for failure to withhold if: a) the sales price of the Real Property does not exceed $100,000; b) the seller executes a written certificate under penalty of perjury certifying that the seller is a corporation with a permanent place of business in California; OR c) the seller, who is an individual, trust, estate or a corporation without a permanent place of business in California, executes a written certificate under penalty of perjury certifying one of the following: (i) the Real Property was the seller’s or decedent’s principal residence (as defined in IRC §121); (ii) Real Property being conveyed was last used by the seller as sellers principal residence within the meaning of IRC §121 (even if the seller did not meet the two out of the last five years requirement or one of the special circumstances in IRC §121); (iii) the Real Property is or will be exchanged for property of like-kind (as defined in IRC §1031) and that the seller intends to acquire property similar or related in service or use so as to be eligible for nonrecognition of gain for California income tax purposes under IRC §1031; (iv) the Real Property has been compulsorily or involuntarily converted (as defined in IRC §1033) and the seller intends to acquire property similar or related in service or use so as to be eligible for nonrecognition of gain for California income tax purposes under IRC §1033; or (v) the Real Property sale will result in a loss (or net gain not required to be recognized) for California income tax purposes. Seller is subject to penalties for knowingly filing a fraudulent certificate for the purpose of avoiding the withholding laws.

Contact FTB : For additional information regarding California withholding, contact the Franchise Tax Board at (toll free) 888-792-4900), by e-mail nrws@ftb.ca.gov; or visit their website at www.ftb.ca.gov.

C.	F EDERAL W ITHHOLDING & R EPORTING

Certain federal reporting and withholding requirements exist for real estate transactions where the seller (transferor) is a non-resident alien, a non-domestic corporation, partnership, or limited liability company; or a domestic corporation, partnership or limited liability company controlled by non-residents; or non-resident corporations, partnerships or limited liability companies.

D.	T AXPAYER I DENTIFICATION D ISCLOSURE

Federal and state laws require that certain forms include a party’s TIN and that such forms or copies of the forms be provided to the other party and to the applicable governmental authorities. Parties to a real estate transaction involving seller-provided financing are required to furnish, disclose, and include the other party’s TIN in their tax returns. Escrow Holder is authorized to release a party’s TINs and copies of statutory forms to the other party and to the applicable governmental authorities in the foregoing circumstances. The parties agree to hold Escrow Holder harmless against any fees, costs, or judgments incurred and/or awarded because of the release of their TIN as authorized herein.


THIS COMPANY CONDUCTS ESCROW BUSINESS UNDER CERTIFICATE OF AUTHORITY ISSUED BY THE STATE OF CALIFORNIA DEPARTMENT OF INSURANCE.
©2005 First American Title Insurance Company	Page 2 of 2 Pages	Form 1610
(7/5/2006)

END OF GENERAL PROVISIONS

EXHIBIT C

to Purchase Agreement

GRANT DEED

EXHIBIT D

to Purchase Agreement

RECORDING

REQUESTED BY:

WHEN RECORDED

MAIL TO:

Attn:

SPACE ABOVE THIS LINE FOR RECORDER’S USE

GRANT DEED

FOR VALUABLE CONSIDERATION, receipt of which is hereby acknowledged, THE IRVINE COMPANY LLC, a Delaware limited liability company, and CALIFORNIA DIVERSIFIED LLC, a Delaware limited liability company (collectively, “ Grantor ”), hereby grant to , a (“ Grantee ”), the real property in the City of San Jose, County of Santa Clara, State of California described as follows:

See Exhibit A attached hereto and incorporated herein by reference.

IN WITNESS WHEREOF, Grantor has executed this Grant Deed as of the day of , 20 .


THE IRVINE COMPANY LLC,
a Delaware limited liability company

By:
Title:

By:
Title:


CALIFORNIA DIVERSIFIED LLC,
a Delaware limited liability company

By:
Title:

By:
Title:

“ Grantor ”

MAIL TAX STATEMENTS TO ADDRESS ABOVE

[acknowledgments on next page]

EXHIBIT D

to Purchase Agreement

On , 20 , before me, Notary Public, personally appeared , who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

WITNESS my hand and official seal.

NOTARY PUBLIC

I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

WITNESS my hand and official seal.

NOTARY PUBLIC

EXHIBIT A TO GRANT DEED

The real property located in the City of San Jose, County of Santa Clarita, State of California, conveyed hereby is conveyed as follows:

[Insert Legal Description]

SUBJECT TO:

1. Nondelinquent general and special taxes and assessments for the current fiscal year and any and all unpaid bonds and/or assessments.

2. All covenants, conditions, restrictions, reservations, rights-of-way, easements and other matters of record or apparent.

EXHIBIT A

to Grant Deed

Document No.:

Recorded:

STATEMENT OF TAX DUE AND REQUEST THAT TAX DECLARATION NOT BE MADE A PART OF THE PERMANENT RECORD IN THE OFFICE OF THE COUNTY RECORDER (PURSUANT TO SECTION 11932 OF THE REVENUE AND TAXATION CODE).

TO: SANTA CLARA COUNTY RECORDER

Request is hereby made in accordance with the provisions of Section 11932 of California Revenue and Taxation Code and County of Orange Ordinance Number 2183 that the amount of the tax due not be shown on the original document which names:

Grantor: THE IRVINE COMPANY LLC, a Delaware limited liability company, and CALIFORNIA DIVERSIFIED LLC, a Delaware limited liability company

Grantee: , a

The property described in the accompanying document is located in the City of San Jose, County of Santa Clara, State of California.

I HEREBY DECLARE THAT THE DOCUMENTARY TRANSFER TAX IS $ .

THE TAX IS COMPUTED ON;

FULL VALUE OF PROPERTY CONVEYED

FULL VALUE LESS LIENS AND ENCUMBRANCES REMAINING AT TIME OF SALE

(Signature of Grantor or Agent Determining Tax)

(Firm Name)

NOTE: After the permanent record is made, this form will be affixed to the conveying document and returned with it.

ASSIGNMENT AND ASSUMPTION OF LEASES

EXHIBIT E

to Purchase Agreement

ASSIGNMENT AND ASSUMPTION OF LEASES

This ASSIGNMENT AND ASSUMPTION OF LEASES (this “Assignment”) is made and entered into as of , 2010, by and between THE IRVINE COMPANY LLC, a Delaware limited liability company, and CALIFORNIA DIVERSIFIED LLC, a Delaware limited liability company (collectively, “Assignor”), and SUPER MICRO COMPUTER, INC., a Delaware corporation (“Assignee”).

FOR VALUABLE CONSIDERATION, the receipt and adequacy of which are hereby acknowledged, Assignor does hereby assign, transfer and set over unto Assignee, all of Assignor’s right, title, interest, claim and estate as landlord in and to all lease agreements, occupancy agreements and other similar agreements regarding that certain real property situated in the City of San Jose, County of Santa Clara, State of California, and more particularly described in Exhibit A attached hereto (the “Property”), together with all amendments, supplements, modifications, extensions and renewals thereof, any and all security deposits relating thereto, and any and all guarantees of any of the foregoing (collectively, the “Leases”), including, without limitation, the Leases and related documents identified on the schedule attached hereto as Exhibit B and incorporated herein by this reference

Assignee hereby assumes all of the obligations on Assignor’s part to be observed and performed from and after the date hereof by the landlord under the Leases. Assignee hereby agrees to indemnify and hold harmless Assignor from and against any and all liability, claims, loss, costs, damage and expense (including reasonable attorneys’ fees and costs, and court costs) directly or indirectly arising out of or related to any breach or default in Assignee’s obligations under the Leases from and after the date of this Assignment. Assignee’s obligation to return tenant security deposits shall be limited to the amount of tenant security deposits actually paid over or credited to Assignee by Assignor concurrently with this Assignment.

This Assignment shall be construed under and enforced in accordance with the laws of the State of California.

This Assignment may be relied upon as conclusive proof that each and all of the Leases have been transferred to Assignee.

This Assignment shall be binding upon Assignor, Assignee and their respective legal representatives, successors and assigns.

In the event of any action or suit arising out of this Assignment, the prevailing party shall be entitled to have and recover of and from the other party all costs and expenses of the action or suit, including reasonable attorneys’ fees.

This Assignment may be executed in counterparts, each of which shall be deemed an original, and all of which, together, shall constitute one and the same instrument.

EXHIBIT E

to Purchase Agreement

IN WITNESS WHEREOF, this Assignment is made and executed as of the date first set forth above.


“ASSIGNOR”						“ASSIGNEE”

THE IRVINE COMPANY LLC, a Delaware limited liability company						SUPER MICRO COMPUTER, INC., a Delaware corporation

By:						By:
Name:						Name:
Title:						Title:

By:						By:
Name:						Name:
Title:						Title:

CALIFORNIA DIVERSIFIED LLC, a Delaware limited liability company

By:
Name:
Title:

By:
Name:
Title:

EXHIBIT E

to Purchase Agreement

EXHIBIT A TO ASSIGNMENT AND ASSUMPTION OF LEASES

LEGAL DESCRIPTION OF PROPERTY

(To Be Inserted)

EXHIBIT E

to Purchase Agreement

EXHIBIT B TO ASSIGNMENT AND ASSUMPTION OF LEASES

SCHEDULE OF LEASES AND RELATED DOCUMENTS

Lease dated June 6, 2005, by and between WW/LJ Gateways Ltd., as Landlord, and Micrus Corporation, as Tenant.

Lease dated January 11, 2000, by and between WW & LJ Gateways Ltd., as Landlord, and Immersion Corporation, as Tenant.

First Amendment to Lease dated March 17, 2004, by and between WW & LJ Gateways, Ltd., as Landlord, and Immersion Corporation, as Tenant.

Second Amendment to Lease dated January 15, 2009, by and between The Irvine Company LLC, as Landlord, and Immersion Corporation, as Tenant.

License dated March 30, 2010, by and between Immersion Corporation, as Licensor, and CAE Healthcare USA, Inc., as Licensee.

Consent to License dated as of April 13, 2010, by and among The Irvine Company LLC, as Landlord, Immersion Corporation, as Tenant, and CAE Healthcare USA, Inc., as Licensee.

EXHIBIT E

to Purchase Agreement

BILL OF SALE

EXHIBIT F

to Purchase Agreement

BILL OF SALE

FOR VALUABLE CONSIDERATION, the receipt and sufficiency of which are hereby acknowledged THE IRVINE COMPANY LLC, a Delaware limited liability company, and CALIFORNIA DIVERSIFIED LLC, a Delaware limited liability company (collectively, “Transferor”), hereby transfer, convey and assign to SUPER MICRO COMPUTER, INC., a Delaware corporation (“Transferee”), its successors and assigns forever, all of Transferor’s right, title and interest in and to all items of personal property owned by Transferor and located upon and used in connection with that certain real property, more particularly described in Exhibit A attached hereto and incorporated herein by this reference (the “Transferred Property”).

Capitalized terms used in this Bill of Sale or the exhibits attached hereto and not otherwise defined herein shall have the meanings ascribed to them in that certain Purchase Agreement and Escrow Instructions dated as of , 2010, as amended (the “Purchase Agreement”), by and among Transferor, as Seller, and Transferee, as Buyer. To the extent that this instrument conflicts or is inconsistent with the terms and conditions of the Purchase Agreement, the terms and conditions of the Purchase Agreement shall prevail.

1. Transferee hereby accepts the Transferred Property in its current “AS-IS/WHERE IS” condition “WITH ALL FAULTS” as of the date hereof.

2. This Bill of Sale may be relied upon as conclusive proof that the Transferred Property has been transferred to Transferee.

3. This Bill of Sale has been prepared, negotiated and executed, and shall be construed in accordance with, the laws of the State of California.

4. This Bill of Sale shall be binding upon Transferor, Transferee and their respective legal representatives, successors and assigns.

5. This Bill of Sale may be executed in counterparts, each of which shall be deemed an original, and all of which, when taken together, shall form a single original document.

[SIGNATURES ON FOLLOWING PAGE]

EXHIBIT F

to Purchase Agreement

IN WITNESS WHEREOF, this Bill of Sale has been made and executed as of , 2010.


“TRANSFEROR”

THE IRVINE COMPANY LLC, a Delaware limited liability company

By:
Name:
Title:

By:
Name:
Title:

CALIFORNIA DIVERSIFIED LLC, a Delaware limited liability company

By:
Name:
Title:

By:
Name:
Title:

EXHIBIT F

to Purchase Agreement

EXHIBIT A TO BILL OF SALE

LEGAL DESCRIPTION OF PROPERTY

(To Be Inserted)

EXHIBIT F

to Purchase Agreement

ASSIGNMENT AND ASSUMPTION OF RIGHTS AND PERMITS

EXHIBIT G

to Purchase Agreement

ASSIGNMENT AND ASSUMPTION OF RIGHTS AND PERMITS

THIS ASSIGNMENT AND ASSUMPTION OF RIGHTS AND PERMITS (this “Assignment”) is made by THE IRVINE COMPANY LLC, a Delaware limited liability company, and CALIFORNIA DIVERSIFIED LLC, a Delaware limited liability company (collectively, “Assignor”), to SUPER MICRO COMPUTER, INC., a Delaware corporation (“Assignee”).

FOR VALUABLE CONSIDERATION, the receipt and sufficiency of which is hereby acknowledged, Assignor hereby assigns and transfers unto Assignee: all of Assignor’s right, title, claim and interest in and under any and all warranties, guaranties, permits, plans and specifications, approvals, and other rights owned by Assignor, if any, relating to the ownership and operation of all or any part of that certain real property described on Exhibit A attached hereto and incorporated herein by this reference (the “Property”), including all transferable licenses and permits, certificates of occupancy and all entitlements and appurtenances relating thereto (collectively, the “Transferred Rights”). This Assignment is made without recourse or warranty whatsoever.

Assignee hereby accepts the foregoing assignment of the Transferred Rights from Assignor and hereby assumes all obligations in, to and under the Transferred Property arising from and after the Closing. Assignee hereby agrees to indemnify and hold harmless Assignor from and against any and all liability, claims, loss costs, damage and expense (including reasonable attorneys’ fees and costs, and court costs) directly or indirectly arising out of or related to any breach or default in Assignee’s obligations hereunder or under the Transferred Rights, from and after the date of this Assignment

Capitalized terms used in this Assignment or the exhibits attached hereto and not otherwise defined herein shall have the meanings ascribed to them in that certain Purchase Agreement and Escrow Instructions dated as of , 2010, by and between Assignor, as Seller, and Assignee, as Buyer (the “Purchase Agreement”). To the extent that this instrument conflicts or is inconsistent with the terms and conditions of the Purchase Agreement, the terms and conditions of the Purchase Agreement shall prevail.

EXHIBIT G

to Purchase Agreement

IN WITNESS WHEREOF, this assignment is made and executed this Assignment as of , 2010.


“ASSIGNOR”						“ASSIGNEE”

THE IRVINE COMPANY LLC, a Delaware limited liability company						SUPER MICRO COMPUTER, INC., a Delaware corporation

By:						By:
Name:						Name:
Title:						Title:

By:						By:
Name:						Name:
Title:						Title:

CALIFORNIA DIVERSIFIED LLC, a Delaware limited liability company

By:
Name:
Title:

By:
Name:
Title:

EXHIBIT G

to Purchase Agreement

EXHIBIT A TO ASSIGNMENT AND ASSUMPTION OF RIGHTS AND PERMITS

LEGAL DESCRIPTION OF PROPERTY

(To Be Inserted)

EXHIBIT G

to Purchase Agreement

NON-FOREIGN AFFIDAVIT

EXHIBIT H

to Purchase Agreement

CERTIFICATE OF NON-FOREIGN STATUS

Section 1445 of the Internal Revenue Code of 1986, as amended (the “Code”), provides that a transferee of a U.S. real property interest must withhold tax if the transferor is a foreign person. For U.S. tax purposes (including Section 1445 of the Code), the owner of a disregarded entity (which has legal title to a U.S. real property interest under local law) will be the transferor of the property and not the disregarded entity. To inform SUPER MICRO COMPUTER, INC., a Delaware corporation (“Transferee”), that withholding of tax is not required upon the disposition of a U.S. real property interest by THE IRVINE COMPANY LLC, a Delaware limited liability company, and CALIFORNIA DIVERSIFIED LLC, a Delaware limited liability company (collectively, “Transferor”), the undersigned hereby certifies the following on behalf of Transferor:

Transferor is not a foreign corporation, foreign partnership, foreign trust, or foreign estate (as those terms are defined in the Code and Income Tax Regulations);

Transferor is not a disregarded entity as defined in §1.1445-2(b)(2)(iii) of the Income Tax Regulations;

The U.S. employer identification numbers of Transferor are:

The Irvine Company LLC:

California Diversified LLC:

Transferor’s office address is:

The Irvine Company LLC

111 Innovation Drive

Irvine, CA 92671

Transferor understands that this certification may be disclosed to the Internal Revenue Service by Transferee and that any false statement contained herein could be punished by fine, imprisonment, or both.

[Signature Page Follows]

EXHIBIT H

to Purchase Agreement

Under penalty of perjury I declare that I have examined this certification and to the best of my knowledge and belief it is true, correct, and complete, and I further declare that I have authority to sign this document on behalf of Transferor.

Executed as of , 2010


“TRANSFEROR”

THE IRVINE COMPANY LLC, a Delaware limited liability company

By:
Name:
Title:

By:
Name:
Title:

CALIFORNIA DIVERSIFIED LLC, a Delaware limited liability company

By:
Name:
Title:

By:
Name:
Title:

EXHIBIT H

to Purchase Agreement

ENTRY PERMIT

EXHIBIT I

to Purchase Agreement

ENTRY PERMIT

(Not valid unless signed by both parties)

THIS ENTRY PERMIT is made as of , 200 , by and between THE IRVINE COMPANY LLC, a Delaware limited liability company and CALIFORNIA DIVERSIFIED LLC, a Delaware limited liability company (hereinafter collectively, “ Irvine ”), and SUPER MICRO COMPUTER, INC., a Delaware corporation (hereinafter “ Licensee ”).

R E C I T A L S

A. Irvine and Licensee intend to execute or have executed a Purchase Agreement and Escrow Instructions (the “ Agreement ”) concerning certain real property owned by Irvine in the City of San Jose, County of Santa Clara, State of California, depicted on EXHIBIT A attached hereto (herein, the “ Property ”):

B. Licensee desires to come on the Property prior to its purchase thereof for the purpose of inspecting the same, conducting soils, engineering and other tests, surveys and such other activities Irvine may expressly authorize in writing from time to time.

NOW, THEREFORE, the parties hereto agree as follows:

1. License to Enter Property . Irvine hereby grants to Licensee a nonexclusive license and permission to enter upon the Property for the purposes set forth above and for no other purpose, subject to Licensee’s strict compliance with all the terms of this ENTRY PERMIT; provided, that Licensee’s uses of the Property permitted hereunder shall not interfere with the reasonable use and enjoyment thereof by Irvine or any lessees, occupants or persons claiming through or under Irvine. Licensee shall not permit any other party, except Licensee’s duly authorized employees, agents and independent contractors, to enter or use the Property during the term of this Entry Permit without Irvine’s prior consent. Notwithstanding anything to the contrary in this Entry Permit, (a) if Licensee desires to undertake any inspection, investigation or testing of the Property with respect to the presence of hazardous or toxic substances or any substance which requires investigation or remediation under any federal, state or local statute, regulation, ordinance, order, action or policy, Licensee shall perform such inspections, investigations or tests using only environmental engineers or consultants approved by Irvine and pursuant to a work plan approved by Irvine, and (b) if Licensee desires to perform soils borings, groundwater sampling or other intrusive testing of any type, Licensee shall perform such work only using contractors approved by Irvine and pursuant to a work plan approved by Irvine.

2. Government Regulations and Other Obligations of Licensee . Licensee shall obtain at its sole cost and expense all governmental permits and authorizations of whatever nature required by any and all applicable governmental agencies for Licensee’s use of the Property. If requested, Licensee will furnish Irvine evidence of such permits and authorizations. While on the Property, Licensee will comply and will cause Licensee’s contractors and Licensee’s and its respective employees, invitees, representatives, agents and subcontractors and any other parties directly or indirectly employed by any of the foregoing or for whose acts any of the foregoing may be liable (collectively, “ Representatives ”) on the Property to comply with all applicable governmental laws and regulations. All persons who enter upon the Property pursuant to this Entry Permit do so at their own risk, and shall comply with any and all instructions and directions of Irvine. Licensee shall cause such persons to observe strict fire and smoking precautions, and shall ensure that no fires are lighted on the Property and that no firearms or intoxicating liquor shall be carried onto the Property by any persons entering thereon pursuant hereto.

EXHIBIT I

to Purchase Agreement

3. Special Notice . Irvine shall have no duty to inspect the Property to which this Entry Permit applies and shall have no duty to warn any person of any latent or patent defect, condition or risk that may exist in the Property or that might be incurred in the exercise of the rights granted herein.

4. Maintenance and Condition of Property . During the term of this Entry Permit, Licensee will be responsible for any damage done to the Property during such term by Licensee or its Representatives and, upon departing from or being required to vacate the Property, will pay the costs of repairing and restoring the Property and every portion thereof to at least as good condition as existed prior to Licensee’s entry onto the Property. Licensee agrees to pay all utility charges, if any, allocable to its use of the Property.

5. No Construction or Signs without Permission . No structure, signs or other improvement of any kind shall be constructed and no grading or moving of earth (other than customary soils or subsoils, drainage or other engineering tests) shall be undertaken on the Property by Licensee or its Representatives without the express prior permission of Irvine in each case, which approval may be withheld in Irvine’s sole discretion, and then only pursuant to plans, specifications and proposed location thereof specifically approved by Irvine in each case. No approval by Irvine of any plans or specifications shall be deemed to constitute an approval of architectural or engineering design or to be a representation or warranty by Irvine as to the adequacy or sufficiency of such plans and specifications or the improvements or grading contemplated thereby for any use or purpose; but such approval shall merely be the consent of Irvine as required hereunder in connection with Licensee’s performance of said construction and/or grading operation. Irvine by approving such plans and specifications assumes no responsibility or liability for any defect in any improvements constructed or grading done on the basis of such plans and specifications. At Irvine’s option, all such improvements made by Licensee shall either become the sole property of Irvine upon expiration or termination of this Entry Permit, without the payment of any consideration to Licensee, or shall be removed by Licensee at its sole cost and expense, and the Property shall be fully restored to its original condition. Upon completion of any approved grading, excavation or any test boring site, any exposed openings shall be backfilled, and compacted, any improvements or landscaping which has been damaged by Licensee or its Representatives shall be fully restored to its original condition, and any disturbed ground shall be leveled to its prior condition. Licensee shall cause all of its activities hereunder to be performed in a safe manner and shall not cause to exist any dangerous or unsightly condition.

EXHIBIT I

to Purchase Agreement

6. Liens . Licensee shall not suffer or permit to be enforced against the Property, or any part thereof, any mechanics’, materialmen’s, contractors’ or subcontractors liens or any claim for damage arising from the work of any construction, excavation, survey, tests, grading, repair, restoration, replacement or improvement, or any other work, performed by Licensee or its Representatives, but Licensee shall pay or cause to be paid all of said liens, claims or demands before any action is brought to enforce the same against the Property. Licensee expressly agrees to indemnify, defend and hold harmless Irvine, all of the other “ Indemnitees ” (as that term is defined below), and the Property free from all liability for any and all such liens, claims and demands, together with reasonable attorneys’ fees and all costs and expenses in connection therewith. Notwithstanding anything to the contrary set forth above, if Licensee shall in good faith contest the validity of any such lien, claim or demand, then Licensee shall, at its expense, defend itself and the Indemnitees against the same and shall pay and satisfy any adverse judgment that may be rendered thereon before any enforcement thereof against Irvine or the Property, but only upon the condition that if any Indemnitee shall so require, Licensee shall procure and record or furnish to Irvine a surety bond or other acceptable security satisfactory to Irvine in an amount at least equal to such contested lien, claim or demand indemnifying the Indemnitees against liability for the same, and holding the Property free from the effect of any such lien or claim. Irvine reserves the right at any time and from time to time to post and maintain on said Property, or any portion thereof or improvement thereon, such notices of non-responsibility or otherwise as may be necessary to protect the Indemnitees against liability for all such liens and claims.

7. Notices of Nonresponsibility . Upon request of Irvine at any time and from time to time, Licensee shall at Licensee’s sole expense post on the Property and record in the Office of the Recorder, Santa Clara County, California, a notice or notices of nonresponsibility in the form provided and executed by Irvine. Said posting and recordation of a notice shall occur no later than three (3) days after Licensee’s receipt of such notice from Irvine. Licensee hereby agrees to indemnify, defend and hold harmless Irvine and the Property from any liability, claim, damage, loss, cost or expense, including without limitation reasonable attorneys’ fees, arising from or related to a failure of Licensee to properly post and record each such notice in accordance with the provisions of this Paragraph 7 and all applicable laws and regulations.

8. Irvine Not Liable . Licensee shall indemnify, defend and hold Irvine and each of its divisions, subsidiaries, members, partners and affiliates, and all of their respective employees, officers, shareholders, directors, agents, representatives, and professional consultants and all of their respective successors and assigns (collectively, the “ Indemnitees ”) harmless from and against any loss, damage, injury, accident, fire or other casualty, liability, claim, cost or expense (including but not limited to, attorneys’ fees) of any kind or character to any person or property, including the property of the Indemnitees, (collectively, the “ Claims ”) arising from, relating to or caused by, with or without fault (a) any use or misuse of the Property or other property surrounding the Property by Licensee or its Representatives, (b) any act or omission of Licensee or any of its Representatives, (c) any death, bodily injury, property damage, accident, fire or other casualty to or involving Licensee or its Representatives and its or their property, (d) any violation or alleged violation by Licensee or its Representatives of any law, ordinance or regulation now or hereafter enacted, (e) the failure of Licensee to maintain the Property in a safe condition, (f) any loss or theft whatsoever of any property or anything placed or stored by Licensee or its Representatives on or about the Property, (g) any breach by Licensee of any provision of this Entry Permit, and (h) any enforcement of Irvine of any provision of this Entry Permit and any cost of removing Licensee or any Representative from the Property or restoring the same as provided herein; provided, however, that no Indemnitee shall be entitled to indemnification hereunder to the extent any such Claim is ultimately established by a court of competent jurisdiction to have been caused solely by the gross negligence or willful misconduct of such Indemnitee (and the acts or failures to act of any consultant, contractor, or other agent or representative shall not be attributed to such Indemnitee). Licensee, as a material part of the consideration of this Entry Permit, hereby releases the Indemnitees from and waives all claims or demands against Irvine and the other Indemnitees for any such loss, damage or injury of Licensee or Licensee’s property. The foregoing release, waiver, indemnity and obligation to defend and hold harmless shall apply to a claim or action brought by a private party or by a governmental agency or entity under any statute or common law now in effect, and to any loss, damage, injury, accident, fire or other casualty, liability, claim, cost or expense of any kind or character incurred directly by Irvine or any Indemnitee or their property, as well as by Licensee or any third party or their property. If any action or proceeding shall be brought against any Indemnitee alleging any facts or circumstances for which Licensee is to provide indemnification and/or defense, Licensee shall, upon notice from the Indemnitee, defend the same at its expense by counsel approved in writing by such Indemnitee. The indemnity provided by Licensee in favor of the Indemnitees in this Entry Permit shall not require payment as a condition precedent, and a finding of liability or an obligation to indemnify shall not be a condition precedent to the duty to defend.

EXHIBIT I

to Purchase Agreement

LICENSEE ACKNOWLEDGES THAT IT HAS BEEN ADVISED BY ITS LEGAL COUNSEL AND IS FAMILIAR WITH THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542, WHICH PROVIDES AS FOLLOWS:

LICENSEE BEING AWARE OF SAID CODE SECTION, HEREBY EXPRESSLY WAIVES ANY RIGHT IT MAY HAVE THEREUNDER, AS WELL AS UNDER ANY OTHER STATUTE OR COMMON LAW PRINCIPLE OF SIMILAR EFFECT.

9. Irvine Payment of Claims . In addition to and not in limitation of Irvine’s other rights and remedies under this Entry Permit, should Licensee fail within ten (10) days of a written request from Irvine either (a) to pay and discharge any lien or claim arising out of Licensee’s use of the Property or to have bonded around such liens or claims as provided above in Paragraph 6, or (b) to indemnify and defend the Indemnitees from and against any Claim as provided above in Paragraph 8, then in any such case Irvine may, at its option, pay any such lien or claim or settle or discharge any action therefor or satisfy any judgment thereon, and all costs, expenses and other sums incurred by Irvine in connection therewith (including but not limited to reasonable attorneys’ fees) shall be paid to Irvine by Licensee upon written demand, together with interest thereon at the maximum contract rate permitted by law from the date incurred or paid until repaid and any default either in such initial failure to pay or subsequent repayment to Irvine shall at Irvine’s option constitute a breach under this Entry Permit.

EXHIBIT I

to Purchase Agreement

10. Insurance .

(a) Liability Coverage . Prior to and at all times after initially entering upon the Property for any purpose, Licensee shall at its sole expense maintain with a reputable company or companies acceptable to Irvine, (i) a policy or policies of commercial general liability insurance with respect to the Property and the operations of or on behalf of Licensee on or about the Property, including but not limited to owned and non-owned automobile (vehicle) liability, personal injury, blanket contractual, broad form property damage and product/completed operations liability coverage for not less than One Million Dollars ($1,000,000.00) combined single limit bodily injury, death and property damage liability per occurrence, or the current limit of liability carried, whichever is greater, and (ii) workers compensation insurance in an amount required by law, together with employers liability, with a Waiver of Subrogation endorsement by the insurance carrier as respects Irvine and TIC.

(b) Irvine Named . Licensee shall provide that the policy of insurance required above shall be primary and shall name Irvine as an additional insured, as indicated below, and shall apply severally to Irvine and Licensee, with the provision that any other insurance carried by Irvine shall be noncontributing. Such policy shall contain a provision that the naming of an additional insured shall not negate any right the additional insured would have had as claimant under the policy if not so named. For purposes of naming Irvine as an additional insured, the following provision shall be included within each applicable policy: “It is understood and agreed that coverage afforded by this Policy shall also apply to The Irvine Company LLC, a Delaware limited liability company, and each of its officers, directors, agents, employees, divisions, subsidiaries, members, partners and affiliated companies as additional insureds, but only with respect to legal liability or claims caused by, arising out of or resulting from the acts or omissions of the named insured or of others performing acts on behalf of the named insured or the ownership or development of the project referred to as [[ insert name and location of project ]].”

(c) Form and Procedures . Any policies or certificates of insurance required under the provisions of this Section must contain an endorsement or provision that not less than thirty (30) days’ prior written notice be given to Irvine prior to cancellation or reduction of coverage or amount of such policy. A certificate issued by the insurance carrier of each policy of insurance required to be maintained by Licensee, stating the limits and other provisions required hereunder and in a form reasonably acceptable to Irvine, shall be delivered to Irvine prior to Licensee entering upon the Property for any purpose, and thereafter not later than thirty (30) days prior to the expiration of the term of each such policy. Any policies required hereunder may be made a part of a blanket policy of insurance, so long as such blanket policy contains all of the provisions required herein and does not in any way reduce the coverage, impair the rights of Irvine or TIC hereunder or negate the requirements of Entry Permit.

EXHIBIT I

to Purchase Agreement

11. Termination and Remedies . Unless otherwise specifically agreed to by Irvine and Licensee, the right of entry granted by this Entry Permit shall terminate on the first to occur of (a) the "Approval Date" under the Purchase Agreement and Escrow Instructions, or (b) the termination of (or the termination of negotiations of) any Purchase Agreement and Escrow Instructions executed (or to be executed) by Irvine, as Seller, and Licensee, as Buyer, concerning Licensee’s acquisition of the Property. In addition, if Licensee shall be in breach of any of its obligations under this Entry Permit or the Agreement, Irvine shall have the right to terminate this Entry Permit by written notice to Licensee. Licensee acknowledges that this is solely an Entry Permit in the nature of a license and that Licensee has no rights as an owner, purchaser or tenant by virtue hereof. Upon termination of this Entry Permit, Licensee shall promptly vacate the Property and Irvine may reenter and take exclusive possession of the Property and remove all persons or things therefrom, without legal process to the maximum extent permitted by law, or by such legal process as Irvine may deem appropriate. In the event of termination hereof due to a breach or threatened breach by Licensee of any provision hereunder, Irvine may seek any remedy available at law or in equity, including but not limited to a suit for damages for any compensable breach or noncompliance herewith or an action for specific performance or injunction. All remedies provided herein or by law or equity shall be cumulative and not exclusive. No termination or expiration of this Entry Permit shall relieve Licensee of its obligations to perform those acts required to be performed either prior to or after its termination.

12. Waiver of Jury Trial . IRVINE AND LICENSEE EACH ACKNOWLEDGES THAT IT IS AWARE OF AND HAS HAD THE ADVICE OF COUNSEL OF ITS CHOICE WITH RESPECT TO ITS RIGHTS TO TRIAL BY JURY, AND EACH PARTY DOES HEREBY EXPRESSLY AND KNOWINGLY WAIVE AND RELEASE TO THE EXTENT NOW OR HEREAFTER PERMITTED BY LAW ALL SUCH RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER PARTY HERETO AGAINST THE OTHER (AND/OR AGAINST ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, OR SUBSIDIARY OR AFFILIATED ENTITIES) ON OR WITH REGARD TO ANY MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS ENTRY PERMIT, LICENSEE’S USE OR OCCUPANCY OF THE PROPERTY, AND/OR ANY CLAIM OF INJURY OR DAMAGE.

Irvine’s Initials

Licensee’s Initials

13. Irvine Inspection . Irvine and any authorized representative, employee, agent or independent contractor, shall be entitled to enter and inspect the Property or any portion thereof or improvements or work of Licensee thereon at any time and from time to time.

14. Assignability . This Entry Permit may not be assigned, whether voluntarily or by operation of law, and Licensee shall not permit the use of the Property, or any part thereof, except in strict compliance with the provisions hereof, and any attempt to do so shall be null and void.

EXHIBIT I

to Purchase Agreement

15. Cost of Enforcement . In the event any declaratory or other legal or equitable action is instituted between Irvine and Licensee in connection with this Entry Permit or the subject matter hereof, then the prevailing party shall be entitled to receive from the losing party all of its costs and expenses, including court costs and reasonable attorneys’ fees.

16. Notices . Any notice, request, demand, consent, approval or other communication required or permitted hereunder or by law shall be validly given or made only if in writing and delivered in person or by independent courier service to the other party at the address(es) below, or deposited in the United States mail, duly certified or registered (return receipt requested), postage prepaid, and addressed to the party for whom intended, as follows:


If to Seller:		THE IRVINE COMPANY LLC



		Attention:
		Fax No.:



Copy to:		THE IRVINE COMPANY LLC
		Commercial Land Sales Division
		111 Innovation Drive
		Irvine, CA 92617
		Attention: General Counsel, Commercial Land Sales
		Fax No.: (949) 720-2380

If to Buyer:		[To the address below Buyer’s signature block]

Notice may also be given by facsimile transmission to any party at the respective fax number given above, marked “RUSH - PLEASE DELIVER IMMEDIATELY.” Any party may from time to time, by written notice to the other as provided above, designate a different address which shall be substituted for that specified above. If any notice or other document is sent by mail as aforesaid, the same shall be deemed served or delivered forty-eight (48) hours after mailing thereof as above specified. Notice by any other method shall be deemed served or delivered upon actual receipt at the address or fax number listed above.

17. Miscellaneous . This instrument and the Purchase Agreement and Escrow Instructions constitute the entire agreement between the parties hereto pertaining to the subject matter hereof and all prior and contemporaneous agreements, representations and understandings of the parties hereto, oral or written, are hereby superseded and merged herein. No supplement, modification or amendment of this Entry Permit shall be binding unless in writing and executed by the parties hereto. No waiver of any of the provisions of this Entry Permit shall be deemed or shall constitute a waiver of any other provisions, whether or not similar, nor shall any waiver be a continuing waiver. No waiver shall be binding unless executed in writing by the party making the waiver. This Entry Permit shall be construed and enforced in accordance with, and governed by, the laws of the State of California. The headings of this Entry Permit are for purposes of reference only and shall not limit or define the meaning of the provisions hereof. This Entry Permit may be executed in any number of counterparts, each of which shall be an original and all of which shall constitute one and the same instrument. Neither this Entry Permit nor a short form memorandum or assignment hereof shall be filed or recorded in any public office and any attorneys’ fees or other costs incurred in clearing such cloud on title to the Property shall be Licensee’s responsibility. If more than one party executes this Entry Permit as Licensee, then the obligations and liabilities of all such parties shall be joint and several.

EXHIBIT I

to Purchase Agreement

IN WITNESS WHEREOF, the parties hereto have executed this Entry Permit as of the date first above written.


“IRVINE”						“LICENSEE”

THE IRVINE COMPANY LLC, a Delaware limited liability company						SUPER MICRO COMPUTER, INC., a Delaware corporation

By:						By:
Name:						Name:
Title:						Title:

By:						By:
Name:						Name:
Title:						Title:

CALIFORNIA DIVERSIFIED LLC, a Delaware limited liability company						ADDRESS FOR NOTICE:

By:
Name:						Attn:
Title:

By:
Name:
Title:

EXHIBIT I

to Purchase Agreement

DEPICTION OF PROPERTY

EXHIBIT A

to Entry Permit

SCHEDULE OF DILIGENCE DOCUMENTS

EXHIBIT J

to Purchase Agreement

DUE DILIGENCE LIST

Leases:

Lease dated June 6, 2005, by and between WW/LJ Gateways Ltd. as Landlord, and Mircus Corporation, as Tenant.

Lease dated January 11, 2000, by and between WW & LJ Gateways Ltd., as Landlord, and Immersion Corporation, as Tenant.

First Amendment to Lease dated March 17, 2004, by and between WW & LJ Gateways, Ltd., as Landlord, and Immersion Corporation, as Tenant.

Second Amendment to Lease dated January 15, 2009, by and between The Irvine Company LLC, as Landlord, and Immersion Corporation, as Tenant.

2.	County of Santa Clara Secured Property Tax Bill Fiscal Year 2009-2010 for Parcel Nos. 237-03-077, 237-03-049, and 237-15-189.

3.	Current Rent Roll.

4.	List of PG&E Accounts for Fox Properties.

5.	Equipment List for Fox Properties, dated April 19, 2010.

6.	HVAC Service History for 1797 Fox Drive, 1781-1785 Fox Drive, 801-821 Fox Lane, as of April 12, 2010, prepared by Aircom Mechanical Inc.

7.	Roof Report for 1797 Fox Drive, 1781-1785 Fox Drive, and 801-821 Fox Lane, prepared by Irvine Company Roof Consulting Department, dated March 8, 2010.

8.	Fire Alarm and Life Safety Inspection Certificates for 1797 Fox Drive and 1781-1785 Fox Drive, inspected April 13, 2009, prepared by Security Signal Devices, Inc. – Anaheim; 801-821 Fox Lane, inspected April 20, 2009, prepared by Security Signal Devices, Inc. – Anaheim.

9.	HVAC Survey Report for 821 Fox Lane.

10.	1983 Base Building Drawings, City Permit Set and As-Builts, for 1797 Fox Drive and 1781-1785 Fox Drive.

11.	1999 Voluntary Seismic Retrofit Drawings, Structural Set by JS Dyer, for 1797 Fox Drive, 1781-1785 Fox Drive, and 801-821 Fox Lane.

EXHIBIT J

to Purchase Agreement

12.	2005 Asbestos Surveys for 1797 Fox Drive, 1781-1785 Fox Drive, and 801-821 Fox Lane; 2006 Supplemental Asbestos Survey for 1781 Fox Drive.

13.	1995 Allstate Tenant Improvement Plans, City Permit Set, for 1797 Fox Drive.

14.	1995 Allstate HVAC Upgrade Plans, City Permit Set, for 1797 Fox Drive.

15.	2001 Allstate Tenant Improvement Plans, City Permit Set, for 1797 Fox Drive.

16.	2005 Spec Improvement Plans, City Permit Set and As-Builts, for 1797 Fox Drive.

17.	2005 Permit Cards for Spec Improvement for 1797 Fox Drive.

18.	1984 Compath National/Hutton I Tenant Improvement Plans, City Permit Set, for 1781-1785 Fox Drive.

19.	1992 Intel Tenant Improvement Plans, City Permit Set, for 1781-1785 Fox Drive.

20.	1993 Wafernet Inc. Tenant Improvement Plans, City Permit Set, for 1781-1785 Fox Drive.

21.	2003 Spec Improvement Plans, City Permit Set, for 1781-1785 Fox Drive.

22.	2004 Kanematsu USA Inc. Tenant Improvement Plans, City Permit Set, for 1781-1785 Fox Drive.

23.	2004 Permit Cards for Spec Improvement for 1781 Fox Drive.

24.	2004 Permit Cards for Kanematsu USA Inc. Tenant Improvement for 1781-1785 Fox Drive.

25.	1999 Asante Tenant Improvement Plans, City Permit Set, for 801-821 Fox Lane.

26.	2005 Micrus Tenant Improvement Plans, City Permit Set, As-Builts, CAD, for 801-821 Fox Lane.

27.	2007 Immersion Tenant Improvement Plans, City Permit Set and As-Builts, for 801-821 Fox Lane.

28.	2008 Immersion Tenant Improvement Plans, City Permit Set, As-Builts, CAD, for 801-821 Fox Lane.

29.	2009 HVAC Replacement Plans, City Permit Set, for 821 Fox Lane.

30.	2005 Air Clearance Letter for Micrus for 821 Fox Lane.

31.	2000 Permit Cards for Immersion Tenant Improvement for 801-821 Fox Lane.

EXHIBIT J

to Purchase Agreement

32.	2006 Permit Cards for Micrus Tenant Improvements for 801-821 Fox Lane.

33.	2008 Permit Cards for HVAC Replacement for 801-821 Fox Lane.

34.	2009 Permit Cards for Immersion Tenant Improvements for 801-821 Fox Lane.

35.	1997 ALTA Survey for Properties.

36.	1997 Phase I Environmental Site Assessment for Properties.

37.	1997 Land Title Survey Drawings for 1797 Fox Drive, 1781-1785 Fox Drive, and 801-821 Fox Lane.

38.	1997 ADA Compliance Survey for Properties.

EXHIBIT J

to Purchase Agreement

ESTOPPEL CERTIFICATE

EXHIBIT K

to Purchase Agreement

ESTOPPEL CERTIFICATE

Tenant Name






Attention:

Re:

Lease (the “Lease”) between , as landlord (“Landlord”) or its assignees, and , as Tenant (“Tenant”), dated , for certain premises as further described in the Lease (the “Premises”) located upon real property in the City of San Jose, County of Santa Clara, State of California, as further described in the Lease (the “Property”), as amended by the following amendments: [List, if any] .

Ladies and Gentlemen:

Tenant understands that SUPER MICRO COMPUTER, INC., a Delaware corporation (“Buyer”), intends to purchase the Property from a (“Seller”). If Seller is different from the Landlord referenced above, Seller has succeeded, or will succeed, to the interest of Landlord under the Lease. Tenant presently leases the Premises pursuant to the Lease, and, in connection with the foregoing, Tenant does hereby certify to Buyer and Seller, and their respective successors and assigns, as follows:

(a) The Lease is in full force and effect; there are no amendments or modifications of any kind to the Lease except those identified above;

(b) Tenant acknowledges that the initial term of the Lease commenced on , and shall expire on , unless sooner terminated in accordance with the terms of the Lease, and Tenant has no option to renew or extend the lease term, except as set forth in the Lease;

(d) No event of default or breach by Landlord exists under the Lease, and no facts or circumstances exist that, with the giving of notice or the passage of time, would constitute a default under the Lease;

(e) Tenant is in full and complete possession of the Premises and has accepted the Premises, pursuant to the terms and provisions of the Lease;

EXHIBIT K

to Purchase Agreement

(f) The current monthly base rent under the Lease is and has been paid by Tenant through , 20 ;

(g) Tenant is current with respect to, and is paying the full rent and other charges stipulated in the Lease (including, without limitation, operating expenses) with no offsets, deductions, defenses or claims, and Tenant has not prepaid any rent or other amounts to Landlord more than one month in advance

(h) The current monthly amount of estimated operating expenses payable under the Lease is ;

(i) The undersigned representative of Tenant is duly authorized and fully qualified to execute this instrument on behalf of Tenant thereby binding Tenant;

(j) There has not been any assignment by Tenant of the Lease, or any rights therein, to any party;

Tenant understands and acknowledges that Buyer has entered into an agreement to purchase the Property, and is relying upon the statements contained herein in connection with such purchase of the Property.

IN WITNESS WHEREOF, Tenant has executed this instrument as of , 20 .


TENANT

Name of Tenant

By:
Name:
Title:

EXHIBIT K

to Purchase Agreement

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Charles Liang, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Super Micro Computer, 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;

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 have:

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;

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 purposes in accordance with generally accepted accounting principles;

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

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(s) 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 the registrant’s board of directors (or persons performing the equivalent functions):

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

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.


Date: May 7, 2010				/s/ C HARLES L IANG
				Charles Liang
				President, Chief Executive Officer and Chairman of the Board (Principal Executive Officer)

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Howard Hideshima, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Super Micro Computer, 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;

5.	The registrant’s other certifying officer(s) 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 the registrant’s board of directors (or persons performing the equivalent functions):

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.


Date: May 7, 2010				/s/ H OWARD H IDESHIMA
				Howard Hideshima
				Chief Financial Officer (Principal Financial and Accounting Officer)

Exhibit 32.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Charles Liang, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Super Micro Computer, Inc. on Form 10-Q for the period ended March 31, 2010, as filed with the Securities and Exchange Commission on the date thereof, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Super Micro Computer, Inc.


Date: May 7, 2010				/s/ C HARLES L IANG
				Charles Liang
				President, Chief Executive Officer and Chairman of the Board (Principal Executive Officer)

Exhibit 32.2

CERTIFICATION OF PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Howard Hideshima, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Super Micro Computer, Inc. on Form 10-Q for the period ended March 31, 2010, as filed with the Securities and Exchange Commission on the date thereof, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Super Micro Computer, Inc.


Date: May 7, 2010				/s/ H OWARD H IDESHIMA
				Howard Hideshima
				Chief Financial Officer (Principal Financial and Accounting Officer)