MARRONE BIO INNOVATIONS INC (Form: 10-Q, Received: 05/15/2014 15:09:04)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

x	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2014

¨	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 001-36030

Marrone Bio Innovations, Inc.

(Exact name of registrant as specified in its charter)

Delaware

20-5137161

(State or other jurisdiction of

Incorporation or organization)

(I.R.S. Employer

Identification No.)

2121 Second St. Suite A-107, Davis, CA 95618

(Address of principal executive offices and zip code)

(530) 750-2800

(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 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 x No ¨

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class		Shares Outstanding at May 8, 2014
Common Stock, $0.00001 par value		19,751,273

TABLE OF CONTENTS


		Page

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)		3

	Condensed Consolidated Balance Sheets as of March 31, 2014 and December 31, 2013		3

	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2014 and 2013		4

	Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2014 and 2013		5

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2014 and 2013		6

	Notes to Condensed Consolidated Financial Statements		7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		21

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		33

Item 4.	Controls and Procedures		34

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings		34

Item 1A.	Risk Factors		34

Item 2.	Unregistered Sales of Equity Securities		34

Item 6.	Exhibits		35

SIGNATURES			35

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

MARRONE BIO INNOVATIONS, INC.

Condensed Consolidated Balance Sheets

(In Thousands, Except Par Value)


	MARCH 31, 2014			DECEMBER 31, 2013
	(Unaudited)

Assets
Current assets:
Cash and cash equivalents	$	21,298		$	24,455
Short-term investments		2,664			13,677
Accounts receivable		7,231			6,215
Accounts receivable from related parties		1,230			903
Inventories, net		12,837			11,666
Prepaid expenses and other current assets		1,765			1,737

Total current assets		47,025			58,653
Property, plant and equipment, net		15,795			9,420
Other assets		639			806

Total assets	$	63,459		$	68,879

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	8,563		$	4,460
Accrued liabilities		3,040			4,380
Deferred revenue, current portion		1,017			1,209
Deferred revenue from related parties, current portion		31			131
Capital lease obligations, current portion		1,680			1,401
Debt, current portion		123			157

Total current liabilities		14,454			11,738
Deferred revenue, less current portion		695			744
Deferred revenue from related parties, less current portion		404			628
Capital lease obligations, less current portion		1,059			1,134
Debt, less current portion		12,312			12,280
Other liabilities		574			571

Total liabilities		29,498			27,095
Commitments and contingencies (Note 12)
Stockholders’ equity:
Preferred stock: $0.00001 par value; 20,000 shares authorized, no shares issued or outstanding at March 31, 2014 and December 31, 2013		—			—
Common stock: $0.00001 par value; 250,000 shares authorized and 19,707 and 19,323 shares issued and outstanding at March 31, 2014 and December 31, 2013, respectively		—			—
Additional paid in capital		149,643			147,220
Accumulated deficit		(115,682	)		(105,436	)

Total stockholders’ equity		33,961			41,784

Total liabilities and stockholders’ equity	$	63,459		$	68,879

See accompanying notes.

MARRONE BIO INNOVATIONS, INC.

Condensed Consolidated Statements of Operations

(In Thousands, Except Per Share Amount)

(Unaudited)


	THREE MONTHS ENDED MARCH 31
	2014			2013
Revenues:
Product	$	2,097		$	2,373
License		45			48
Related party		648			309

Total revenues		2,790			2,730
Cost of product revenues, including cost of product revenues to related parties of $192 and $194 for the three months ended March 31, 2014 and 2013, respectively		1,652			1,795

Gross profit		1,138			935
Operating expenses:
Research, development and patent		4,282			3,283
Selling, general and administrative		6,330			2,847

Total operating expenses		10,612			6,130

Loss from operations		(9,474	)		(5,195	)
Other income (expense):
Interest income		10			1
Interest expense		(773	)		(1,985	)
Change in estimated fair value of financial instruments		—			(3,563	)
Other expense, net		(9	)		(7	)

Total other expense, net		(772	)		(5,554	)

Loss before income taxes		(10,246	)		(10,749	)
Income taxes		—			—

Net loss	$	(10,246	)	$	(10,749	)

Net loss per common share:
Basic and diluted	$	(0.52	)	$	(8.48	)

Weighted-average shares outstanding used in computing net loss per common share:
Basic and diluted		19,518			1,268

See accompanying notes.

MARRONE BIO INNOVATIONS, INC.

Condensed Consolidated Statements of Comprehensive Loss

(In Thousands)

(Unaudited)


	THREE MONTHS ENDED MARCH 31
	2014			2013
Net loss	$	(10,246	)	$	(10,749	)
Other comprehensive loss		—			—

Comprehensive loss	$	(10,246	)	$	(10,749	)

See accompanying notes.

MARRONE BIO INNOVATIONS, INC.

Condensed Consolidated Statements of Cash Flows

(In Thousands)

(Unaudited)


	THREE MONTHS ENDED MARCH 31
	2014			2013
Cash flows from operating activities
Net loss	$	(10,246	)	$	(10,749	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		488			184
Share-based compensation		1,522			249
Non-cash interest expense		248			1,467
Change in estimated fair value of financial instruments		—			3,563
Amortization of investment securities premiums/discounts, net		9			—
Net changes in operating assets and liabilities:
Accounts receivable		(1,016	)		59
Accounts receivable from related parties		(327	)		(132	)
Inventories		(1,171	)		(495	)
Prepaid expenses and other assets		(224	)		(558	)
Accounts payable		2,737			138
Accrued and other liabilities		(1,337	)		(1,320	)
Deferred revenue		(241	)		(48	)
Deferred revenue from related parties		(324	)		(33	)

Net cash used in operating activities		(9,882	)		(7,675	)
Cash flows from investing activities
Purchases of property, plant and equipment		(5,044	)		(432	)
Purchase of short-term investments		(49	)		—
Maturities of short-term investments		11,053			—

Net cash provided by (used in) investing activities		5,960			(432	)
Cash flows from financing activities
Repayment of debt		(67	)		(9,224	)
Repayment of capital leases		(69	)		(25	)
Change in restricted cash		—			9,139
Proceeds from exercise of stock options		851			2
Proceeds from exercise of common stock warrants		50			—

Net cash provided by (used in) financing activities		765			(108	)
Net decrease in cash and cash equivalents		(3,157	)		(8,215	)
Cash and cash equivalents, beginning of year		24,455			10,006

Cash and cash equivalents, end of period	$	21,298		$	1,791

Supplemental disclosure of cash flow information
Cash paid for interest, net of capitalized interest of $469 and $113 for the three months ended March 31, 2014 and 2013, respectively	$	525		$	518

Supplemental disclosure of non-cash investing and financing activities
Property, plant and equipment included in accounts payable and accrued liabilities	$	2,040		$	—

Equipment acquired under capital leases	$	453		$	77

Interest added to the principal of convertible notes	$	—		$	628

See accompanying notes.

MARRONE BIO INNOVATIONS, INC.

Notes to Condensed Consolidated Financial Statements

March 31, 2014

(Unaudited)

1. Summary of Business

Marrone Bio Innovations, Inc. (Company), formerly Marrone Organic Innovations, Inc., was incorporated under the laws of the State of Delaware on June 15, 2006, and is located in Davis, California. In July 2012, the Company formed a wholly-owned subsidiary, Marrone Michigan Manufacturing LLC (MMM LLC), which holds the assets of a manufacturing plant the Company purchased in July 2012 (See Note 2). The Company makes bio-based pest management and plant health products. The Company targets the major markets that use conventional chemical pesticides, including certain agricultural and water markets where its bio-based products are used as substitutes for, or in connection with, conventional chemical pesticides. The Company also targets new markets for which there are no available conventional chemical pesticides, the use of conventional chemical pesticides may not be desirable or permissible, or the development of pest resistance has reduced the efficacy of conventional chemical pesticides. The Company delivers EPA-approved and registered biopesticide products and other bio-based products that address the global demand for effective, safe and environmentally responsible products.

The Company is an early stage company with a limited operating history and has only recently begun commercializing its products. As of March 31, 2014, the Company had an accumulated deficit of $115,682,000 and expects to continue to incur losses for the foreseeable future. Until the Company’s initial public offering (IPO) in August 2013, the Company had funded operations primarily with the net proceeds from the private placements of convertible preferred stock, convertible notes, promissory notes, term loans, as well as proceeds from the sale of its products and payments under strategic collaboration agreements and government grants. The Company will need to generate significant revenue to achieve and maintain profitability. As of March 31, 2014, the Company had working capital of $32,571,000 and cash, cash equivalents and short-term investments of $23,962,000.

On August 1, 2013, the Company amended and restated its certificate of incorporation to effect a reverse split of shares of its common stock at a 1-for-3.138458 ratio (See Note 13).

The Company participates in a heavily regulated and highly competitive crop protection industry and believes that adverse changes in any of the following areas could have a material effect on the Company’s future financial position, results of operations, or cash flows: inability to obtain regulatory approvals, increased competition in the pesticide market, market acceptance of the Company’s products, weather and other seasonal factors beyond the Company’s control, the Company’s ability to support increased growth and litigation or claims against the Company based on intellectual property, patent, product, regulatory or other factors.

2. Significant Accounting Policies

Basis of Presentation

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant intercompany balances and transactions have been eliminated in consolidation.

The accompanying financial information as of March 31, 2014 and for the three months ended March 31, 2014 and 2013 have been prepared by the Company, without audit, in accordance with generally accepted accounting principles in the United States (GAAP) and applicable rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. The information included in this quarterly report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

In the opinion of management, the condensed consolidated financial statements as of March 31, 2014 and for the three months ended March 31, 2014 and 2013 reflect all adjustments, which are normal recurring adjustments, necessary to present a fair statement of financial position, results of operations, comprehensive loss and cash flows. The results of operations for the three months ended March 31, 2014 are not necessarily indicative of the operating results for the full fiscal year or any future periods.

Use of Estimates

Conformity with GAAP requires the use of estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on management’s knowledge about current events and expectations about actions we may undertake in the future. Actual results could differ materially from those estimates.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current year presentation. These reclassifications have no effect on previously reported net income.

Cash and Cash Equivalents

The Company considers all highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalents. Cash and cash equivalents consist of cash on deposit, money market funds and certificates of deposit accounts (CDs) with U.S. financial institutions. The Company is exposed to credit risk in the event of default by financial institutions to the extent that cash and cash equivalents balances with financial institutions are in excess of amounts that are insured by the Federal Deposit Insurance Corporation. The Company has not experienced any losses on these deposits.

Short-Term Investments

The Company’s short-term investments consist of certificates of deposit with original maturities less than one year but greater than three months which are classified as held-to-maturity. Certificates of deposit are stated at their amortized cost with realized gains or losses, if any, reported as other income or expenses in the condensed consolidated statements of operations. The Company routinely evaluates the realizability of its short-term investments and recognizes an impairment charge when a decline in the estimated fair value of a short-term investment is below the amortized cost and determined to be other-than-temporary. The Company considers various factors in determining whether to recognize an impairment charge, including the duration of time and the severity to which the fair value has been less than amortized cost, any adverse changes in the investee’s financial condition, and the Company’s intent and ability to hold the short-term investment for a period of time sufficient to allow for any anticipated recovery in market value. To date, the Company has not recognized any losses on its short-term investments.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents, short-term investments, accounts receivable and debt. The Company deposits its cash, cash equivalents and short-term investments with high credit quality domestic financial institutions with locations in the U.S. Such deposits may exceed federal deposit insurance limits. The Company believes the financial risks associated with these financial instruments are minimal.

The Company’s customer base is dispersed across many different geographic areas, and currently most customers are pest management distributors in the U.S. Generally, receivables are due up to 120 days from the invoice date and are considered past due after this date, although the Company may offer extended terms from time to time.

For the three months ended March 31, 2014 and 2013, 5% and 14%, respectively, of the Company’s revenues were generated from international customers.

The Company’s principal sources of revenues are its Regalia and Grandevo product lines. For the three months ended March 31, 2014 and 2013, 87% and 97%, respectively, of the Company’s revenues were generated from sales of Grandevo and Regalia.

Customers with 10% or more of the Company’s total revenues consist of the following:


	CUSTOMER A			CUSTOMER B			CUSTOMER C ⁽¹⁾			CUSTOMER D			CUSTOMER E			CUSTOMER F			CUSTOMER G			CUSTOMER H
For the three months ended March 31,
2014		17	%		15	%		12	%		11	%		11	%			*			*			*
2013		13	%			*			*			*			*		17	%		15	%		11	%

*	Represents less than 10% of total revenues

⁽¹⁾	Represents related party revenues. See Note 14 for further discussion.

Customers with 10% or more of the Company’s outstanding accounts receivable consist of the following:


	CUSTOMER A			CUSTOMER B ⁽¹⁾			CUSTOMER C			CUSTOMER D
March 31, 2014		16	%		15	%		11	%		10	%
December 31, 2013		19	%		13	%		11	%		12	%

⁽¹⁾	Represents accounts receivable from related parties. See Note 14 for further discussion.

Inventories

Inventories are stated at the lower of cost or market value (net realizable value or replacement cost) and include the cost of material and external labor and manufacturing costs. Cost is determined on the first-in, first-out basis. The Company provides for inventory reserves when conditions indicate that the selling price may be less than cost due to physical deterioration, obsolescence, changes in price levels, or other factors. Additionally, the Company provides reserves for excess and slow-moving inventory on hand that is not expected to be sold to reduce the carrying amount of excess slow-moving inventory to its estimated net realizable value. The reserves are based upon estimates about future demand from the Company’s customers and distributors and market conditions. As of March 31, 2014 and December 31, 2013, the Company had $45,000 in reserves against its inventories.

Deferred Cost of Product Revenues

Deferred cost of product revenues are stated at the lower of cost or net realizable value and include product sold where title has transferred but the criteria for revenue recognition have not been met. As of March 31, 2014 and December 31, 2013, the Company had $308,000 and $418,000, respectively, of current deferred cost of product revenues, which is included in prepaid expenses and other current assets in the condensed consolidated balance sheets.

Acquisition

On July 19, 2012 (Acquisition Date), the Company purchased land, a building and equipment (Manufacturing Plant) for $1,459,000, including $341,000 of transaction costs. The Manufacturing Plant is located in Bangor, Michigan. Prior to the acquisition, the Manufacturing Plant was owned by a bank and sold in a foreclosure auction. Accordingly, the purchase price for the Manufacturing Plant was less than the estimated fair value of the assets acquired by $257,000. The excess of fair value of the assets acquired over the purchase price was allocated on a relative fair value basis to all assets acquired. The acquisition of the Manufacturing Plant will allow the Company to manufacture certain products internally and improve the overall operating efficiencies and margins of the business as the production of these products historically has been outsourced.

The acquisition was accounted for as an asset acquisition in accordance with ASC 805, Business Combinations (ASC 805) . The assets acquired under the Manufacturing Plant acquisition have been included in the Company’s condensed consolidated financial statements from the Acquisition Date. The purchase price was allocated to assets acquired as of the Acquisition Date.

Prior to the allocation of the excess of fair value of the assets acquired over the purchase price, the assets acquired are first measured at their fair values. The Company engaged a third-party valuation firm to assist with its estimated fair value of the assets acquired. The following methods and assumptions are used to estimate the fair value of each class of asset acquired:

Land—Market approach based on similar, but not identical, transactions in the market. Adjustments to comparable sales are based on both the quantitative and qualitative data.

Building—The cost approach, market approach and income approach were used to assess fair value. Cost approach is based on replacement cost new less depreciation adjusted for physical deterioration, functional obsolescence and external/economic obsolescence, as applicable. The market approach is based on similar, but not identical, transactions in the market using both quantitative and qualitative data. The income approach is based on the direct capitalization method using similar but not identical lease rates and making an assessment of net operating income.

Equipment—Both the cost approach and the market approach were used to assess fair value. Cost approach is based on replacement cost new less depreciation adjusted for physical deterioration, functional obsolescence and external/economic obsolescence, as applicable. The market approach is based on similar, but not identical, transactions in the market using both quantitative and qualitative data.

The following table summarizes the estimated fair value of the assets acquired as of the Acquisition Date, which were determined using Level 2 and 3 inputs as described above (in thousands):


	JULY 19, 2012
Land	$	1
Building		314
Equipment		1,144

Assets acquired	$	1,459

As the Manufacturing Plant had not yet been placed in full service as of March 31, 2014, the assets acquired, except the land, were recorded as construction in progress as a component of property, plant and equipment in the accompanying condensed consolidated balance sheets as of March 31, 2014 and December 31, 2013. In addition, interest expense in the amount of $1,271,000 and $801,000 was recorded in construction in progress as of March 31, 2014 and December 31, 2013, respectively.

Revenue Recognition

The Company recognizes revenues when persuasive evidence of an arrangement exists, delivery and transfer of title has occurred or services have been rendered, the price is fixed or determinable, and collectability is reasonably assured, unless contractual obligations, acceptance provisions or other contingencies exist. If such obligations or provisions exist, revenue is recognized after such obligations or provisions are fulfilled or expire.

Product revenues consist of revenues generated from sales to distributors and from sales of the Company’s products to direct customers, net of rebates and cash discounts. For sales of products made to distributors, the Company considers a number of factors in determining whether revenue is recognized upon transfer of title to the distributor, or when payment is received. These factors include, but are not limited to, whether the payment terms offered to the distributor in comparison to the Company’s historical terms are considered to be longer than normal payment terms, the distributor history of adhering to the terms of its contractual arrangements with the Company, whether the Company has a pattern of granting concessions for the benefit of the distributor, and whether there are other conditions that may indicate that the sale to the distributor is not substantive. When the Company offers payment terms that are considered to be extended in comparison to the Company’s historical terms, the Company considers the arrangement not to be fixed or determinable, and accordingly, revenue is deferred until payment is due. The costs associated with such deferral are also deferred and classified in prepaid expenses and other current assets in the condensed consolidated balance sheets. The Company currently recognizes revenue primarily on the sell-in method with its distributors. Distributors generally do not have price protection or return rights.

As of March 31, 2014 and December 31, 2013, the Company had current deferred product revenues of $824,000 and $1,016,000, respectively.

From time to time, the Company offers certain product rebates, which are recorded as reductions to product revenues. An accrued liability for these product rebates is recorded at the time the revenues are recorded.

The Company recognizes license revenues pursuant to strategic collaboration and distribution agreements under which the Company receives payments for the achievement of testing validation, regulatory progress and commercialization events. As these activities and payments are associated with exclusive rights that the Company provides in connection with strategic collaboration and distribution agreements over the term of the agreements, revenues related to the payments received are deferred and recognized over the term of the exclusive distribution period of the respective agreement. No payments were received under these agreements during the three months ended March 31, 2014 and 2013. For the three months ended March 31, 2014 and 2013, the Company recognized $45,000 and $48,000, respectively, as license revenues in the accompanying condensed consolidated statements of operations.

For the three months ended March 31, 2014 and 2013, the Company recognized $328,000 and $33,000 of related party revenues under these agreements, respectively, based on the terms of the Company’s agreements with Syngenta, an affiliate of one of our 5% stockholders, of which, $292,000 was recognized during the three months ended March 31, 2014 upon the termination of one of these agreements.

At March 31, 2014, the Company recorded current and non-current deferred revenues of $224,000 and $1,099,000, respectively, related to payments received under these agreements, of which $31,000 and $404,000, respectively, related to deferred revenues from related parties based on the terms of the Company’s commercial agreement with Syngenta. At December 31, 2013, the Company recorded current and non-current deferred revenues of $324,000 and $1,372,000, respectively, related to payments received under these agreements, of which $131,000 and $628,000, respectively, related to deferred revenues from related parties based on the terms of the Company’s agreements with Syngenta.

Research, Development and Patent Expenses

Research and development expenditures, which primarily consist of payroll-related expenses, toxicology costs, regulatory costs, consulting costs and lab costs, and patent expenses, which primarily consist of legal costs relating to the patents and patent filing costs, are expensed to operations as incurred. For the three months ended March 31, 2014 and 2013, research and development expenses totaled $3,985,000 and $3,064,000, respectively, and patent expenses totaled $297,000 and $219,000, respectively.

Recently Issued Accounting Pronouncements

There have been no new accounting pronouncements issued during the three months ended March 31, 2014 that are of significance, or potential significance, to the Company.

3. Fair Value Measurements

ASC 820, Fair Value Measurements (ASC 820), clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.

ASC 820 requires that the valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 establishes a three tier value hierarchy, which prioritizes inputs that may be used to measure fair value as follows:

•

Level 1—Quoted prices in active markets for identical assets or liabilities.

•

Level 2—Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

•

Level 3—Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2014 and December 31, 2013 (in thousands):


	MARCH 31, 2014
	TOTAL		LEVEL 1		LEVEL 2		LEVEL 3
Assets
Money market funds	$	5,069	$	5,069	$	—	$	—


	DECEMBER 31, 2013
	TOTAL		LEVEL 1		LEVEL 2		LEVEL 3
Assets
Money market funds	$	16,268	$	16,268	$	—	$	—

The money market funds held as of March 31, 2014, and December 31, 2013, were in active markets and, therefore, are measured based on the Level 1 valuation hierarchy.

4. Short-Term Investments

The Company’s short-term investments consist of certificates of deposit with original maturities less than one year but greater than three months which are classified as held-to-maturity. Certificates of deposit are stated at their amortized cost with realized gains or losses, if any, reported as other income or expenses in the consolidated statements of operations. The Company routinely evaluates the realizability of its short-term investments and recognizes an impairment charge when a decline in the estimated fair value of a short-term investment is below the amortized cost and determined to be other-than-temporary. The Company considers various factors in determining whether to recognize an impairment charge, including the duration of time and the severity to which the fair value has been less than amortized cost, any adverse changes in the investee’s financial condition, and the Company’s intent and ability to hold the short-term investment for a period of time sufficient to allow for any anticipated recovery in market value. To date, the Company has not recognized any losses on its short-term investments.

The amortized cost and estimated fair values of short-term investments are summarized in the following table (in thousands):


	MARCH 31, 2014
	AMORTIZED COST		GROSS UNREALIZED GAINS		GROSS UNREALIZED LOSSES		ESTIMATED FAIR VALUE
Securities Held-to-Maturity
Certificates of deposit, with maturities less than 1 year	$	2,664	$	—	$	—	$	2,664


	DECEMBER 31, 2013
	AMORTIZED COST		GROSS UNREALIZED GAINS		GROSS UNREALIZED LOSSES			ESTIMATED FAIR VALUE
Securities Held-to-Maturity
Certificates of deposit, with maturities less than 1 year	$	13,677	$	—	$	(4	)	$	13,673

The short-term investments as of March 31, 2014 and December 31, 2013 were in inactive markets and, therefore, the estimated fair value is measured based on the Level 2 valuation hierarchy.

5. Inventories

Inventories, net consist of the following (in thousands):


	MARCH 31, 2014		DECEMBER 31, 2013
Raw materials	$	5,913	$	5,355
Work in progress		2,640		2,917
Finished goods		4,284		3,394

	$	12,837	$	11,666

6. Net Loss Per Share

Basic net loss per share, which excludes dilution, is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock, such as stock options, convertible notes, convertible preferred stock and warrants, result in the issuance of common stock which share in the losses of the Company.

The following table sets forth the potential shares of common stock that are not included in the calculation of diluted net loss per share because to do so would be anti-dilutive as of the end of each period presented (in thousands). Such potentially dilutive shares are excluded when the effect would be to reduce the loss per share. The treasury stock method has been applied to determine the dilutive effect of warrants.


	MARCH 31
	2014		2013
Convertible preferred stock		—		8,504
Convertible notes ⁽¹⁾		—		—
Stock options outstanding		2,974		2,040
Warrants to purchase convertible preferred stock		—		207
Warrants to purchase common stock ⁽²⁾		145		—

⁽¹⁾

As of March 31, 2013, the Company had approximately $46,037,000 in contingently convertible notes payable and related accrued interest for which the contingencies related to conversion had not been met until the IPO in August 2013. Therefore, it would have no dilutive or anti-dilutive impact until the contingency had been met in August 2013.

⁽²⁾

In October 2012, the Company issued warrants to purchase a number of shares of common stock equal to 15% of the funded principal amount of the October 2012 Junior Secured Promissory Notes as defined in Note 10, divided by 70% of the value of common stock in a sale of the Company or a qualified initial public offering (qualified IPO), with an exercise price of 70% of the value of common stock in a sale of the Company or a qualified IPO. These warrants were contingently exercisable for which the contingencies related to exercise had not been met until the IPO in August 2013. Therefore, they would have no dilutive or anti-dilutive impact until the contingency had been met in August 2013.

The numbers of shares of common stock issuable upon the exercise of warrants to purchase convertible preferred stock and upon the conversion of convertible preferred stock were at a ratio of one-to-one.


	THREE MONTHS ENDED MARCH 31
	2014			2013
	(In thousands, except per share data)
Numerator:
Net loss for basic and diluted net loss per share	$	(10,246	)	$	(10,749	)

Denominator
Weighted average shares outstanding for basic and diluted net loss per share		19,518			1,268

Basic and diluted net loss per share:	$	(0.52	)	$	(8.48	)

7. Other Assets

Other assets consist of the following (in thousands):


	MARCH 31, 2014		DECEMBER 31, 2013
Prepaid distribution fees	$	122	$	125
Deferred financing costs, less current portion		102		148
Deposits for equipment		76		256
Deposits on equipment leases		177		177
Other assets		162		100

	$	639	$	806

8. Accrued Liabilities

Accrued liabilities consist of the following (in thousands):


	MARCH 31, 2014		DECEMBER 31, 2013
Accrued compensation	$	1,300	$	2,040
Accrued severance		125		100
Accrued expenses		1,462		1,570
Accrued warranty costs		135		60
Accrued inventory costs		18		610

	$	3,040	$	4,380

On November 7, 2013, the Company announced that its Chief Financial Officer, Donald Glidewell, had decided to retire from the Company. To facilitate the transition, Mr. Glidewell agreed to remain as the Company’s Chief Financial Officer for up to five months while the Company searched for a successor Chief Financial Officer, and the Company entered into a transition agreement with Mr. Glidewell that provided, among other things, for continued vesting of his outstanding equity awards through his retirement date, which was March 25, 2014, and that upon his separation from the Company, Mr. Glidewell would be eligible to receive:

•

an amount equal to six months of his then-current annual base salary payable monthly for a period of six months from his retirement date in the form of salary continuation;

•

medical and dental coverage, plus disability and life insurance premiums, for a period of six months following his retirement; and

•

full acceleration of vesting of his outstanding equity awards that are unvested as of his retirement date.

The Company recorded accrued severance expenses in the amount of $125,000 and $100,000 as of March 31, 2014 and December 31, 2013, respectively, based on the terms of the transition agreement for salary, COBRA, and transition service related costs. See Note 11 for further discussion regarding the acceleration of vesting of Mr. Glidewell’s outstanding equity awards.

The Company warrants the specifications and/or performance of its products through implied product warranties and has extended product warranties to qualifying customers on a contractual basis. The Company estimates the costs that may be incurred during the warranty period and records a liability in the amount of such costs at the time revenue is recognized. The Company’s estimate is based on historical experience and estimates of future warranty costs as a result of increasing usage of the Company’s products. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. Changes in the Company’s accrued warranty costs during the period are as follows (in thousands):


Balance at December 31, 2013	$	60
Warranties issued during the period		88
Settlements made during the period		(13	)

Balance at March 31, 2014	$	135

9. Factoring and Security Agreement

On June 13, 2013, the Company entered into a factoring and security agreement (Factoring and Security Agreement) with a third-party that enabled the Company to sell its entire interest in certain accounts receivable up to $5,000,000. Under the Factoring and Security Agreement, 15% of the sales proceeds were to be held back by the purchaser until collection of such receivables. Such holdbacks were not considered legal securities, nor were they certificated. Upon the sale of the receivable, the Company did not maintain servicing. The purchaser may have required the Company to repurchase accounts receivable if (i) the payment was disputed by the account debtor, with the purchaser being under no obligation to determine the bona fides of such dispute; (ii) the account debtor had become insolvent or (iii) upon the effective date of the termination of the Factoring and Security Agreement. The purchaser would retain its security interest in any accounts repurchased by the Company. The Factoring and Security Agreement was secured by all of the Company’s personal property and fixtures, and proceeds thereof, including accounts receivable, inventory, equipment and general intangibles other than intellectual property. Upon sale of the receivable, the Company may have elected to set up a reserve where upon the cash for the sale remained with the third-party and the Company could draw on the available amount on the reserve account at any time. The Company elected to utilize the reserve account. On November 11, 2013, the Company terminated the Factoring and Security Agreement effective January 10, 2014.

The Company accounted for sales of accounts receivable under the Factoring and Security Agreement as a secured borrowing in accordance with ASC 860, Transfers and Servicing (ASC 860) . As of March 31, 2014, there was no balance in accounts receivable that was transferred under this arrangement. As of December 31, 2013, the Company had $479,000 included in accounts receivable that were transferred under this arrangement. As of March 31, 2014 and December 31, 2013, the Company did not have excess funds available on the reserve account and did not have secured borrowings outstanding under the arrangement.

10. Debt

Debt consists of the following (in thousands):


	MARCH 31, 2014			DECEMBER 31, 2013
Term Loan (Term Loan) bearing interest at 7.00% per annum which is payable monthly through April 2016. The Term Loan is collateralized by all of the Company’s inventories, chattel paper, accounts receivable, equipment and general intangibles (excluding certain financed equipment and intellectual property) pledged as collateral under the Term Loan, subordinated		279			309
Promissory note bearing interest at 7.00% per annum which is payable monthly through November 2014, collateralized by all of the Company’s inventories, chattel paper, accounts receivable, equipment and general intangibles (excluding certain financed equipment and intellectual property), net of unamortized debt discount at March 31, 2014 of $1, subordinated		87			123
Junior secured promissory notes (October 2012 and April 2013 Junior Secured Promissory Notes) bearing interest at 12.00% per annum which are payable monthly through October 2015, collateralized by substantially all of the Company’s assets, net of unamortized debt discount at March 31, 2014 of $381		12,069			12,005

Debt		12,435			12,437
Less current portion		(123	)		(157	)

	$	12,312		$	12,280

The fair value of the Company’s outstanding debt obligations was $13,746,000 and $13,950,000 as of March 31, 2014 and December 31, 2013, respectively, which was estimated based on a discounted cash flow model using an estimated market rate of interest of 7.0% and is classified as Level 3 within the fair value hierarchy.

Promissory Notes, Term Loan, Revolving Line of Credit and Credit Facility

In March 2009, October 2010 and October 2011, the Company and the bank agreed to modify the terms of its existing revolving line of credit (Revolver). Under the modified terms of the Revolver, the Company’s borrowings under the Revolver were limited to 75% of qualifying accounts receivable with a maximum borrowing limit of $500,000. In March 2012, the Company entered into a change in terms agreement with the bank under which the existing Revolver was replaced by the Term Loan in the amount of $500,000 with a rate of 7.00% per annum, maturing April 1, 2016. The Company’s inventories, chattel paper, accounts receivable, equipment and general intangibles (excluding certain financed equipment and intellectual property) have been pledged as collateral under the Term Loan. The Revolver was terminated in March 2012.

In March 2009, the Company borrowed $650,000 pursuant to a promissory note with a bank which bears interest at the rate of 7.00% per annum and is repayable in six monthly interest only payments starting May 1, 2009, followed by 60 equal monthly installments of $13,000 commencing November 1, 2009, with the final payment due on November 1, 2014. All of the Company’s inventories, chattel paper, accounts receivable, equipment and general intangibles (excluding certain financed equipment and any intellectual property) have been pledged as collateral for the promissory notes.

On October 2, 2012, the Company borrowed $7,500,000 pursuant to senior notes (October 2012 Junior Secured Promissory Notes) with a group of lenders. The October 2012 Junior Secured Promissory Notes have an initial term of three years and can be extended for an additional two years in one year increments. During the initial three-year term, the October 2012 Junior Secured Promissory Notes bear interest at 12% per annum. If the term of the October 2012 Junior Secured Promissory Notes is extended an additional year, the interest rate increases to 13% during the fourth year. If the term of the October 2012 Junior Secured Promissory Notes is extended for an additional two years, the interest rate is 14% during the fifth year. Interest on the October 2012 Junior Secured Promissory Notes is payable monthly through the initial maturity date of the loan which is October 2, 2015 or through any extension period. The principal and all unpaid interest are due on the maturity date, as may be extended.

As part of the terms of the October 2012 Junior Secured Promissory Notes, the Company is required to pay a fee of 5% of the funded principal amount to the agent that facilitated the borrowing and provides management of the relationship with the group of lenders (Agent Fee). This Agent Fee is payable within 30 days after all interest and principal have been paid. For each year the Company extends the maturity date of the October 2012 Junior Secured Promissory Notes beyond the initial term, the agent will receive an additional 1% fee based on the funded principal amount. The present value of the unpaid Agent Fee, based on 5% of the funded principal amount, or $261,000, as of the closing date of the October 2012 Junior Secured Promissory Notes was recorded as both deferred financing costs as a component of current and non-current other assets and non-current other liabilities. The amortization of the deferred financing costs and the accretion of the Agent Fee are recorded to interest expense over the term of the arrangement. As of March 31, 2014 and December 31, 2013, $519,000 and $502,000, respectively, of the Agent Fee, including the amounts relating to the additional funds received from the issuance of the April 2013 Junior Secured Promissory Notes discussed below, was recorded under non-current other liabilities. In addition, the Company incurred an additional $66,000 in financing-related costs, primarily legal fees. These costs were recorded as deferred financing costs as a component of current and non-current other assets and are being amortized to interest expense over the term of the arrangement. The October 2012 Junior Secured Promissory Notes are secured by the Company’s ownership interest in MMM LLC, a security interest in the assets of the Manufacturing Plant, and all of the Company’s other assets, subject to certain permitted liens.

The Company also issued warrants (Common Stock Warrants) to the group of lenders to purchase a number of shares of common stock equal to 15% of the funded principal amount of the October 2012 Junior Secured Promissory Notes divided by 70% of the value of common stock in a sale of the Company or a qualified IPO, with such Common Stock Warrants having an exercise price of 70% of the value of common stock in a sale of the Company or a qualified IPO. The Common Stock Warrants would be automatically exercised immediately prior to expiration on the earlier to occur of a qualified IPO or a sale of the Company or the maturity of the October 2012 Junior Secured Promissory Notes. The October 2012 Junior Secured Promissory Notes could be prepaid six months after the initial funding date or earlier if a qualified IPO or a sale of the Company occurs. As the predominant settlement feature of the Common Stock Warrants is to settle a fixed monetary amount with a variable number of shares, the Common Stock Warrants were accounted for under ASC 480, Distinguishing Liabilities from Equity (ASC 480). Accordingly, the Common Stock Warrants were recorded at estimated fair value on their issuance date and were adjusted to their estimated fair value as of each reporting date with the change in estimated fair value recorded as a component of change in estimated fair value of financial instruments in the Company’s consolidated statements of operations. The fair value of the Common Stock Warrants at the date of issuance of $282,000 was recorded as a discount to the October 2012 Junior Secured Promissory Notes and is being amortized to interest expense over the term of the arrangement. Until the effective date of our IPO in August 2013, the Company estimated the fair value of the Common Stock Warrants using a PWERM valuation based on unobservable inputs, and, therefore, the Common Stock Warrants were considered to be Level 3 liabilities. Upon closing of the IPO, the exercise price of the Common Stock Warrants was determined to be $8.40 per share and the number of shares to be issued upon exercise of the warrants was no longer variable. As a result of the IPO, the Common Stock Warrants were considered to be indexed to the Company’s stock, and accordingly, the common stock warrants liability was reclassified and included in stockholders’ equity during the year ended December 31, 2013. In connection with the IPO, the Common Stock Warrants were exercised and accordingly, as of March 31, 2014, these warrants were no longer outstanding.

The October 2012 Junior Secured Promissory Notes contained certain covenant requirements which included a requirement to maintain a minimum cash balance of the lesser of the April 2012 Senior Secured Promissory Note indebtedness or $5,000,000. The April 2012 Senior Secured Promissory Note was fully paid off in January 2013. The Company was also precluded from adding additional debt without lender approval unless such debt is subordinated to the October 2012 Junior Secured Promissory Notes and not more than $2,000,000. In the event of default on the October 2012 Junior Secured Promissory Notes, the lenders could declare the entire unpaid principal and interest immediately due and payable.

On April 10, 2013 (Conversion Date), the Company entered an amendment to increase, by up to $5,000,000, the amount available under the terms of the October 2012 Junior Secured Promissory Notes. Under this amendment, an additional $4,950,000 in Notes were issued for $3,700,000 in cash consideration received and for the cancellation of $1,250,000 of the total principal balance of the October 2012 Subordinated Convertible Note (collectively, April 2013 Junior Secured Promissory Notes). The total amount borrowed under the amended loan agreement for the October 2012 Junior Secured Promissory Notes and the April 2013 Junior Secured Promissory Notes increased from $7,500,000 to $12,450,000 as of the Conversion Date. The accrued interest of $74,000 for the partially converted October 2012 Subordinated Convertible Note as of the Conversion Date would be repaid or converted on the applicable maturity date of the October 2012 Subordinated Convertible Note.

In connection with the issuance of the April 2013 Junior Secured Promissory Notes, the Company issued additional warrants (Additional Common Stock Warrants) to purchase a number of shares of common stock equal to 20% of the funded principal amount of the April 2013 Junior Secured Promissory Notes divided by 70% of the value of common stock in a sale of the Company or a qualified IPO, with such Additional Common Stock Warrants to have an exercise price of 70% of the value of common stock in a sale of the Company or a qualified IPO. As the predominant settlement feature of the Additional Common Stock Warrants was to settle a fixed monetary amount with a variable number of shares, the Common Stock Warrants were accounted for under ASC 480. Accordingly, the Additional Common Stock Warrants were recorded at estimated fair value on their issuance date and were adjusted to their estimated fair value as of each reporting date with the change in estimated fair value recorded as a component of change in estimated fair value of financial instruments in the Company’s consolidated statements of operations. The fair value of the Additional Common Stock Warrants at the date of issuance was estimated to be $465,000. The Company estimated the fair value of the Additional Common Stock Warrants using a PWERM valuation based on unobservable inputs and, therefore, the Additional Common Stock Warrants were considered to be Level 3 liabilities. Upon closing of the IPO, the exercise price of the Common Stock Warrants was determined to be $8.40 per share and the number of shares to be issued upon exercise of the warrants was no longer variable. As a result of the IPO, the Common Stock Warrants were considered to be indexed to the Company’s stock, and accordingly, the common stock warrants liability was reclassified and included in stockholders’ equity during the year ended December 31, 2013.

The debt holder who converted $1,250,000 principal balance of the October 2012 Subordinated Convertible Note (with a fair value of $1,360,000 on the date of conversion) also loaned an additional $2,500,000 in cash as part of the April 2013 Junior Secured Promissory Notes (collectively, the $3,750,000 Notes). The Company accounted for the conversion as an extinguishment of debt in accordance with ASC 470-50-40. The $1,360,000 fair value of the partially converted October 2012 Subordinated Convertible Note on the Conversion Date was derecognized and the fair value of the $3,750,000 Notes with the portion of the fair value of the Additional Common Stock Warrants issued to this debt holder on the date of issuance was recorded. The Company recorded the $49,000 excess of the total fair value of the $3,750,000 Notes and the related Additional Common Stock Warrants on the issuance date over total consideration received as a gain on extinguishment of debt in the accompanying consolidated statements of operations for the year ended December 31, 2013.

The following table shows the consideration received, fair values of the notes and common stock warrants issued and calculation of the gain on extinguishment of debt for the $3,750,000 Notes (in thousands):


Consideration received
Fair Value of October 2012 Subordinated Convertible Note	$	1,360
Cash		2,500

Total Consideration Received (a)	$	3,860
Notes and Warrants Issued
Principal Balance of Notes Issued	$	3,750
Debt Discount ⁽¹⁾		(291	)

Fair Value of Notes Issued		3,459
Fair Value of Additional Common Stock Warrants Issued		352

Total Fair Value of Notes and Warrants Issued (b)	$	3,811

Gain on Extinguishment of Debt (a - b)	$	49

⁽¹⁾	The amortization of this account is being recorded in interest expense in the consolidated statements of operations over the term of the arrangement.

The remaining fair value to the Additional Common Stock Warrants of $113,000, net of the fair value of the Additional Common Stock Warrants issued of $352,000 related to the $3,750,000 Notes discussed above, was recorded as a debt discount to the April 2013 Junior Secured Promissory Notes and is being amortized to interest expense over the term of the arrangement.

As a result of the amendment described above, the Company is also required to pay the Agent Fee, 5% of the $3,700,000 in cash received from the April 2013 Junior Secured Promissory Notes, under the same terms as the October 2012 Junior Secured Promissory Notes. In addition, the portion of the Agent Fee relating to the converted October 2012 Subordinated Convertible Note that would be due under the terms of the October 2012 Subordinated Convertible Note will be paid under the terms of the October 2012 and April 2013 Junior Secured Promissory Notes. The present value of the unpaid Agent Fee of $172,000, based on 5% of the funded principal amount of $4,950,000, as of the closing date of the April 2013 Junior Secured Promissory Notes was recorded as both deferred financing costs as a component of current and non-current other assets and non-current other liabilities. The amortization of the deferred financing costs and the accretion of the Agent Fee are being amortized to interest expense over the term of the arrangement.

In addition, the Company incurred an additional $24,000 in financing-related costs, primarily legal fees. These costs were recorded as deferred financing costs as a component of current and non-current other assets and are being amortized to interest expense over the term of the arrangement.

The amendment to the loan agreement also amended the interest provision applicable to the October 2012 and April 2013 Junior Secured Promissory Notes to allow any holder of the October 2012 and April 2013 Junior Secured Promissory Notes to request the Company to defer all interest due monthly to the applicable maturity date, and the optional prepayment provision applicable to the October 2012 and April 2013 Junior Secured Promissory Notes to allow the Company to repay the outstanding amount of the October 2012 and April 2013 Junior Secured Promissory Notes, either (i) with the written consent of the lender or the agent on such lenders’ behalf or (ii) without such consent provided that the Company pays the interest that would have been due from the prepayment date to the initial maturity date.

Activity related to the October 2012 and April 2013 Junior Secured Promissory Notes from December 31, 2013 through March 31, 2014 consisted of the following (in thousands):


	DECEMBER 31, 2013			ADDITIONS		AMORTIZATION OF DEBT DISCOUNT		PRINCIPAL PAYMENTS		MARCH 31, 2014
Principal	$	12,450		$	—	$	—	$	—	$	12,450
Debt discount related to issuance of common stock warrants ⁽¹⁾		(241	)		—		35		—		(206	)
Discount related to the $3,750,000 Notes ⁽¹⁾		(204	)		—		29		—		(175	)

	$	12,005		$	—	$	64	$	—	$	12,069

⁽¹⁾	The amortization of this account is included in interest expense in the consolidated statements of operations and as non-cash interest expense in the consolidated statements of cash flows.

On June 14, 2013, the Company entered into a credit facility agreement (June 2013 Credit Facility) with a group of lenders that were, or that were affiliated with, existing investors in the Company. Under the June 2013 Credit Facility, the lenders have committed to permit the Company to draw an aggregate of up to $5,000,000, and, subject to the Company’s obtaining additional commitments from lenders, such amount may be increased to up to $7,000,000. The June 2013 Credit Facility expires on June 30, 2014. During the term of the June 2013 Credit Facility, the Company could request from the lenders up to four advances, with each advance equal to one-quarter of each lender’s aggregate commitment amount. The Company would issue a promissory note in the principal amount of each such advance that would accrue interest at a rate of 10% per annum. The principal and all unpaid interest under the promissory notes would be due on the maturity date, and the Company could not prepay the promissory notes prior to the maturity date without consent of at least a majority in interest of the aggregate principal amount of the promissory notes then outstanding under the credit facility. In connection with the June 2013 Credit Facility, the Company paid a fee of 2% of the total commitment amount to the lenders. In addition, the Company incurred an additional $10,000 in financing-related costs, primarily legal fees. These costs were recorded as deferred financing costs as a component of current other assets and are being amortized to interest expense over the term of the arrangement.

In connection with the June 2013 Credit Facility, the Company issued warrants (June 2013 Warrants) to purchase a number of shares of common stock equal to 10% of the total committed amount of the June 2013 Credit Facility divided by 70% of the value of common stock in a sale of the Company or a qualified IPO, with such June 2013 Warrants to have an exercise price of 70% of the value of common stock in a sale of the Company or a qualified IPO. The June 2013 Warrants expire upon the earlier of June 14, 2023 or the sale of the Company. As the predominant settlement feature of the June 2013 Warrants was to settle a fixed monetary amount with a variable number of shares, the June 2013 Warrants were accounted for under ASC 480. Accordingly, the June 2013 Warrants were recorded at estimated fair value on their issuance date and were adjusted to their estimated fair value as of each reporting date with the change in estimated fair value recorded as a component of change in estimated fair value of financial instruments in the

Company’s consolidated statements of operations. The fair value of the June 2013 Warrants at the date of issuance of $435,000 was recorded as a deferred financing cost as a current other asset and is being amortized to interest expense over the term of the arrangement. Until the effective date of the IPO in August 2013, the Company estimated the fair value of the June 2013 Warrants using a PWERM valuation based on unobservable inputs and, therefore, the June 2013 Warrants were considered to be Level 3 liabilities. Upon closing of the IPO, the exercise price of the June 2013 Warrants was determined to be $8.40 per share and the number of shares to be issued upon exercise of the warrants was no longer variable. As a result of the IPO, the June 2013 Warrants were considered to be indexed to the Company’s stock, and accordingly, the common stock warrants liability was reclassified and included in stockholders’ equity during the year ended December 31, 2013.

During the three months ended and as of March 31, 2014 and the year ended December 31, 2013, there were no amounts outstanding under the June 2013 Credit Facility.

The Company is also required to comply with certain affirmative and negative covenants under the debt agreements discussed above. In the event of default on the debt, the lender(s) may declare the entire unpaid principal and interest immediately due and payable. As of March 31, 2014, the Company was in compliance with all of the affirmative and negative covenants, and there were no events of default, as defined in the agreements, related to the debt.

11. Share-Based Plans

As of March 31, 2014, there were 2,974,000 options outstanding and 1,128,000 share-based awards available for grant under the outstanding equity incentive plans.

For the three months ended March 31, 2014, the Company recognized share-based compensation of $1,522,000, of which $444,000 related to the accelerated vesting of Donald Glidewell’s option awards. In connection with Mr. Glidewell’s retirement, the Company entered into a transition agreement with Mr. Glidewell (See Note 8) which provided, among other things, for the vesting of his outstanding equity awards through the retirement date. For the three months ended March 31, 2013, the Company recognized share-based compensation of $249,000.

During the three months ended March 31, 2014, the Company granted 769,000 options at a weighted-average exercise price of $14.87 per share. During the three months ended March 31, 2014, 378,000 options were exercised at a weighted-average exercise price of $2.49 per share.

12. Commitments and Contingencies

Commitments

On September 9, 2013, the Company entered into a lease agreement for a new 28,700 square foot office and laboratory facility located in Davis, California. The initial term of the lease is for a period of 60 months commencing on the later of the date of substantial completion of initial improvements to the leased property, or May 1, 2014. The monthly base rent is $46,000 for the first 12 months with a 3% increase each year thereafter. The Company has the option to extend the lease term twice for a period of five years each. This agreement was subsequently amended in April 2014 (See Note 15).

Contingencies

The Company is subject to legal proceedings and claims that arise in the normal course of business. As of March 31, 2014, there were no current proceedings or litigation involving the Company that management believes would have a material adverse impact on its business, financial position, results of operations or cash flows.

13. Reverse Stock Split

On August 1, 2013, the Company amended and restated its certificate of incorporation to effect the conversion of its outstanding convertible preferred stock into common stock on a 1-for-1 basis followed immediately by a reverse split of shares of its common stock (including the common stock issued upon conversion of the convertible preferred stock) at a 1-for-3.138458 ratio (the “Reverse Stock Split”). The amendment also increased the number of shares of common stock authorized for issuance to 250,000,000 shares and the number of shares of preferred stock authorized for issuance to 20,000,000. The par value of the common stock and preferred stock was not adjusted as a result of the Reverse Stock Split.

All issued and outstanding common stock, preferred stock, and warrants for common stock or preferred stock, and the related per share amounts contained in the condensed consolidated financial statements, have been retroactively adjusted to give effect to this Reverse Stock Split for all periods presented.

14. Related Party Transactions

Les Lyman, a member of the Company’s board of directors, is the chairman and significant indirect shareholder of The Tremont Group, Inc. During the three months ended March 31, 2014, The Tremont Group, Inc. purchased $320,000 of the Company’s products for further distribution and resale. As of March 31, 2014, the Company had outstanding accounts receivable due from The Tremont Group, Inc. of $1,230,000. Although the Company anticipates sales of its products to The Tremont Group, Inc. to continue through 2014, the Company cannot estimate the amount of those sales.

During the three months ended March 31, 2014, the Company recorded revenue of $328,000 relating to license revenue recognized based on the terms of the Company’s agreements with Syngenta, an affiliate of one of our 5% stockholders. As of March 31, 2014, the Company had no outstanding accounts receivable due from Syngenta.

15. Subsequent Events

In April 2014, the Company entered into an agreement with a bank for a revolving line of credit, which allows the Company to borrow up to $5,000,000 with an interest rate of 1.5%. The line of credit is payable in full upon the bank’s demand, if no demand is made, it is payable in full in April 2015. Interest is payable monthly beginning in May 2014. In accordance with the terms of the agreement, the Company deposited $5,000,000 into a restricted deposit account with the bank as collateral.

In April 2014, the Company entered into an agreement to amend the lease agreement for the new office and laboratory facility located in Davis, California. The amendment extends the commencement date to the later of August 1, 2014 or substantial completion of initial improvements. In addition, the square footage leased was reduced to 27,303 square feet and the monthly base rent was reduced to $44,000 per month for the first 12 months, with a 3% increase each year thereafter.

Concurrent with this amendment in April 2014, the Company entered into a lease agreement with an affiliate of the landlord to lease 17,438 square feet of office and laboratory space in the same building complex in Davis, California. The initial term of the lease is for a period of 60 months commencing on the date of substantial completion of initial improvements. If the premises are not delivered by September 1, 2014, then the Company can terminate the lease at any time prior to January 1, 2015. The monthly base rent is $28,000 with a 3% increase each year thereafter.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of our financial condition and results of operations in connection with the condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2013, as filed with the Securities and Exchange Commission. In addition to historical condensed consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere, including Part II, Item 1A, “Risk Factors,” in this Quarterly Report on Form 10-Q, and in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

Overview

We make bio-based pest management and plant health products. Bio-based products are comprised of naturally occurring microorganisms such as bacteria and fungi, and plant extracts. We target the major markets that use conventional chemical pesticides, including agricultural and water markets, where our bio-based products are used as substitutes for, or in programs with, conventional chemical pesticides. We also target new markets for which there are no available conventional chemical pesticides, the use of conventional chemical pesticides may not be desirable or permissible because of health and environmental concerns or the development of pest resistance has reduced the efficacy of conventional chemical pesticides. Our current portfolio of EPA-approved and registered “biopesticide” products and our pipeline address the growing global demand for effective, efficient and environmentally responsible products that control pests, increase yields and reduce crop stress.

Our goal is to provide growers with solutions to a broad range of pest management and plant health needs by adding new products to our product portfolio, continuing to broaden the commercial applications of our existing product lines, leveraging relationships with existing distributors, leveraging growers’ positive experiences with existing product lines, educating growers with on-farm product demonstrations and controlled product launches with key target customers and other early adopters. We believe this approach enables us to stay ahead of our competition in providing innovative pest management solutions, enhances our sales process at the distributor level and helps us to capture additional value from our products.

The agricultural industry is increasingly dependent on effective and sustainable pest management practices to maximize yields and quality in a world of increased demand for agricultural products, rising consumer awareness of food production processes and finite land and water resources. In addition, our research has shown that the global market for biopesticides is growing substantially faster than the overall market for pesticides. This demand is in part a result of conventional growers acknowledging that there are tangible benefits to adopting bio-based pest management products into integrated pest management (IPM) programs. We believe that our competitive strengths, including our commercially available products, robust pipeline of novel product candidates, proprietary technology and product development process, commercial relationships and industry experience, position us for rapid growth by providing solutions for these global trends.

We currently offer four product lines for commercial sale: Regalia, an initial formulation of which we began selling in the fourth quarter of 2008, Grandevo, an initial formulation of which we began selling in the fourth quarter of 2011, Zequanox, an initial formulation of which we began selling in the second half of 2012 and Venerate, which we began to offer in the first half of 2014. We also have one product candidate, Opportune, an herbicide (for weed control), that we are in the process of developing for commercial application. In addition, we submitted MBI-011, another herbicide, MBI-302, a biological nematicide, and MBI-601, a biofumigant, to the EPA for registration, and we have submitted Haven, an anti-transpirant, to applicable state agencies for registration. A large portion of our sales are currently attributable to conventional growers who use our bio-based pest management products either to replace conventional chemical pesticides or enhance the efficacy of their IPM programs. In addition, a portion of our sales are attributable to organic farmers, who cannot use conventional pesticides and have few alternatives for pest management. We intend to continue to develop and commercialize bio-based pest management and plant health products that are allowed for use by organic farmers.

We sell our crop protection products to leading agrichemical distributors while also working directly with growers to increase existing and generate new product demand. To date, we have marketed our bio-based pest management and plant health products for agricultural applications to U.S. growers, through distributors and our own sales force, and we have focused primarily on high value specialty crops such as grapes, citrus, tomatoes, leafy greens and ornamental plants. In the third quarter of 2013, we began selling Regalia as a yield enhancer for large-acre row crop markets such as corn, cotton and soybeans through third-party distributors. As we continue to demonstrate the efficacy of our bio-based pest management and plant health products on new crops or for new applications, we may either continue to sell our product through our in-house sales force or collaborate with third parties for distribution to select markets.

We have historically sold a significant majority of our products in the United States, although we have strategically launched Regalia in select international markets. For example, we launched Regalia in the United Kingdom in 2009, Turkey in 2010, Mexico in 2011 and Canada in 2012. Regalia is currently registered for sale in South Africa, Ecuador, Mexico, Turkey, Panama, El Salvador, Guatemala, Honduras, Peru and Canada and registration dossiers are under review in the European Union and Brazil. We are continuing to form strategic collaborations with major agrichemical companies in addition to our current partners, FMC (which distributes Regalia in Latin America) and Syngenta (which distributes Regalia in Africa, Europe and the Middle East), to accelerate our entry into certain international markets, such as in Asia-Pacific markets. In addition to engaging large-scale international distributors, we are currently forming new strategic collaborations with other market-leading regional distributors in our target markets and regions to expand the supply of our products globally. In the longer term, when we launch Grandevo and other products internationally, we expect to generate a significant portion of our revenues from international sales of our products.

We currently market our water treatment product, Zequanox, through our sales and technical workforce to hydroelectric power generation companies, combustion power generation companies and industrial facilities in the United States and Canada. We are in discussions with several potential leaders in water treatment technology and applications regarding potential arrangements to sell Zequanox in the United States and international markets to supplement the efforts of our sales force. We are also exploring other options for selling Zequanox including entering into distribution arrangements with third parties to market Zequanox internationally. We have entered into similar arrangements for the distribution of Zequanox for use in certain applications such as treatment of lakes, aqueducts and drinking water facilities in the United States. We believe that Zequanox presents a unique opportunity for generating long-term revenue, as there are limited environmentally friendly water treatment options available to date, most of which are time-consuming, costly or subject to high levels of regulation. Our ability to generate significant revenues from Zequanox is dependent on our ability to persuade customers to evaluate the costs of our Zequanox products compared to the overall cost of the chlorine treatment process, the primary current alternative to using Zequanox. Sales of Zequanox have also remained lower than our other products due to the length of the treatment cycle, the longer sales cycle (the bidding process with utility companies occurs on a yearly or multi-year basis) and the unique nature of the treatment approach for each customer based on the extent of the infestation and the design of the facility.

Our biopesticide products cannot be sold in the United States except under an EPA-approved use label. As such, our strategy is to launch early formulations of our products to targeted customers under EPA-approved use labels, which list a limited number of crops and applications, allowing us to gather field data, gain product knowledge and get customer feedback to our research and development team. While we are gaining this experience and knowledge from the already released targeted market, the EPA will be reviewing new product formulations and expanded use labels for new products utilizing already approved formulations but covering additional crops and/or applications. Based on these initial product launches, sales and demonstrations in additional regions as well as other tests and trials, we continue to enhance our products and submit product formulations and expanded use labels to the EPA and other regulatory agencies. For example, we began sales of Regalia SC, an earlier formulation of Regalia, in the Florida fresh tomatoes market in 2008, while a more effective formulation of Regalia with an expanded use label, including listing for use in organic farming, was under review by the EPA. When approved, we launched this new formulation into the Southeast United States in 2009 and nationally in 2010. In 2011, we received EPA approval of a newly expanded Regalia label covering hundreds of crops and various new uses for applications in soil and through irrigation systems. Likewise, in May 2013, we received approval for an improved Grandevo label, which has been approved by 49 states, with a decision pending in Hawaii.

Our total revenues were $2.8 million and $2.7 million for the three months ended March 31, 2014 and 2013, respectively. We generate our revenues primarily from product sales, which are principally attributable to sales of our Regalia and Grandevo product lines. We believe weather conditions such as drought in the Western United States, freezing conditions in the Midwestern United States and heavy rains and flooding in the Southeastern United States may have an impact on purchases of our pest management and plant health products by our distributors, direct customers and end users. We believe that these conditions will shift the timing of some of the purchases for the growing season between quarters, but we do not anticipate an overall impact to annual sales. We anticipate that most of our revenue growth will occur during the second half of 2014 relating to growth in row crop and certain specialty crop markets, new product sales and entry into additional Latin American markets.

Since 2011, we have also recognized license revenues from our strategic collaboration and distribution agreements, which amounted to less than $0.1 million for the three months ended March 31, 2014 and 2013. For the three months ended March 31, 2014 and 2013, we recognized $0.3 million and less than $0.1 million, respectively, of related party revenues under these agreements based on the terms of our agreements with Syngenta, an affiliate of one of our 5% stockholders, of which, $0.3 million was recognized during the three months ended March 31, 2014 upon the termination of one of these agreements.

We currently sell our crop protection products through the same leading agricultural distributors used by the major agrichemical companies. Distributors with 10% or more of our total revenues consist of the following:


	CROP PRODUCTION SERVICES			REISTER’S			TREMONT GROUP ⁽¹⁾			GROWMARK			HELENA CHEMICALS			CHEM NUT			ENGAGE AGRO			WILBUR ELLIS
For the three months ended March 31,
2014		17	%		15	%		12	%		11	%		11	%			*			*			*
2013		13	%			*			*			*			*		17	%		15	%		11	%

*	Represents less than 10% of total revenues

⁽¹⁾	Represents related party revenues. See Note 14 of our accompanying Notes to Condensed Consolidated Financial Statements included in Part I, Item 1, “Financial Statements (Unaudited)” of this Quarterly Report on Form 10-Q for further discussion.

While we expect product sales to a limited number of distributors to continue to be our primary source of revenues, as we continue to develop our pipeline and introduce new products to the marketplace, we anticipate that our revenues stream will be diversified over a broader product portfolio and customer base, as well as a greater number of distributors.

Our cost of product revenues was $1.7 million and $1.8 million for the three months ended March 31, 2014 and 2013, respectively. Cost of product revenues included $0.2 million of cost of product revenues to related parties for each of the three months ended March 31, 2014 and 2013. Cost of product revenues consists principally of the cost of raw materials, including inventory costs and third-party services related to procuring, processing, formulating, packaging and shipping our products. We expect our cost of product revenues to increase as we expand sales of Regalia, Grandevo, Zequanox and Venerate. Our cost of product revenues has increased as a percentage of total revenues primarily due to a change in product mix, with Grandevo representing an increased percentage of total revenues as Grandevo is early in its product life cycle. We expect to see a gradual increase in gross margin over the life cycle of each of our products, including Grandevo, as we improve production processes, gain efficiencies and increase product yields.

Our research, development and patent expenses have historically comprised a significant portion of our operating expenses, amounting to $4.3 million and $3.3 million for the three months ended March 31, 2014 and 2013, respectively. We intend to continue to devote significant resources toward our proprietary technology and adding to our pipeline of bio-based pest management and plant health products using our proprietary discovery process, sourcing and commercialization expertise and rapid and efficient development process.

Selling, general and administrative expenses incurred to establish and build our market presence and business infrastructure have generally comprised the remainder of our operating expenses, amounting to $6.3 million and $2.8 million for the three months ended March 31, 2014 and 2013, respectively, primarily due to an increase of $2.3 million in employee related expenses driven by increased headcount which includes an increase in share based compensation of $1.0 million. We expect that in the future, our selling, general and administrative expenses will increase due to our expanded product portfolio and due to additional costs incurred relating to being a public company.

Historically, we have funded our operations from the issuance of shares of common stock, preferred stock, warrants and convertible notes, the issuance of debt and entry into financing arrangements, product sales, payments under strategic collaboration and distribution agreements and government grants, but we have experienced significant losses as we invested heavily in research and development. We expect to incur additional losses related to our investment in the continued development, expansion and marketing of our product portfolio.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, net revenue, costs, and expenses, and any related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Changes in accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from the estimates made by our management. We evaluate our estimates and assumptions on an ongoing basis. To the extent that there are material differences between these estimates and our actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.

We believe that the assumptions and estimates associated with revenue recognition, income taxes, inventory valuation, share-based compensation, and financial instruments with characteristics of both liabilities and equity have the greatest potential impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates.

There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

Key Components of Our Results of Operations

Product Revenues

Product revenues consist of revenues generated primarily from sales to distributors, net of rebates and cash discounts. Our product revenues through 2012 were primarily derived from sales of Regalia, but now are increasingly impacted by new products such as Grandevo. Product revenues, not including related party revenues, constituted 75% and 87% of our total revenues for the three months ended March 31, 2014 and 2013, respectively. Product revenues in the United States, not including related party revenues, constituted 71% and 76% of our total revenues for the three months ended March 31, 2014 and 2013, respectively.

In 2013, we began to offer extended payment terms in excess of those historically offered to our customers. We believe our competitors and other suppliers in the pest management and plant health industry also offer extended payment terms and, in the aggregate, we believe that by expanding the use of extended payment terms, we have provided a competitive response to the market. When we offer terms that are considered to be extended in comparison to our historical terms, we defer recognizing revenue until payment is due. As of March 31, 2014 and December 31, 2013, we had current deferred product revenues of $0.8 million and $1.0 million, respectively.

License Revenues

License revenues generally consist of revenues recognized under our strategic collaboration and distribution agreements for exclusive distribution rights, either for a single product line or for our broader pipeline of products, for certain geographic markets or for market segments that we are not addressing directly through our internal sales force. Our strategic collaboration and distribution agreements generally outline overall business plans and include payments we receive at signing and for the achievement of testing validation, regulatory progress and commercialization events. As these activities and payments are associated with exclusive rights that we provide over the term of the strategic collaboration and distribution agreements, revenues related to the payments received are deferred and recognized as revenues over the term of the exclusive period of the respective agreements, which we estimate to be between 5 and 17 years based on the terms of the contract and the covered products and regions. For each of the three months ended March 31, 2014 and 2013, license revenues constituted 2% of total revenues. As of March 31, 2014, not including agreements with related parties discussed below, we had received an aggregate of $1.4 million in payments under these agreements, and there are up to $1.9 million in payments under these agreements that we could potentially receive if the testing validation, regulatory progress and commercialization events occur.

Related Party Revenues

Related party revenues consist of both product revenues and license revenues. Les Lyman, a member of our board of directors, is the chairman and significant indirect shareholder of The Tremont Group, Inc., which purchases our products for further distribution and resale. In addition, we have entered into agreements with and sell our products for further distribution and resale to Syngenta, an affiliate of one of our 5% stockholders. For the three months ended March 31, 2014 and 2013, related party revenues constituted 23% and 11% of total revenues, respectively, with related party product revenues totaling $0.3 million and $0.3 million, respectively, and related party license revenues totaling $0.3 million and less than $0.1 million, respectively. As of March 31, 2014, we had received an aggregate of $1.0 million in payments under our strategic collaboration and distribution agreements with related parties, and there are up to $1.0 million in payments under these agreements that we could potentially receive if the testing validation, regulatory progress and commercialization events occur.

Cost of Product Revenues and Gross Profit

Cost of product revenues consists principally of the cost of raw materials, including inventory costs and third-party services related to procuring, processing, formulating, packaging and shipping our products. Cost of product revenues also may include charges due to inventory adjustments. Gross profit is the difference between total revenues and the cost of product revenues. Gross margin is the gross profit as expressed as a percentage of total revenues.

We have entered into in-license technology agreements with respect to the use and commercialization of our three commercially available product lines, including Regalia, Grandevo and Zequanox, and certain products under development. Under these licensing arrangements, we typically make royalty payments based on net product revenues, with royalty rates varying by product and ranging between 2% and 5% of net sales, subject in certain cases to aggregate dollar caps. These royalty payments and costs associated with license revenues are included in cost of product revenues, but they have historically not been significant. The exclusivity and royalty provisions of these agreements are generally tied to the expiration of underlying patents. The patents for Regalia and Zequanox will

expire in 2017 and the in-licensed U.S. patent for Grandevo is expected to expire in 2024. There is, however, a pending in-licensed patent application relating to Grandevo, which could expire later than 2024 if issued. After the termination of these provisions, we may continue to produce and sell these products. While third parties thereafter may develop products using the technology under expired patents, we do not believe that they can produce competitive products without infringing other aspects of our proprietary technology, including our pending patent applications and issued patents related to Regalia, Zequanox and Grandevo, and we therefore do not expect the expiration of the patents or the related exclusivity obligations to have a significant adverse financial or operational impact on our business.

We expect to see increases in gross profit over the life cycle of each of our products because gross margins are expected be increased over time as production processes improve and as we gain efficiencies and increase product yields. While we expect margins to improve on a product-by-product basis, for example with our Grandevo product line, our overall gross margins may vary as we introduce new products. In particular, we are experiencing and expect further near-term downward pressure on overall gross margins as we expand sales of Grandevo, Zequanox and Venerate and when we introduce Opportune, our EPA-approved bioherbicide. Gross profit has been and will continue to be affected by a variety of factors, including product manufacturing yields, changes in product production processes, new product introductions, product mix and average selling prices.

To date, we have relied on third parties for the production of our products. However, we believe reliance on third parties has resulted in lower gross margins for Grandevo, a fermentation-based product. Accordingly, in July 2012, we acquired a manufacturing facility, which we are repurposing for manufacturing operations, and we continue to further expand capacity at this facility. As production shifts from third parties to our own facility, we expect gross margins on individual products to improve.

Research, Development and Patent

Research, development and patent expenses principally consist of personnel costs, including salaries, wages, benefits and share-based compensation, related to our research, development and patent staff in support of product discovery and development activities. Research, development and patent expenses also include costs incurred for laboratory supplies, field trials and toxicology tests, quality control assessment, consultants, patent fees and facility and related overhead costs. We have received grants and funding for our research from federal governmental entities. We recognize amounts under these grants as an offset to our overall research, development and patent expenses as services under the grant are performed. There were no grants for the three months ended March 31, 2014 and 2013.

We expect to increase our investments in research and development by hiring additional research and development staff, increasing the number of third-party field trials and toxicology tests for developing additional products, entering new geographic regions and expanding uses for existing products. As a result, we expect that our research, development and patent expenses will increase in absolute dollars for the foreseeable future. As our sales increase, we expect our research, development and patent expenses to decrease as a percentage of total revenues, although we could experience quarterly fluctuations.

Selling, General and Administrative

Selling, general and administrative expenses consist primarily of personnel costs, including salaries, wages, benefits and share-based compensation, related to our executive, sales, marketing, finance and human resources personnel, as well as professional fees, including legal and accounting fees, and other selling costs incurred related to business development and to building product and brand awareness. We create brand awareness through programs such as speaking at industry events, trade show displays and hosting local-level grower and distributor meetings. In addition, we dedicate significant resources to technical marketing literature, targeted advertising in print and online media, webinars and radio advertising. Costs related to these activities, including travel, are included in selling expenses. Our administrative expenses have increased in recent periods primarily as a result of becoming a public company.

We expect our selling expenses to increase in the near term, both in absolute dollars and as a percent of total revenues, particularly as we market and sell new products or product formulations to the marketplace. In the long term, we expect our selling, general and administrative expenses to decline as a percent of total revenues. We expect our overall selling, general and administrative expenses to increase in absolute dollars in order to drive product sales, and we will incur additional expenses associated with operating as a public company. Such increases may include increased insurance premiums, investor relations expenses, legal and accounting fees associated with the expansion of our business and corporate governance, financial reporting expenses, expenses related to Sarbanes-Oxley and other regulatory compliance obligations. We expect to hire additional personnel, particularly in the area of general and administrative activities to support the growth of the business.

Interest Expense

We recognize interest expense on notes payable, convertible notes and other debt obligations. During 2012, we entered into a $0.5 million term loan and issued $24.1 million in convertible notes and $17.5 million in promissory notes, including a $10.0 million promissory note paid off prior to its maturity date. During 2013, we issued $4.95 million in promissory notes, including the conversion of $1.25 million of a convertible note into a promissory note. Immediately following the completion of our initial public offering (IPO) in August 2013, the convertible notes converted into shares of our common stock. Accordingly, our interest expense decreased both in absolute terms and as a percentage of total revenues.

Interest Income

Interest income consists primarily of interest earned on investments and cash balances. Our interest income will vary each reporting period depending on our average investment and cash balances during the period and market interest rates.

Change in Estimated Fair Value of Financial Instruments

In August 2013, we closed an initial public offering (the “IPO”), at which time all shares of our outstanding convertible preferred stock and all of our outstanding convertible notes automatically converted into shares of common stock, and all outstanding warrants to purchase convertible preferred stock and certain warrants to purchase common stock were exercised for shares of common stock.

Until the effective date of our IPO in August 2013, we accounted for the outstanding warrants exercisable into shares of our Series A, Series B and Series C convertible preferred stock as liability instruments, as the Series A, Series B and Series C convertible preferred stock into which these warrants were contingently convertible upon the occurrence of certain events or transactions. We also accounted for the outstanding warrants exercisable into a variable number of common shares at a fixed monetary amount as liability instruments. Our convertible notes were recorded at estimated fair value on a recurring basis as the predominant settlement feature of the convertible notes was to settle a fixed monetary amount with a variable number of shares. We adjusted the warrants and the convertible notes to fair value at each reporting period and on the effective date of the IPO with the change in estimated fair value recorded in the consolidated statements of operations.

We issued $24.1 million in convertible notes during the year ended December 31, 2012. During the year ended December 31, 2013, we issued $6.5 million in convertible notes and converted $1.25 million of a convertible note into a promissory note. Based on our operating performance and changes in the probability and timing of, and estimated proceeds from, the completion of a qualified IPO or an acquisition between the reporting dates, or the issuance dates of these notes, we recognized a net loss due to the change in estimated fair value of financial instruments of $3.5 million for the three months ended March 31, 2013, relating to convertible notes. There were no material changes in the estimated fair value of warrants for the three months ended March 31, 2013.

As a result of the automatic exercise of all Series A and Series B convertible preferred stock warrants and certain common stock warrants for shares of common stock, the automatic conversion of all convertible notes into common stock in accordance with their terms, and the exercise of all Series C convertible preferred stock warrants for shares of common stock in connection with our IPO in August 2013, there will not be any further adjustments to these warrants and convertible notes. In addition, upon completion of the IPO, the exercise price and number of shares to be issued upon exercise of the remaining outstanding common stock warrants became known. Accordingly, after the IPO, the fair value of the outstanding common stock warrant liability on the date of the IPO was reclassified to equity and will no longer be adjusted to its estimated fair value on each reporting date.

Income Tax Provision

Since our inception, we have been subject to income taxes principally in the United States. We anticipate that as we further expand our sales into foreign countries, we will become subject to taxation based on the foreign statutory rates and our effective tax rate could fluctuate accordingly.

Income taxes are computed using the asset and liability method, under which deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. As of March 31, 2014, based on the available information, it is more likely than not that our deferred tax assets will not be realized, and accordingly we have taken a full valuation allowance against all of our deferred tax assets.

Results of Operations

The following table sets forth certain statements of operations data as a percentage of total revenues:


	THREE MONTHS ENDED MARCH 31,
	2014			2013
Revenues:
Product		75	%		87	%
License		2			2
Related party		23			11

Total revenues		100			100
Cost of product revenues ⁽¹⁾		59			66

Gross profit		41			34
Operating expenses:
Research, development and patent		153			120
Selling, general and administrative		227			104

Total operating expenses		380			224

Loss from operations		(339	)		(190	)
Other income (expense):
Interest income		—			—
Interest expense		(28	)		(73	)
Change in estimated fair value of financial instruments		—			(131	)
Other (expense) income, net		—			—

Total other income (expense), net		(28	)		(204	)

Income taxes		—			—

Net loss		(367	)%		(394	)%

⁽¹⁾

Includes 7% in cost of product revenues to related parties for each of the three months ended March 31, 2014 and 2013. See Note 14 of our accompanying Notes to Condensed Consolidated Financial Statements included in Part I, Item 1, “Financial Statements (Unaudited)” of this Quarterly Report on Form 10-Q for further discussion.

Comparison of Three Months Ended March 31, 2014 and 2013

Product Revenues


	THREE MONTHS ENDED MARCH 31,
	2014			2013
	(Dollars in thousands)
Product revenues	$	2,097		$	2,373
% of total revenues		75	%		87	%

Product revenues decreased by approximately $0.3 million, or 12%, which we believe was primarily due to changes in our customers’ timing of orders as fluctuations in the timing of pest control and plant health product sales orders are not uncommon given seasonality in the agricultural industry and the impact that weather may have on the timing of the application of our products.

License Revenues


	THREE MONTHS ENDED MARCH 31,
	2014			2013
	(Dollars in thousands)
License revenues	$	45		$	48
% of total revenues		2	%		2	%

License revenues related to certain strategic collaboration and distribution agreements decreased by 6% but do not comprise a significant portion of our total revenues.

Related Party Revenues


	THREE MONTHS ENDED MARCH 31,
	2014			2013
	(Dollars in thousands)
Related party revenues	$	648		$	309
% of total revenues		23	%		11	%

For the three months ended March 31, 2014 and 2013, related party revenues totaled $0.6 million and $0.3 million, respectively, of which $0.3 million and $0.3 million, respectively, was related to product revenues, and $0.3 million and less than $0.1 million, respectively, was related to license revenues. Related party revenues increased by approximately $0.3 million, or 110%, as a result of approximately $0.3 million that was recognized during the three months ended March 31, 2014 upon the termination of one of our agreements with Syngenta, an affiliate of one of our 5% stockholders.

Cost of Product Revenues and Gross Profit


	THREE MONTHS ENDED MARCH 31,
	2014			2013
	(Dollars in thousands)
Cost of product revenues	$	1,652		$	1,795
% of total revenues		59	%		66	%
Gross Profit	$	1,138		$	935
% of total revenues		41	%		34	%

Our cost of product revenues decreased by $0.1 million, or 8%, and our gross margins increased from 34% to 41%. Cost of product revenues decreased and gross margin increased primarily due to a change in product mix, with Regalia representing an increased percentage of total sales, which has a higher margin than Grandevo. In addition, as discussed above, there was an increase in related party revenues as a result of $0.3 million that was recognized during the three months ended March 31, 2014 upon the termination of one of our agreements with Syngenta for which there was no corresponding cost of product revenues.

Research, Development and Patent Expenses


	THREE MONTHS ENDED MARCH 31,
	2014			2013
	(Dollars in thousands)
Research, development and patent expenses	$	4,282		$	3,283
% of total revenues		153	%		120	%

Research, development and patent expenses increased by approximately $1.0 million, or 30%, due to an increase of $0.1 million in direct research and development testing costs, $0.7 million in employee related expenses driven by increased headcount, which includes an increase in share-based compensation of $0.2 million, $0.1 million in fixed expenses primarily related to depreciation and $0.1 million in supplies, outside services and general costs.

Selling, General and Administrative Expenses


	THREE MONTHS ENDED MARCH 31,
	2014			2013
	(Dollars in thousands)
Selling, general and administrative expenses	$	6,330		$	2,847
% of total revenues		227	%		104	%

Selling, general and administrative expenses increased by approximately $3.5 million, or 122%, due to an increase of $2.3 million in employee related expenses driven by increased headcount, which includes an increase in share-based compensation of $1.0 million, $0.3 million in fixed expenses primarily related to depreciation, $0.6 million in outside services, $0.1 million in travel and $0.2 million in supplies and general costs.

Other Income (Expense), Net


	THREE MONTHS ENDED MARCH 31,
	2014			2013
	(Dollars in thousands)
Interest income	$	10		$	1
Interest expense		(773	)		(1,985	)
Change in estimated fair value of financial instruments		—			(3,563	)
Other expense, net		(9	)		(7	)

Total other expense, net	$	(772	)	$	(5,554	)

Interest expense decreased due to the conversion of convertible notes into shares of our common stock immediately following the completion of the IPO in August 2013. Accordingly, we ceased to incur the interest expense associated with these convertible notes. This was partially offset by an increase in interest expense as we issued promissory notes in the amount of $4.95 million in April 2013.

The change in the estimated fair value of financial instruments was associated with outstanding warrants and convertible notes issued in 2012 and 2013. Upon the closing of the IPO, all shares of our outstanding convertible preferred stock and convertible notes automatically converted into shares of common stock and outstanding warrants to purchase convertible preferred stock and certain warrants to purchase common stock were exercised for shares of common stock. Accordingly, we ceased to incur the interest expense and change in estimated fair value of financial instruments associated with the convertible preferred stock and convertible notes.

Seasonality and Quarterly Results

Our sales of individual products are generally expected to be seasonal. For example, we expect that our Regalia, Grandevo and Venerate product lines will be sold and applied to crops in greater quantity in the second and fourth quarters. These seasonal variations may be especially pronounced because sales have been primarily limited to our Regalia and Grandevo product lines in the Northern Hemisphere. In addition, in April 2014, we announced the launch of Venerate, a bioinsecticide, in the Northern Hemisphere. As we expand the registration and commercialization of our product lines into the Southern Hemisphere, where seasonality of sales should be counter cyclical to the Northern Hemisphere, we expect worldwide sales volatility to decrease over time. In addition, we expect that our sales of Zequanox will be seasonal. Invasive zebra and quagga mussels typically feed and reproduce at water temperatures above 59°F. Treatments to kill these mussels are therefore most effective from June through September in the Eastern United States, Canada and Europe and from April through October in the Southwestern United States.

Planting and growing seasons, climatic conditions and other variables on which sales of our products are dependent vary from year to year and quarter to quarter. As a result, we have historically experienced substantial fluctuations in quarterly sales. In particular, weather conditions and natural disasters such as heavy rains, hurricanes, hail, floods, tornadoes, freezing conditions, drought or fire, affect decisions by our distributors, direct customers and end users about the types and amounts of pest management and plant health products to purchase and the timing of use of such products. For example, in 2013 and 2012, the United States experienced nationwide abnormally low rainfall or drought, reducing the incidence of fungal diseases such as mildews, and these conditions have been present in some of our key markets in the first quarter of 2014 as well. On the other hand, drought may increase the incidence of pest insect infestations, and therefore we believe sales of insecticides, including Grandevo and Venerate, may increase during times of drought. In addition, disruptions that cause delays by growers in harvesting or planting can result in the movement of orders to a future quarter, which would negatively affect the quarter and cause fluctuations in our operating results. For example, late snows and cold temperatures in the Midwestern and Eastern United States in the first quarter of 2014 have delayed planting and pesticide applications. Since Regalia and Grandevo products have different margins, changes in product mix due to these conditions could affect our overall margins.

The level of seasonality in our business overall is difficult to evaluate as a result of our relatively early stage of development, our relatively limited number of commercialized products, our expansion into new geographical territories, the introduction of new products and the timing of introductions of new formulations and products. It is possible that our business may be more seasonal, or experience seasonality in different periods, than anticipated. For example, if sales of Zequanox become a more significant component of our revenue, the separate seasonal sales cycles could cause further shifts in our quarterly revenue. Other factors may also contribute to the unpredictability of our operating results, including the size and timing of significant distributor transactions, the delay or deferral of use of our products and the fiscal or quarterly budget cycles of our distributors, direct customers and end users. Customers may purchase large quantities of our products in a particular quarter to store locally and use quickly when weather permits growers to get into the fields and also to use over longer periods of time as conditions may change rapidly thus customers may time their purchases to manage their inventories, which may cause significant fluctuations in our operating results for a particular quarter or year.

Liquidity and Capital Resources

From our inception until the closing of our IPO in August 2013, our operations have been financed primarily by net proceeds from the private placements of convertible preferred stock, convertible notes, promissory notes, term loans, as well as proceeds from the sale of our products and payments under strategic collaboration and distribution agreements and government grants.

As of March 31, 2014, our cash and cash equivalents totaled $21.3 million and short-term investments totaled $2.7 million. In addition, we expect to receive a $10.0 million loan, to be used to expand capacity at our manufacturing facility, subject to receipt of a USDA guarantee for the financing and completion of related bank documentation. We believe our current cash and cash equivalents and short-term investments, along with cash from revenues and anticipated borrowings, will be sufficient to satisfy our liquidity requirements for the next 12 months. However, we may seek additional funding through debt or equity financings that may be used, among other things, to expand our product development and marketing efforts, to complete or expand our manufacturing facility, to complete strategic transactions and/or for working capital. Adequate funds for this and the other purposes may not be available to us when needed or on acceptable terms, and we may need to raise capital that may not be available on favorable or acceptable terms, if at all. If we cannot raise money when needed, we may have to reduce or slow sales or product development activities or reduce capital investments.

Since our inception, we have incurred significant net losses, and, as of March 31, 2014, we had an accumulated deficit of $115.7 million, and we expect to incur additional losses related to the continued development and expansion of our business. Our liquidity may be negatively impacted as a result of slower than expected adoption of our products and higher than anticipated costs incurred in connection with repurposing our manufacturing facility acquired in July 2012. We have certain strategic collaboration and distribution agreements under which we receive payments for the achievement of testing validation, regulatory progress and commercialization events. As of March 31, 2014, we had received an aggregate of $2.4 million in payments under these agreements, of which $1.0 million were received from a related party, and there are up to $2.9 million in payments under these agreements that we could potentially receive if certain testing validation, regulatory progress and commercialization events occur, of which $1.0 million could potentially be received from a related party.

For the three months ended March 31, 2014 and 2013, we used $5.0 million and $0.4 million, respectively, in cash to fund capital expenditures. In July 2012, we acquired a manufacturing facility, including associated land, property and equipment, located in Bangor, Michigan, for approximately $1.5 million. Our business plan contemplates developing significant internal commercial manufacturing capacity using this facility. Repurposing and expansion of the facility will be completed in multiple phases with an anticipated total capital expenditure of $32.0 million. Phase 1 of the project includes installation of the first of three fermentation tanks, and the construction of a dedicated building to house them. In December 2013, we produced the first test batch of Grandevo at this facility and expect to begin full-scale production of our products using our own manufacturing capacity in 2014. Future phases will include production of our Regalia biofungicide and Zequanox, as well as increasing the capacity of the facility’s utilities, installing drying capacity and installing larger fermenters that will accommodate production of multiple products at higher volumes.

We had the following debt arrangements in place as of March 31, 2014, in each case as discussed below (dollars in thousands):


DESCRIPTION	STATED ANNUAL INTEREST RATE			PRINCIPAL AMOUNT BALANCE (INCLUDING ACCRUED INTEREST)		PAYMENT/MATURITY
Promissory Note ⁽¹⁾		7.00	%	$	88	Monthly/November 2014
Term Loan ⁽¹⁾		7.00	%	$	279	Monthly/April 2016
Promissory Notes ⁽²⁾		12.00	%	$	12,450	Monthly ⁽⁴⁾ /October 2015
Credit Facility ⁽³⁾		10.00	%	$	—	June 2014

⁽¹⁾	See “—Five Star Bank.”

⁽²⁾	See “—October 2012 and April 2013 Junior Secured Promissory Notes.”

⁽³⁾	See “—June 2013 Credit Facility.”

⁽⁴⁾	Monthly payments are interest only until maturity.

Five Star Bank

We have entered into two promissory notes with Five Star Bank. In May 2008, we entered into a promissory note that we fully repaid in May 2013, and in March 2009, we entered into a promissory note that we repay at a rate of approximately $13,000 per month through maturity in November 2014. In addition, in March 2012, we entered into a term loan agreement with Five Star Bank, which replaced our existing revolving line of credit with the bank. Under the term loan agreement, we are obligated to repay the loan at a rate of approximately $12,000 per month through maturity.

Under the terms of the promissory notes and the term loan agreement, all of our outstanding debt to Five Star Bank is secured by all of our inventory, chattel paper, accounts receivable, equipment and general intangibles (excluding certain financed equipment and any intellectual property). Among other things, a payment default with respect to each of the promissory notes and the term loan, as well as other events such as a default under other loans or agreements that would materially affect us, constitute events of default. Upon an event of default, Five Star Bank may declare the entire unpaid principal and interest immediately due and payable.

October 2012 and April 2013 Junior Secured Promissory Notes

In October 2012, we completed the sale of promissory notes in the aggregate principal amount of $7.5 million to 12 lenders in a private placement. In addition, in April 2013, we completed the sale of an additional $4.95 million of promissory notes to 10 investors in a private placement under an amendment to the note purchase agreement in exchange for $3.7 million in cash and $1.25 million in cancellation of indebtedness under the October 2012 Subordinated Convertible Note, an outstanding convertible note. Maturity, currently October 2015, may be extended in one year increments for a period of no more than two years. In the event the maturity date is extended, the interest rate increases to 13% in the first year of the extension and the note matures in October 2016, and if extended for an additional year thereafter, the interest rate increases to 14% in the second year of extension and the note matures in October 2017. These promissory notes are secured by a security interest in all of our present and future accounts receivable, chattel paper, commercial tort claims, goods, inventory, equipment, personal property, instruments, investment properties, documents, letter of credit rights, deposit accounts, general intangibles, records, real property, appurtenances and fixtures, tenant improvements and intellectual property, which consists in part of our patents, copyrights and other intangibles.

June 2013 Credit Facility

On June 14, 2013, we entered into a credit facility agreement with a group of lenders. Under the credit agreement, the lenders have committed to permit us to draw an aggregate of up to $5.0 million, and, subject to our obtaining additional commitments from lenders, such amount may be increased to up to $7.0 million. The credit facility expires on June 30, 2014. During the term of the credit facility, we may request from the lenders up to four advances, with each advance equal to one-quarter of each lender’s aggregate commitment amount. We would issue promissory notes in the principal amount of each such advance that would accrue interest at a rate of 10% per annum. We are not obligated to pay principal or interest on the promissory notes until their maturity on June 30, 2014, at which point all principal and unpaid interest would become due. In addition, we may not prepay any of such promissory notes prior to their maturity date without consent of at least a majority in interest of the aggregate principal amount of the promissory notes then outstanding under the credit facility. In addition, in connection with our entry into the credit facility agreement, we agreed to pay each lender a fee of 2% of such lender’s commitment amount, and we issued to each lender a warrant to purchase a variable number of common shares, with warrant coverage equal to a number of shares determined by multiplying such lender’s commitment amount by 10% and dividing such product by 70% of the initial public offering price per share, and with the exercise price for the warrants equal to 70% of the initial public offering price per share. Upon the closing of our IPO in August 2013, the number of shares subject to the warrants and their exercise prices became fixed.

As of March 31, 2014, we have not drawn on the credit facility, and accordingly have issued no promissory notes and have no outstanding indebtedness thereunder. In August 2013, the board of directors resolved not to call for any advances under the credit facility.

Factoring and Security Agreement

On June 13, 2013, we entered into a factoring and security agreement (Factoring and Security Agreement) with a third-party that enabled us to sell our entire interest in certain accounts receivable up to $5.0 million. Under the Factoring and Security Agreement, 15% of the sales proceeds were to be held back by the purchaser until collection of such receivables. Such holdbacks were not considered legal securities, nor were they certificated. Upon the sale of the receivable, we did not maintain servicing. The purchaser may have required us to repurchase accounts receivable if (i) the payment was disputed by the account debtor, with the purchaser being under no obligation to determine the bona fides of such dispute; (ii) the account debtor had become insolvent or (iii) upon the effective date of the termination of the Factoring and Security Agreement. The purchaser would retain its security interest in any accounts repurchased by us. The Factoring and Security Agreement was secured by all of our personal property and fixtures, and proceeds thereof, including accounts receivable, inventory, equipment and general intangibles other than intellectual property. On November 11, 2013, the Company terminated the Factoring and Security Agreement effective January 10, 2014.

Revolving Line of Credit

In April 2014, we entered into an agreement with a bank for a revolving line of credit, which allows us to borrow up to $5.0 million with an interest rate of 1.5%. The line of credit is payable in full upon the bank’s demand, if no demand is made, it is payable in full in April 2015. Interest is payable monthly beginning in May 2014. In accordance with the terms of the agreement, we deposited $5.0 million into a restricted deposit account with the bank as collateral.

The following table sets forth a summary of our cash flows for the periods indicated:


	THREE MONTHS ENDED MARCH 31
	2014			2013
	(In thousands) (Unaudited)
Net cash used in operating activities	$	(9,882	)	$	(7,675	)
Net cash provided by (used in) investing activities		5,960			(432	)
Net cash provided by (used in) financing activities		765			(108	)

Net decrease in cash and cash equivalents	$	(3,157	)	$	(8,215	)

Cash Flows from Operating Activities

Net cash used in operating activities of $9.9 million during the three months ended March 31, 2014 primarily resulted from our net loss of $10.2 million, increases in accounts receivable of $1.0 million, accounts receivable from related parties of $0.3 million, inventories of $1.2 million and prepaid expenses and other assets of $0.2 million, and decreases in accrued and other liabilities of $1.3 million, deferred revenue of $0.2 million and deferred revenue from related parties of $0.3 million. This was offset by $0.5 million in depreciation and amortization expense, $1.5 million in share-based compensation expense, $0.2 million in non-cash interest expense and an increase in accounts payable of $2.7 million.

Net cash used in operating activities of $7.7 million during the three months ended March 31, 2013 primarily resulted from our net loss of $10.7 million, increases in accounts receivable from related parties of $0.1 million, inventories of $0.5 million and prepaid expenses and other assets of $0.6 million and a decrease in accrued and other liabilities of $1.3 million and deferred revenue and deferred revenue from related parties of $0.1 million. This was offset by $0.2 million in depreciation and amortization expense, $0.2 million in share-based compensation expense, $1.5 million in non-cash interest expense, $3.6 million related to the change in fair value of financial instruments and an increase of $0.1 million in accounts payable.

Cash Flows from Investing Activities

Net cash provided by investing activities of $6.0 million during the three months ended March 31, 2014 consisted primarily of maturities of short-term investments in the amount of $11.1 million, offset by $5.0 million used for the purchase of property, plant and equipment, primarily associated with a manufacturing plant and its subsequent improvement.

Net cash used in investing activities of $0.4 million during the three months ended March 31, 2013 was due to the purchase of property and equipment to support growth in our operations.

Cash Flows from Financing Activities

Net cash provided by financing activities of $0.8 million during the three months ended March 31, 2014 consisted primarily of $0.9 million from the exercise of stock options and warrants. This was offset by $0.1 million in payments on our debt and capital leases.

Net cash used in financing activities of $0.1 million during the three months ended March 31, 2013 consisted primarily of $9.2 million in payments on our debt, partially offset by $9.1 million transferred from the release of restricted cash.

Contractual Obligations

The following is a summary of our contractual obligations as of March 31, 2014:


	TOTAL		2014		2015-2016		2017-2018		2019 AND BEYOND
					(In thousands) (Unaudited)
Operating lease obligations	$	3,764	$	845	$	1,487	$	1,225	$	207
Debt and capital leases		15,558		1,434		14,124		—		—
Interest payments relating to debt and capital leases		2,462		1,261		1,201		—		—

Total	$	21,784	$	3,540	$	16,812	$	1,225	$	207

Operating leases consist of contractual obligations from agreements for non-cancelable office space and leases used to finance the acquisition of equipment. Debt and capital equipment leases and the interest payments relating thereto include promissory notes and capital lease obligations.

In September 2013, we entered into a lease agreement, which was amended in April 2014, for a new 27,303 square foot office and laboratory facility located in Davis, California. The initial term of the lease is for a period of 60 months commencing on the later of the date of substantial completion of initial improvements to the leased property, or August 2014. The monthly base rent is $44,000 for the first 12 months with a 3% increase each year thereafter. We will have the option to extend the lease term twice for a period of five years each. Upon moving into the new office facility, we will vacate the office facility that we currently occupy. The lease expires between February 2015 and October 2016 with respect to various portions of the premises of the 24,500 square foot office facility that we currently occupy. The cost per square foot of the lease agreement for the new office facility is less than the cost per square foot of the lease for the current office facility. We expect to enter into agreements to sublease the portions of the current office facility that remain under the lease agreement at the time that we vacate the premises. We believe that the expenses associated with the lease for the new office facility will be lower than if we remain in the current office facility.

Concurrent with this amendment in April 2014, we entered into a lease agreement with an affiliate of the landlord to lease 17,438 square feet of office and laboratory space in the same building complex. The initial term of the lease is for a period of 60 months commencing on the date of substantial completion of initial improvements. If the premises are not delivered by September 1, 2014, we can terminate the lease at any time prior to January 1, 2015. The premises are not expected to be delivered until the latter half of 2014. The monthly base rent is $28,000 with a 3% increase each year thereafter.

Since March 31, 2014, we have not added any additional leases that would qualify as operating leases.

Inflation

We believe that inflation has not had a material impact on our results of operations for the three months ended March 31, 2014 and 2013.

Off-Balance Sheet Arrangements

We have not been involved in any material off-balance sheet arrangements.

Recently Issued Accounting Pronouncements

There have been no new accounting pronouncements issued during the three months ended March 31, 2014 that are of significance, or potential significance, to us.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We currently have minimal exposure to the effect of interest rate changes, foreign currency fluctuations and changes in commodity prices. We are exposed to changes in the general economic conditions in the countries where we conduct business, which currently is substantially all in the United States. Our current investment strategy is to invest in financial instruments that are highly liquid, readily convertible into cash and which mature within six months from the date of purchase. To date, we have not used derivative financial instruments to manage any of our market risks or entered into transactions using derivative financial instruments for trading purposes.

We do not believe our cash equivalents and short-term investments have significant risk of default or illiquidity. While we believe our cash equivalents and short-term investments do not contain excessive risk, we cannot provide absolute assurance that in the future our investments will not be subject to adverse changes in market value.

Interest Rate Risk

We had cash and cash equivalents of $21.3 million at March 31, 2014, which was held for working capital purposes. We had short-term investment securities of $2.7 million at March 31, 2014. We do not enter into investments for trading or speculative purposes. We do not have any variable-rate debt and a 10% change in market interest rates will not have a significant impact on our future interest expense.

Foreign Currency Risk

Revenue and expenses have been primarily denominated in U.S. dollars and foreign currency fluctuations have not had a significant impact on our historical results of operations. In addition, our strategic collaboration and distribution agreements for current products provide for payments in U.S. dollars. As we market new products internationally, our product revenues and expenses may be in currencies other than U.S. dollars, and accordingly, foreign currency fluctuations may have a greater impact on our financial position and operating results.

Commodity Risk

Our exposure to market risk for changes in commodity prices currently is minimal. As our commercial operations grow, our exposure will relate mostly to the demand side as our end users are exposed to fluctuations in prices of agricultural commodities.

ITEM 4. CONTROLS AND PROCEDURES

Our management, with the participation of our chief executive officer (CEO) and chief financial officer (CFO), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act)), as of the end of the period covered by this Quarterly Report on Form 10-Q. At the time that our Annual Report on form 10-K for the year ended December 31, 2013 was filed on March 25, 2014, our CEO and CFO concluded that our disclosure controls and procedures were effective as of December 31, 2013. Subsequent to these evaluations, our CEO and CFO concluded that our disclosure controls and procedures were not effective as of December 31, 2013 and continue to not be effective as of March 31, 2014 because of a material weakness in our internal control over financial reporting, as described below.

Changes in Internal Control

In connection with the preparation of our financial statements for the three months ended March 31, 2014, we determined that we had a material weakness in our internal control over financial reporting because we did not maintain effective controls over our shipping process which resulted in the shipment of the wrong product to a customer. We discovered that we did not have effective controls to prevent or detect an instance where the product shipped was not the same as the product ordered by a customer. While the deficiency in this instance did not result in a material misstatement of our financial statements, it is possible that there could be a material misstatement if the control deficiency is not remediated. Accordingly, management determined that this control deficiency represents a material weakness in our internal controls over financial reporting, and accordingly, our internal control was ineffective at both December 31, 2013 and March 31, 2014.

We have developed, and are currently implementing, a plan to remediate this material weakness, which includes, among other things, training our personnel who handle customer shipments to compare product ordered to product selected in the inventory records prior to shipment and comparison of product ordered to product removed from inventory prior to invoicing, which would enhance our ability to prevent the wrong product from being shipped and to detect if the wrong product has been shipped prior to invoicing.

As we continue to evaluate and work to enhance internal controls over financial reporting, we may determine that additional measures should be taken to address this or other control deficiencies, and/or that we should modify the remediation plan described above. Notwithstanding our material weakness, we have concluded that the financial statements and other financial information included in this Quarterly Report on Form 10-Q, fairly present in all material respects our financial condition, results of operations and cash flows as of, and for, the periods presented.

Except as disclosed above, there were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations of the Effectiveness of Internal Controls

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the internal control system are met. Because of inherent limitations in any control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. We are continuously seeking to improve the efficiency and effectiveness of our operations and of our internal controls.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time we may be involved in litigation that we believe is of the type common to companies engaged in our line of business, including intellectual property and employment issues. As of the date of this filing, we are not involved in any material pending legal proceedings.

ITEM 1A. RISK FACTORS

The risks described in “Part I, Item 1A. Risk Factors”, in our Annual Report filed on Form 10-K for the fiscal year ended December 31, 2013, could materially and adversely affect our business, financial condition and results of operations. These risk factors do not identify all of the risks that we face. Additional risks and uncertainties not currently known or knowable to us or that we currently deem to be immaterial may materially adversely affect our business, financial condition and/or operating results. Except for the below, there have been no material changes to the risk factors discussed in our Annual Report filed on Form 10-K for the fiscal year ended December 31, 2013:

We have identified a material weakness in our internal control over financial reporting which existed as of December 31, 2013, and has not been adequately remediated as of March 31, 2014. If we fail to properly remediate this or any future weaknesses or deficiencies or maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired and investors’ views of us could be harmed.

While preparing our financial statements for the three months ended March 31, 2014, we have determined that we have a material weakness in our internal control over financial reporting which also existed as of December 31, 2013. This material weakness did not result in a material error or a restatement of our Condensed Consolidated Financial Statements contained herein. See Item 4 , Controls and Procedures for additional discussion of this material weakness in our internal control over financial reporting.

Although we are undertaking steps to address this material weakness, the existence of a material weakness is an indication that there is more than a remote likelihood that a material misstatement of our financial statements will not be prevented or detected in the current or any future period. There can be no assurance that we will be able to fully implement our plans and controls, as described in Item 4 , to address this material weakness, or that the plans and controls, if implemented, will be successful in fully remediating this material weakness. In addition, we may in the future identify further material weaknesses in our internal control over financial reporting that we have not discovered to date. If we fail to successfully remediate the identified material weakness, or we identify further material weaknesses in our internal controls, the market’s confidence in our financial statements could decline and the market price of our common stock could be adversely impacted.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES

In March 2014, 5,950 shares of common stock were issued upon the cash exercise of outstanding common stock warrants at an exercise price of $8.40 per share, for an aggregate purchase price of $49,980.

Neither the exercise of the warrant nor its original issuance involved any underwriters, underwriting discounts or commissions, or any public offering, and the Company believes that such transactions were exempt from the registration requirements of the Securities Act in reliance on Section 4(2) of the Securities Act (or Rule 506 of Regulation D or Regulation S promulgated thereunder) as transactions by an issuer not involving a public offering. Each recipient of the securities in these transactions represented his, her or its intention to

acquire the securities for investment only and not with a view to, or for resale in connection with, any distribution thereof, and appropriate legends were affixed to the share certificates issued in each such transaction. In each case, the recipient received adequate information about the registrant or had adequate access, through his, her or its relationship with us, to information about the Company. The sales of these securities were made without any general solicitation or advertising.

ITEM 6. EXHIBITS

See the Index to Exhibits immediately following the signature page to this Quarterly Report on Form 10-Q, which is incorporated by reference here.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Davis, State of California, on May 15, 2014.

MARRONE BIO INNOVATIONS, INC.

/ S / J AMES B. B OYD

James B. Boyd

Chief Financial Officer (Principal Financial Officer and Accounting Officer)

INDEX TO EXHIBITS


EXHIBIT NUMBER		EXHIBIT DESCRIPTION

10.1†*		Offer letter, dated February 10, 2014, between Marrone Bio Innovations, Inc. and James B. Boyd.

10.2†		Offer letter, dated February 26, 2014, between Marrone Bio Innovations, Inc. and Linda V. Moore.

10.3		First Amendment to Lease, dated April 30, 2014, by and between Six Davis, LLC and Marrone Bio Innovations, Inc.

10.4		Office Lease, dated April 30, 2014, by and between Seven Davis, LLC and Marrone Bio Innovations, Inc.

10.5		Promissory Note, dated April 11, 2014, by and between Five Star Bank and jointly and severally Marrone Michigan Manufacturing, LLC and Marrone Bio Innovations, Inc.

31.1		Certification of Principal Executive Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.

31.2		Certification of Principal Financial Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.

32.1		Certification of Principal Executive Officer and Principal Financial Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. §1350

101**		Interactive Data Files Pursuant to Rule 405 of Regulation S-T: (i) Condensed Consolidated Balance Sheets as of March 31, 2014 and December 31, 2013, (ii) Condensed Consolidated Statements of Operations for the Three Months ended March 31, 2014 and March 31, 2013, (iii) Condensed Consolidated Statements of Comprehensive Loss for the Three Months ended March 31, 2014 and March 31, 2013, (iv) Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31, 2014 and March 31, 2013 and (v) Notes to Condensed Consolidated Financial Statements

†	Indicates a management contract or compensatory plan or arrangement.

*	Incorporated by reference to Exhibit 10.8 of the Company’s Annual Report on Form 10-K filed March 25, 2014.

In accordance with Rule 406T of Regulation S-T, the information in these exhibits is furnished and deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Exchange Act of 1934, and otherwise is not subject to liability under these sections.

Exhibit 10.2

LOGO

February 26, 2014

Linda V. Moore

1644 Lexington Ave.

San Mateo, California 94402

Dear Linda,

We are pleased to offer to you the position of General Counsel with Marrone Bio Innovations, Inc. (the “Company”), reporting to Pam Marrone, CEO and Founder. Your start date is March 17, 2014. Your first six months on the job will be considered an introductory period.

You will receive a base salary of $225,000 on an annualized basis. Subject to the approval of our Board of Directors, you will be granted an option to purchase 100,000 shares of the Company’s common stock. The price per share of any approved option will be the closing price of our common stock as of your start date. Your entitlement to any stock option that may be approved is, of course, conditioned upon your signing of an Award Agreement and will be subject to its terms and the terms of our 2014 Stock Incentive Plan. The option will vest over a period of four (4) years. One year from the date of grant of the option, 25% of the total shares will be vested. Such option will continue to vest over the remaining 3 years on a pro-rata basis equally each month over the period following the date of grant (2.083% per month over 36 months). You must be continually employed by the Company for the option to continue to vest.

You will be eligible to participate in the Company Bonus Plan, which changes from year to year, based on company and individual goals. Your portion of the 2014 bonus program will be paid on a pro-rata basis for the portion of the year worked for the Company. Your bonus can be up to 30% of your salary.

We will also provide you up to $10,000 moving allowance for your relocation expenses from San Mateo to Davis, paid by the company, from receipts or direct with the moving company, plus one (1) month of temporary housing paid for by the company. Should you leave the Company voluntarily before completing 12 months of service you agree to pay back a pro rata portion of the relocation expenses. For example, if you were to leave after 9 months you would owe back 25% of the moving expenses.

MBI will provide you with a company cell phone, laptop computer (choice of Mac or PC), and iPad.

You should be aware that your employment with the Company is for no specified period and constitutes at-will employment. As a result, you are free to resign at any time, for any reason or for no reason. We prefer, that if you resigned you would provide a four-week notice. Similarly, the Company is free to conclude its employment relationship with you at any time, with or without cause. However, in the event that your employment is actually or constructively terminated by the Company without cause (whether or not occurring in connection with a change of control of the Company) the Company will continue to pay for Salary, Life, Medical, Dental and Disability coverage for a period of six (6) months post termination.

2121 Second Street, Suite B-107 — Davis, CA 95618 — Phone: 530-750-2800

LOGO

You will be eligible for the Company’s benefits programs on the first day of the first full month of your employment:

•

Medical (MBI offers you a choice of a PPO, HMO or an HSA Plan), Dental and Vision Insurance for you. The Company will pay for 50% of your dependent premium for medical and dental insurance and you may pay the remaining 50% on a pre-tax basis under the Company’s medical plan.

•

Cafeteria Plan (Section 125 Plan) which gives you the ability to set aside a portion of your paycheck on a pre-tax basis for dependent premiums as well as set up a flexible spending account for dependent care and unreimbursed medical expenses.

•

Voluntary Supplemental Term Life Insurance and AD&D.

•

Long-term Disability Insurance for you, and $50,000 in Life Insurance for you with the option to increase the amount for you and dependents.

•

401(k) Plan participation. Subject to Board approval, you will receive a company match of $1 for $1 for the first 3% of your salary you contribute and $0.5 for the next 2% of your salary (i.e. the maximum match is 4% if you contribute 5% of your salary).

You will be entitled 3 weeks of vacation, which is accrued at 5.00 hours per pay period, which is equivalent to 120 hours on an annual basis.

All the benefit programs and plans are offered solely at the discretion of the Company and may be added to, deleted from, or modified at any time and for any reason. In addition to a timely response, this offer is contingent upon successfully passing a background check, which may include work references, criminal, and education credential checks. For purposes of federal immigration laws, you are required to provide to the Company documentary evidence of your identity and eligibility to work in the United States. Such documentation must be provided to us within three (3) business days of your date of hire or our contingent employment relationship with you will be terminated. You will also be required to take a drug test within 24 hours of notification by the Company as a condition of employment. You will be required to sign the company’s standard employee confidentiality and inventions agreement.

To indicate your acceptance of the Company’s offer, please sign and date this letter in the space provided below and return it to Pam Marrone. This letter sets forth the terms of your employment with the Company and supersedes any prior representations or agreements, whether written or oral. This letter may not be modified or amended except by a written agreement signed by the Company and by you.

We are very excited to have you join MBI. These are exciting times at MBI and we know that your skills and experience will be enhancing for MBI. I look forward to continuing to build the company with you and our team.

2121 Second Street, Suite B-107 — Davis, CA 95618 — Phone: 530-750-2800

LOGO

Sincerely,

/s/ Pam Marrone

Pam Marrone,

President/CEO

I, Linda V. Moore , accept the terms of this agreement.

Signature: /s/ Linda V. Moore

Date Signed: February 28, 2014

2121 Second Street, Suite B-107 — Davis, CA 95618 — Phone: 530-750-2800

Exhibit 10.3

FIRST AMENDMENT TO LEASE

THIS FIRST AMENDMENT TO LEASE (the “ Amendment ”) is entered into as of this 30th day of April 2014 (the “ Effective Date ”), by and among MARRONE BIO INNOVATIONS, INC ., a Delaware corporation (“ Tenant ”), and SIX DAVIS, LLC , a Delaware limited liability company (“ Landlord ”), with respect to the following facts and circumstances:

A. Landlord and Tenant have entered into a certain Office Lease dated September 9, 2013 (the “ Original Lease ”) covering certain Premises located at 1530, 1540 and 1554 Drew Avenue, Davis California (the “ Premises ”). Capitalized Terms used herein and not defined will have the meaning ascribed in the Original Lease.

B. Tenant and Bayer Cropscience, LP, (“ Bayer ”) have entered into an agreement that provides, among other things certain personal property of Bayer will remain in the Premises and Bayer’s interest in and to such property will be transferred to Tenant effective as of the Commencement Date of the Original Lease. In connection with such agreement, Tenant has agreed to defer the Commencement Date and certain other dates specified in the Original Lease and has requested the Landlord defer such dates pursuant to its agreement with Bayer. Landlord and Bayer are, concurrently with the execution of this Amendment entering into a Sixth Amendment to Lease (1540 and 1554 Drew Avenue) and Seventh Amendment to Lease (1530 Drew Avenue) providing for the extension of the date of expiration of the term of the existing leases between Bayer and Landlord covering the Original Premises (collectively, the “ Bayer Amendment ” and the leases referred to in the Bayer Amendment, as amended, are collectively referred to herein as the “ Bayer Lease ”).

C. The parties wish to amend the Original Lease memorialize the delay of the Commencement Date and certain other dates provided in the Original Lease and provide for other matters related to the Bayer Amendment and certain transactions between Tenant and Bayer related to personal property and/or fixtures located in the Premises, reduce the Premises to delete the portion of the Premises located at 1554 Drew Avenue from the Lease, and provide for the Monthly Base rent to be payabale during the Term.

NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Landlord and Tenant hereby agree as follows:

1. Definitions . All capitalized terms used in this Amendment and not defined herein will have the meanings ascribed to such terms in the Original Lease. From and after the date hereof, the term “ Lease ,” as used in the Original Lease, will be deemed to refer to the Original Lease, as amended by this Amendment.

2. Commencement of Term . The Commencement Date as specified in Paragraph 1 of the Original Lease is hereby modified to be the later of August 1, 2014 or Substantial Completion (as defined in the Original Lease) of the Initial Improvements (as defined in the Original Lease). The Deadline Date (as defined in the Original Lease) is hereby extended to September 1, 2014 , and the Outside Date (as defined in the Original Lease) to January 1, 2015 .

3. Description of Premises . The portion of the Premises consisting of approximately 1,397 rentable square feet located at 1554 Dew Avenue and described in Exhibit B-3 shall not be part of the Premises as of the Commencement Date. Accordingly, the words “ the portion of the Premises in Exhibit B-3 contains approximately 1,397 rentable square feet ” in the third “ Whereas ” paragraph of the Lease are deleted and replaced with “[Intentionally Deleted],” and Exhibit B-3 is hereby deleted from the Original Lease.

4. Monthly Base Rent . Paragraph 2(a) of the Original Lease is hereby deleted and replaced with the following:

(a) Tenant shall pay to Landlord, as base rent (the “Monthly Base Rent”) for the Premises during the term of this Lease in accordance with the following, on the first day of each month, together with all other amounts payable to Landlord pursuant to this Lease:


Period	Monthly Base Rent
Months 1-12	$	43,734.86
Months 13-24	$	45,046.90
Months 25-36	$	46,398.31
Months 37-48	$	47,790.26
Months 49-60	$	49,223.97

Paragraph 2(d) of the Original Lease is hereby deleted in its entirety.

5. Security Deposit . The Security Deposit provided in Paragraph 2(a) of the Original Lease is hereby reduced to Eighty Thousand Dollars ($80,000.00), provided Twenty Thousand Dollars ($20,000.00) of the amount formerly held by Landlord will be paid to Seven Davis, LLC, an affiliate of Landlord, to be held under the Lease between Tenant and Seven Davis, LLC of even date with this Amendment as the Security Deposit.

6. Additional Default . Subparagraph 25(d) of the Original Lease, which currently reads “ (d) [Intentionally Deleted]” is hereby deleted and replaced with the following “(d) Any default by Tenant, after the expiration of all applicable grace and/or cure periods under a certain Lease between Tenant and Seven Davis, LLC, and affiliate of Landlord, which Lease covers certain premises located at 1490 Drew Avenue in Davis, California.

7. Personal Property and Fixtures . Tenant and Bayer have entered into an agreement whereby Bayer will transfer to Tenant ownership of certain personal property owned by Bayer and located in the Premises. Landlord makes no representation

or warranty as to condition or suitability for Tenant’s use of any such personal property, and assumes no obligations with respect thereto. Notwithstanding anything to the contrary contained in the Original Lease, Landlord will have no obligation to remove any personal property left on the Premises by Bayer or to assure that any personal property transferred to Tenant by Bayer remains in the Premises, and Tenant’s sole recourse for the foregoing matters shall be to Bayer under Tenant’s agreements with Bayer. No agreement between Tenant and Bayer shall be effective to transfer ownership to Tenant of any fixtures in the Premises, which shall be and remain the property of Landlord as of the expiration of the term of the Bayer Lease.

8. No Default by Landlord Under the Lease. Tenant hereby affirms that as of the date of this Amendment, Tenant has no actual knowledge of any default by Landlord under the Original Lease, as amended hereby.

9. Date Amendment Will be Effective . This Amendment shall be effective as of the Effective Date specified in this Amendment, provided it is fully executed by both Landlord and Tenant [ Note: this will be executed concurrently with the lease of the 1490 Drew Premises and the Bayer Amendments ].

10. Continuing Effectiveness of Lease . Tenant acknowledges and agrees that the Lease is in full force and effect and reaffirms its obligations thereunder. Except as specifically modified by this Amendment, the Original Lease, and all of its respective terms, provisions, exhibits, and addenda shall remain in full force and effect and shall establish and govern all aspects of Tenant’s and Landlord’s respective rights, remedies, and obligations with respect to the Leased Premises.

11. Broker . The parties represent and warrant to each other that no broker has been involved in this Amendment and agree to indemnify, defend and hold harmless the other party from and against any claim by a broker that such broker is entitled to a commission from the other party, based on the acts or omissions of the indemnifying party.

12. Miscellaneous .

(A) Complete Agreement . The Original Lease, as modified and amended by this Amendment, together with all exhibits and addenda to the Lease, constitute the complete agreement between the parties, and supersede any prior written or oral agreements, writings, communications or understandings of the parties, with respect to the subject matter hereof or thereof.

(B) Governing Law . THIS AMENDMENT SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA.

[SIGNATURES ON FOLLOWING PAGE]

IN WITNESS WHEREOF, this Amendment has been duly executed by Landlord and Tenant as of the date first written above.



“TENANT”

MARRONE BIO INNOVATIONS, INC., a Delaware corporation

By:		/s/ Linda V. Moore

Name:		Linda V. Moore

Its:		VP and General Counsel



“LANDLORD”

SIX DAVIS, LLC , a Delaware limited liability company

By:	Interland Growth, L.P., a Delaware limited partnership, Member

	By:	Interland Capital, Inc., a Delaware corporation, its General Partner

		By:	/s/ Donald C. Lewis
			Donald C. Lewis, President

Exhibit 10.4

LEASE

BETWEEN

MARRONE BIO INNOVATIONS, INC.,

a Delaware corporation

AND

SEVEN DAVIS, LLC,

a Delaware limited liability company

dated as of April 30 , 2014

TABLE OF CONTENTS


	Page
1. Term		1
2. Rent		2
3. Security Deposit		3
4. Improvement of the Premises		4
5. Use of the Premises		4
6. Parking and EV Improvements		4
7. Repairs and Maintenance by Tenant		4
8. Utilities and Services – Buildings and Site		5
9. Repairs by Landlord		6
10. Entry by Landlord		6
11. Insurance		6
12. Non-Liability of Landlord		7
13. Alterations		7
14. Signs		7
15. Liens		7
16. Compliance With Regulations		8
17. Personal Property Taxes		8
18. Rules and Regulations		8
19. Assignments and Subletting		8
20. Damage to the Premises		9
21. Condemnation		10
22. Subordination and Attornment		10
23. Estoppel Certificate		11
24. Holding Over		11
25. Default		11
26. Attorneys Fees		13
27. Arbitration		13
28. Waiver		13
29. Successors and Assigns		13
30. Notices		13
31. Mortgage Holders Protection Clause		13
32. Force Majeure		14
33. Exculpation		14
34. Executive Order 13224		14
35. Entire Agreement		15
36. Governing Law		15
37. Severability		15
38. Captions		15
39. Consents		15
40. Brokers		15
41. Hazardous Materials		15
42. Option to Extend		16
43. Right of First Offer		18
44. Storage Space		18
45. Use of Greenhouse; Expansion or Construction of Greenhouse		18
46. Personal Property		18
47. SNDA as a Condition to Lease		18
48. Roof Rights		18
49. Sign Rights		19
50. Emergency Generator		19
51. [Intentionally Deleted]		19
52. Certified Access Specialist		19

OFFICE LEASE

This Office Lease (this “Lease”), dated as of this day of April 2014, is by and between SEVEN DAVIS, LLC , a Delaware limited liability company (hereinafter referred to as “ Landlord ”), and MARRONE BIO INNOVATONS, INC ., a Delaware corporation (hereinafter referred to as “ Tenant ”).

Witnesseth:

Whereas, Landlord is the owner of that certain real property on which is located an office building having an address of 1490 Drew Avenue (hereinafter the “ Building ”). Landlord’s affiliate Six Davis, LLC owns several office buildings having the address of 1530 Drew Avenue, 1540 Drew Avenue and 1554 Drew Avenue, Davis California 95618, which contain space that is being leased by Tenant under a certain Lease dated September 9, 2013 (hereinafter collectively referred to as the “ Six Davis Lease ”).

Whereas, all office space, together with all improvements and facilities located upon the underlying land, owned by Landlord as shown on Exhibit A hereto shall be deemed to be the “ Office Park ”; and

Whereas, Landlord desires to lease to Tenant, and Tenant desires to lease from Landlord, certain office premises in the Building as delineated on the plan attached as Exhibits B , (the “ Premises. ”), containing approximately 17,438 rentable square feet.

Now, therefore, Landlord hereby leases the Premises to Tenant, and Tenant hereby leases the Premises from Landlord, for the term, at the rent, and upon and subject to the terms and conditions hereinafter set forth.

1. Term. Unless this Lease is sooner terminated as hereinafter provided, the initial term of this Lease shall be for the period of sixty (60) months, commencing on the Commencement Date. Such term, as it may be extended or sooner terminated pursuant to the provisions of this Lease, is referred to herein as the “ Term .” The “ Commencement Date ” shall be the date of Substantial Completion (as defined herein) of the Initial Improvements (as defined herein). Tenant has agreed to accept the Premises “ as-is ” except for the Initial Improvements (as defined in Exhibit C to this Lease), to be constructed by Landlord, subject to, and without limiting Landlord’s repair, maintenance and other obligations under this Lease, including the warranties set forth in Exhibit C and further acknowledges that (a) Landlord has made no agreement to make any initial improvements or refurbishments to the Premises except as set forth in Paragraph 4 below and Exhibit C with respect to the Initial Improvements and (b) Tenant acknowledges that it has investigated and/or been given the opportunity to investigate all matters related to the Premises prior to the execution of this Lease, including, without limitation, the condition of the Premises, the adequacy of systems serving the Premises, the size of the Premises and the suitability thereof for Tenant’s use, and hereby waives and claims it may have against Landlord related to any such matters, other than as provided in the foregoing. If the Premises has not been delivered with the Initial Improvements Substantially Completed by September 1, 2014 (the “ Deadline Date ”), then Tenant may terminate the Lease at any time prior to January 1, 2015 (the “ Outside Date ”), by written notice to Landlord if at the time Tenant delivers such written notice, Landlord has not delivered the Premises as required hereunder. Landlord shall use commercially reasonable efforts to complete the Initial Improvements and cause the Commencement Date to occur by August 15, 2014 , or as soon thereafter as reasonably practicable. Landlord’s failure to complete the Initial Improvements by the Commencement Date shall not result in liability to Landlord, provided if the Premises are not delivered with the Initial Improvements completed by the Deadline Date, then in addition to Tenant’s right to terminate the Lease as provided in the foregoing, Tenant will have the right to receive abatement of Base Rent as provided in Paragraph 2(b), below. If the Lease shall be terminated by Tenant, then within three (3) business days after such termination or deemed termination, Landlord will pay to Tenant any Security Deposit or Monthly Base Rent (as each is defined herein) paid by Tenant to Landlord prior to the date of such Termination, and shall deliver to Tenant any original Letter of Credit (as defined herein) previously delivered to Landlord in lieu of any Security Deposit, by the end of such three (3) business day period. Notwithstanding that the Commencement Date shall not have occurred, Landlord shall provide Tenant with the right to enter the Premises, promptly after the prior tenant thereof shall vacate the Premises, and the Initial Improvements shall be completed, without obligation to pay Monthly Based Rent, but otherwise on the terms and conditions provided in this Lease. If the Premises is not delivered to Tenant in the condition required herein by the Outside Date notwithstanding Landlord’s use of commercially reasonable efforts to complete the Initial Improvements as provided in the foregoing, then this Lease will automatically terminate.

2. Rent.

(a) Tenant shall pay to Landlord, as base rent (the “ Monthly Base Rent ”) for the Premises for the initial twelve (12) months of the Term of this Lease, a monthly amount equal to Twenty Seven Thousand Nine Hundred Dollars ($27,900.00), subject to any credit provided in this Lease if Tenant does not expend the entire Tenant Improvement Allowance (as defined and provided in Exhibit C ), the Incentive Credit (as defined herein) and/or any abatement of Rent provided in Paragraph 2(b) hereof . Subject to Paragraph 2(b) below, the Monthly Base Rent shall be payable in advance on the first day of each calendar month during the Term of this Lease, provided such Monthly Base Rent will be subject to increase as provided in Paragraph 2(d) , below. The Monthly Base Rent shall be in addition to all other amounts required to be paid to Landlord pursuant to the provisions of this Lease.

(b) If the Term of this Lease commences on a date other than the first day of a calendar month, rent for the period from the date of commencement of the Term hereof through the last day of the calendar month in which such Term commences shall be prorated on the basis of a thirty-day month. In the event the Term of this Lease ends on a day other than the last day of the calendar month, rent for the period from the first day of the last calendar month of such Term to the end of such Term shall be prorated on the basis of a thirty-day month. One (1) full month of Monthly Base Rent will be payable in advance upon execution of this Lease, and shall be applied as a credit against installment(s) of Monthly Base Rent due hereunder. If the Commencement Date does not occur by the Deadline Date and the cause of the delay in the occurrence of the Commencement Date is not attributable to Tenant’s interference with Landlord’s completion of the Initial Improvements (it being understood that Tenant shall not be entitled to an abatement of Monthly Base Rent for each day of any such delay attributable to Tenant’s interference), then the Monthly Base Rent provided and reserved in section (a) above shall be abated one (1) day for each day of delay in delivery of the Premises to Tenant beyond the Deadline Date. In addition, Tenant will be entitled to a credit of Fifty Thousand Dollars ($50,000.00) against Monthly Base Rent hereunder (the “ Incentive Credit ”), to be applied against payments of Monthly Base Rent until such Incentive Credit is exhausted.

(c) The installments of rent specified herein shall be paid, without deduction or offset, and without prior notice or demand, except as otherwise specifically provided herein, to Landlord at 1590 Drew Avenue, Suite 200, Davis, California 95618 , or at such other address as Landlord may from time to time specify by written notice to Tenant. All amounts of money payable by Tenant to Landlord hereunder, if not paid within a ten (10) day grace period commencing when due, shall bear interest from the due date until paid at the rate of 7% per annum or the highest amount allowed by applicable law, whichever is less.

(d) On the first anniversary date of the Commencement Date, (or, in the event said first anniversary date occurs on a date other than the first day of a calendar month, on the first day of the thirteenth (13 ^th ) full calendar month of the Term of this Lease,) and on each succeeding anniversary date thereof, the Monthly Base Rent for the next succeeding twelve-month period of the Term of this Lease shall be increased by three percent so that the Monthly Base Rent for the following twelve (12) month period will be one hundred three percent (103%) of the Monthly Base Rent in effect in the month immediately preceding the month in which the adjustment occurs as follows:


Months or Period	Monthly Base Rent
Months 1-12*	$	27,900.00	*
Months 13-24	$	28,737.00
Months 25-36	$	29,599.11
Months 37-48	$	30,487.08
Months 49-60	$	31,401.70

*	(plus the prorated portion for any partial month due at the commencement of the Term).

3. Security Deposit .

(a) Landlord hereby acknowledges receipt from Six Davis, LLC of Tenant’s funds in the amount of Twenty Thousand Dollars ($20,000.00) (the “ Security Deposit ”), comprising a portion of the $100,000.00 security deposit held by Six Davis, LLC from Tenant under the Lease dated September 9, 2013. The Security Deposit will be held by Landlord as the Security Deposit hereunder.

(b) Tenant shall have the option to deliver, in lieu of cash a Letter of Credit (as defined herein), in the amount of the Security Deposit, on or before the Deposit Date. The Security Deposit, whether delivered in the form of cash or a Letter of Credit shall serve as security for the full and faithful performance of Tenant’s obligations under this Lease. Tenant agrees and acknowledges that any Security Deposit is not an advance rent deposit or advance payment of any kind, nor any measure of Landlord’s damages upon default. Within thirty (30) days after expiration of the Term or earlier termination, the Security Deposit shall be returned to Tenant, reduced by those amounts that may be required by Landlord to remedy defaults (beyond any applicable notice and cure periods) on the part of Tenant in the payment of Rent, to repair damages to the Premises caused by Tenant, to clean the Premises to the extent the Premises are not left in the condition required under this Lease and for any other cost or expense to which Landlord may be permitted to apply such Security Deposit under this Lease and applicable law. If any amount of the Security Deposit is applied by Landlord to cure any default (beyond any applicable notice and cure periods) hereunder, then within ten (10) days after written notice from Landlord of such application (which shall include a description of the obligation that the Security Deposit was applied to satisfy), Tenant shall deliver to Landlord a payment sufficient to restore the Security Deposit to the amount specified subsection (a), as reduced pursuant to subsection (f), below.

(c) Tenant may elect to deliver an irrevocable, unconditional letter of credit, in form and substance reasonably satisfactory to Landlord and drawn on a bank reasonably satisfactory to Landlord in lieu of the cash Security Deposit hereunder (a “ Letter of Credit”) . Landlord confirms that Five Star Bank, a New York state chartered community bank, is a satisfactory issuing bank of the Letter of Credit, provided the Letter of Credit shall provide that it shall be drawable at a Five Star Bank branch location in Northern California. Any Letter of Credit shall be in the amount of the Security Deposit from time to time as may be reduced pursuant to subsection (f), below and shall have an expiration date no earlier than the expiration of the Term, or if the expiration date shall occur prior to the expiration of the Term, such Letter of Credit shall be replaced as provided in subsection (d), below, prior to the expiration thereof.

(d) Tenant shall provide a replacement Letter of Credit at least forty-five (45) days prior to the expiration date of any then effective Letter of Credit, which meets the requirements of this Lease. If Tenant fails to provide such replacement Letter of Credit, and such failure continues for ten (10) days after Tenant receives written notice from Landlord or any First Lender of such nonrenewal, Landlord may present, or cause to be presented, any Letter of Credit then held by Landlord for payment, and hold the cash proceeds thereof as security for the performance by Tenant of its obligations under this Lease, subject to the other terms and conditions of this Paragraph 3 .

(e) Any portion of the Security Deposit not applied to cure a Tenant default (beyond any applicable notice and cure periods) hereunder, for the prepayment of Rent, or for any other purpose permitted under this Lease shall be paid over to Tenant (or if the Security Deposit is held in the form of a Letter of Credit, the original Letter of Credit shall be returned) within thirty (30) days after expiration of the Term or earlier termination hereof. Landlord shall hold the Security Deposit for the foregoing purposes; provided, however, that Landlord shall have no obligation to segregate the Security Deposit from its general funds or to pay interest thereon. Tenant hereby waives any and all rights it may have under Section 1950.7, of the Civil Code, or any successor thereto that are inconsistent with the provisions of this Lease. If Landlord conveys or transfers its interest in the Premises, and as a part of such conveyance or transfer, assigns its interest in this Lease, the Security Deposit, or any portion thereof not previously applied, shall be transferred to Landlord’s successor, and Landlord shall be released and discharged from any further liability to Tenant with respect to such Security Deposit.

(f) Notwithstanding the foregoing, the amount of the Security Deposit shall be reduced to Ten Thousand Dollars ($10,000.00) , on and after the expiration of the twelfth (12 ^th ) full calendar month , so long as no event of default (beyond applicable notice and cure periods) by Tenant under this Lease then exists as of the date of the relevant reduction of the Security Deposit and the date any excess Security Deposit is to be returned hereunder. Such reduction may be accomplished by amendment of the Letter of Credit, provided the Letter of

Credit otherwise complies with the provisions of this Lease. If the Security Deposit is held as cash, within ten (10) business days following the date of the relevant reduction of the Security Deposit, Landlord shall pay to Tenant any excess held by Landlord over the required amount of the Security Deposit, as so reduced. If Landlord does not timely pay Tenant such excess, Tenant shall have the right to credit such excess against future payments of Monthly Base Rent under this Lease, in addition to other remedies Tenant may have at law or in equity arising from Landlord’s failure to timely pay.

4. Improvement of the Premises .

(a) As used in this Paragraph, “ Initial Improvements” shall collectively refer to any improvements to the Premises to be constructed by Landlord pursuant to Exhibit C and “ Substantial Completion” means the date any such Initial Improvements are complete, except for minor or “punchlist” items and the Premises may be legally occupied by Tenant. Landlord will use reasonable efforts to provide Tenant with at least fifteen (15) days’ advance notice of the date of Substantial Completion. Tenant will in no event be required to remove at the expiration of the Term any Tenant Improvements covered by Approved Working Drawings (as defined in Exhibit C) and constructed by Tenant pursuant to Exhibit C and approved by Landlord.

5. Use of the Premises. Tenant may use the Premises only for administrative, executive, and research and development purposes, and for sales (excluding on-site retail sales), including without limitation sales of biopesticides, as well as plant testing in the Greenhouse (as defined herein) and for no other use or purpose without the prior written consent of Landlord. No use shall be made of the Premises which will increase the existing rate of insurance on the Buildings or cause the cancellation of any insurance policy covering the Buildings. Tenant shall not commit or suffer to be committed any waste upon the Premises or any public or private nuisance or any other act or thing which may disturb the quiet enjoyment of any other tenant in the Building, and shall not use the Premises for any purpose or use that is deemed to be in violation of any of the laws, ordinances, regulations or rules of any public authority.

6. Parking and EV Improvements.

(a) The Landlord shall provide parking in the areas shown on the site plan attached as Exhibit A , hereto, during normal business hours, for the use of Tenant on a non-exclusive basis, without charge, unless Landlord is required to impose a charge pursuant to applicable laws. Said parking spaces shall be used for parking vehicles no larger than full sized passenger automobiles or pick-up trucks unless the prior consent of Landlord is obtained for the parking of any other type of vehicle. Tenant will not service, or store, nor shall it allow any of its employees to service or store overnight any vehicles in the parking areas, except that Tenant may park overnight and store up to three (3) company-owned cars, vans or pickup trucks or trailers, including one or more light duty trailers suitable for transporting one or more ATV’s and/or one or more spray rigs (but not heavy duty tractor-trailers or trailers) in the parking areas, provided no such vehicles and/or trailers shall obstruct the drive aisles or access to parking in the Office Park or otherwise unreasonably interfere with, or burden the use of the parking facilities by other tenants of the Office Park. Tenant and its employees shall comply with all reasonable rules and regulations promulgated from time to time by Landlord relating to the use of the parking area.

(b) Tenant may request, and Landlord will not unreasonably withhold its consent to the installation of one or more EV charging stations in the parking areas of the Office Park to be used by Tenant’s vehicles, provided: (a) Landlord and Tenant will reasonably agree on the location and number of such charging stations; (b) any and all such charging station installations shall comply with all laws; (c) Landlord will reasonably cooperate with Tenant, at no cost to Landlord, to obtain all permits and approvals necessary to install such charging stations, provided the approvals will be obtained at Tenant’s cost; (d) Tenant will pay any and all costs of installing and maintaining such charging stations and will pay Landlord the reasonable cost of utilities used by such charging stations, as reasonably estimated and documented by Landlord, within thirty (30) days after Landlord shall present an invoice covering such costs; and (e) if requested by Landlord, Tenant will remove such charging stations at the expiration of the Term and will restore any part of the Parking Area damaged by such removal.

7. Repairs and Maintenance by Tenant. Except as otherwise provided in Paragraphs 9, 20 and 21 of this Lease, and subject to Paragraph 16 hereof, Tenant agrees at its expense to maintain the interior of the Premises in good condition and repair throughout the Term of this Lease, reasonable wear and tear, matters which are the

responsibility of Landlord hereunder, and damage by fire or other casualty excepted. Landlord has no obligation and has made no promise to alter, remodel, improve, repair, decorate or paint the Premises or any part thereof; nor have any representations respecting the condition of the Premises or the Buildings been made by Landlord to Tenant, except as specifically herein set forth. Tenant shall be responsible for plumbing service calls for maintenance resulting from Tenant’s improper acts or misuse of the plumbing system serving the Premises. Within the Premises, Tenant shall be responsible for the cost of any janitorial service, and for replacement and installation of light bulbs and tubes in the Premises. Tenant shall cause the Premises to be cleaned with sufficient frequency to preserve the neat, clean appearance of the Premises, consistent with the quality of the Office Park.

8. Utilities and Services – Buildings and Site.

(a) Landlord shall provide site exterior lighting.

(b) Landlord, at no expense to Tenant, shall maintain the parking area adjacent to the Buildings including associated landscaped and parking areas and the access ways thereto, in a clean and orderly condition, and shall replace any broken plate glass windows or doors in the Buildings, unless such breakage is caused by Tenant’s or its agents’, employees’, customers’ or invitees’ improper acts or misuse of the Premises, in which case Tenant will pay the cost of repair of any such damage. Landlord shall not be liable, however, for either the failure, or delay, to furnish any of the services or utilities specified in this Paragraph 8 , or the curtailment of such services or utilities, when such failure or curtailment is caused by conditions beyond the reasonable control of Landlord or by accidents, strikes, repairs or improvements to Premises, or to the Buildings, nor shall any such failure constitute a constructive eviction of Tenant, entitle Tenant to the abatement of rent, relieve Tenant from observing and performing any of the provisions of this Lease, or any other claims against Landlord. Landlord is not responsible for any maintenance of the Greenhouse. Notwithstanding the foregoing or anything to the contrary contained in this Lease (but subject to the last sentence of this subsection (b)), Tenant shall cease to occupy, and shall not in fact use, any Premises located in a Building because such Premises have become unsuitable for Tenant’s use as a consequence of a cessation of utilities or services not caused by Tenant or any of its agents, employees or contractors for a period exceeding five (5) consecutive days, or the presence of any Hazardous Materials not introduced to the Office Project by Tenant or any of Tenant’s employees, agents, contractors or invitees that shall have a material and adverse effect on Tenant’s ability to occupy its Premises in the relevant Building, then Tenant shall be entitled to an abatement of all rent payable hereunder for so long as Tenant does not in fact use the relevant Premises because the Premises have become unsuitable for Tenant’s use, and Monthly Base Rent shall be abated based on the proportion that the Premises so affected bears to the total Premises leased hereby. If such interference cannot be corrected or the damage resulting therefrom repaired so that the entire Premises will be reasonably suitable for Tenant’s use within one hundred twenty (120) days after the occurrence of such event and Tenant does not in fact use the entire Premises for the conduct of its business during the entirety of such period, then Tenant also shall be entitled, at the end of such one hundred twenty (120) day period for a period of ten (10) business days hereafter to terminate this Lease (and receive a full refund and return of its deposits and any prepaid rent) by delivery of written notice of termination to Landlord, unless the interfering event is abated prior to the date Tenant gives notice. Any casualty or damage to the Premises shall be governed by Paragraph 20 hereof.

(d) Subject to applicable laws, Landlord will provide reasonable amounts of water for the uses contemplated at the Premises, which shall be separately metered.

(e) Tenant shall pay its own janitorial, gas and electricity costs for the Premises, and Landlord shall bear no responsibility to supply such utilities or services, other than water as noted in subsection (d), above. All such utilities shall be separately metered to one or more portions of the Premises. Tenant shall cause the Premises to be cleaned with sufficient frequency to preserve the neat, clean appearance of the Premises.

(f) Landlord shall provide Tenant with keys to the Premises, and otherwise provide Tenant with access to the Premises twenty four (24) hours per day, seven (7) days per week, subject to any temporary closure as reasonably required for Landlord to carry out its repair obligations hereunder, the effect of casualty, and disaster, riot, public disturbance or other cause prevalent in the area of the Premises that shall result in closure of similar buildings located in the area of the Premises.

9. Repairs by Landlord. Except as otherwise provided in Paragraph 20 hereof, Landlord agrees at no expense to Tenant to maintain in good condition and repair throughout the Term of this Lease the roof and roofing, exterior walls, foundations columns, footings, load bearing walls, subfloors and the landscaping, parking, sidewalk and other exterior areas of the Buildings, as well as the HVAC, plumbing, electrical, life safety and all other main building systems serving the Premises and Buildings, and the pipes and conduit for the plumbing, gas lines, electric wiring and the fire protection loop to the point of entry to the Premises, and the lighting ballasts located in the Buildings, when such repair or replacement is necessitated, other than through the improper acts or misuse of such systems or facilities by Tenant, subject to Paragraph 11 concerning waiver of subrogation rights. Landlord shall not be responsible for damage to, or destruction of, property located on the Premises by reason of defects in those portions of the Premises which Landlord is obligated to maintain or replace, except for the warranties specified in Exhibit C. Notwithstanding the foregoing, Landlord will have no obligation to maintain or repair the equipment yard adjacent to 1530 Drew Avenue, or any fixtures or equipment located in such equipment yard.

10. Entry by Landlord. Tenant agrees to permit Landlord to enter the Premises accompanied by Tenant and subject to Tenant’s reasonable security requirements, at reasonable times, with reasonable advance notice to Tenant of not less than one (1) business day, for the purpose of inspecting the same, showing the Premises to prospective purchasers, mortgagees, or tenants (during the last one hundred eighty (180) days of the Term only, unless Tenant does not exercise the Option to Extend provided in Paragraph 42 hereof, in which case Landlord will have access for such purposes beginning on the latest date that Tenant could exercise the Option to Extend, subject to the terms and provisions hereof), making any necessary repairs or additions to the Premises or the Premises of another tenant or to the Buildings and performing any work therein that may be necessary to comply with any laws, ordinances, rules, regulations or requirements of any public authority or of the Board of Fire Underwriters or any similar body, or that Landlord may reasonably deem necessary to prevent waste or deterioration in connection with the Premises, including without limitation any repairs or other work which Tenant is obligated to make or perform under the terms of this Lease and which Tenant has failed or neglected to make or perform after receipt of written demand by Landlord (and the expiration of any applicable cure periods for default hereunder) that the same be made or performed. In the event Landlord performs any work which Tenant is obligated to perform under the terms of this Lease, Tenant shall pay to Landlord, within thirty (30) days from the date of receipt by Tenant of a statement therefore, the cost incurred by Landlord in performing the same. Nothing herein shall imply any duty on the part of Landlord to do any such work which, under any provision of this Lease, Tenant may be required to perform and the performance thereof by Landlord shall not constitute a waiver of any default by Tenant in failing to perform the same. Landlord may, during the progress of any work in the Premises, keep and store upon the Premises all necessary materials, tools, and equipment. Landlord shall not be liable for inconvenience, annoyance, disturbance, loss of business or other damage to Tenant by reason of making repairs or the performance of any work in the Premises, or on account of bringing materials, supplies and equipment to or through the Premises during the course thereof, and the obligations of Tenant under this Lease shall not thereby be affected in any manner whatsoever, provided that that Landlord employs commercially reasonable efforts to minimize interference with the conduct of Tenant’s business in connection with its entries into and/or work within the Premises.

11. Insurance. At all times during the Term of this Lease, Tenant shall maintain in force, at its sole cost and expense, public liability insurance with combined single limits of $1,000,000 per occurrence and $2,000,000 aggregate. Tenant shall also procure and keep in effect during the Term, fire and extended coverage for its furniture fixtures, and equipment, merchandise, leasehold improvements made or constructed by Tenant, inventory, and all other items of Tenant’s property on the Premises, written on a Specified Perils Form basis. Such policy or policies shall be with insurers having a Best Insurance Guide Rating of A-:VII or better and licensed to do business in California. Such policy or policies of insurance shall be with insurers and in such form as Landlord may reasonably approve and each such policy shall name Landlord, the Shimon ben Joseph Foundation and Interland, LLC, as additional insureds thereunder. All liability policies shall be primary and not contributing as to any coverage maintained by Landlord. Without limiting the foregoing, Landlord and all required additional insureds shall be shown as “certificate holders” under any certificate of coverage issued in connection with Tenant’s liability policies. Any additional insured endorsements to Tenant’s policy required to effect the foregoing coverages shall provide coverage at least equivalent to ISO Form CG 20 10 (with respect to Landlord, unless coverage is provided under ISO Form CG 20 11 or equivalent coverage); ISO Form CG 20 11 (with respect to Landlord and Landlord’s property manager) and ISO Form CG 20 26 (with respect to any entity other than Landlord or its property manager that Landlord shall require be named as an additional insured). Without limiting the foregoing, any endorsement

provided to Landlord hereunder to evidence additional insured liability coverage shall expressly provide that it shall cover the concurrent negligence of the additional insured. Tenant shall carry commercially reasonable insurance deductibles. Any self-insurance provisions under any insurance policies maintained by Tenant that are not specifically provided in the foregoing provisions shall be subject to Landlord’s prior written approval. Each such property insurance policy shall contain a waiver by the insurer thereunder of its right of subrogation against Landlord. If an agreement to provide notice of cancellation to Landlord shall be available from any insurer providing the above policies, at no cost to Tenant, then the relevant policy shall provide that it may not be cancelled or the limits of coverage materially changed, without at least ten (10) days’ prior written notice to Landlord. If any relevant insurer will not agree to notify Landlord of cancellation, or such agreement is only available at additional cost to Tenant, then Tenant will provide Landlord a copy of any notice or invoice from the insurer relating to cancellation of any relevant coverage for nonpayment or any other reason, within five (5) business days after Tenant receives any such notice relating to cancellation from its insurer. Tenant shall promptly deliver a copy of certificates of insurance manifesting the required coverage, to Landlord. Notwithstanding anything to the contrary contained in this Lease, Landlord and Tenant hereby mutually waive their respective rights of recovery against each other and their respective agents, employees and approved subtenants, for any loss of, or damage to, either parties’ property that arises out of or incident to any peril which is actually insured against, which is required to be insured against under this Lease, or which would normally be covered by so called “all risk” or “special form” property insurance, without regard to the negligence or willful misconduct of the entity or party so released or any other cause. Each party shall obtain any special endorsements, if required by its insurer whereby the insurer waives its rights of subrogation against the other party.

12. Non-Liability of Landlord. Tenant shall defend, indemnify, hold and save Landlord free and harmless from any and all liability or damage caused to property or to persons in or about the Premises arising from the use of the Premises, Buildings or Office Park by Tenant or its agent, employees or invitees; provided, however, that Tenant shall have no obligation to indemnify, defend, hold or save Landlord free or harmless from any such all liability or damage to the extent it is caused by negligence (unless covered by Tenant’s liability insurance, including, without limitation, by operation of the “additional insured” provisions thereof), or willful misconduct of Landlord or any of Landlord’s agents, employees or contractors, or Landlord’s violation of applicable law . Landlord shall not be liable for any damage, loss or injury to the property of Tenant, or any other person, suffered on, in or about the Premises by reason of the condition of the Premises, by reason of fire, earthquake, action of the elements, or any other casualty, or by reason of the act of Tenant, its agents or employees, or third persons.

13. Alterations. Tenant shall not make or permit to be made any material alterations, changes or additions in or to the Premises without prior written consent of Landlord; it being understood that Landlord’s consent shall not be required for any alterations, changes or improvements that satisfies all of the following criteria (a “Permitted Alteration”): (i) will not cost more than Twenty Five Thousand Dollars ($25,000.00) in any year; (ii) is not visible from the exterior of the Premises or Buildings; and (iii) it will not affect the structural elements of the Buildings or the systems serving the Building. Such consent shall not be unreasonably withheld. Any such approved changes or additions shall be done either by or under the direction of Landlord at the cost of Tenant, and excepting any trade fixtures shall become immediately the property of Landlord, and shall remain upon and be surrendered with the Premises upon expiration or earlier termination of the Term of this Lease. Any movable furniture remaining on the Premises at the end of the Term hereof shall be removed by Tenant or if not so removed, shall, at the option of Landlord, become the property of Landlord, and may be sold or retained by Landlord without duty to pay Tenant any amount or account to Tenant for the proceeds of any sale. Tenant hereby waives the provisions of Civil Code 1980-1991 at they may apply to any disposition of any personal property remaining at the Premises after a default and agrees that (a) this Lease shall be a bill of sale with respect to any personal property remaining on the Premises and (b) sale or other disposition of such personal property conducted in accordance with this Lease shall be an accepted method of disposing of such personal property in lieu of the method provided by Sections 1980-1991 of the Civil Code.

14. Signs . Tenant will be entitled to Building standard signage on the door to the Premises where the portions of the Premises are located. Tenant will also be entitled to exterior signage on the terms and conditions provided in Paragraph 47 , below.

15. Liens. Tenant shall keep the Premises and the Buildings free from any and all liens and claims arising out of any work performed, materials furnished or obligations incurred by or for the account of Tenant.

16. Compliance With Regulations. At all times during the Term of this Lease, Tenant shall comply with and conform to all laws, ordinances, regulations, requirements and orders of all municipal and governmental bodies which relate in any manner to the use or occupancy of the Premises; provided, however, that Landlord, not Tenant, shall be required to perform and pay for any alterations or improvements to the Premises or Buildings that are required to comply any such laws, ordinances, regulations, requirements and orders unless such alterations or improvements shall be necessitated or occasioned, in whole or in part, by any alterations or improvements to the Premises made and paid for by Tenant, or by the particular use of the Premises (as opposed to office and research and development uses by tenants in general) by Tenant. The judgment of any court of competent jurisdiction or the admission by Tenant in any action or proceeding against Tenant, whether Landlord by a party thereto or not, that Tenant has violated any such law, ordinance, requirement, or order in the use of the Premises, shall be conclusive of that fact as between Landlord and Tenant.

17. Personal Property Taxes. Tenant agrees to pay, before delinquency, any and all taxes levied or assessed against the equipment, furniture, fixtures and other personal property of Tenant located on or about the Premises at any time during the Term of this Lease.

18. Rules and Regulations. At all times during the Term of this Lease, Tenant shall comply with the rules and regulations for the Buildings which are attached as Exhibit C hereto and incorporated herein by reference. Tenant agrees that Landlord shall have the right to make reasonable amendments to said rules and regulations and to promulgate new, reasonable rules and regulations applicable to all tenants in the Buildings which relate to their use and occupancy thereof. Landlord shall not be responsible to Tenant for the nonperformance by any other tenant or occupant of any of said rules and regulations. To the extent there is any inconsistency between any such rules and regulations and the remaining terms and conditions of this Lease, the remaining terms and conditions of this Lease shall govern and control.

19. Assignments and Subletting .

(a) Tenant shall not assign this Lease or any interest hereunder, and shall not sublet the Premises or any part thereof, or any right or privilege appurtenant thereto, or suffer any person other than the agents and employees of Tenant to occupy the Premises, or any portion thereof, without the prior written consent of Landlord, which consent shall not be unreasonably withheld. Tenant will reimburse Landlord for any reasonable, out-of-pocket legal fees or for any other expense incurred as a consequence of Tenant’s request for approval of such assignment or subletting. The consent of Landlord to one assignment, subletting or occupation by any other person, shall not be deemed to be a consent by Landlord to any subsequent assignment, subletting or occupation by another person. Any such assignment or subletting without such consent shall be void and shall, at the option of Landlord, be deemed to be an event of default under the provisions of Paragraph 25 hereof. Neither this Lease nor any interest herein shall be assignable, as to the interest of Tenant, by operation of law, without the prior written consent of Landlord, which consent shall not be unreasonably withheld. The foregoing notwithstanding, Tenant shall be allowed to assign, sublease or transfer this Lease without Landlord’s approval to a wholly owned subsidiary, affiliate, or related company.

(b) If at any time during the Term of this Lease, Tenant desires to sublease or assign all or any part of the Premises, Tenant shall give notice to Landlord setting forth the terms of the proposed sublease or assignment and the space so proposed to be subleased or assigned. Within fifteen (15) days following Landlord’s receipt of Tenant’s notice of its intent to sublease, Landlord shall provide to Tenant its written approval or disapproval. A failure of Landlord to respond to Tenant in writing within such fifteen (15) day period shall be deemed Landlord’s consent of the proposed sublet or assignment defined in Tenant’s notice.

(c) No sublease or assignment shall be valid and no sublease or assignee shall take possession of the Premises until an executed counterpart of such sublease or assignment has been delivered to Landlord.

(d) Regardless of Landlord’s consent, no subletting or assignment shall release Tenant of Tenant’s obligation or alter the primary liability of Tenant to pay the rental and to perform all other obligations to be performed by Tenant hereunder

(e) The provisions of this Paragraph notwithstanding, Tenant may assign or otherwise transfer its interest in and to this Lease and/or sublet the Premises or any part thereof to any Affiliate of Tenant without the necessity of obtaining the consent of Landlord. In the event that Tenant sublets the Premises or any part thereof to an Affiliate of Tenant in accordance with this Paragraph 19(e) , Tenant shall remain primarily liable with respect to its obligations under this Agreement and, as to sublettings to Affiliates. Tenant shall provide Landlord with notice identifying any successor Affiliate under this provision (which shall include a certified copy of the organizational documents of such entity and evidence of qualification to do business in California, if such entity is not a California entity and qualification to do business in California is legally required for such entity), together with a copy of the assumption documentation required under this Paragraph, within thirty (30) days after any transfer under this subparagraph (e). As used herein, “ Affiliate ” means (A) any corporation, partnership or limited liability company which directly or indirectly controls or is controlled by or is under common control with Tenant (for this purpose, “control” shall mean the possession, directly or indirectly, of both the power to direct or cause the direction of the management and policies of the entity, whether through the ownership of voting securities or partnership shares or by contract or otherwise, when combined with the ownership, directly or indirectly, of not less than fifty percent (50%) of all classes of the then outstanding stock, if the entity is a corporation, or of fifty percent (50%) of all classes of the profit interests, if the entity is a partnership or a limited liability company); or (B) a corporation into which or with which Tenant, its corporate successors or assigns, is merged or consolidated in accordance with the applicable statutory provisions for merger or consolidation of corporations, but only if, by operation of law or by effective provisions contained in the instruments of merger or consolidation, the liabilities and obligations of the corporations participating in such merger or consolidation are assumed by the corporation surviving the merger or created by such consolidation; (C) any partnership or limited liability company into which Tenant is merged in accordance with the applicable statutory provisions for the merger of partnerships or limited liability companies; or (D) any corporation, partnership or limited liability company acquiring the leasehold interest of Tenant under this Lease and substantially all of the other property and assets of Tenant. In addition, Tenant may, without consent of but with notice to Landlord, sublease no more than twenty five percent (25%) of the leaseable area of the Premises to any entity with whom Tenant is undertaking or will undertake a joint venture or similar joint research and development, marketing, distribution, sales or development project at the Premises, so long as any improvements made for the benefit of the subtenant, including, without limitation, any such improvements that may be required to separately demise the subleased premises, will be subject to Landlord’s approval under Paragraph 13 hereof.

20. Damage to the Premises .

(a) In the event any portion of the Premises is damaged by fire, earthquake, action of the elements or any other casualty, and such damage can be repaired and the Premises restored to their former condition within one hundred eighty (180) days from the date of such damage, then, unless otherwise provided in subparagraph (b) hereof, Landlord shall, at its expense, proceed immediately to make such repairs. However, Landlord’s obligation to repair shall not include any alterations, improvements, or additions to the Premises made by Tenant or any of Tenant’s furniture, equipment or other personal property. Such partial destruction shall not serve to terminate this Lease, but Tenant shall be entitled to a proportionate abatement of the installments to rent payable during the period commencing on the date of such partial destruction and ending upon completion of all such repairs or the termination of this Lease, which abatement shall be based upon the portion of the Premises rendered unsuitable for use by Tenant during such period.

(b) In the event (i) any portion of the Premises is damaged by fire, earthquake, action of the elements or any other casualty, and such damage cannot be repaired and the Premises restored to their former condition within one hundred eighty (180) days from the date of such damage, (ii) the Buildings are damaged by any such casualty and the cost of repairing such damage will exceed fifty percent (50%) of the replacement cost (exclusive of foundations) of the Buildings, or (iii) such damage exceeds $100,000 and is not covered by the property insurance Landlord is required to carry under this Lease or actually carries on the Buildings (excluding any deductibles carried by Landlord), Landlord may, at its option, elect to terminate this Lease as of the date of the occurrence of such damage, provided if Landlord elects to so terminate, Tenant may, within ten (10) business days after it receives Landlord’s notice, notify Landlord that it wishes to fund any deficiency required to reconstruct the Premises (a “ Notice of Reconstruction ”) . In the event Landlord fails to exercise said option to terminate by written notice to Tenant within thirty (30) days from the date of occurrence of such damage, Landlord shall promptly undertake to restore the Premises and the Buildings to their former condition. Tenant shall be entitled to a proportionate abatement of the installments of rent payable during the period commencing on the date of such damage and ending

upon completion of all such repairs or the termination of this Lease, which abatement shall be based upon the portion of the Premises rendered unsuitable for use by Tenant during such period. If Tenant delivers a Notice of Reconstruction, then Landlord and Tenant will have forty five (45) days following the date of delivery of the Notice of Reconstruction to agree on the cost of reconstruction and the security to be provided by Tenant for payment of such costs and manner of disbursement thereof, which may include, without limitation, deposit of funds with Landlord sufficient to effect such reconstruction within a time to be agreed between the parties following the conclusion of negotiations, to be disbursed upon conditions to be satisfactory to both parties. If at the end of such forty five (45) day period, the parties are unable, despite good faith efforts, to agree upon the reconstruction cost or the manner in which the costs of reconstruction are to be funded by Tenant, then Landlord may terminate the Lease by written notice to Tenant. If Tenant shall fail to fund reconstruction as required under any agreement between the parties related to reconstruction, or if the parties agree that Tenant shall perform the restoration, and Tenant fails to restore as agreed, such failure will be a default under this Lease after applicable notice and cure periods.

(c) Notwithstanding the provisions of subparagraphs (a) and (b) of this Paragraph 20 , in the event any portion of the Premises is damaged by fire, earthquake, action of the elements or any other casualty, and (i) such damage cannot be repaired and the Premises restored to their former condition within one hundred eighty (180) days from the date of such damage, and Landlord does not exercise its right to terminate the Lease under subsection (b), above, then Tenant shall have the right to terminate this Lease by written notice to Landlord within sixty (60) days from the date of such damage or (ii) if neither Landlord nor Tenant has elected to exercise a right such party may have under this Paragraph 20 to terminate this Lease, and for any reason the repairs to the Premises are not completed within two hundred seventy (270) days after the date of such damage, and such repairs remain incomplete within thirty (30) days after Landlord’s receipt of Tenant’s notice, then at any time thereafter until such damage is fully repaired, Tenant may terminate this Lease by a further notice to Landlord, and in either case, after Tenant has paid any rents, costs or fees that are past due, Tenant shall have no further obligation to pay rent under this Lease.

21. Condemnation. In the event all or a substantial portion of the Premises shall be taken or condemned under power of eminent domain, or by purchase in lieu thereof, this Lease shall terminate as of the date possession of that portion of the Premises so taken, condemned or purchased is surrendered to the condemning or purchasing authority or body. If this Lease is not terminated, (i) Monthly Base Rent and all other elements of this Lease which are dependent upon the area of the Premises or the Buildings shall be appropriately adjusted to account for any reduction in the square footage of the Premises or Buildings, as applicable; and (ii) Landlord, at Landlord’s expense, shall make all necessary repairs to the Premises or Buildings so as to constitute the remaining Premises a complete architectural unit. If this Lease is terminated under this Paragraph 21 , all compensation awarded or paid upon such condemnation or purchase shall belong to and be the sole property of Landlord; provided, however, that any portion of the compensation awarded or paid for or on account of any moving and relocation costs for Tenant, loss of business or goodwill by Tenant or for damage to, or the cost of removal or relocation of, the furniture, fixtures and equipment of Tenant, shall be paid to and retained by Tenant.

22. Subordination and Attornment . Tenant agrees that it shall, promptly upon the request of Landlord at any time or times during the Term of this Lease, execute and deliver such documents and other instruments as Landlord may reasonably require and as may otherwise be reasonably satisfactory to Tenant, to cause this Lease to be and become subject and subordinate to any mortgage or deed of trust, and any renewal, extension, replacement or modification thereof, covering the real property on which the Buildings are located, provided that such mortgage or deed of trust shall contain provisions to the effect that so long as Tenant shall not be in default (beyond any applicable notice and cure periods) in the performance of any obligations to be performed by Tenant hereunder, the mortgagee, trustee or beneficiary, as the case may be, shall not terminate this Lease or the interest of Tenant in the Premises through foreclosure of such mortgage or deed of trust, and shall not disturb the possession and use of the Premises by Tenant. In connection with the foregoing, a subordination, nondisturbance and attornment agreement in the form of Exhibit D, with no material modifications shall be deemed satisfactory to Tenant. Tenant agrees that in the event of the enforcement, by judicial foreclosure, exercise of the power of sale, or otherwise, of any mortgage or deed of trust covering the real property on which the Buildings are located by the mortgagee, trustee or beneficiary thereunder of thereof, as the case may be, Tenant shall automatically become the lessee of any successor in interest in title to said real property as a result of such enforcement, without change in the terms of this Lease. Tenant further agrees that upon request of any such successor in interest, Tenant will execute and deliver to such successor in interest an instrument or instruments confirming such attornment.

23. Estoppel Certificate. Tenant agrees that it shall, from time to time at the request of Landlord, and within ten (10) days after such request, execute, acknowledge and deliver to Landlord a statement in writing certifying, if such be the case, that this Lease is unmodified and in full force and effect or, if this Lease has been modified, that it is in full force and effect as so modified, the date of commencement of the Term of this Lease, the due date of the last installment of rent paid by Tenant to Landlord, and such other information as Landlord may reasonably request. Tenant understands that any such statement may be delivered by the Landlord to, and relied upon by, prospective purchasers of any of the Buildings and by existing or prospective mortgagees or beneficiaries under mortgages or deeds of trust covering the Buildings in which the Premises are located.

24. Holding Over. In the event Tenant shall hold the Premises after the expiration of the Term hereof with the express or implied consent of Landlord, such holding over shall be deemed to have created a tenancy from month to month, terminable on thirty (30) days notice by either party to the other, at a monthly rental equal to one hundred twenty-five percent (125%) of the Monthly Base Rent due for the last month of the Term, and otherwise subject to all of the terms and provisions of this Lease.

25. Default. In the event that:

(a) Tenant shall default in the payment of rent or any other amounts required hereby to be paid by Tenant to Landlord hereunder, including, without limitation, any failure by Tenant to restore the Security Deposit when required hereunder, when the same shall become due, or shall fail to deliver a replacement letter of credit when required under Paragraph 3 hereof, and such default shall continue for a period of ten (10) consecutive days after Tenant’s receipt of written notice of delinquency from Landlord, provided if Landlord is required to provide more than two (2) such notices in any twelve (12) month period then for twelve (12) months following the date of the first notice, Tenant will be in default if rent is not paid when due without any requirement of notice; or

(b) Tenant shall abandon the Premises for a period of thirty (30) consecutive days while it is in default of its monetary obligations under this Lease; or

(c) Tenant shall default in the performance of any obligation required to be performed by Tenant under this Lease (other than abandonment or the payment of rent or any other amounts required hereby to be paid by Tenant hereunder) and shall fail, for a period of twenty (20) days after written notice from Landlord specifying such default, to cure said default (unless such default cannot be cured within twenty (20) days , in which case Tenant shall commence to cure said default within said twenty (20) days and shall cure the same with all reasonable dispatch); or

(d) Tenant shall be in default, after notice and the expiration of all applicable cure periods under a certain Lease between Tenant and Six Davis, LLC dated September 9, 2013; or

(e) Tenant shall be adjudicated bankrupt or a petition by or against Tenant for reorganization or adjustment of its obligations under the Bankruptcy Act or any other existing or future insolvency or bankruptcy statute shall be approved, or Tenant shall make a general assignment of its property for the benefit of creditors, or a receiver or trustee shall be appointed to take control of the business or assets of Tenant, and any of the foregoing are not dismissed within sixty (60) days thereafter;

Then and in each such case Landlord may, at its option, terminate this Lease, or without terminating this Lease and to the extent allowed by applicable law and subject to all applicable legal due process requirements, re-enter the Premises and for the account of Tenant relet the same or any portion or portions thereof for all or any part of the unexpired Term of this Lease upon such terms and conditions as Landlord may elect. In the event of any such termination of this Lease by Landlord, Landlord shall be entitled to recover from Tenant (i) the worth at the same time of award of the unpaid rent which had been earned at the time of termination (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the Term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; and (iv) any other amount necessary to compensate Landlord for all detriment proximately caused by Tenant’s failure to perform Tenant’s obligations

under this Lease or which in the ordinary course of things would be likely to result therefrom. Efforts by Landlord to mitigate the damages caused by Tenant’s breach of this Lease shall not constitute a waiver by Landlord of its right to recover damages hereunder. The “worth at the time of award” of the amounts referred to in (i) and (ii) shall be computed with interest at ten percent (10%) per annum or the highest lawful rate, whichever is the lower. The “worth at the time of award” of the amount referred to in (iii) shall be based upon competent appraisal evidence and the lowest discount rate permitted under applicable law (or one percent (1%) above the “discount rate” in effect as published by the Federal Reserve Bank of San Francisco as of the date of default, if no such rate is provided). In the event of such reletting without terminating this Lease, Landlord shall be entitled to recover from Tenant monthly the difference between the monthly installments of rent and such other amounts as may be payable by Tenant to Landlord pursuant to the provisions hereof over the total monthly rental received by Landlord upon such reletting, after first deducting therefrom all expenses reasonably incurred by Landlord in such reletting and in repairing, renovation, remodeling and altering the Premises for the purpose of such reletting. Landlord shall not be deemed to have elected to terminate this Lease or the liability of Tenant to pay rent thereafter to accrue or its liability for damages under any of the provisions hereof by any such re-entry or by any action in unlawful detainer or otherwise to obtain possession of the Premises, unless Landlord shall have notified Tenant in writing that it has so elected to terminate this Lease. For purposes of this Paragraph 25 , the following shall not constitute termination of Tenant’s right to possession: (A) acts of maintenance or preservation or efforts to relet the Premises; or (B) the appointment of a receiver upon initiative of Landlord to protect the Landlord’s interest under this Lease. Nothing herein contained shall be construed as obligating Landlord to relet the whole or any part of the Premises. In the event of any entry or taking possession of the Premises in accordance with all applicable due process requirements under California law, Landlord shall have the right, but not the obligation to remove therefrom all or any part of the personal property located therein and may place the same in storage at a public warehouse selected by Landlord at the expense and risk of the owner or owners thereof. The remedies provided Landlord hereunder shall be cumulative and shall be in addition and supplemental to all other rights or remedies which Landlord may lawfully pursue in the event of any breach or threatened breach by Tenant of any of the provisions of this Lease.

(f) Landlord shall not be deemed in breach of this Lease unless Landlord fails within a reasonable time to perform an obligation required to be performed by Landlord. For purposes of this Paragraph 25(f), a reasonable time shall in no event be more than thirty (30) days after receipt by Landlord, and by any Mortgagee(s) whose name and address shall have been furnished to Tenant in writing for such purpose, of written notice specifying wherein such obligation of Landlord has not been performed; provided, however, that if the nature of Landlord’s obligation is such that more than thirty (30) days after such notice are reasonably required for its performance, then Landlord shall not be in breach of this Lease if performance is commenced within such thirty (30) day period and thereafter diligently pursued to completion. If Landlord is in default pursuant to this Paragraph 25(f) , and (i) such default materially and adversely impairs Tenant’s ability to use all or a substantial part of the Premises for its operations pursuant to the terms of this Lease, or (ii) poses a material and imminent risk to the health or safety of persons, then notwithstanding anything to the contrary contained in this Lease, Tenant may perform such obligations subject to the following terms and conditions:

(i) Tenant shall deliver to Landlord a written notice (“Self-Help Notice”) of Tenant’s intention to perform such obligations, which Self-Help Notice shall indicate Tenant’s intention to exercise its self-help rights and to perform such obligations which are otherwise Landlord’s responsibility hereunder (it being understood that not such additional notice or additional Landlord cure period shall be required if the default poses a material and imminent risk to the health or safety of persons). If Landlord fails to commence to cure its failure to perform within ten (10) days after receipt of the Self-Help Notice, Tenant may take whatever action is reasonably necessary to perform such obligations;

(ii) All work performed by Tenant or its agents in accordance with this Paragraph 25(f) must be performed at a reasonable and competitive cost and rate; and

(iii) Landlord shall reimburse Tenant for the reasonable costs of such performance incurred in accordance with the terms of this Paragraph 25(f) within thirty (30) days after Tenant’s submission to Landlord of receipted invoices therefor (accompanied by reasonable supporting documentation). If Landlord fails to reimburse Tenant within such thirty (30)-day period, then Tenant may withhold from future rentals due hereunder the sum owed Tenant, until Tenant is reimbursed in full for the sum plus interest at the rate of seven percent (7%) per annum or the highest amount allowed by applicable law, whichever is less.

26. Attorneys Fees. In the event any action or proceeding is instituted at any time by either party hereto against the other for the purpose of determining or enforcing the rights of either party, the party prevailing in such action shall be entitled to recover from the other party all costs reasonably incurred by the prevailing party in connection with such action or proceeding, including the reasonable fees of its attorneys as determined by the court.

27. Arbitration. At the option of either the Landlord or Tenant, any controversy or dispute arising under the terms or provisions of this Lease (with the exception of unlawful detainer, bodily injury/wrongful death, and foreclosure-related actions, and matters within Small Claims Court jurisdiction) shall be determined by arbitration. Such arbitration shall be conducted pursuant to the provisions of the laws of the State of California then in force applicable to such proceedings and to the extent not inconsistent therewith, the rules of the American Arbitration Association.

28. Waiver. No waiver of any default of Tenant or Landlord hereunder shall be implied from any omission by the other party hereto to take any action on account of such default, and no express waiver affect any default other than the default specified in the express waiver. Any waiver of any covenant, term or condition of this Lease by a party hereto shall not be construed as a waiver of any subsequent breach by such party of the same covenant, term or condition. The consent or approval by Landlord to any act by Tenant requiring the consent or approval of Landlord shall not be deemed to waive or render unnecessary the consent or approval of Landlord to any subsequent similar acts of Tenant.

29. Successors and Assigns. Subject to the provisions of Paragraph 19 hereof, this Lease and all of the provisions hereof shall bind and inure to the benefit of the successors and assigns of each of Landlord and Tenant.

30. Notices. Any notice or other written instrument relating to this Lease may be delivered personally to the party to whom such notice is addressed (delivery to the President, a Vice President, or the Secretary of such party to constitute personal delivery to such party), or may be mailed by registered or certified mail at the following address or at such other address as such party from time to time may designate by written notice:


TO LANDLORD:		Seven Davis, LLC 1590 Drew Avenue, Suite 200 Davis, CA 95616

TO TENANT:		Prior to the Commencement Date: Marrone Bio Innovations, Inc. 2121 Second Street, Suite B-107 Davis, CA 95618 Attn: Chief Financial Officer

		After the Commencement Date: Marrone Bio Innovations, Inc. At the Premises Attn: Chief Financial Officer

Any notice or other written instrument mailed as above provided shall be effective at the expiration of three (3) business days after deposit of the same, postage prepaid, in the United States mail at any place within the State of California.

31. Mortgage Holders Protection Clause. Tenant agrees to give any mortgagee, trustee or beneficiary, by registered mail, a copy of any notice of default, served upon the Landlord, provided that prior to such notice Tenant has been notified in writing (by way of Notice of Assignment of Rents and Leases, or otherwise), of the addresses of such mortgagees, trustees or beneficiaries. Tenant further agrees that if Landlord shall have failed to cure such default, then the mortgagees, trustees or beneficiaries shall have thirty (30) days within which to cure such default, or if such default cannot be cured within that time, then such additional time as may be necessary if within such

thirty (30) days , any mortgagee, trustee or beneficiary has commenced and is diligently pursuing the remedies necessary to cure such default (including but not limited to commencement of foreclosure proceedings if necessary to effect such cure), in which event this Lease shall not be terminated while such remedies are being so diligently pursued. However if the relevant default consist of a failure to repair a Building system, or to remedy a condition at or in any Building, and failure to repair or remedy shall continue for thirty (30) days after Tenant provides notice to the mortgagee trustee or beneficiary of such failure, then Tenant may exercise the remedies provided in Paragraph 25(f) hereof applicable to a Landlord default.

32. Force Majeure. If Landlord or Tenant cannot perform any of its obligations due to events beyond Landlord’s or Tenant’s reasonable control (other than for financial reasons), the time period for performing such obligations shall be extended by a period of time equal to the duration such events. Events beyond Landlord’s and Tenant’s control include, but are not limited to, acts of God, war, civil commotion, labor disputes, strikes, fire, flood or other casualty, shortages of labor or material, government regulation or restriction and weather conditions.

33. Exculpation. The obligations of Landlord and Tenant under this Lease do not constitute personal obligations of the individual shareholders, partners or members of the entities which constitute Landlord and Tenant, and Tenant shall look solely to the real estate that is the subject of this Lease and any sales, condemnation and insurance proceeds payable to Landlord therefrom and to no other assets of Landlord for satisfaction of any liability in respect of this Lease and will not seek recourse against the individual shareholders, partners or members of the entity which is Landlord, nor against any of their personal assets, for such satisfaction. Further, Tenant recognizes that in connection Landlord’s ownership of the Buildings and/or Office Park, and the sale, encumbrance or other transfer of the Buildings and/or Office Park, Landlord may be required by law or in the exercise of Landlord’s prudent business judgment, to make certain disclosures of information regarding The Building, Office Park and/or the tenants thereof, including without limitation, financial statements of Tenant in the possession of Landlord, reports or disclosures regarding hazardous substances or materials used at the Buildings and/or Office Park received by Landlord from Tenant or other tenants of the Buildings and/or Office Park, and/or use of energy by Tenant and other tenants of the Buildings and/or Office Park or other or energy conservation measures or monitoring policies or procedures at the Buildings and/or Office Park, and Tenant hereby authorizes Landlord to make any such disclosures and waives any claims arising from the disclosure of such information, unless disclosure is made contrary to any written nondisclosure agreement executed by Landlord and Tenant, provided, however that Landlord will negotiate in good faith to agree to a written nondisclosure agreement covering any information that Tenant is required to deliver or delivers to Landlord under this Lease that Tenant identifies in writing as confidential and that Tenant wishes to be subject to such written nondisclosure agreement. Upon transfer by Landlord of its interest in the Buildings and/or Office Park, no liability or obligations first accruing thereafter under this Lease shall thereafter accrue against the transferring or assigning person as Landlord hereunder.

34. Executive Order 13224 . To each party hereto’s current actual knowledge, such party and all persons or entities holding any equity ownership interest whatsoever in such are not included in, owned by, controlled by, acting for or on behalf of, providing assistance, support, sponsorship, or services of any kind to, or otherwise associated with any of the persons or entities referred to or described in Executive Order 13224 – Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism, as amended. Each party hereto will promptly give notice to the other party if becomes aware that it or any persons holding an equity interest in such party shall at any time during the term of the Lease be described in, covered by or specially designated pursuant to or be affiliated with any person described in, covered by or specially designated pursuant to Executive Order 13224, as amended, or any similar list issued by the Office of Foreign Asset Control (“ OFAC ”) or any other department or agency of the United States of America. Further, if either party hereto becomes aware of or receives any notice of any violation of the foregoing covenant and agreement (an “ OFAC Violation ”), such party will within twenty (20) days thereafter use commercially reasonable efforts to comply with all laws applicable to such OFAC Violation, including, without limitation, Executive Order 13224; the International Emergency Economic Powers Act, 50 U.S.C. Sections 1701-06; the Iraqi Sanctions Act, Pub. L. 101-513, 104 Stat. 2047-55; the United Nations Participation Act, 22 U.S.C. Section 287c; the Antiterrorism and Effective Death Penalty Act, (enacting 8 U.S.C. Section 219, 18 U.S.C. Section 2332d, and 18 U.S.C. Section 2339b); the International Security and Development Cooperation Act, 22 U.S.C. Section 2349 aa-9; the Terrorism Sanctions Regulations, 31 C.F.R. Part 595; the Terrorism List Governments Sanctions Regulations, 31 C.F.R. Part 596; and the Foreign Terrorist Organizations Sanctions Regulations, 31 C.F.R. Part 597 (collectively, the “ Anti-Terrorism Regulations ”). Tenant will provide such reasonable evidence as Landlord may request from time to time to evidence compliance with the foregoing.

35. Entire Agreement . This Lease contains all of the agreements and understandings relating to the leasing of the Premises and the obligations of Landlord and Tenant in connection with such leasing. Neither Landlord nor Tenant has made, and neither Tenant nor Landlord is relying upon, any warranties, or representations, promises or statements made by the other party or by any agent of the other party, except as expressly set forth herein. This Lease supersedes any and all prior agreements and understandings between Landlord and Tenant and alone expresses the agreement of the parties.

36. Governing Law . This Lease shall be governed by, and construed in accordance with, the laws of the state of California.

37. Severability . In the event any provision of this Lease is found to be unenforceable, the remainder of this Lease shall not be affected, and any provision found to be invalid shall be enforceable to the extent permitted by law. The parties agree that in the event two different interpretations may be given to any provision hereunder, one of which will render the provision unenforceable, and one of which will render the provision enforceable, the interpretation rendering the provision enforceable shall be adopted.

38. Captions . All captions, headings, titles, numerical references and computer highlighting are for convenience only and shall have no effect on the interpretation of this Lease.

39. Consents . Unless otherwise set forth herein, to the extent any approval or consent of a party is required hereunder, such party shall not unreasonably withhold or delay such approval or consent. Landlord covenants and warrants to Tenant that Landlord holds fee title to the Office Park and has the right to enter into this Lease, subject only to the consent of its lender.

40. Brokers . Landlord and Tenant each warrant and represent to the other party that it has not voluntarily incurred, on its behalf or on behalf of both Landlord and Tenant, any obligation to pay a commission or finder’s fee to any real estate broker or other person or entity in connection with this Lease. Landlord and Tenant shall each indemnify, defend and hold the other party harmless from claims for any commission or finders fee charges by any real estate broker or other person or entity arising from an agreement, whether express or implied, between the indemnifying party and such broker or other person or entity or otherwise arising from the conduct of the indemnifying party

41. Hazardous Materials . Neither Tenant nor any of its agents, employees, contractors or invitees shall introduce any Hazardous Material upon, in or about the Leased Premises without the prior written consent of Landlord, except such materials in such amounts as commonly found in business office and research and development uses of the type engaged in by Tenant and in strict accordance with applicable laws. “ Hazardous Material ” shall mean any (A) oil, flammable substances, explosives, radioactive materials, hazardous wastes or substances, toxic wastes or substances or any other wastes, materials or pollutants which (1) pose a hazard to the Office Park or to persons on or about the Office Park or (2) cause the Office Park to be in violation of any Hazardous Materials Laws; (B) asbestos in any form, urea formaldehyde foam insulation, transformers or other equipment that contain dielectric fluid containing levels of polychlorinated biphenyls, or radon gas; (C) chemical, material or substance defined as or included in the definition of “hazardous substances,” “hazardous wastes,” “hazardous materials,” “extremely hazardous waste,” “restricted hazardous waste,” or “toxic substances” or words of similar import under any applicable local, state or federal law or under the regulations adopted or publications promulgated pursuant thereto, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. 9601, et seq.; the Hazardous Materials Transportation Act, as amended, 49 U.S.C. 1801, et seq.; the Federal Water Pollution Control Act, as amended, 33 U.S.C. 1251, et seq.; Sections 25115, 25117, 25122.7, 25140, 25249.8, 25281, 25316, 25501, and 25316 of the California Health and Safety Code; and Article 9 or Article 11 of Title 22 of the Administrative Code, Division 4, Chapter 20; (D) other chemical, material or substance or organism, exposure to which is prohibited, limited or regulated by any governmental authority or may or could pose a hazard to the health and safety of the occupants of the Office Park or the owners and/or occupants of property adjacent to or surrounding the Office Park, or any other person coming upon the Office Park or adjacent property; and (E) other chemicals, materials or substances which may or could pose a hazard to the environment. “ Hazardous Materials Laws ” shall mean any federal, state or local laws, ordinances, regulations or policies relating to the environment, health and safety, and Hazardous Materials (including, without limitation, the use, handling, transportation, production, disposal, discharge or storage thereof) or to industrial hygiene or the environmental conditions on, under or about the Project, including, without limitation, soil, groundwater and indoor and ambient air

conditions. “ Hazardous Materials Claims ” shall mean any enforcement, cleanup, removal, remedial or other governmental or regulatory actions, agreements or orders instituted pursuant to any Hazardous Materials Laws; and any claims made by any third party against Landlord, Tenant or the Office Park relating to damage, contribution, cost recovery compensation, loss or injury resulting from the presence, release or discharge of any Hazardous Materials in violation of Hazardous Materials Laws. If Tenant breaches its obligations stated in this Paragraph, or if Tenant or any of its agents, employees, contractors or invitees introduces Hazardous Materials to the Premises in violation of applicable Hazardous Materials Laws, then Tenant shall indemnify, defend, protect and hold Landlord harmless from any and all claims, judgments, damages, penalties, fines, costs, liabilities or losses (including, without limitation, diminution in value of the Premises, damages for the loss or restriction on use of rentable or usable space or of any amenity of the Premises, damages arising from any adverse impact on marketing of space, and sums paid in settlement of claims, attorneys’ fees, consultants’ fees and experts’ fees) and Hazardous Materials Claims which arise during or after the Lease term as a result therefrom. This indemnification of Landlord by Tenant includes, without limitation, costs incurred in connection with any investigation of site conditions or any clean-up, remedial, removal or restoration work required by any federal, state or local governmental agency or political subdivision because of Hazardous Material present in the soil or ground water on or under the Premises or Office Park as a result of Tenant’s or any of its agents, employees, contractors or invitees violation of applicable Hazardous Materials Laws. The foregoing indemnity shall survive the expiration or earlier termination of this Lease. Tenant will comply with all Hazardous Material Laws with respect to the handling of Hazardous Materials, including, without limitation, maintaining Materials Safety Data sheets and other record and disclosures. If Landlord shall have a reasonable basis upon which to conclude that the Premises may be contaminated with Hazardous Materials, then on or before the expiration of the Term, including any early termination thereof, Landlord may, at Tenant’s expense, enter the Premises and conduct a survey thereof to determine the presence of such Hazardous Materials. Such survey shall be at Landlord’s sole cost and expense, provided Tenant shall pay the cost of the survey (i) if the survey finds evidence of the use of Hazardous Materials in the Premises by Tenant in violation of applicable Hazardous Materials Laws; or (ii) the survey is a single survey to be conducted within six (6) months of the expiration of the Term for the purposes of confirming if the Premises contains Hazardous Materials in violation of applicable Hazardous Materials Laws. Landlord represents and warrants that as of the date of this Lease, it knows of no Hazardous Materials present in, on or about the Premises or the Office Park in any amount or levels that would violate any applicable Hazardous Materials Laws. Notwithstanding the foregoing or anything to the contrary contained in this Lease, under no circumstance shall Tenant be liable for, or obligated to indemnify, protect, defend or hold harmless Landlord from or against, any claims, judgments, damages, penalties, fines, costs, liabilities or losses (including, without limitation, diminution in value of the Premises, damages for the loss or restriction on use of rentable or usable space or of any amenity of the Premises, damages arising from any adverse impact on marketing of space, and sums paid in settlement of claims, attorneys’ fees, consultants’ fees and experts’ fees) arising out of or in connection with any Hazardous Materials present at any time on or about the Premises or the Office Park, or the violation of any Hazardous Materials Laws, except to the extent that any of the foregoing results from the introduction of Hazardous Materials on or about the Premises by Tenant or any of its agents, employees, contractors or invitees in violation of applicable Hazardous Materials Laws. Landlord shall indemnify, protect, defend and hold harmless Tenant from and against any and all damages, liabilities, judgments, costs, claims, liens, expenses, penalties, loss of permits and attorneys’ and consultants’ fees arising out of or involving any introduction of any Hazardous Materials by Landlord or any of its agents, employees, contractors or invitees in violation of applicable Hazardous Materials Laws. The foregoing indemnity shall survive the expiration or earlier termination of this Lease.

42. Option to Extend . Landlord grants to Tenant two (2) successive options (each an “ Extension Option ” and collectively the “ Extension Options ” ) to extend the term for a period of five (5) years, each . As used herein, “ Extended Term ” means the Term, as extended by any Extension Options duly exercised by Tenant. All the provisions of the Lease shall apply during each Extended Term, except for the amount of the Monthly Base Rent or any amount of tenant improvements installed in connection with Tenant’s initial occupancy. The Monthly Base Rent for the Extended Term shall be determined in accordance with subsection (e), below. The Extension Option is further subject to the following terms and conditions:

(a) Tenant must deliver its irrevocable written notice of Tenant’s exercise of the Extension Option (“ Exercise Notice ”) to Landlord no earlier than twelve (12) months and not less than nine (9) months prior to the expiration of the initial Term or then current Extend Term, as applicable. In the case of the second Extension Option it shall be a condition to the exercise thereof that Tenant shall have exercised the first Extension Option.

Time is of the essence with respect to the time period during which Tenant must deliver to Landlord its written notice of exercise and, therefore, if Tenant fails to give Landlord its irrevocable written notice of its exercise of the applicable Extension Option within the applicable time period provided above, then such Extension Option shall expire and be of no further force or effect.

(b) If Tenant is in default beyond any applicable grace or cure period under this Lease at the date of delivery of Tenant’s Exercise Notice to Landlord, then such Exercise Notice shall be of no effect and this Lease shall expire at the end of the initial Term or first Extended Term, as applicable. If Tenant is in default beyond any applicable grace or cure period under this Lease on the last day of the initial Term or the first Extension Term, as applicable, then Landlord may in its sole discretion elect to have Tenant’s exercise of the applicable Extension Option be of no effect, in which case the Lease shall expire at the end of the initial Term or first Extended Term, as the case may be.

(c) The Extension Options are personal to Tenant and may not assigned in connection with any assignment under this Lease and will not inure in favor of any subtenant, provided if Tenant assigns or sublets in a transaction that does not require the consent of Landlord, Tenant’s successor will have the benefit of any unexercised Extension Options.

(d) The Base Rent for the Extended Term shall be the “ Extension Rent .” The “Extension Rent” means ninety five percent (95%) of the Fair Market Rent, determined as provided herein, if applicable, if the parties are negotiating without a broker entitled to payment of a commission exercise of the relevant Extension Option or one hundred percent (100%) of the Fair Market Rent, if the parties are negotiating with a broker entitled to payment of a commission exercise of the relevant Extension Option. “ Fair Market Rent ” shall mean the average base rent per square foot, including any relevant escalations over the proposed extension term charged in arm’s length transactions to renewing and new tenants in the market area where the Buildings are located for a comparable amount of space in comparable buildings of comparable quality required for an extended term . Any such comparison shall take into consideration the provisions of this Lease and any leases in such comparable buildings regarding payment of operating costs (i.e., “net” vs. “gross” or “base year”) and the base rent per square foot shall be adjusted as appropriate to reflect any difference in the payment of operating cost, and taking into account items that professional real estate brokers and professional real estate appraisers customarily consider, including, not limited to, space availability, tenant size, the credit-worthiness of the tenant and the tenant improvement allowance, if any.

(e) Within thirty (30) days after Landlord’s receipt of the Exercise Notice, Landlord shall provide Tenant with a notice stating Landlord’s determination of the Extension Rent Landlord believes applicable to the Leased Premises. Tenant shall have twenty (20) days (the “ Tenant’s Review Period ”) after receipt of Landlord’s notice of the new rental within which to accept such Extension Rent, in which case the parties shall enter into an amendment to the Lease providing for the extension of the Lease on all of the terms and conditions provided herein, with the Extension Rent as the Monthly Base Rent for the Extended Term. In the event Tenant fails to accept in writing such Extension Rent proposed by Landlord then such proposal shall be deemed rejected, and Landlord and Tenant shall attempt to agree upon the Extension Rent, using their best good faith efforts. If Landlord and Tenant fail to reach agreement within ten (10) days following Tenant’s Review Period then such determination shall be submitted to arbitration in accordance with subsections (1) through (5) below (the “ Arbitration Procedure ”).

(1) If the Landlord and Tenant do not mutually agree upon the Extension Rent within the time period specified above, then, within ten (10) business days after Tenant’s actual or deemed rejection of the Extension Rent proposed by Landlord, Landlord and Tenant shall each appoint a single arbitrator who shall by profession be a real estate broker who shall have been active over the ten (10) year period ending on the date of such appointment in the leasing of commercial office property similar in quality, location and use to the Buildings in the vicinity of the Buildings.

(2) Such arbitrators shall agree on a third arbitrator to determine the Extension Rent. The decision of the third arbitrator shall be limited solely to the issue of whether the rental rate for the Leased Premises submitted by Landlord’s arbitrator or Tenant’s arbitrator is the closest to the actual Extension Rent for the Leased Premises as determined by the arbitrator selected by them, taking into account the factors listed in the definition of Extension Rent in this Lease.

(3) The third arbitrator shall, within fifteen (15) days after his or her appointment, schedule a meeting with the arbitrators appointed by both parties. Each of Landlord’s and Tenant’s arbitrators shall submit their respective opinions of the Extension Rent (including such detail as each such arbitrator shall determine, in its discretion), in a sealed envelope to the third arbitrator selected by the two arbitrators. Such arbitrator shall select either the Extension Rent submitted by Tenant’s arbitrator or Landlord’s arbitrator within three (3) business days after such meeting (provided such arbitrator shall not consult with any party after submittal of the sealed envelopes) and shall notify Landlord and Tenant of the Extension Rent as determined by such arbitrator.

(4) If the Landlord’s arbitrator and Tenant’s arbitrator fail to agree upon and appoint an arbitrator, then the appointment of the arbitrator shall be made within fifteen (15) days after such failure by the Presiding Judge of the Superior Court of the county where the Buildings are located or, if he or she refuses to act, by any judge having jurisdiction over the parties. If either Landlord or Tenant fails to appoint an arbitrator within the time period specified in subparagraph (1) above, then the arbitrator appointed by one of them shall within ten (10) business days following the date on which the party failing to appoint an arbitrator could have last appointed such arbitrator reach a decision on the Extension Rent based upon the same procedures as set forth above and shall notify Landlord and Tenant thereof, and such arbitrator’s decision shall be binding upon Landlord and Tenant and neither party shall have the right to reject the decision or to undo the exercise of the applicable Extension Option.

(5) The parties shall each pay their own arbitrators and the cost of the third arbitrator shall be paid by Landlord and Tenant equally.

(f) Landlord and Tenant shall, promptly after determination of the Extension Rent, enter into an amendment to the Lease providing for the extension of the Lease on all of the terms and conditions provided herein, except for the amount of the Monthly Base Rent as determined by the arbitrators or determined as otherwise provided in this Lease, as the Monthly Base Rent for the Extended Term.

43. [Intentionally Deleted].

44. [Intentionally Deleted].

45. [Intentionally Deleted].

46. Personal Property . Promptly after the existing tenant of the Premises shall vacate the Premises, Landlord shall provide Tenant with notice that the Premises are available for inspection and will use reasonable efforts to schedule such inspection with Tenant. At the time of such inspection Tenant may designate, in a writing to be delivered to Landlord within three (3) business days following the date of such inspection, which, if any, of the items of personal property remaining in the premises Tenant desires to use (and Landlord will promptly remove prior to the Commencement Date of this Lease any personal property that Tenant does not elect to use and repair any damage to the Premises caused by such removal). If Tenant designates any such items of personal property, Landlord shall not be required to remove such items and will make such items available for Tenant’s use, subject to any casualty, theft or damage beyond the reasonable control of Landlord, provided Tenant’s use of the personal property will be at Tenant’s sole cost, risk and expense, and at no additional charge to Tenant.

47. No SNDA as a Condition to Lease . Landlord represents and warrants to Tenant that there are no mortgage(s), deed(s) of trust, ground lease(s) or other lien(s) (collectively, “ Mortgages ”) encumbering the Buildings or Office Park as of the date of this Lease.

48. Roof Rights . Tenant may install a single satellite dish, antenna or other standard communication device and may install one or more solar collectors or panels for use by Tenant on the roofs of each of the Buildings for purposes of use thereof by Tenant and. Such installation access will be conditioned upon the following: (a) Tenant will follow Landlord’s reasonable rules and regulations with respect to access to any portion of the Buildings outside the Premises, including, without limitation, the roof and will avoid any action that will affect or void the roof

warranty; (b) the plans and specifications for any improvements or apparatus to be installed by Tenant will be subject to the reasonable approval of Landlord; (c) except to the extent caused by the negligence or willful misconduct of Landlord or Landlord’s agents, employees or contractors, Tenant will indemnify, defend and hold harmless Landlord from any and all claims losses or liability arising from the installation and use of Tenant’s equipment, including, without limitation, any roof leaks or damage to the roof membrane and (d) if requested by Landlord, Tenant will remove any facilities or equipment at the expiration of the Term and restore any damage (ordinary wear and tear and damage caused by casualty excepted), at Tenant’s sole cost, as an obligation that will survive termination of this Lease.

49. [Intentionally Deleted].

50. Emergency Generator . Tenant may, at its sole cost and expense, install a generator of reasonable size and configuration, to provide backup power to the Premises. Any such installation will be done at Tenant’s sole cost and expense, and shall be contained within the Premises and outside exterior areas, subject to Landlord’s approval, not to be unreasonably withheld. Tenant will comply with any and all applicable laws relating to the use of any such emergency generator, including, without limitation, any Hazardous Materials Laws and/or any air quality laws applicable to the operation of any such emergency generator.

51. [Intentionally Deleted].

52. Certified Access Specialist . The Premises have not been inspected by a Certified Access Specialist.

IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the date set forth in the first paragraph of this Lease.



“LANDLORD”

SEVEN DAVIS, LLC , a Delaware limited liability company

By:	Interland Growth, L.P., a Delaware limited partnership, Member

	By:	Interland Capital, Inc., a Delaware corporation, General Partner

		By:	/s/ Donald C. Lewis
			Donald C. Lewis, President



“TENANT”

MARRONE BIO INNOVATIONS, INC., a Delaware corporation

By:		/s/ Linda V. Moore

Name:		Linda V. Moore

Its:		VP and General Counsel

EXHIBITS

EXHIBIT “A” OFFICE PARK

EXHIBIT “B” PREMISES

EXHIBIT “C” WORK AGREEMENT

EXHIBIT “D” RULES AND REGULATIONS

EXHIBIT “E” [INTENTIONALLY DELETED]

EXHIBIT “A”

OFFICE PARK

EXHIBIT “B”

PREMISES LOCATED AT 1490 DREW AVENUE

EXHIBIT “C”

WORK AGREEMENT

1. LANDLORD DELIVERY . Landlord shall deliver the Premises in broom clean condition, containing any Personal Property that Tenant accepts hereunder, and with all Building Systems serving the Premises in good operating condition and repair. The Premises shall, as of the date of delivery comply with all governmental codes and other governmental requirements including the Americans with Disabilities Act, all Hazardous Materials permits obtained by any prior occupant of the Premises shall be closed out with all applicable governmental authorities (such close out procedures shall include, without limitation, the completion of any required remediation work), and the roof shall be in watertight condition. Any improvements made by Landlord to place the Premises in the aforementioned condition are the “ Initial Improvements ” Landlord hereby warrants for a period of twelve (12) months that the Premises, the Building Systems serving the Premises and the Initial Improvements will be free of material defects, and for the Term of this Lease that the Premises, the Building Systems serving the Premises and the Initial Improvements will be free of latent material defects. If Tenant notifies Landlord of any such defects in a timely fashion, Landlord shall promptly make or cause to be made any repairs necessary to remedy such defects at no cost or expense to Tenant.

2. TENANT IMPROVEMENT ALLOWANCE. Landlord shall contribute up to $264.145.00 ( the “ Tenant Improvement Allowance ”) toward the cost of designing and constructing the improvements shown in the Approved Working Drawings (as defined below) (the “ Tenant Improvements ”). No portion of the Tenant Improvement Allowance may be used to pay for furniture, fixtures, equipment, voice/date and security alarm systems, moving expenses or blinds, all of which shall be paid for solely by Tenant.

3. TENANT IMPROVEMENTS- PLANNING .

(a) Space Plan. Landlord and Tenant shall, after execution of this Lease, agree on a space plan for the Premises to be prepared by an architect (“ Architect ”) reasonably acceptable to Landlord (the “ Final Space Plan ”).

(b) Approved Working Drawings . Tenant shall cause the Architect and its engineers to complete the architectural and engineering drawings for the Premises in a form that is complete to allow the Contractor (as defined herein) and the subcontractors to bid on the work and obtain applicable permits (collectively, the “ Final Working Drawings ”) and shall submit a complete copy of the same to Landlord, for Landlord’s reasonable approval. Landlord shall advise Tenant within five (5) business days after Landlord’s receipt of the Final Working Drawings for the Premises if the same is unsatisfactory or incomplete in any respect. If Tenant is so advised, Tenant shall revise the Final Working Drawings in accordance with such review and any disapproval of Landlord in connection therewith. The foregoing process shall be repeated up to a maximum of three (3) times until the parties have agreed on the form of Final Working Drawings (the “ Approved Working Drawings . If Landlord disapproves of the Final Working Drawings, then Landlord shall deliver to Tenant its written explanation for such disapproval and the parties shall negotiate in good faith to reach agreement on such drawings and budget. After approval by Landlord of the Final Working Drawings, Tenant may submit the same to the City where the Premises is located for all applicable building permits. Neither Landlord nor Landlord’s consultant shall be responsible for obtaining any building permit or certificate of occupancy for the Premises required for any Tenant Improvements constructed by Tenant, and obtaining the same shall be Tenant’s responsibility. Landlord shall cooperate with Tenant in executing permit applications and performing other ministerial acts reasonably necessary to enable Tenant to obtain any such permit or certificate of occupancy. No changes, modifications or alterations in the Approved Working Drawings may be made without the prior written consent of Landlord, which consent shall not be unreasonably withheld. Notwithstanding anything to the contrary in this Work Letter, Tenant may make changes to the Approved Working Drawings and Landlord shall not have any right to approve such Tenant changes to extent such work (i) is required by the City of Davis or other applicable governmental body having jurisdiction over the Tenant Improvements, and (a) is consistent with the design intent of the approved Working Drawings and (b) will not cost more than Five Thousand Dollars ($5,000) per occurrence; or (ii) consists of minor field changes that (a) are consistent with the intent or required for the proper execution of the Approved

Working Drawings, and (b) will not materially adversely affect the design, use, or operation of the Premises or Tenant Improvements. If any Change Order is not approved or disapproved by Landlord in writing within five (5) business days after Landlord’s receipt of written request by Tenant, such Change Order shall be deemed approved. Additionally, if Landlord disapproves of the Change Order, then Landlord shall deliver to Tenant its written explanation for such disapproval and the parties shall negotiate in good faith to reach agreement on the item proposed. With respect to Change Orders that Landlord has no right to approve, Tenant shall nevertheless provide prompt written notice to Landlord of the type, scope and cost of the change.

4. CONSTRUCTION OF THE TENANT EXTRA IMPROVEMENTS .

(a) Tenant’s Selection of Contractors .

(i) The Contractor and Approved Contractors . Tenant shall retain a licensed general contractor (the “ Contractor ”), as contractor for the construction of the Tenant Improvements under a Guaranteed Maximum Price Contract (the “ Contract ”). The Contractor and all HVAC, plumbing and electrical subcontractors used by Tenant (such subcontractors, and the Contractor to be known collectively as the “ Approved Contractors ”). Harrison Construction and Osborne Builders shall be deemed pre-approved by Landlord, provided any other contractor will be subject to the approval of Landlord, not to be unreasonably withheld or delayed. Tenant shall inform Landlord of the identity of Contractor and the Approved Contractors selected to perform construction of the Tenant Improvements. Tenant will provide Landlord with a copy of the final Contract. The Contract will provide that at all times prior to completion of the work, a retainage of at least five percent (5%) of the total “hard costs” of the work shall be retained by Tenant (the “ Retainage ”). The Contract will further provide that the Retainage will not be paid until thirty (30) days after all Tenant Improvements have been substantially completed.

(b) Construction of Tenant Extra Improvements by the Approved Contractors .

(i) Landlord’s General Conditions for the Approved Contractors and Tenant Improvement Work . Tenant and the Approved Contractors in the construction of the Tenant Improvements shall comply with the following: (A) the Tenant Improvements shall be constructed substantially in accordance with the Approved Working Drawings; (B) Tenant and the Approved Contractors shall not, unreasonably interfere with any other work in the Buildings; and (C) Tenant shall abide by all reasonable rules made by Landlord’s Building contractor or Landlord’s Building manager and their respective agents.

(ii) Indemnity . Tenant’s indemnity of Landlord as set forth in the Lease shall also apply with respect to any and all costs, losses, damages, injuries and liabilities related in any way to any act or omission of Tenant or the Approved Contractors in connection with the construction of the Tenant Improvements, or anyone directly or indirectly employed by any of them in connection with the construction of the Tenant Improvements, or in connection with Tenant’s non-payment of any amount arising out of the Tenant Improvements. Such indemnity by Tenant, as set forth in the Lease, shall also apply with respect to any and all costs, losses, damages, injuries and liabilities related in any way to Landlord’s performance of any ministerial acts reasonably necessary (i) to permit Tenant to complete the Tenant Improvements, and (ii) to enable Tenant to obtain any building permit or certificate of occupancy for the Leased Premises.

(iii) Insurance Requirements.

(1) General Coverages . All of the Approved Contractors shall carry worker’s compensation insurance covering all of their respective employees and shall also carry public liability insurance, including property damage, all with limits, in form and with companies as are required to be carried by Tenant as set forth in the Lease, and all liability policies shall name Landlord and Landlord’s managing agent as additional insureds, and all property coverages shall insure Landlord and Tenant, as their interests may appear.

(2) Special Coverages . Tenant shall carry a builder’s risk policy covering the cost of the Tenant Improvements. All of the Approved Contractors who perform work in the Leased Premises shall carry Products and Completion Operations Coverage insurance, each in amounts not less than $500,000 per incident, $1,000,000 in aggregate, automobile liability in the amount of at least $500,000 per incident, provided each of the

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foregoing coverages shall be in form and with companies as are required to be carried by Tenant as set forth in the Lease of which this Exhibit is a part. Certificates for all insurance carried pursuant to this section shall be delivered to Landlord before the commencement of construction of the Tenant Improvements and before the Contractor’s equipment is moved onto the site. In the event that the Tenant Improvements are damaged by any cause during the course of the construction thereof, and as long as the Lease remains in full force and effect Tenant shall repair the same at Tenant’s sole cost and expense.

(iv) Governmental Compliance . The Tenant Improvements shall comply in all respects with the following: (1) all applicable laws and other state, federal, city or quasi-governmental laws, code, ordinances and regulations, as each may apply according to the rulings of the controlling public official, agent or other person; (2) applicable standards of the American Insurance Association and the National Electrical Code; and (3) building material manufacturer’s specifications.

(v) Inspection by Landlord . Landlord shall have the right to inspect the Tenant Improvements at all reasonable times, provided however, that Landlord’s failure to inspect the Tenant Improvements shall in no event constitute a waiver of any of Landlord’s rights hereunder nor shall Landlord’s inspection of the Tenant Improvements constitute Landlord’s approval of the same. Landlord shall promptly notify Tenant in writing of any defects or deviations in, and/or disapproved by Landlord of, the Tenant Improvements, provided same shall be rectified by Tenant, at no expense to Landlord. If the relevant matter has a material, adverse effect on any Building system, Tenant will have twenty (20) days following a Landlord’s notice that shall specify the relevant defect, to commence to cure the relevant defect, and Landlord may elect to correct any such defect on Tenant’s behalf and an Tenant’s cost, only if Tenant does not commence to cure within such twenty (20) day period or if, having commenced a cure following notice from Landlord, Tenant fails thereafter to diligently pursue cure of such matter. If Landlord corrects any defect hereunder after providing Tenant with the notice and cure period specified herein, Landlord may deduct the cost of performing such work from the Tenant Improvement Allowance.

(c) Updated Approved Working Drawings . At the conclusion of construction, (A) Tenant shall cause the Contractor, to make field notes and otherwise update the Approved Working Drawings as necessary to reflect all changes made to the Approved Working Drawings during the course of construction, and (B) certify to its knowledge that the “record-set” of as-built drawings are true and correct, which certification shall survive the expiration or termination of this Lease. Tenant shall provide Landlord with either (a) two (2) copies of each updated or annotated set of Approved Working Drawings; or (b) one copy of same in a generally accepted electronic format acceptable to Landlord promptly after preparation of the same.

5. [Intentionally Deleted] .

6. PAYMENT OF TENANT IMPROVEMENT ALLOWANCE . Landlord shall contribute up to the Tenant Improvement Allowance toward the cost of designing and constructing the Tenant Improvements. For the purposes hereof, the cost of the Tenant Improvements shall include, without limitation, all building permit fees and all preparatory work and the cost of any construction management firm hired by Tenant. The Tenant Improvement Allowance shall be paid as follows:

(a) Tenant may request disbursement of the Tenant Improvement Allowance on a progress payment basis (a “ Disbursement ”). Any request for a Disbursement shall be accompanied by certification of the Tenant that the Tenant Improvements for which disbursement is requested have been completed (and in the case of the Final Disbursement, that all of the Tenant Improvements have been substantially completed), copies of paid invoices showing cost paid, in at least the amount requested by Tenant, as well as waivers of lien from all contractors, subcontractors or suppliers of materials to the Tenant Improvements, in form and substance satisfactory to Landlord in its reasonable discretion (which shall be final and unconditional in the case of the Final Disbursement of the Tenant Improvement Allowance hereunder (the “ Final Disbursement ”)). The aggregate amount of all Disbursements from time to time outstanding hereunder will not at any time will not exceed (x) the lower of (i) the Tenant Improvement Allowance or (ii) the Guaranteed Maximum Price specified in the Contract, multiplied by (y) the percentage completion of the work, determined by Landlord in Landlord’s reasonable discretion (the “ Maximum Outstanding ”). Upon satisfaction of the foregoing conditions, Landlord shall make any Disbursement up to the Maximum Outstanding hereunder. The Final Disbursement, which may include any amount of Retainage required to be released to the Approved Contractor, shall not be required to be made sooner than thirty (30) days following completion of the Tenant Improvements. Landlord may not deduct from the Tenant Improvement Allowance, and is not charging, any construction administration fee for the Tenant Improvements.

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(b) Any amount of the Tenant Improvement Allowance that is not expended by Tenant on Tenant Improvements shall be available as a credit against Monthly Base Rent up to the full remaining balance thereof.

7. REPRESENTATIVES .

(a) Tenant’s Representative . Tenant has designated Pam Marrone as its sole representative with respect to the matters set forth in this Exhibit, who, until further notice to Landlord, shall have full authority and responsibility to act on behalf of the Tenant as required in this Exhibit.

(b) Landlord’s Representative . Landlord has designated Tom Shipley as its sole representative with respect to the matters set forth in this Exhibit, who, until further notice to Tenant, shall have full authority and responsibility to act on behalf of the Landlord as required in this Exhibit.

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EXHIBIT “D”

RULES AND REGULATIONS

1. The sidewalks and entrances shall be used only as a means of ingress and egress and shall remain unobstructed at all times. The entrance and exit doors of all suites are to be kept closed at all times except as required for orderly passage to and from a suite. Loitering in any part of the Buildings or obstruction of any means of ingress and egress shall not be permitted. Doors and windows shall not be covered or obstructed.

2. Plumbing fixtures shall not be used for any purposes other than those for which they were constructed and no rubbish, newspapers, trash or other substances of any kind shall be deposited therein. The use of electrical current shall not exceed safety standards established in the applicable building code. Walls, floors and ceilings shall not be defaced in any way and no tenant shall be permitted to mark, nail, screw or drill into, paint, or in any way mar any building surface, except that pictures, whiteboards, certificates, licenses and similar items normally used in Tenant’s business may be carefully attached to the walls in a manner prescribed by the Landlord. Upon removal of such items by Tenant, any damage to the walls or other surfaces shall be repaired by Tenant.

3. No awning, shade, sign, advertisement, or notice shall be inscribed, painted or affixed on or to any part of the outside or inside of the Building, except for approved signage more specifically described in Paragraphs 14 and 47 of this Lease. Window coverings may be installed provided they are of such color, material, and construction and installation as may be reasonably prescribed by Landlord. All tenant identification on public corridor doors, or walls will be installed by Landlord for Tenant. No lettering or signs other than the name of the Tenant will be permitted on public corridor doors, or walls, with the size and type of letters to be prescribed by Landlord. The bulletin board or directory of the Buildings will be provided exclusively for the display of the name and location of the tenants thereof, and the Landlord reserves the right to exclude all other names therefrom. Landlord reserves the right to approve all listing requests.

4. The weight, size, position, and installation of all safes and other unusually heavy objects used or placed in the Buildings shall be reasonably prescribed by Landlord. All mechanical equipment and office machines which are placed in the Buildings shall be installed in sittings which, in the reasonable judgment of Landlord, shall be sufficient to prevent noise, vibration, and annoyance. The repair of any damage done to the Buildings or property therein by installing or removing or maintaining of such safes or other unusually heavy objects shall be paid for by Tenant.

5. In no event will Landlord be responsible for any loss or damage to such freight, furniture, and fixtures or personal property, from any cause.

6. The storage of goods, wares, or merchandise on the premises will not be permitted except in areas specifically designated by Landlord for storage. No auction, public or private, will be permitted on premises.

7. All keys to the premises and the Buildings shall be obtained from Landlord and all keys shall be returned to Landlord upon termination of this Lease. Tenant shall not change locks or install other locks on the doors without Landlord’s prior written approval, which approval shall not be unreasonably withheld.

8. Landlord reserves the right at any time to change or rescind any one or more of these Rules or Regulations or to make such other and further reasonable rules and regulations as in Landlord’s judgment may from time to time be necessary for the management, safety, care, and cleanliness of the Building, for the preservation of the good order therein, and for the convenience of other occupants and tenants therein. Landlord shall not be responsible to Tenant or to any other person for the non-observance or violation of the Rules and Regulations by any other tenant or other person.

9. Tenant agrees not to keep or permit to be kept on said premises or in said Office Park, any pet, including but not limited to dogs, cats, birds, rodents, or reptiles (other than service animals, such as “seeing-eye” dogs) without the express written consent of Landlord.

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EXHIBIT “E”

[INTENTIONALLY DELETED]

Exhibit 10.5

LOGO

Exhibit 31.1

I, Pamela G. Marrone, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Marrone Bio Innovations, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) 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)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) 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

(c) 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):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 15, 2014

/s/ Pamela G. Marrone

Pamela G. Marrone

President and Chief Executive Officer

Exhibit 31.2

I, James B. Boyd, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Marrone Bio Innovations, Inc.;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 15, 2014

/s/ James B. Boyd

James B. Boyd

Chief Financial Officer

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Pamela G. Marrone, 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 Marrone Bio Innovations, Inc. on Form 10-Q for the fiscal quarter ended March 31, 2014 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Marrone Bio Innovations, Inc.

Date: May 15, 2014


By:		/s/ Pamela G. Marrone
Name:		Pamela G. Marrone
Title:		President and Chief Executive Officer

I, James B. Boyd, 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 Marrone Bio Innovations, Inc. on Form 10-Q for the fiscal quarter ended March 31, 2014 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Marrone Bio Innovations, Inc.

Date: May 15, 2014


By:		/s/ James B. Boyd
Name:		James B. Boyd
Title:		Chief Financial Officer

This certification accompanies this Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.

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