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Index to Financial Statements

As filed with the Securities and Exchange Commission on September 14, 2015

Registration No. 333-            

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

ADESTO TECHNOLOGIES CORPORATION

(Exact name of Registrant as specified in its charter)

 

 

Delaware   3674   16-1755067

(State or other jurisdiction of

incorporation or organization)

 

(Primary standard industrial

classification code number)

 

(I.R.S. employer

identification no.)

 

 

1250 Borregas Avenue

Sunnyvale, CA 94089

(408) 400-0578

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

 

 

Narbeh Derhacobian

President and Chief Executive Officer

Adesto Technologies Corporation

1250 Borregas Avenue

Sunnyvale, CA 94089

(408) 400-0578

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

 

 

Copies to:

 

Mark A. Leahy, Esq.

William L. Hughes, Esq.

Fenwick & West LLP

801 California Street

Mountain View, CA 94041

(650) 988-8500

 

Jorge del Calvo, Esq.

Stanton D. Wong, Esq.

Gabriella Lombardi, Esq.

Pillsbury Winthrop Shaw Pittman LLP

2550 Hanover Street

Palo Alto, CA 94304

(650) 233-4500

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 (the “Securities Act”), check the following box.   ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Securities Exchange Act of 1934. (Check one):

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x   (Do not check if a smaller reporting company)    Smaller reporting company   ¨

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of

Securities to be Registered

 

Proposed

Maximum
Aggregate

Offering Price (1)(2)

 

Amount of

Registration Fee

Common stock, par value $0.0001 per share

  $50,000,000   $5,810

 

 

(1) Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(2) Includes the offering price of any additional shares that the underwriters have the option to purchase.

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment that specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities, and we are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to Completion, Dated September 14, 2015

PRELIMINARY PROSPECTUS

            Shares

 

 

LOGO

Common Stock

 

 

This is the initial public offering of the common stock of Adesto Technologies Corporation. We are selling             shares of common stock.

Prior to this offering, there has been no public market for our common stock. The initial public offering price is expected to be between $         and $         per share. We have applied to list our common stock on the NASDAQ Global Market under the symbol “IOTS”.

 

 

We are an “emerging growth company” as defined under the federal securities laws. Investing in our common stock involves risks. See “ Risk Factors ” beginning on page 10.

 

     Price to
Public
     Underwriting
Discounts and
Commissions (1)
     Proceeds to
Adesto
 

Per share

   $                    $                    $                

Total

   $         $         $     

 

  (1) See the section titled “Underwriting” for a description of the compensation payable to the underwriters.

We have granted the underwriters the option to purchase up to an additional             shares of common stock to cover over-allotments at the initial public offering price less the underwriting discount and commissions. The underwriters may exercise their option at any time within 30 days from the date of this prospectus.

Neither the Securities and Exchange Commission nor any state securities regulators has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares of common stock to purchasers on                     , 2015.

 

 

 

Needham & Company    Oppenheimer & Co.

 

Roth Capital Partners

                    , 2015


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TABLE OF CONTENTS

 

     Page  

Prospectus Summary

     1   

Risk Factors

     10   

Special Note Regarding Forward-Looking Statements

     33   

Industry and Market Data

     34   

Use of Proceeds

     35   

Dividend Policy

     35   

Capitalization

     36   

Dilution

     38   

Selected Consolidated Financial and Other Data

     40   

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

     44   

Business

     65   

Management

     80   

Executive Compensation

     87   

Certain Relationships and Related Party Transactions

     96   

Principal Stockholders

     98   

Description of Capital Stock

     100   

Shares Eligible for Future Sale

     105   

Material United States Federal Income Tax Consequences to Non-U.S. Holders of Our Common Stock

     107   

Underwriting

     112   

Legal Matters

     115   

Experts

     115   

Where You Can Find Additional Information

     115   

Index to Consolidated Financial Statements

     F-1   

 

 

You should rely only on the information contained in this prospectus or in any free writing prospectus prepared by or on behalf of us and delivered or made available to you. Neither we nor any of the underwriters have authorized anyone to provide you with additional or different information. We are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus or a free writing prospectus is accurate only as of its date, regardless of its time of delivery or of any sale of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date.

Until                     , 2015 (25 days after commencement of this offering), all dealers that buy, sell or trade shares of our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to their unsold allotments or subscriptions.

For investors outside the United States: Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside of the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of common stock and the distribution of this prospectus outside of the United States.

 

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PROSPECTUS SUMMARY

This summary highlights information contained in greater detail elsewhere in this prospectus. This summary does not contain all of the information you should consider in making your investment decision. You should read the entire prospectus carefully before making an investment in our common stock. You should carefully consider, among other things, our consolidated financial statements and the related notes and the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

ADESTO TECHNOLOGIES CORPORATION

Overview

We are a leading provider of application-specific, feature-rich, ultra-low power non-volatile memory products. We optimize our non-volatile memory products for Internet of Things, or IoT, applications including current and next-generation Internet-connected devices in the consumer, industrial, medical and wearables markets. We combine our non-volatile memory design capabilities with proprietary intellectual property and differentiated technology platforms to deliver high-performance products that dramatically reduce the overall energy consumption of our customers’ systems and extend battery life. Our products feature embedded intelligence in a small form factor and high reliability. We believe that our ultra-low power and feature-rich non-volatile memory products will become a key hardware building block for billions of IoT edge devices operating on and connected to networks worldwide. Through December 31, 2014, we have shipped over 200 million units to more than 500 end customers, 59 of which are large multi-national companies.

Our non-volatile memory, or NVM, product families include DataFlash, Fusion Flash and Mavriq. Our DataFlash family of products is well-suited for data-logging applications, such as fitness trackers and sensors, and allows for system simplification. Our Fusion Flash family of products offers the ability to function at a wide range of voltages and battery charge levels, which extends the useful battery life of our customers’ systems. Our Mavriq family of products utilize our proprietary Conductive Bridging RAM, or CBRAM, technology and is ideally suited for applications that require high-performance while consuming 1/10th to 1/100th the energy of existing flash memory products. We believe the power and speed advantages of our products have enabled us to become a preferred NVM provider to customers demanding a combination of exceptional battery life, energy efficiency, reliability and low cost.

We sell our products directly to leading original equipment manufacturers and original design manufacturers, or OEMs and ODMs, respectively, that manufacture products for our end customers. In general, we work directly with our customers to have our NVM devices designed into and qualified for their products, which we refer to as design wins. The number of our design wins has grown from 32 in 2013 to 65 in 2014 and to 88 in the six months ended June 30, 2015. Although we maintain direct sales, support and development relationships with our end customers, most of our products are sold to those end customers through distributors.

As of June 30, 2015, we had 84 employees, approximately 60% of whom are engaged in research and development. Our headquarters are located in Sunnyvale, California, with additional sales operations in the Americas, Europe, the Middle East and Africa, and Asia-Pacific regions. For the years ended December 31, 2013 and 2014, we recorded revenue of $49.7 million and $41.5 million, and a net loss of $8.2 million and $8.9 million, respectively. Our revenue decreased from $21.1 million during the six months ended June 30, 2014 to $20.3 million during the six months ended June 30, 2015 and our net loss decreased from $5.2 million to $4.0 million over that same period. In 2012, we purchased certain flash memory product assets from Atmel Corporation. Since the acquisition, we improved certain features of the acquired products, enhanced their capabilities for low-power IoT applications, accelerated development of other select products, and introduced our next-generation DataFlash and Fusion Flash products based on the acquired technology, which we refer to as our

 



 

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new products. Revenue from new products grew from $6.0 million in 2013 to $28.5 million in 2014, and we generated $18.6 million in revenue from new products during the six months ended June 30, 2015.

Industry Background

The proliferation of data gathering and processing devices across billions of interconnected nodes within the IoT ecosystem is driving the need for new ways to store and utilize that data while adhering to low-power and high-performance requirements. Commodity NVM is limited in its ability to address the design requirements of IoT applications, such as energy efficiency, high reliability and integrated functionality in a small form factor. Accordingly, we believe that the requirements of the IoT market create unique technological challenges, necessitating new and innovative features, architectures and core silicon technology platforms for NVM devices used in IoT nodes. Web-Feet Research estimates that the NVM segment represents a $1.7 billion market opportunity in 2015, growing to $2.7 billion by 2019, representing a 12% compound annual growth rate, or CAGR. This growth is largely driven by the demand for NVM in IoT devices, which is expected to grow from $0.7 billion in 2015 to $1.7 billion in 2019, representing a 25% CAGR.

Our Solutions

We provide innovative, application-specific products designed to address the requirements of emerging IoT applications, including low energy consumption, high reliability and embedded intelligence functions in a small form factor.

We offer three product families, DataFlash, Fusion Flash and Mavriq, which are manufactured using two technology platforms: industry-standard “floating gate” technology and our proprietary CBRAM technology. Our products have unique features and architectures and deliver the following system-level benefits to our customers:

 

    Extended battery life. We optimize our products to operate at a wide voltage range and in special low-power modes in order to save energy, which extends the battery’s operating life.

 

    Enhanced functionality and reliability. Our components improve storage efficiency by requiring fewer re-write cycles than standard commodity NVM devices. This results in further energy savings and enhanced reliability by extending the life of the systems’ components and reducing wear and tear through repetitive use.

 

    System simplification and lower total cost of ownership. We incorporate power management features in our NVM products, which allows customers to reduce the number of components included in and the overall footprint of their systems, thereby lowering the total cost of their systems.

Our Competitive Strengths

We believe the following attributes and capabilities provide us with several competitive advantages:

 

    Purpose-built memory solutions for specific applications, including IoT. Our application-specific products feature ultra-low energy consumption, an efficient, high-performance interface and a high level of integration. As such, they are a higher-performance solution than commodity NVM.

 

    Large, diversified and global customer base. In 2014, our products were sold to more than 500 end customers of varying sizes for use across multiple industry applications, including next-generation connected appliances, wearables, sensors and medical devices. More than 400 of our end customers purchased new products in 2014, including more than 100 that purchased both new and legacy products. Our end customers purchase our products directly from us or through distributors and, in 2014, approximately 54% of our revenue was generated from sales of our products to three independent, non-exclusive distributors. Our customer base provides us with an opportunity to earn more business through follow-on sales.

 



 

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    Close collaboration and relationships with customers and industry participants for future products. Through our collaborative relationships with customers, including leading OEMs and ODMs, we gain valuable insight into our customers’ product roadmaps and the design requirements of next-generation memory solutions to meet the needs of future products. These customer relationships enhance our ability to satisfy future customer requirements and to earn future design wins.

 

    Highly innovative CBRAM technology platform. Our innovative and differentiated CBRAM technology, which we believe is the first new memory process technology commercialized in the last 15 years, offers dramatic improvements in energy efficiency, performance and cost over floating gate NVM technology.

Our Strategy

Key elements of our strategy include:

 

    Maintain application-specific product design focus. We plan to continue to work closely with our customers’ system design, engineering and procurement groups to understand their requirements and create NVM feature sets that address the needs of their specific products and applications.

 

    Continue to build on design wins . We plan to continue to engage and build strong relationships with customers to obtain design wins. The number of our design wins has grown from 32 in 2013 to 65 in 2014 and to 88 in the six months ended June 30, 2015, including 19, 52 and 68 design wins for new products, respectively. We also work with leading OEMs and ODMs to incorporate our application-specific NVM solutions into and qualify our products for their reference designs, which we refer to as reference design wins. We believe securing reference design wins is an effective way of increasing our presence in the end markets we serve because these designs may be used by many end customers across multiple applications.

 

    Achieve leadership position in our target markets through the continued release of new products optimized to address customer-specific requirements. Through the continued development and enhancement of our feature-rich NVM products and technologies designed to meet evolving customer requirements, we intend to achieve a leadership position in a broad range of vertical markets impacted by the emergence of IoT, such as wearables in the consumer market and sensors in the industrial market.

 

    Expand our manufacturing capabilities. We intend to scale our manufacturing capabilities by working with additional foundries that will allow us to support higher volumes, utilize advanced technologies and access a broader base of potential customers.

 

    Pursue CBRAM licensing opportunities. In addition to sales of our CBRAM-based products, we intend to monetize our proprietary CBRAM platform by licensing our technology to OEMs, ODMs, integrated device manufacturers, fabless semiconductor companies and foundries focused on embedding our technology in their current and future solutions.

Risk Factors

Our business is subject to numerous risks, including those described in the section titled “Risk Factors” immediately following this prospectus summary. Some of the more significant risks are:

 

    Our history of losses and that we may not be able to achieve or sustain profitability in the future.

 

    We have a limited operating history, which makes it difficult to evaluate our current business and future prospects.

 

    Our ability to accurately forecast customer demand and match production levels to customer orders.

 

    We rely on third parties to manufacture, package, assemble and test the semiconductor components comprising our products.

 



 

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    The market for our products is characterized by declines in average selling prices, which could negatively affect our revenue and margins.

 

    We began selling our flash memory products in 2012 and have not generated a material amount of revenue from our CBRAM-based products, which makes it difficult to evaluate our current and future prospects.

 

    Our growth depends on the growth and development of the emerging IoT industry, and if the market does not develop as we expect, our business prospects may be harmed.

 

    We rely on our relationships with OEMs and ODMs to enhance our product offerings and market position, and our failure to continue to develop or maintain such relationships in the future would harm our ability to remain competitive.

 

    We face competition and expect competition to increase in the future. If we fail to compete effectively, our revenue growth and results of operations will be materially adversely affected.

Corporate Information

We were originally incorporated in California in January 2006, and we plan to reincorporate into Delaware prior to the completion of this offering. Our principal executive offices are located at 1250 Borregas Avenue, Sunnyvale, California 94089 and our telephone number is (408) 400-0578. Our website is www.adestotech.com. Information contained on, or that can be accessed through, our website is not incorporated by reference into this prospectus, and you should not consider information on our website to be part of this prospectus.

Unless otherwise indicated, the terms “Adesto,” “we,” “us” and “our” refer to Adesto Technologies Corporation, a Delaware corporation, together with its consolidated subsidiaries.

The Adesto design logo and the marks “Adesto,” “CBRAM,” “DataFlash,” and “Mavriq” are the property of Adesto Technologies Corporation. This prospectus contains additional trade names, trademarks, and service marks of other companies. We do not intend our use or display of other companies’ trade names, trademarks, or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies.

Implications of Being an Emerging Growth Company

As a company with less than $1.0 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting requirements that are otherwise applicable generally to public companies. These provisions include:

 

    a requirement to have only two years of audited financial statements and only two years of related management’s discussion and analysis;

 

    an exemption from compliance with the auditor attestation requirement on the effectiveness of our internal control over financial reporting;

 

    an exemption from compliance with any requirement that the Public Company Accounting Oversight Board may adopt regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;

 

    reduced disclosure about our executive compensation arrangements; and

 

    exemptions from the requirements to obtain a non-binding advisory vote on executive compensation or shareholder approval of any golden parachute arrangements.

We will remain an emerging growth company until the earliest to occur of: the last day of the first fiscal year in which we have more than $1.0 billion in annual revenue; the date we qualify as a “large accelerated filer,”

 



 

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with at least $700 million in market value of common equity securities held by non-affiliates; the issuance, in any three-year period, by us of more than $1.0 billion in non-convertible debt securities; and the last day of the fiscal year ending after the fifth anniversary of our initial public offering. We may choose to take advantage of some, but not all, of the available benefits under the JOBS Act. We are choosing to irrevocably “opt out” of the extended transition periods available under the JOBS Act for complying with new or revised accounting standards, but we intend to take advantage of the other exemptions discussed above. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.

 



 

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THE OFFERING

 

Common stock offered by us

            shares

 

Common stock to be outstanding after this offering

            shares

 

Over-allotment option of common stock offered by us

            shares

 

Use of proceeds

We estimate that the net proceeds from the sale of shares of our common stock that we are selling in this offering will be approximately $         million based upon an assumed initial public offering price of $         per share, which is the midpoint of the offering price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

  We expect to use the net proceeds that we receive from this offering for working capital and other general corporate purposes. We may also use a portion of the net proceeds to acquire or invest in complementary businesses, products, services, technologies or other assets. See “Use of Proceeds.”

 

Proposed NASDAQ symbol

“IOTS”

The number of shares of our common stock to be outstanding after this offering is based upon 319,406,077 shares of our common stock outstanding as of June 30, 2015 and             shares that we expect to issue upon the net exercise of warrants immediately prior to the completion of this offering that would otherwise expire, and excludes:

 

    24,586,662 shares of our common stock issuable upon the exercise of stock options outstanding as of June 30, 2015, with a weighted-average exercise price of $0.06 per share;

 

    13,580,074 shares of our common stock issuable upon the exercise of warrants outstanding as of June 30, 2015, with a weighted-average exercise price of $0.2301 per share; and

 

                 shares of our common stock reserved for future issuance under our equity compensation plans, consisting of (1) 61,612,398 shares of common stock available for issuance under our 2007 Equity Incentive Plan as of June 30, 2015, which shares will be added to the shares to be reserved under our 2015 Equity Incentive Plan, or the 2015 Plan, to the extent not granted prior to the completion of this offering, (2)             shares of common stock reserved for future issuance under our 2015 Plan and our 2015 Employee Stock Purchase Plan, which will become effective on the date immediately prior to the date of this prospectus and contain provisions that automatically increase its share reserve each year, as more fully described in “Executive Compensation—Employee Benefit Plans.”

Except as otherwise indicated, all information in this prospectus assumes:

 

    our reincorporation into Delaware prior to the completion of this offering;

 

    the effectiveness of our restated certificate of incorporation and our restated bylaws upon the closing of this offering;

 



 

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    the automatic conversion of all shares of our convertible preferred stock outstanding as of June 30, 2015 into 300,789,120 shares of our common stock immediately upon the closing of this offering;

 

    the conversion of all outstanding warrants to purchase shares of convertible preferred stock into warrants to purchase 13,580,074 shares of common stock immediately upon the closing of this offering;

 

    a    -for-    reverse split of our outstanding capital stock to be effective prior to the completion of this offering;

 

    no exercise by the underwriters of their over-allotment option to purchase up to an additional             shares of our common stock from us; and

 

    no exercise of outstanding stock options or warrants subsequent to June 30, 2015, except for             shares that we expect to issue upon the net exercise of warrants immediately prior to the completion of this offering that would otherwise expire based upon an assumed initial public offering price of $         per share, which is the midpoint of the offering price range set forth on the cover page of this prospectus.

 



 

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SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA

We derived the summary consolidated statements of operations data for the years ended December 31, 2013 and 2014 and the consolidated balance sheet data as of December 31, 2014 from our audited consolidated financial statements included elsewhere in this prospectus. We derived the unaudited summary consolidated statements of operations data for the six months ended June 30, 2014 and 2015 and the unaudited summary consolidated balance sheets data as of June 30, 2015 from our unaudited consolidated financial statements included elsewhere in this prospectus. The unaudited consolidated financial statements were prepared on a basis consistent with our annual consolidated financial statements and, in the opinion of management, include all adjustments of a normal, recurring nature that are necessary for the fair presentation of the financial information set forth in those statements. Our historical results are not necessarily indicative of the results to be expected in the future, and our results for the six months ended June 30, 2015 are not necessarily indicative of the operating results to be expected for the full year ending December 31, 2015 or any other period. You should read the following summary consolidated financial and other data in conjunction with the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements, related notes and other financial information included elsewhere in this prospectus.

 

       Year Ended December 31,     Six Months Ended
June 30,
 
       2013      2014     2014     2015  
      

(in thousands, except share and per share data)

 

Consolidated Statements of Operations Data:

           

Revenue

     $ 49,684       $ 41,465      $ 21,062      $ 20,290   

Cost of revenue (1)

       29,738         25,532        13,034        12,236   
    

 

 

    

 

 

   

 

 

   

 

 

 

Gross profit

       19,946         15,933        8,028        8,054   
    

 

 

    

 

 

   

 

 

   

 

 

 

Operating expenses: (1)

           

Research and development

       15,033         14,410        7,919        6,096   

Sales and marketing

       8,094         7,211        3,633        4,063   

General and administrative

       2,677         2,356        1,170        1,670   
    

 

 

    

 

 

   

 

 

   

 

 

 

Total operating expenses

       25,804         23,977        12,722        11,829   
    

 

 

    

 

 

   

 

 

   

 

 

 

Loss from operations

       (5,858      (8,044     (4,694     (3,775
    

 

 

    

 

 

   

 

 

   

 

 

 

Other income (expense):

           

Interest expense, net

       (2,731      (864     (422     (486

Other income (expense), net

       508         114        43        289   
    

 

 

    

 

 

   

 

 

   

 

 

 

Total other income (expense), net

       (2,223      (750     (379     (197
    

 

 

    

 

 

   

 

 

   

 

 

 

Loss before provision for income taxes

       (8,081      (8,794     (5,073     (3,972

Provision for income taxes

       72         140        110        71   
    

 

 

    

 

 

   

 

 

   

 

 

 

Net loss

     $ (8,153    $ (8,934   $ (5,183   $ (4,043
    

 

 

    

 

 

   

 

 

   

 

 

 

Net loss per share: (2)

           

Basic and diluted

     $ (0.46    $ (0.50   $ (0.29   $ (0.22
    

 

 

    

 

 

   

 

 

   

 

 

 

Weighted-average number of shares used in computing net loss per share: (2)

           

Basic and diluted

         17,766,856         17,892,558          17,794,873          18,503,305   
    

 

 

    

 

 

   

 

 

   

 

 

 

Pro forma net loss per share (unaudited): (2)

           

Basic and diluted

        $ (0.03     $ (0.01
       

 

 

     

 

 

 

Shares used in computing pro forma net loss per share (unaudited): (2)

           

Basic and diluted

          318,681,678          319,292,425   
       

 

 

     

 

 

 

 



 

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(1) Includes stock-based compensation expense as follows (in thousands):

 

     Year Ended December 31,      Six Months Ended
June 30,
 
           2013                  2014                  2014                  2015        

Cost of revenue

   $ 1       $ 4       $ 2       $ 3   

Research and development

     95         86         41         41   

Sales and marketing

     13         30         7         21   

General and administrative

     55         126         27         47   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 164       $ 246       $ 77       $ 112   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(2) See notes 1 and 12 to our consolidated financial statements included elsewhere in this prospectus for an explanation of the calculations of our basic and diluted net loss per share and our pro forma net loss per share.

Key Metrics: (1)(2)

 

     Year Ended December 31,     Six Months Ended
June 30,
 
         2013             2014             2014             2015      
     (dollars in thousands)  

Non-GAAP gross margin

     42     43     43     39

Adjusted EBITDA

   $ 57      $ (2,912   $ (2,073   $ (2,079

 

(1) For information about our key metrics see “Selected Consolidated Financial and Other Data—Key Metrics.”
(2) Each of these measures is a non-GAAP financial measure. For more information regarding our use of these measures and a reconciliation of these measures to the most comparable GAAP measure, see “Selected Consolidated Financial and Other Data—Reconciliation of Non-GAAP Financial Measures.”

 

     As of June 30, 2015  
     Actual     Pro Forma (1)      Pro Forma as
Adjusted (2)
 
     (in thousands)  

Consolidated Balance Sheets Data:

  

Cash and cash equivalents

   $ 6,470      $ 6,470       $                

Property and equipment, net

     1,059        1,059      

Total assets

     32,078        32,078      

Current liabilities (3)

     15,475        15,475      

Debt (3)

     14,133        14,133      

Preferred stock warrant liability

     903        —        

Convertible preferred stock

     78,467        —        

Total stockholders’ equity (deficit)

     (74,363     5,007      

 

(1) The pro forma column reflects (1) the conversion of all outstanding shares of our convertible preferred stock into 300,789,120 shares of our common stock immediately upon the closing of this offering and (2) the resulting reclassification of the preferred stock warrant liability to stockholders’ equity.
(2) The pro forma as adjusted column reflects the items described in footnote 1 and (1) the receipt of approximately $         million in net proceeds from our sale of             shares of common stock in this offering at an assumed initial public offering price of $         per share, which is the midpoint of the offering price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us and (2) the issuance of             shares of common stock that we expect to issue upon the net exercise of warrants that would expire if not exercised prior to the completion of this offering, based on the assumed initial public offering price of $         per share, which is the midpoint of the offering price range set forth on the cover page of this prospectus. A $1.00 increase or decrease in the assumed initial public offering price of $         per share would increase or decrease our pro forma as adjusted cash and cash equivalents, total assets and total stockholders’ equity by $         million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
(3) In April 2015 we entered into a three-year $15.0 million term loan facility. As of June 2015, we had net borrowings of $15.0 million outstanding under our term loan facility, of which $4.0 million is included in current liabilities.

 



 

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RISK FACTORS

An investment in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below before making a decision to invest in our common stock. Our business, results of operations, financial condition or prospects could be materially and adversely affected by any of these risks and uncertainties, which could cause the trading price of our common stock to decline and you may lose all or part of your investment. In addition, the risks and uncertainties discussed below are not the only ones we face. Our business, results of operations, financial condition or prospects could also be harmed by risks and uncertainties not currently known to us or that we currently do not believe are material. In assessing the risks and uncertainties described below, you should also consider carefully the other information contained in this prospectus before making a decision to invest in our common stock.

Risk Factors Related to Our Business and Our Industry

We have a history of losses which may continue in the future, and we cannot be certain that we will achieve or sustain profitability.

We have incurred net losses since our inception. We incurred net losses of $8.2 million, $8.9 million and $4.0 million for the years ended December 31, 2013 and 2014 and the six months ended June 30, 2015, respectively. As of June 30, 2015, we had an accumulated deficit of $78.2 million. We expect to incur significant expenses related to the continued development and expansion of our business, including in connection with our efforts to pursue opportunities in emerging IoT markets, develop and improve upon our products and technology, maintain and enhance our research and development and sales and marketing activities and hire additional personnel. In addition, as a public company, we will incur significant additional legal, accounting and other expenses that we did not incur as a private company. We do not know whether our revenue will grow rapidly enough to absorb these costs, and our limited operating history makes it difficult to assess the extent of these expenses or their impact on our results of operations.

Further, revenue may not grow or revenue may decline for a number of possible reasons, many of which are outside our control, including a decline in demand for our products, increased competition, business conditions that adversely affect the semiconductor memory industry, including reduced demand for products in the end markets that we serve, or our failure to capitalize on growth opportunities. If we fail to generate sufficient revenue to support our operations, we may not be able to achieve or sustain profitability.

Our limited operating history makes it difficult to evaluate our current business and future prospects.

Although we have been in existence since 2006, our first full fiscal year of commercial shipments was 2013. Much of our growth has occurred since our acquisition of certain flash memory product assets of Atmel Corporation in September 2012. Since the acquisition, we have invested in developing and introducing new products based on the acquired products and technology. In 2013, we introduced the first of these next-generation NVM products and sales of these and other new products have experienced a high rate of growth. However, we may not be able to sustain the growth rate for sales of these products and our revenue could decline. We have also developed and enhanced our family of CBRAM-based products and shipped more than 1.0 million units through 2014, but revenue associated with these products has not been material to date.

Our limited operating history, and limited experience selling products, combined with the rapidly evolving and competitive nature of our markets, makes it difficult to evaluate our current business and future prospects. In addition, we have limited insight into emerging trends that may adversely affect our business, financial condition, results of operations and prospects. We have encountered and will continue to encounter risks and difficulties frequently experienced by growing companies in rapidly changing industries, including unpredictable and volatile revenue and increased expenses as we continue to grow our business. The viability and demand for our products may be affected by many factors outside of our control, such as the factors affecting the growth of the

 

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IoT industry and changes in macroeconomic conditions. If we do not manage these risks and overcome these difficulties successfully, our business will suffer.

We may be unable to match production with customer demand for a variety of reasons including our inability to accurately forecast customer demand or the capacity constraints of contract manufacturers, which could adversely affect our operating results.

We make planning and spending decisions, including determining production levels, production schedules, component procurement commitments, personnel needs and other resource requirements, based on our estimates of product demand and customer requirements. Our products are typically purchased pursuant to individual purchase orders. While our customers may provide us with their demand forecasts, they are not contractually committed to buy any quantity of products beyond purchase orders. Furthermore, many of our customers may increase, decrease, cancel or delay purchase orders already in place without significant penalty. The short-term nature of commitments by our customers and the possibility of unexpected changes in demand for their products reduce our ability to accurately estimate future customer requirements. On occasion, customers may require rapid increases in production, which can strain our resources, necessitate more onerous procurement commitments and reduce our gross margin. If we overestimate customer demand, we may purchase products that we may not be able to sell, which could result in decreases in our prices or write-downs of unsold inventory. Conversely, if we underestimate customer demand or if sufficient manufacturing capacity was unavailable, we would lose sales opportunities and could lose market share or damage our customer relationships. The rapid pace of innovation in our industry could also render significant portions of our inventory obsolete. Excess or obsolete inventory levels could result in unexpected expenses or increases in our reserves that could adversely affect our business, operating results and financial condition.

We rely on third parties to manufacture, package, assemble and test the semiconductor components comprising our products, which exposes us to a number of risks, including reduced control over manufacturing and delivery timing and potential exposure to price fluctuations, which could result in a loss of revenue or reduced profitability.

As a fabless semiconductor company, we outsource the manufacturing, packaging, assembly and testing of our semiconductor components to third-party foundries and assembly and testing service providers. We use a single foundry, United Microelectronics Corporation in Taiwan, for the production of our flash memory products and a single foundry, Altis Semiconductor S.N.C. in France, for our Mavriq products. Our primary assembly and testing contractor in 2014 was Amkor Technology, Inc. in Taiwan, Korea and the Philippines. Our wafer probing is performed by King Yuan Electronics Co., Ltd. in Taiwan.

Relying on third-party manufacturing, assembly and testing presents a number of risks, including but not limited to:

 

    capacity and materials shortages during periods of high demand;

 

    reduced control over delivery schedules, inventories and quality;

 

    the unavailability of, or potential delays in obtaining access to, key process technologies;

 

    the inability to achieve required production or test capacity and acceptable yields on a timely basis;

 

    misappropriation of our intellectual property;

 

    the third parties’ ability to perform its obligations due to bankruptcy or other financial constraints;

 

    limited warranties on wafers or products supplied to us; and

 

    potential increases in prices.

Any of the foregoing risks may affect our ability to meet customer demand. For example, one of our silicon wafer suppliers suddenly declared bankruptcy in December 2013 and abruptly shut down its foundry. As a result,

 

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we were unable to fulfill a portion of our customers’ orders in 2014 while we transitioned wafer production to a new foundry. Based on the average selling prices then in effect for those wafers, we estimate that the potential loss of revenue exceeded $10.0 million.

We currently do not have long-term supply contracts with our third-party contract manufacturers for our DataFlash and Fusion Flash products, including United Microelectronics Corporation and Amkor Technology, Inc., and we typically negotiate pricing on a per-purchase order basis. Therefore, they are not obligated to perform services or supply components to us for any specific period, in any specific quantities, or at any specific price, except as may be provided in a particular purchase order. During periods of high demand and tight inventories, our third-party foundries and assembly and testing contractors may allocate capacity to the production of other companies’ components while reducing deliveries to us, or significantly raise their prices. In particular, they may allocate capacity to other customers that are larger and better financed than us or that have long-term agreements, decreasing the capacity available to us. Shortages of capacity available to us may be caused by the actions of their other, large customers that may be difficult to predict, such as major product launches. If we need other foundries or assembly and test contractors because of increased demand, or if we are unable to obtain timely and adequate deliveries from our providers, we might not be able to cost-effectively and quickly retain other vendors to satisfy our requirements. Because the lead-time needed to establish a relationship with a new third-party supplier could be several quarters, there is no readily available alternative source of supply for any specific component. In addition, the time and expense to qualify a new foundry could result in additional expense, diversion of resources or lost sales, any of which would negatively impact our financial results.

In the event that we expand production of a component to include a new contract manufacturer, as we expect to do with our current and future CBRAM-based products, it may take approximately 18 to 24 months to allow a transition from our current foundry or assembly services provider to the new provider. We may experience difficulty migrating our proprietary CBRAM technology platform and, consequently, may experience reduced yields, delays in component deliveries and increased research and development expense. The inability by us or our third-party manufacturers to effectively and efficiently transition our technology to their infrastructure may adversely affect our operating results and our gross margin. There can be no assurance that we will be able to find suitable replacements for our third-party contract manufacturers.

If any of our current or future foundry partners or assembly and test subcontractors significantly increases the costs of wafers or other materials, interrupts or reduces our supply, including for reasons outside of their control, or if any of our relationships with our suppliers is terminated, our operating results could be adversely affected. Such occurrences could also damage our customer relationships, result in lost revenue, cause a loss in market share or damage our reputation.

The market for semiconductor memory products is characterized by declines in average selling prices, which we expect to continue, and which could negatively affect our revenue and margins.

Our customers expect the average selling price of our products to decrease year-over-year and we expect this trend to continue. When such pricing declines occur, we may not be able to mitigate the effects by selling more or higher margin units, or by reducing our manufacturing costs. In such circumstances, our operating results could be materially and adversely affected. Our legacy and new flash memory products have experienced declining average selling prices over their life cycle. The rate of decline may be affected by a number of factors, including relative supply and demand, the level of competition, production costs and technological changes. As a result of the decreasing average selling prices of our products following their launch, our ability to increase or maintain our margins depends on our ability to introduce new or enhanced products with higher average selling prices and to reduce our per-unit cost of sales and our operating costs. We may not be able to reduce our costs as rapidly as companies that operate their own manufacturing, assembly and testing facilities, and our costs may even increase because we do not operate our own manufacturing, assembly or testing facilities, which could also reduce our gross margins. In addition, our new or enhanced products may not be as successful or enjoy as high margins as we expect. If we are unable to offset any reductions in average selling prices by introducing new

 

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products with higher average selling prices or reducing our costs, our revenue and margins will be negatively affected and may decrease.

The semiconductor memory market is highly cyclical and has experienced severe downturns in the past, generally as a result of wide fluctuations in supply and demand, constant and rapid technological change, continuous new product introductions and price erosion. During downturns, periods of intense competition, or the presence of oversupply in the industry, the selling prices for our products may decline at a high rate over relatively short time periods as compared to historical rates of decline. We are unable to predict selling prices for any future periods and may experience unanticipated, sharp declines in selling prices for our products.

Our growth depends on the growth and development of the emerging IoT industry, and if the market does not develop as we expect, our business prospects may be harmed.

Our products are increasingly being utilized in IoT edge devices. The IoT industry is nascent and is characterized by rapidly changing technologies, devices and connectivity requirements, evolving industry standards and changing customer demands. The continued development of IoT depends in part on significant growth in the number of connected devices. Such growth is affected by various factors, including the continued growth in the use of mobile operator networks and the Internet to connect an increasing number and variety of devices, price reductions for key hardware and software components, innovation of other components of the IoT nodes toward low-power formats, and the continued development of IoT standards and protocols. Without these continued developments, IoT might not gain widespread market acceptance and our business could suffer. Security and privacy concerns, evolving business practices and consumer preferences may also slow the growth and development of IoT. Because our revenue growth ultimately depends upon the success of IoT, our business may suffer as a result of slowing or declining growth in IoT adoption. Even if the IoT industry does develop, we may not be well positioned or able to penetrate and capitalize on this new market. As a result of these factors, the future revenue and income potential of our business is uncertain.

The markets for our products are evolving, and changing market conditions, such as the introduction of new technologies or changes in customer preferences, may negatively affect demand for our products. If we fail to properly anticipate or respond to changing market conditions, our business prospects and results of operations will suffer.

The NVM industry is subject to constant and rapid changes in technology, frequent new product introductions, short product life cycles, rapid product obsolescence and evolving technical standards. New technologies may be introduced that make the current technologies on which our products are based less competitive or obsolete or require us to make changes to our technology that could be expensive and time consuming to implement. Due to the evolving nature of our markets, our future success depends on our ability to accurately anticipate and respond to changes in industry standards, technological requirements, customer and consumer preferences and other market conditions. Our technologies could become obsolete sooner than we expect because of faster than anticipated, or unanticipated, changes in one or more of the industry standards and technological requirements. We may be unable to develop and introduce new or enhanced technologies that satisfy customer requirements and achieve market acceptance in a timely manner or at all, succeed in commercializing the technologies on which we have focused our research and development expenditures to develop, and anticipate new industry standards and technological changes. If we fail to adapt successfully to technological changes or fail to obtain access to important new technologies, we may be unable to retain customers or attract new customers. Any decrease in demand for our products, or the need for low-power products in general, due to the emergence of competing technologies, changes in customer preferences and requirements or other factors, could adversely affect our business, results of operations and prospects.

 

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We must continuously develop new and enhanced products, and if we are unable to successfully market our new and enhanced products for which we incur significant expenses to develop, our results of operations and financial condition will be materially adversely affected.

In order to compete effectively in our markets, we must continually design, develop and introduce new and improved products with improved features in a cost-effective manner in response to changing technologies and market demand. This requires us to devote substantial financial and other resources to research and development. We are developing next-generation products, which we expect to be one of the drivers of our revenue growth in the future. However, we may not succeed in developing and marketing these new and enhanced products. We also face the risk that customers may not value or be willing to bear the cost of incorporating our new and enhanced products into their products, particularly if they believe their customers are satisfied with current solutions. Regardless of the improved features or superior performance of our new and enhanced products, customers may be unwilling to adopt our solutions due to design or pricing constraints, or because they do not want to rely on a single or limited supply source. Because of the extensive time and resources that we invest in developing new and enhanced products, if we are unable to sell customers new generations of our products, our revenue could decline and our business, financial condition, results of operations and cash flows would be negatively affected. For example, we generated limited revenue from sales of our Mavriq products to date. While we expect revenue from our Mavriq products to grow, we may not be able to materially increase our revenue from this product family. Similarly, any newly-introduced products or product families based on floating gate architecture may not achieve market acceptance and contribute significantly to our revenue. If we are unable to successfully develop and market our new and enhanced products that we have incurred significant expenses developing, our results of operations and financial condition will be materially and adversely affected.

Our success and future revenue depend on our ability to secure design wins and on our customers’ ability to successfully sell the products that incorporate our solutions. Securing design wins is a lengthy, expensive and competitive process, and may not result in actual orders and sales, which could cause our revenue to decline.

We sell to customers that incorporate our NVM into their products. A design win occurs after a customer has tested our product, verified that it meets the customer’s requirements and qualified our solutions for their products. Our customers may need several months to years to test, evaluate and adopt our product and additional time to begin volume production of the product that incorporates our solution. Due to this generally lengthy design cycle, we may experience significant delays from the time we increase our operating expenses and make investments in our products to the time that we generate revenue from sales of these products. Moreover, even if a customer selects our solution, we cannot guarantee that this will result in any sales of our products, as the customer may ultimately change or cancel its product plans, or efforts by our customer to market and sell its product may not be successful. We may not generate any revenue from design wins after incurring the associated costs, which would cause our business and operating results to suffer.

If a current or prospective customer designs a competitor’s solution into its product, it becomes significantly more difficult for us to sell our solutions to that customer because changing suppliers involves significant time, cost, effort and risk for the customer even if our solutions remain compatible with their product design. If current or prospective customers do not include our solutions in their products and we fail to achieve a sufficient number of design wins, our results of operations and business may be harmed.

We rely on our relationships with OEMs and ODMs to enhance our solutions and market position, and our failure to continue to develop or maintain such relationships in the future would harm our ability to remain competitive.

We develop our products for leading OEMs and ODMs that serve a variety of end markets and are developing devices for wearables, sensors, Bluetooth 4.0 and other IoT applications. For each application, manufacturers create products that incorporate specialized semiconductor technology, which makers of memory products use as the basis for their products. These manufacturers set the specifications for many of the key

 

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components to be used on each generation of their products and, in the case of memory components, generally qualify only a few vendors to provide memory components for their products. As each new generation of their products is released, vendors are validated in a similar fashion. We must work closely with semiconductor manufacturers to ensure our products become qualified for use in their products. As a result, maintaining close relationships with leading product manufacturers that are developing devices for wearables, Bluetooth 4.0 and other IoT applications is crucial to the long-term success of our business. We could lose these relationships for a variety of reasons, including our failure to qualify as a vendor, our failure to demonstrate the value of our new solutions, declines in product quality, or if OEMs or ODMs seek to work with vendors with broader product suites, greater production capacity or greater financial resources. If our relationships with key industry participants were to deteriorate or if our solutions were not qualified by our customers, our market position and revenue could be materially and adversely affected.

Changes to industry standards and technical requirements relevant to our products and markets could adversely affect our business, results of operations and prospects.

Our products are only a part of larger electronic systems. All products incorporated into these systems must comply with various industry standards and technical requirements created by regulatory bodies or industry participants in order to operate efficiently together. Industry standards and technical requirements in our markets are evolving and may change significantly over time. For our products, the industry standards are developed by the Joint Electron Device Engineering Council, an industry trade organization. In addition, large industry-leading semiconductor and electronics companies play a significant role in developing standards and technical requirements for the product ecosystems within which our products can be used. Our customers also may design certain specifications and other technical requirements specific to their products and solutions. These technical requirements may change as the customer introduces new or enhanced products and solutions.

Our ability to compete in the future will depend on our ability to identify and comply with evolving industry standards and technical requirements. The emergence of new industry standards and technical requirements could render our products incompatible with products developed by other suppliers or make it difficult for our products to meet the requirements of certain of our customers in consumer, industrial, IoT and other markets. As a result, we could be required to invest significant time and effort and to incur significant expense to redesign our products to ensure compliance with relevant standards and requirements. If our products are not in compliance with prevailing industry standards and technical requirements for a significant period of time, we could miss opportunities to achieve crucial design wins, our revenue may decline and we may incur significant expenses to redesign our products to meet the relevant standards, which could adversely affect our business, results of operations and prospects.

Our results of operations can fluctuate from period to period, which could cause our share price to fluctuate.

Our results of operations have fluctuated in the past and may fluctuate from period to period in the future due to a variety of factors, many of which are beyond our control. Factors relating to our business that may contribute to these fluctuations include the following factors, as well as other factors described elsewhere in this prospectus:

 

    the receipt, reduction, delay or cancellation of orders by large customers;

 

    the gain or loss of significant customers and distributors;

 

    the timing and success of our launch of new or enhanced products and those of our competitors;

 

    market acceptance of our products and our customers’ products;

 

    the level of growth or decline in the IoT market;

 

    the timing and extent of research and development and sales and marketing expenditures;

 

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    the amount and timing of operating expenses related to the maintenance and expansion of our business, operations and infrastructure;

 

    changes in our product mix;

 

    our ability to reduce the manufacturing costs of our products;

 

    competitive pressures resulting in lower than expected average selling prices;

 

    fluctuations in sales by and inventory levels of OEMs and ODMs who incorporate our memory products in their products;

 

    cyclical and seasonal fluctuations in our markets;

 

    fluctuations in the manufacturing yields of our third-party contract manufacturers;

 

    events that impact the availability of production capacity at our third-party subcontractors and other interruptions in the supply chain including due to geopolitical events, natural disasters, materials shortages, bankruptcy or other causes;

 

    supply constraints for and changes in the cost of the other components incorporated into our customers’ products;

 

    the timing of expenses related to the acquisition of technologies or businesses;

 

    product rates of return or price concessions in excess of those expected or forecasted;

 

    costs associated with the repair and replacement of defective products;

 

    unexpected inventory write-downs or write-offs;

 

    costs associated with litigation over intellectual property rights and other litigation;

 

    the length and unpredictability of the purchasing and budgeting cycles of our customers;

 

    loss of key personnel or the inability to attract qualified engineers; and

 

    geopolitical events, such as war, threat of war or terrorist actions, or the occurrence of natural disasters.

The semiconductor memory industry is highly cyclical and our markets may experience significant cyclical fluctuations in demand as a result of changing economic conditions, budgeting and buying patterns of customers and others factors. As a result of these and other factors affecting demand for our products and our results of operations in any given period, the results of any prior quarterly or annual periods should not be relied upon as indicative of our future revenue or operating performance. Fluctuations in our revenue and operating results could also cause our stock price to decline.

If sales of our customers’ products decline or if their products do not achieve market acceptance, our business and operating results could be adversely affected.

Our revenue depends on our customers’ ability to commercialize their products successfully. The markets for our customers’ products are extremely competitive and are characterized by rapid technological change. Competition in our customers’ markets is based on a variety of factors including price, performance, product quality, marketing and distribution capability, customer support, name recognition and financial strength. As a result of rapid technological change, the markets for our customers’ products are characterized by frequent product introductions, short product life cycles, fluctuating demand and increasing product capabilities. As a result, our customers’ products may not achieve market success or may become obsolete. We cannot assure you that our customers will dedicate the resources necessary to promote and commercialize their products, successfully execute their business strategies for such products, or be able to manufacture such products in quantities sufficient to meet demand or cost-effectively manufacture products at a high volume. Our customers do not have contracts with us that require them to manufacture, distribute or sell any products. Moreover, our

 

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customers may develop internally, or in collaboration with our competitors, technology that they may utilize instead of the technology available to them through us. Our customers’ failure to achieve market success for their products, including as a result of general declines in our customers’ markets or industries, could negatively affect their willingness to utilize our products, which may result in a decrease in our revenue and negatively affect our business and operating results.

Our revenue also depends on the timely introduction, quality and market acceptance of our customers’ products that incorporate our solutions. Our customers’ products are often very complex and subject to design complexities that may result in design flaws, as well as potential defects, errors and bugs. We have in the past been subject to delays and project cancellations as a result of design flaws in the products developed by our customers. For example, in 2014 flaws in one of our customer’s products that were unrelated to our memory solutions generated negative publicity for our customer and delayed the product’s release until it could be redesigned. In the past, we have also been subject to delays and project cancellations as a result of changing market requirements, such as the customer adding a new feature, or because a customer’s product fails their end customer’s evaluation or field trial. Customer products may also be delayed due to issues with other vendors of theirs. We incur significant design and development costs in connection with designing our solutions for customers’ products. If our customers discover design flaws, defects, errors or bugs in their products, or if they experience changing market requirements, failed evaluations or field trials, or issues with other vendors, they may delay, change or cancel a project. If we have already incurred significant development costs, we may not be able to recoup those costs, which in turn would adversely affect our business and financial results.

We face competition and expect competition to increase in the future. If we fail to compete effectively, our revenue growth and results of operations will be materially and adversely affected.

The global semiconductor market in general, and the semiconductor memory market in particular, are highly competitive. We expect competition to increase and intensify as other semiconductor companies enter our markets, many of which have greater financial and other resources with which to pursue technology development, product design, manufacturing, marketing and sales and distribution of their products. Increased competition could result in price pressure, reduced profitability and loss of market share, any of which could materially and adversely affect our business, revenue and operating results. Currently, our competitors range from large, international companies offering a wide range of semiconductor products to companies specializing in other alternative, specialized emerging memory technologies. Our primary competitors include Atmel Corporation, Macronix International Co. Ltd., Microchip Technology Inc., Micron Technology, Inc., Spansion Inc. (recently acquired by Cypress Semiconductor Corporation), STMicroelectronics NV and Winbond Electronics Corp. In addition, as the IoT market opportunity grows, we expect new entrants will enter these markets and existing competitors, including leading semiconductor companies, may make significant investments to compete more effectively against our products. These competitors could develop technologies or architectures that make our products or technologies obsolete.

Our ability to compete successfully depends on factors both within and outside of our control, including:

 

    the functionality and performance of our products and those of our competitors;

 

    our relationships with our customers and other industry participants;

 

    prices of our products and prices of our competitors’ products;

 

    our ability to develop innovative products;

 

    our ability to retain high-level talent, including our management team and engineers; and

 

    the actions of our competitors, including merger and acquisition activity, launches of new products and other actions that could change the competitive landscape.

 

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Competition could result in pricing pressure, reduced revenue and profitability and loss of market share, any of which could materially and adversely affect our business, results of operations and prospects. In the event of a market downturn, competition in the markets in which we operate may intensify as our customers reduce their purchase orders. Our competitors that are significantly larger and have greater financial, technical, marketing, distribution, customer support and other resources or more established market recognition than us may be better positioned to accept lower prices and withstand adverse economic or market conditions.

Our customers require our products and our third-party contractors to undergo a lengthy and expensive qualification process. If we are unsuccessful or delayed in qualifying any of our products with a customer, our business and operating results would suffer.

Prior to selecting and purchasing our products, our customers typically require that our products undergo extensive qualification processes, which involve testing of our products in the customers’ systems, as well as testing for reliability. This qualification process may continue for several months or years. However, obtaining the requisite qualifications for a memory product does not assure any sales of the product. Even after successful qualification and sales of a product to a customer, a subsequent revision in our third-party contractors’ manufacturing process or our selection of a new contract manufacturer may require a new qualification process, which may result in delays and excess or obsolete inventory. After our products are qualified and selected, it can and often does take several months or more before the customer commences volume production of systems that incorporate our products. Despite these uncertainties, we devote substantial resources, including design, engineering, sales, marketing and management efforts, to qualify our products with customers in anticipation of sales. If we are unsuccessful or delayed in qualifying any of our products with a customer, sales of those products may be precluded or delayed, which may impede our growth and harm our business.

Our costs may increase substantially if our third-party manufacturing contractors do not achieve satisfactory product yields or quality.

The fabrication process is extremely complicated and small changes in design, specifications or materials can result in material decreases in product yields or even the suspension of production. From time to time, the third-party foundries that we contract to manufacture our products may experience manufacturing defects and reduced manufacturing yields related to errors or problems in their manufacturing processes or the interrelationship of their processes with our designs. In some cases, our third-party foundries may not be able to detect these defects early in the fabrication process or determine the cause of such defects in a timely manner.

Generally, in pricing our products, we assume that manufacturing yields will continue to improve, even as the complexity of our products increases. Once our products are initially qualified with our third-party foundries, minimum acceptable yields are established. We are responsible for the costs of the units if the actual yield is above the minimum. If actual yields are below the minimum we are not required to purchase the units. Typically, minimum acceptable yields for our new products are generally lower at first and gradually improve as we achieve full production. Unacceptably low product yields or other product manufacturing problems could substantially increase overall production time and costs and adversely impact our operating results. Product yield losses will increase our costs and reduce our gross margin. In addition to significantly harming our results of operations and cash flow, poor yields may delay shipment of our products and harm our relationships with existing and potential customers.

The complexity of our products may lead to errors, defects and bugs, which could negatively impact our reputation with customers and result in liability.

Products as complex as ours may contain errors, defects and bugs when first introduced to customers or as new versions are released. Our products have in the past experienced such errors, defects and bugs. Delivery of products with production defects or reliability, quality or compatibility problems could significantly delay or hinder market acceptance of the products or result in a costly recall and could damage our reputation and

 

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adversely affect our ability to retain existing customers and attract new customers. Errors, defects or bugs could cause problems with the functionality of our products, resulting in interruptions, delays or cessation of sales of these products to our customers. We may also be required to make significant expenditures of capital and resources to resolve such problems. We cannot assure you that problems will not be found in new products, both before and after commencement of commercial production, despite testing by us, our suppliers or our customers. Any such problems could result in:

 

    delays in development, manufacture and roll-out of new products;

 

    additional development costs;

 

    loss of, or delays in, market acceptance;

 

    diversion of technical and other resources from our other development efforts;

 

    claims for damages by our customers or others against us; and

 

    loss of credibility with our current and prospective customers.

Any such event could have a material adverse effect on our business, financial condition and results of operations.

We may experience difficulties in transitioning to new wafer fabrication process technologies or in achieving higher levels of design integration, which may result in reduced manufacturing yields, delays in product deliveries and increased expenses.

We aim to use the most advanced manufacturing process technology appropriate for our solutions that is available from our third-party foundries. As a result, we periodically evaluate the benefits of migrating our solutions to other technologies in order to improve performance and reduce costs. These ongoing efforts require us from time to time to modify the manufacturing processes for our products and to redesign some products, which in turn may result in delays in product deliveries. We may face difficulties, delays and increased expense as we transition our products to new processes, and potentially to new foundries. We will depend on our third-party foundries as we transition to new processes. We cannot assure you that our third-party foundries will be able to effectively manage such transitions or that we will be able to maintain our relationship with our third-party foundries or develop relationships with new third-party foundries. If we or any of our third-party foundries experience significant delays in transitioning to new processes or fail to efficiently implement transitions, we could experience reduced manufacturing yields, delays in product deliveries and increased expenses, any of which could harm our relationships with our customers and our operating results.

As smaller line width geometry manufacturing processes become more prevalent, we intend to move our future products to increasingly smaller geometries in order to reduce costs while integrating greater levels of functionality into our products. This transition will require us and our third-party foundries to migrate to new designs and manufacturing processes for smaller geometry products. We may not be able to achieve smaller geometries with higher levels of design integration or to deliver new integrated products on a timely basis. We periodically evaluate the benefits, on a product-by-product basis, of migrating to smaller geometry process technologies to reduce our costs and increase performance. We are dependent on our relationships with our third-party foundries to transition to smaller geometry processes successfully. We cannot assure you that our third-party foundries will be able to effectively manage any such transition. If we or our third-party foundries experience significant delays in any such transition or fail to implement a transition, our business, financial condition and results of operations could be materially harmed.

 

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If we fail to make necessary improvements to address a material weakness in our internal control over financial reporting identified by our independent registered public accounting firm, we may not be able to report our financial results accurately and timely or prevent fraud, any of which could cause our reported financial results to be materially misstated and result in the loss of investor confidence or delisting and cause the trading price of our common stock to decline.

Our independent registered public accounting firm has not conducted an audit of our internal control over financial reporting. However, in connection with the audits of our consolidated financial statements as of and for the years ended December 31, 2013 and 2014, our independent registered public accounting firm identified in their report to our audit committee that we had a material weakness in our internal control over financial reporting as of December 31, 2014 due to our lack of sufficient, qualified personnel in accounting and financial reporting functions with sufficient experience and expertise with respect to the application of GAAP and related financial reporting, which led to a delay in the closing of our books and resulted in a number of post-closing adjustments to our consolidated financial statements as of and for the years ended December 31, 2013 and 2014. A material weakness is defined in the standards established by the Public Company Accounting Oversight Board (United States) as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Our management and independent registered public accounting firm did not and were not required to perform an evaluation of our internal control over financial reporting as of and for the years ended December 31, 2013 and 2014 in accordance with the provisions of the JOBS Act.

We are in the process of taking steps intended to remedy this material weakness, and we will not be able to fully address this material weakness until these steps have been completed. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Internal Control Over Financial Reporting” for information regarding our remediation efforts. If we fail to further increase and maintain the number and expertise of our staff for our accounting and finance functions and to improve and maintain internal control over financial reporting adequate to meet the demands that will be placed upon us as a public company, including the requirements of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, we may be unable to report our financial results accurately and prevent fraud. In addition, we cannot be certain that any such steps we undertake will successfully remediate the material weakness or that other material weaknesses and control deficiencies will not be discovered in the future. If our remediation efforts are not successful or other material weaknesses or control deficiencies occur in the future, we may be unable to report our financial results accurately or on a timely basis, which could cause our reported financial results to be materially misstated and result in the loss of investor confidence or delisting and cause our stock price to decline. As a result of such failures, we could also become subject to investigations by the NASDAQ Stock Market, the U.S. Securities and Exchange Commission, or SEC, or other regulatory authorities, and become subject to litigation from investors and stockholders, any of which could harm our reputation and financial condition, and divert financial and management resources. Even if we are able to report our financial statements accurately and timely, if we do not make all the necessary improvements to address the material weakness, continued disclosure of our material weakness will be required in future filings with the SEC, which could reduce investor confidence in our reported results and our cause our stock price to decline.

If we fail to hire additional finance personnel and strengthen our financial reporting systems and infrastructure, we may not be able to timely and accurately report our financial results or comply with the requirements of being a public company, including compliance with the Sarbanes-Oxley Act and SEC reporting requirements.

We intend to hire additional accounting and finance staff with technical accounting, SEC reporting and Sarbanes-Oxley Act compliance expertise. Any inability to recruit and retain such staff would have an adverse impact on our ability to accurately and timely prepare our financial statements. We may be unable to locate and hire qualified professionals with requisite technical and public company experience when and as needed. In addition, new employees will require time and training to learn our business and operating processes and

 

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procedures. If our finance and accounting organization is unable for any reason to respond adequately to the increased demands that will result from being a public company, the quality and timeliness of our financial reporting may suffer, which could result in the identification of material weaknesses in our internal controls. Any consequences resulting from inaccuracies or delays in our reported financial statements could cause the trading price of our common stock to decline and could harm our business, operating results and financial condition.

If we fail to strengthen our financial reporting systems, infrastructure and internal control over financial reporting to meet the demands that will be placed upon us as a public company, including the requirements of the Sarbanes-Oxley Act, we may be unable to report our financial results timely and accurately and prevent fraud. We expect to incur significant expense and devote substantial management effort toward ensuring compliance with Section 404.

A breach of our security systems may damage our reputation and adversely affect our business.

Our security systems are designed to protect our customers,’ suppliers’ and employees’ confidential information, as well as maintain the physical security of our facilities. We also rely on a number of third-party

“cloud-based” service providers of corporate infrastructure services relating to, among other things, human resources, electronic communication services and some finance functions, and we are, of necessity, dependent on the security systems of these providers. Any security breaches or other unauthorized access by third parties to the systems of our cloud-based service providers or the existence of computer viruses in their data or software could expose us to a risk of information loss and misappropriation of confidential information. Accidental or willful security breaches or other unauthorized access by third parties to our information systems or facilities, or the existence of computer viruses in our data or software, could expose us to a risk of information loss and misappropriation of proprietary and confidential information belonging to us, our customers or our suppliers. Any theft or misuse of this information could result in, among other things, unfavorable publicity, damage to our reputation, difficulty in marketing our products, allegations by our customers that we have not performed our contractual obligations, litigation by affected parties and possible financial obligations for liabilities and damages related to the theft or misuse of this information, any of which could have a material adverse effect on our business, financial condition, our reputation, and our relationships with our customers and partners. Since the techniques used to obtain unauthorized access or to sabotage systems change frequently and are often not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures.

Failure to protect our intellectual property could substantially harm our business.

Our success and ability to compete depend in part upon our ability to protect our intellectual property. We rely on a combination of intellectual property rights, including patents, mask work protection, copyrights, trademarks, trade secrets and know-how, in the United States and other jurisdictions. The steps we take to protect our intellectual property rights may not be adequate, particularly in foreign jurisdictions such as China. Any patents we hold may not adequately protect our intellectual property rights or our products against competitors, and third parties may challenge the scope, validity or enforceability of our issued patents. In addition, other parties may independently develop similar or competing technologies designed around any patents or patent applications that we hold. Some of our products and technologies are not covered by any patent or patent application, as we do not believe patent protection of these products and technologies is critical to our business strategy at this time. A failure to timely seek patent protection on products or technologies generally precludes us from seeking future patent protection on these products or technologies.

In addition to patents, we also rely on contractual protections with our customers, suppliers, distributors, employees and consultants, and we implement security measures designed to protect our trade secrets and know-how. However, we cannot assure you that these contractual protections and security measures will not be breached, that we will have adequate remedies for any such breach or that our customers, suppliers, distributors, employees or consultants will not assert rights to intellectual property or damages arising out of such contracts.

 

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We may initiate claims against third parties to protect our intellectual property rights if we are unable to resolve matters satisfactorily through negotiation. Litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming and distracting to management. It could also result in the impairment or loss of portions of our intellectual property, as an adverse decision could limit our ability to assert our intellectual property rights, limit the value of our technology or otherwise negatively impact our business, financial condition and results of operations. Additionally, any enforcement of our patents or other intellectual property may provoke third parties to assert counterclaims against us. Our failure to secure, protect and enforce our intellectual property rights could materially harm our business.

We may face claims of intellectual property infringement, which could be time-consuming, costly to defend or settle, result in the loss of significant rights, harm our relationships with our customers and distributors, or otherwise materially adversely affect our business, financial condition and results of operations.

The semiconductor memory industry is characterized by companies that hold patents and other intellectual property rights and that vigorously pursue, protect and enforce intellectual property rights. These companies include patent holding companies or other adverse patent owners who have no relevant product revenue and against whom our own patents may provide little or no deterrence. From time to time, third parties may assert against us and our customers’ patent and other intellectual property rights to technologies that are important to our business.

Claims that our products, processes or technology infringe third-party intellectual property rights, regardless of their merit or resolution, could be costly to defend or settle and could divert the efforts and attention of our management and technical personnel. We may also be obligated to indemnify our customers or business partners in connection with any such litigation, which could result in increased costs. Infringement claims also could harm our relationships with our customers or distributors and might deter future customers from doing business with us. If any such proceedings result in an adverse outcome, we could be required to:

 

    cease the manufacture, use or sale of the infringing products, processes or technology;

 

    pay substantial damages for infringement;

 

    expend significant resources to develop non-infringing products, processes or technology, which may not be successful;

 

    license technology from the third-party claiming infringement, which license may not be available on commercially reasonable terms, or at all;

 

    cross-license our technology to a competitor to resolve an infringement claim, which could weaken our ability to compete with that competitor; or

 

    pay substantial damages to our customers to discontinue their use of or to replace infringing technology sold to them with non-infringing technology, if available.

Any of the foregoing results could have a material adverse effect on our business, financial condition and results of operations. Furthermore, our exposure to the foregoing risks may also be increased as a result of acquisitions of other companies or technologies. For example, we may have a lower level of visibility into the development process with respect to intellectual property or the care taken to safeguard against infringement risks with respect to the acquired company or technology. In addition, third parties may make infringement and similar or related claims after we have acquired technology that had not been asserted prior to the acquisition.

We rely upon third-party licensed technology to develop our products. If licenses of third-party technology are inadequate, our ability to develop and commercialize our products or product enhancements could be negatively impacted.

Our products incorporate technology licensed from third parties. In connection with our acquisition of certain flash memory assets from Atmel Corporation in 2012, we obtained a perpetual license to Atmel’s flash

 

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memory technology. In addition, a component of our CBRAM technology is licensed from Axon Technology Corp. While we believe these licenses enable us to develop our products and pursue our current product strategies, these licenses may not provide us with the benefits we expect from them. From time to time, we may be required to license additional technology from third parties to develop our products or product enhancements. However, these third-party licenses may not be available to us on commercially reasonable terms or at all. Our inability to obtain third-party licenses necessary to develop products and product enhancements could require us to obtain substitute technology at a greater cost or of lower quality or performance standards or delay product development. Any of these results may limit our ability to develop new products, which could harm our business, financial condition and results of operations.

Our success depends on our ability to attract and retain key employees, and our failure to do so could harm our ability to grow our business and execute our business strategies.

Our success depends on our ability to attract and retain our key employees, including our management team and experienced engineers. Competition for personnel in the semiconductor technology field is intense, and the availability of suitable and qualified candidates is limited. We compete to attract and retain qualified research and development personnel with other semiconductor companies, universities and research institutions, particularly those in the San Francisco Bay area where our headquarters is located. The members of our management and key employees are at-will employees and although we recently issued refresh equity awards to our personnel in connection with this offering, there can be no assurance that these awards will be effective to retain our key employees. If we lose the services of any key senior management member or employee, we may not be able to locate suitable or qualified replacements, and may incur additional expenses to recruit and train new personnel, which could severely impact our business and prospects. The loss of the services of one or more of our key employees, especially our key engineers, or our inability to attract and retain qualified engineers, could harm our business, financial condition and results of operations.

We may not be able to effectively manage our growth, and we may need to incur significant expenditures to address the additional operational and control requirements of our growth, either of which could harm our business and operating results.

As we continue to expand our business, we expect our headcount and overall size of our operations to grow significantly. To effectively manage our growth, we must continue to expand our operational, engineering and financial systems, procedures and controls and to improve our accounting and other internal management systems. This may require substantial managerial and financial resources, and our efforts in this regard may not be successful. Our current systems, procedures and controls may not be adequate to support our future operations. If we fail to adequately manage our growth, or to improve our operational, financial and management information systems, or fail to effectively motivate or manage our new and future employees, the quality of our products and the management of our operations could suffer, which could adversely affect our operating results.

The forecasts of market growth and other forward-looking information included in this prospectus may prove to be inaccurate, and even if the markets in which we compete achieve the forecasted growth, our business may not grow at similar rates, or at all.

Growth forecasts are subject to significant uncertainty and are based on assumptions and estimates which may not prove to be accurate. Forecasts relating to potential market size in our industry may prove to be inaccurate. Even if the forecasted growth occurs, our business may not grow at a similar rate, or at all. Furthermore, our estimate of the market opportunity is subject to significant uncertainty and is based on assumptions and estimates, including our internal analyses, industry experience and third-party data. Accordingly, our estimated market opportunity may prove to be materially inaccurate. In addition, our growth and ability to serve a significant portion of this estimated market is subject to many factors, including our success in implementing our business strategy and the growth of the IoT market. We cannot assure you that we will be able to serve a significant portion of this market and the growth forecasts included in this prospectus should not be taken as indicative of our future growth.

 

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We have engaged in acquisitions in the past and may continue to expand through acquisitions of, or investments in, other companies, each of which may divert our management’s attention, result in additional dilution to stockholders or use resources that are necessary to operate our business.

In the past, we have grown our business through acquisitions and we may in the future seek to acquire or invest in businesses, products or technologies that we believe could complement or expand our business, enhance our technical capabilities or otherwise offer growth opportunities. For example, in September 2012, we purchased certain flash memory product assets from Atmel Corporation, which brought us a large customer base for products, a world-wide sales and distribution network and products and technology to further broaden our technology platform offerings. Such acquisitions or investments could create risks for us, including:

 

    difficulties in assimilating acquired personnel, operations and technologies or realizing synergies expected in connection with an acquisition, particularly with acquisitions of companies with large and widespread operations, complex products or that operate in markets in which we historically have had limited experience;

 

    unanticipated costs or liabilities, including possible litigation, associated with the acquisition;

 

    incurrence of acquisition-related costs;

 

    diversion of management’s attention from other business concerns;

 

    use of resources that are needed in other parts of our business; and

 

    use of substantial portions of our available cash to consummate an acquisition.

A significant portion of the purchase price of companies we acquire may be allocated to acquired goodwill, which must be assessed for impairment at least annually. If such acquisitions do not yield expected returns, we may be required to take charges to our earnings based on this impairment assessment process, which could harm our results of operations.

We may be unable to complete acquisitions at all or on commercially reasonable terms, which could limit our future growth. Acquisitions could also result in dilutive issuances of equity securities or the incurrence of additional debt, which could adversely affect our operating results and result in a decline in our stock price and further restrict our ability to pursue business opportunities, including potential acquisitions. In addition, if an acquired business fails to meet our expectations, our operating results may suffer.

We have operations outside of the United States and intend to expand our international operations, which exposes us to significant risks.

We have limited operations in Europe and Asia. We intend to expand our operations in Asia. The success of our business depends, in large part, on our ability to operate successfully from geographically disparate locations and to further expand our international operations and sales. Operating in international markets requires significant resources and management attention and subjects us to regulatory, economic and political risks that are different from those we face in the United States. We cannot be sure that further international expansion will be successful. In addition, we face risks in doing business internationally that could expose us to reduced demand for our products, lower prices for our products or other adverse effects on our operating results. Among the risks we believe are most likely to affect us are:

 

    difficulties, inefficiencies and costs associated with staffing and managing foreign operations;

 

    longer and more difficult customer qualification and credit checks;

 

    greater difficulty collecting accounts receivable and longer payment cycles;

 

    the need for various local approvals to operate in some countries;

 

    difficulties in entering some foreign markets without larger-scale local operations;

 

 

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    compliance with local laws and regulations;

 

    unexpected changes in regulatory requirements, including the elimination of tax holidays;

 

    reduced protection for intellectual property rights in some countries;

 

    adverse tax consequences as a result of repatriating cash generated from foreign operations to the United States;

 

    adverse tax consequences, including potential additional tax exposure if we are deemed to have established a permanent establishment outside of the United States;

 

    the effectiveness of our policies and procedures designed to ensure compliance with the Foreign Corrupt Practices Act of 1977 and similar regulations;

 

    fluctuations in currency exchange rates, which could increase the prices of our products to customers outside of the United States, increase the expenses of our international operations by reducing the purchasing power of the U.S. dollar and expose us to foreign currency exchange rate risk if, in the future, we denominate our international sales in currencies other than the U.S. dollar;

 

    new and different sources of competition; and

 

    political and economic instability, and terrorism.

Our failure to manage any of these risks successfully could harm our operations and reduce our revenue.

In order to comply with environmental laws and regulations, we may need to modify our activities or incur substantial costs, and if we fail to comply with environmental regulations we could be subject to substantial fines or be required to have our suppliers alter their processes.

The semiconductor memory industry is subject to a variety of international, federal, state and local governmental regulations directed at preventing or mitigating environmental harm, as well as to the storage, discharge, handling, generation, disposal and labeling of toxic or other hazardous substances. Failure to comply with environmental regulations could subject us to civil or criminal sanctions and property damage or personal injury claims. Compliance with current or future environmental laws and regulations could restrict our ability to expand our business or require us to modify processes or incur other substantial expenses which could harm our business. In response to environmental concerns, some customers and government agencies impose requirements for the elimination of hazardous substances, such as lead (which is widely used in soldering connections in the process of semiconductor packaging and assembly), from electronic equipment. For example, the European Union adopted its Restriction on Hazardous Substance Directive which prohibits, with specified exceptions, the sale in the EU market of new electrical and electronic equipment containing more than agreed levels of lead or other hazardous materials and China has enacted similar regulations. Environmental laws and regulations such as these could become more stringent over time, causing a need to redesign technologies, imposing greater compliance costs and increasing risks and penalties associated with violations, which could seriously harm our business.

The issuance of new accounting standards or future interpretations of existing accounting standards could adversely affect our operating results.

We prepare our financial statements in accordance with GAAP. A change in those principles could have a significant effect on our reported results and might affect our reporting of transactions completed before a change is announced. GAAP is issued and subject to interpretation by the Financial Accounting Standards Board, the SEC and various other bodies formed to promulgate and interpret accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before the announcement of a change. The issuance of new accounting standards or future interpretations of existing accounting standards, or changes in our business practices or estimates, could result in future changes in our revenue recognition or other accounting policies that could have a material adverse effect on our results of operations.

 

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Some of our facilities and the facilities of our suppliers are located near known earthquake fault zones, and the occurrence of an earthquake or other catastrophic disaster could damage our facilities, which could cause us to curtail our operations.

Our principal offices, and our contract manufacturers’ and suppliers’ facilities in Asia, are located near known earthquake fault zones and, therefore, are vulnerable to damage from earthquakes. We are also vulnerable to damage from other types of disasters, such as power loss, fire, floods and similar events. If any such disaster were to occur, our ability to operate our business could be seriously impaired. In addition, we may not have adequate insurance to cover our losses resulting from disasters or other similar significant business interruptions. Any significant losses that are not recoverable under our insurance policies could seriously impair our business and financial condition.

We may not be able to secure additional financing on favorable terms, or at all, to meet our future capital needs.

We have funded our operations since inception through equity financings and our borrowing arrangements. We have incurred net losses and negative cash flows from operating activities since our inception, and we expect we will continue to incur operating and net losses and negative cash flows from operations for the foreseeable future. We do not know when or if our operations will generate sufficient cash to fund our ongoing operations. In the future, we may require additional capital to fund our ongoing operations, respond to business opportunities, challenges, acquisitions or unforeseen circumstances and may determine to engage in equity or debt financings or enter into credit facilities, but we may not be able to timely secure additional debt or equity financing on favorable terms or at all.

Our current term loan facility limits our ability to incur indebtedness, and these restrictions are subject to a number of qualifications and exceptions subject to the consent of our lender. Any additional debt financing obtained by us in the future could also involve restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions.

If we raise additional funds through issuances of equity, convertible debt securities or other securities convertible into equity, our existing stockholders could suffer significant dilution in their percentage ownership of our company, and any new equity securities we issue could have rights, preferences and privileges senior to those of holders of our common stock. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to grow or support our business and to respond to business challenges could be significantly limited.

Provisions of our debt agreements may restrict our ability to pursue our business strategies.

Borrowings under our $15.0 million term loan facility are secured by substantially all of our assets. Our term loan facility restricts our ability to, among other things:

 

    dispose of or sell assets;

 

    consolidate or merge with other entities;

 

    incur additional indebtedness;

 

    create liens on our assets;

 

    pay dividends;

 

    make investments;

 

    enter into transactions with affiliates; and

 

    redeem subordinated indebtedness.

 

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These restrictions are subject to certain exceptions. In addition, our term loan facility requires us to comply with a minimum quarterly adjusted EBITDA covenant (measured on a trailing three-month basis) and a minimum monthly liquidity ratio. The operating and financial restrictions and covenants in the term loan facility, as well as any future financing agreements that we may enter into, may restrict our ability to finance our operations, engage in business activities or expand or fully pursue our business strategies. Our ability to comply with these covenants may be affected by events beyond our control, and we may not be able to meet those covenants. For example, in the past, we have not been in compliance with certain financial covenants in our debt agreements, which may occur again in the future. A breach of any of these covenants could result in a default under the credit facility, which could cause all of the outstanding indebtedness thereunder to either (i) become immediately due and payable or (ii) increase by five percent of the interest rate charged during the period of the unremedied breach.

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

In general, under Section 382 of the U.S. Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change net operating losses, or NOLs, to offset future taxable income, and tax credits to offset tax. In addition, although we do not expect to undergo an ownership change in connection with this offering, we may experience an ownership change in the future, and our ability to utilize our NOLs and tax credits could be further limited by Section 382 of the Code. Future changes in our stock ownership, many of which are outside of our control, could result in an ownership change under Section 382 of the Code. Our net operating losses and tax credits could also be impaired under state laws. As a result, we might not be able to utilize a material portion of our state NOLs and tax credits.

We will incur significantly increased costs and devote substantial management time as a result of operating as a public company.

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. For example, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and will be required to comply with the applicable requirements of the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, as well as rules and regulations subsequently implemented by the SEC and the NASDAQ Stock Market, including the establishment and maintenance of effective disclosure and internal controls and the establishment corporate governance practices. We expect that compliance with these requirements will increase our legal and financial compliance costs and will make some activities more time consuming and costly.

We expect that our management and other personnel will need to divert attention from operational and other business matters to devote substantial time to these public company requirements. In particular, we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act, which will increase when we are no longer an emerging growth company, as defined by the JOBS Act. We also will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. We cannot predict or estimate the amount of additional costs we may incur as a result of becoming a public company or the timing of such costs.

If we are unable to implement and maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may be negatively affected.

As a public company, we will be required to maintain internal controls over financial reporting and to report any material weaknesses in such internal controls. Section 404 of the Sarbanes-Oxley Act requires that we evaluate and determine the effectiveness of our internal control over financial reporting and, beginning with our annual report for the fiscal year ending December 31, 2016, provide a management report on our internal control

 

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over financial reporting, which must be attested to by our independent registered public accounting firm to the extent we are no longer an “emerging growth company,” as defined by the JOBS Act. If we have one or more material weaknesses in our internal control over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated. We are in the process of designing and implementing our internal control over financial reporting required to comply with this obligation, which process will be time consuming, costly and complicated. If we identify additional material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner, if we are unable to determine that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could be negatively affected, and we could become subject to investigations by the NASDAQ Stock Market, the SEC, or other regulatory authorities, which could require additional financial and management resources.

Regulations related to “conflict minerals” may force us to incur additional expenses, may make our supply chain more complex and may result in damage to our reputation with customers.

Pursuant to the Dodd-Frank Act, the SEC has adopted requirements for companies that use certain minerals and metals, known as conflict minerals, in their products, whether or not these products are manufactured by third parties. These requirements will require companies to diligence, disclose and report whether or not such minerals originate from the Democratic Republic of Congo and adjoining countries. The implementation of these requirements could adversely affect the sourcing, availability and pricing of minerals used in the manufacture of our products, and affect our costs and relationships with customers, distributors and suppliers as we must obtain additional information from them to ensure our compliance with the disclosure requirement. In addition, we will incur additional costs to comply with the disclosure requirements, including costs related to determining the source of any of the relevant minerals and metals used in our products. Since our supply chain is complex, we may not be able to sufficiently verify the origins for these minerals and metals used in our products through the due diligence procedures that we implement, which may harm our reputation. In such event, we may also face difficulties in satisfying customers who require that all of the components of our products are certified as conflict mineral free and these customers may discontinue, or materially reduce, purchases of our products, which could result in a material adverse effect on our results of operations and our financial condition may be adversely affected.

We are an emerging growth company. We cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.

We are an emerging growth company. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. For as long as we continue to be an emerging growth company, we also intend to take advantage of certain other exemptions from various reporting requirements that are applicable to other public companies including the exemption from the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, the reduced disclosure obligations regarding executive compensation, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.0 billion or (c) in which we become a large accelerated filer, which means that we have been public for at least 12 months, have filed at least one annual report and the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last day of our then most recently completed second fiscal quarter, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

 

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Risks Related to Our Initial Public Offering and Ownership of Our Common Stock

There has been no prior public market for our common stock, the stock price of our common stock may be volatile or may decline regardless of our operating performance, and you may not be able to resell your shares at or above the initial public offering price.

There has been no public market for our common stock prior to our initial public offering. The initial public offering price for our common stock will be determined through negotiations between the underwriters and us and may not be indicative of prices that will prevail in the market following this offering. If you purchase shares of our common stock in this offering, you may not be able to resell those shares at or above the initial public offering price. An active or liquid market in our common stock may not develop upon closing of this offering or be sustainable. The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:

 

    overall performance of the equity markets in general, in our industry or in the markets we address;

 

    our operating performance and the performance of other similar companies;

 

    changes in the estimates of our results of operations that we provide to the public, our failure to meet these projected results or changes in recommendations by securities analysts that elect to follow our common stock;

 

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

 

    announcements of new business partners, on the termination of existing business partner arrangements or changes to our relationships with such business partners;

 

    recruitment or departure of key personnel;

 

    announcements of litigation or claims against us;

 

    changes in legal requirements relating to our business;

 

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

 

    trading activity by our principal stockholders;

 

    the size of our market float; and

 

    any other factors discussed in this prospectus.

In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many technology companies. Stock prices of many technology companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have filed securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business, and adversely affect our business.

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

The trading market for our common stock will rely in part on the research and reports that industry or financial analysts publish about us or our business. We do not control these analysts. If few analysts commence coverage of our company, the price and trading volume of our stock could suffer. If one or more of the analysts who cover us downgrade our stock, or publish unfavorable research about our business, our stock price would likely decline rapidly. If one or more of these analysts cease coverage of our company or fail to publish regularly, we could lose visibility in the market, which in turn could cause our stock price to decline.

 

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The concentration of our capital stock ownership with insiders upon the completion of this offering will likely limit your ability to influence corporate matters.

We anticipate that our executive officers, directors, current principal stockholders and their affiliates will beneficially own an aggregate of approximately              percent of our common stock outstanding after this offering. As a result, these stockholders, acting together, will have control over most matters that require approval by our stockholders, including the election of directors and approval of significant corporate transactions. Corporate action might be taken even if other stockholders, including those who purchase shares in this offering, oppose them. This concentration of ownership might also have the effect of discouraging or preventing a change of control of our company that other stockholders may view as beneficial.

We have broad discretion in the use of the net proceeds from our initial public offering and may not use them effectively.

We cannot specify with any certainty the particular uses of the net proceeds that we will receive from our initial public offering. We expect to use the net proceeds that we receive from this offering for working capital and other general corporate purposes. We may also use a portion of the net proceeds to acquire or invest in complementary businesses, products, services, technologies or other assets or to repay borrowings under our three-year $15.0 million term loan facility. We may spend or invest these proceeds in a way with which our stockholders disagree. The failure by our management to apply these funds effectively could adversely affect our business and financial condition. Pending their use, we may invest the net proceeds from our initial public offering in a manner that does not produce income or that loses value. These investments may not yield a favorable return to our investors.

You will experience immediate and substantial dilution in the net tangible book value of the shares you purchase in this offering.

The initial public offering price of our common stock will be substantially higher than the pro forma net tangible book value per share of the outstanding common stock as of June 30, 2015. Therefore, based on an assumed offering price of $         per share (the midpoint of the price range on the cover of this prospectus), if you purchase our common stock in this offering, you will suffer immediate and substantial dilution of approximately $         per share. If the underwriters exercise their over-allotment option, or if outstanding options and warrants to purchase our common stock are exercised, you will experience additional dilution.

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

If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market after the contractual lock-up and other legal restrictions on resale discussed in this prospectus lapse, the trading price of our common stock could decline below the initial public offering price and our ability to raise capital through the sale of equity securities could be impaired. Based on shares outstanding as of June 30, 2015, upon completion of this offering, we will have outstanding              shares of common stock, assuming no exercise of the underwriters’ over-allotment option. All of our executive officers and directors and the holders of substantially all of our capital stock prior to this offering are subject to lock-up agreements with the underwriters that restrict their ability to sell shares in the public market for 180 days from the date of this prospectus. Needham & Company, LLC and Oppenheimer & Co. Inc. may, however, in their sole discretion, permit shares to be sold prior to the expiration of the lock-up agreements.

After the lock-up agreements pertaining to this offering expire, an additional              shares will be eligible for sale in the public market,              of which are held by directors, executive officers and other affiliates and will be subject to volume limitations under Rule 144 under the Securities Act of 1933, as amended, or the Securities Act, and various vesting agreements. In addition, after giving effect to the net exercise of warrants that would expire if not exercised prior to the completion of this offering, 13,580,074 shares subject to outstanding warrants and the 86,199,060 shares subject to outstanding options and reserved for future issuance under our

 

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2007 Equity Incentive Plan as of June 30, 2015 will become eligible for sale in the public market to the extent permitted by the provisions of various vesting agreements, the lock-up agreements and Rules 144 and 701 under the Securities Act. If these additional shares are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.

Certain holders of shares of our common stock have registration rights. See “Description of Capital Stock—Registration Rights.” Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares held by our affiliates as defined in Rule 144 under the Securities Act. Sales of securities by any of these stockholders could adversely affect the trading price of our common stock.

We do not intend to pay dividends for the foreseeable future.

We have never declared nor paid cash dividends on our capital stock. We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future. In addition, our ability to pay cash dividends on our capital stock is restricted by the terms of our term loan facility and is likely to be restricted by any future debt financing arrangement. Any return to stockholders will therefore be limited to increases in the price of our common stock, if any.

Provisions in our amended and restated certificate of incorporation and bylaws or Delaware law might discourage, delay or prevent a change of control of our company or changes in our management.

Delaware corporate law and our amended and restated certificate of incorporation and bylaws contain provisions that could discourage, delay or prevent a change in control of our company or changes in our board of directors that the stockholders of our company may deem advantageous. Among other things, these provisions:

 

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

 

    provide that directors may be removed only “for cause” and only with the approval of stockholders representing 66 2/3 percent of our outstanding common stock;

 

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

 

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

 

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

 

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

 

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

 

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

These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. In addition, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in a broad range of business combinations with any “interested” stockholder for a period of three years following the date on which the stockholder became an “interested” stockholder. See “Description of Capital Stock—Anti-Takeover Provisions—Delaware Law” for more information. Any delay or prevention of a change of control transaction or changes in our management could cause the market price of our common stock to decline.

 

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Our amended and restated certificate of incorporation will provide that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our amended and restated certificate of incorporation will provide that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation or our bylaws or any action asserting a claim against us that is governed by the internal affairs doctrine. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees. This limitation may discourage these types of lawsuits against us and our directors, officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or to our future financial or operating performance. You can generally identify forward-looking statements because they contain words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intend,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions that concern our expectations, strategy, plans or intentions. We have based these forward-looking statements primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section entitled “Risk Factors” and elsewhere in this prospectus. Accordingly, you should not rely upon forward-looking statements as predictions of future events. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those projected in the forward-looking statements. Forward-looking statements contained in this prospectus include, but are not limited to, statements about:

 

    our expectations regarding our revenue growth;

 

    anticipated trends and challenges in our business and in the markets in which we operate;

 

    our anticipated strategies for growth and sources of new revenue;

 

    our plans to expand our manufacturing capabilities;

 

    additions to our salesforce and continued collaboration with customers;

 

    future investment in our technology platforms and the return on such investments;

 

    our beliefs with respect to our intellectual property portfolio;

 

    our plans to license our CBRAM platform;

 

    our plans to introduce new product families, including those based on our CBRAM technology;

 

    our ability to anticipate market needs and develop enhancements of our products to meet those needs;

 

    maintaining and expanding our customer base and our distribution relationships;

 

    our ability to compete in our rapidly evolving markets and innovation by our competitors;

 

    our reliance on distribution partners to promote sales of our products;

 

    the evolution of technology affecting our products and markets;

 

    our ability to retain and hire necessary employees and to staff our operations appropriately;

 

    our liquidity and working capital requirements;

 

    our need to obtain additional funding and our ability to obtain future funding on acceptable terms;

 

    the estimates and estimate methodologies used in preparing our consolidated financial statements and determining option exercise prices; and

 

    the future trading prices of our common stock and the impact of securities analysts’ reports on these prices.

The forward-looking statements made in this prospectus relate only to events as of the date on which the statements are made. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

 

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INDUSTRY AND MARKET DATA

Unless otherwise indicated, information contained in this prospectus concerning our industry and the market in which we operate, including our general expectations and market opportunity and market size, is based on information from various sources, including Garter, Inc. (Gartner) and Web-Feet Research, Inc. (Web-Feet), on assumptions that we have made that are based on those data and other similar sources and on our knowledge of the market for our products. This information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to these estimates. We have not independently verified the accuracy or completeness of the data contained in these industry publications and reports. While we believe the market opportunity and market size information included in this prospectus is generally reliable, such information is inherently imprecise. The industry in which we operate is subject to a high degree of uncertainty and risk due to variety of factors, including those described in the “Risk Factors” section and elsewhere in this prospectus. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.

The Gartner Report described herein (the Gartner Report) represents data, research opinion or viewpoints published as part of a syndicated subscription service by Gartner and are not representations of fact. The Gartner Report speaks as of its original publication date (and not as of the date of this prospectus) and the opinions expressed in the Gartner Report are subject to change without notice.

Certain information in this prospectus is contained in independent industry reports. The source of, and selected additional information contained in, these independent industry reports are provided below:

(1) Gartner, Forecast Analysis: Internet of Things, Endpoints and Associated Services, Worldwide, 2014 Update , by Pete Middleton, Thilo Koslowski and Angela McIntyre, December 2, 2014.

(2) Web-Feet, Quarterly Flash Component Forecast report , March, 2015.

 

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USE OF PROCEEDS

We estimate that the net proceeds from the sale of shares of our common stock in this offering will be approximately $         million, based on an assumed initial public offering price of $         per share, which is the midpoint of the offering price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters’ over-allotment option to purchase additional shares in this offering is exercised in full, we estimate that our net proceeds would be approximately $         million, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

A $1.00 increase or decrease in the assumed initial public offering price of $         per share would increase or decrease the net proceeds that we receive from this offering by approximately $         million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions payable by us.

The principal purposes of this offering are to obtain additional capital, to create a public market for our common stock and to facilitate our future access to the public equity markets. We expect to use the net proceeds that we receive from this offering for working capital and other general corporate purposes, including research and development activities, sales and marketing activities and capital expenditures, to enhance existing and develop new products and product families, expand our manufacturing capabilities or fund our growth. We may also use a portion of the net proceeds that we receive from this offering for investments in or acquisitions of complementary businesses, products, services, technologies or other assets. We have not entered into any agreements or commitments with respect to any investments or acquisitions at this time.

We currently have no specific plans for the use of the net proceeds that we receive from this offering. Accordingly, we will have broad discretion in using these proceeds. Pending their use as described above, we plan to invest the net proceeds in short-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government.

We may also use a portion of the net proceeds we receive from this offering to repay borrowings under our three-year $15.0 million term loan facility. As of June 30, 2015, we had borrowings of $15.0 million outstanding under the term loan facility, which bear interest at a rate of 5.25% per year. Our term loan facility replaced our prior credit facility. We used the borrowings under our term loan facility to repay in full the total borrowings outstanding under the prior credit facility as of the date we entered into the term loan facility.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our capital stock. We currently intend to retain any future earnings and do not expect to pay any cash dividends on our common stock for the foreseeable future. Any determination to pay dividends in the future will be at the discretion of our board of directors. In addition, the terms of our $15.0 million term loan facility currently prohibit us from paying dividends.

 

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CAPITALIZATION

The following table sets forth our consolidated cash and cash equivalents, debt, preferred stock warrant liability and capitalization as of June 30, 2015, on:

 

    an actual basis;

 

    a pro forma basis to give effect to the automatic conversion of all shares of our convertible preferred stock outstanding as of June 30, 2015 into 300,789,120 shares of our common stock immediately upon the closing of this offering, and the resulting reclassification of the preferred stock warrant liability to additional paid-in capital; and

 

    a pro forma as adjusted basis to give further effect to (1) the sale of the                  shares of our common stock in this offering at an assumed initial public offering price of $         per share, which is the midpoint of the offering price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us; (2) the amendment and restatement of our certificate of incorporation in connection with this offering; and (3) the issuance of                  shares of common stock that we expect to issue upon the net exercise of warrants that would expire if not exercised prior to the completion of this offering, based upon the assumed initial public offering price of $         per share, which is the midpoint of the offering price range set forth on the cover page of this prospectus.

The information below is illustrative only, and our capitalization following the closing of this offering will be adjusted based on the actual initial public offering price and other terms of the offering determined at the pricing of this offering. You should read this table together with our consolidated financial statements and related notes, “Selected Consolidated Financial Data and Other Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” each included elsewhere in this prospectus.

 

     As of June 30, 2015  
       Actual         Pro Forma         Pro Forma as  
Adjusted
 
     (in thousands, except share and per share data)  

Cash and cash equivalents

   $ 6,470      $ 6,470      $                
  

 

 

   

 

 

   

 

 

 

Debt

     14,133        14,133     
  

 

 

   

 

 

   

 

 

 

Preferred stock warrant liability

     903        —       
  

 

 

   

 

 

   

 

 

 

Convertible preferred stock, no par value per share: 153,568,221 shares authorized, 145,856,098 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma or pro forma as adjusted (unaudited)

     78,467        —       
  

 

 

   

 

 

   

 

 

 

Stockholders’ equity (deficit)

      

Preferred stock, $0.0001 par value per share: no shares authorized or issued and outstanding, actual and pro forma (unaudited); no shares authorized, no shares issued or outstanding pro forma as adjusted (unaudited)

     —          —          —     

Common stock, $0.0001 par value per share: 485,000,000 shares authorized; 18,616,957 shares issued and outstanding, actual; 485,000,000 shares authorized, 319,406,077 shares issued and outstanding, pro forma (unaudited);                  shares authorized and                  shares issued and outstanding, pro forma as adjusted (unaudited)

     2        32     

Additional paid-in capital

     4,030        83,370     

Accumulated other comprehensive loss

     (191     (191  

Accumulated deficit

     (78,204     (78,204     —     
  

 

 

   

 

 

   

 

 

 

Total stockholders’ equity (deficit)

     (74,363     5,007     
  

 

 

   

 

 

   

 

 

 

Total capitalization

   $ 19,140      $ 19,140      $                
  

 

 

   

 

 

   

 

 

 

 

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A $1.00 increase or decrease in the assumed initial public offering price of $         per share, which is the midpoint of the offering price range set forth on the cover page of this prospectus, would increase or decrease our pro forma as adjusted cash and cash equivalents, additional paid-in capital, total stockholders’ equity (deficit) and total capitalization by approximately $         million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The number of shares of common stock issued and outstanding actual, pro forma and pro forma as adjusted in the table above does not include the following shares:

 

    24,586,662 shares of our common stock issuable upon the exercise of stock options outstanding as of June 30, 2015, with a weighted-average exercise price of $0.06 per share;

 

    13,580,074 shares of our common stock issuable upon the exercise of warrants outstanding as of June 30, 2015, with a weighted-average exercise price of $0.2301 per share; and

 

                     shares of our common stock reserved for future issuance under our equity compensation plans, consisting of (1) 61,612,398 shares of common stock available for issuance under our 2007 Equity Incentive Plan as of June 30, 2015, which shares will be added to the shares to be reserved under our 2015 Equity Incentive Plan, or the 2015 Plan, to the extent not granted prior to the completion of this offering, (2)                  shares of common stock reserved for future issuance under our 2015 Plan and our 2015 Employee Stock Purchase Plan, which will become effective on the date immediately prior to the date of this prospectus and contain provisions that automatically increase its share reserve each year, as more fully described in “Executive Compensation—Employee Benefit Plans.”

 

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DILUTION

If you invest in our common stock in this offering, your interest will be diluted immediately to the extent of the difference between the initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering. Our pro forma net tangible book value as of June 30, 2015 was $(5.2) million, or $(0.02) per share of common stock. Pro forma net tangible book value per share represents the amount of our total tangible assets less our total tangible liabilities, divided by the number of shares of common stock outstanding as of June 30, 2015, after giving effect to the conversion of all shares of our convertible preferred stock outstanding as of June 30, 2015 into 300,789,120 shares of our common stock immediately upon the closing of this offering, and the resulting reclassification of the preferred stock warrant liability to additional paid-in capital.

After giving effect to (1) the sale by us of                  shares of common stock in this offering at an assumed initial public offering price of $         per share, which is the midpoint of the offering price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, and (2) the issuance of                  shares of common stock that we expect to issue upon the net exercise of warrants that would expire if not exercised prior to the completion of this offering, based upon the assumed initial public offering price of $         per share, which is the midpoint of the offering price range set forth on the cover page of this prospectus, our pro forma as adjusted net tangible book value as of June 30, 2015 would have been approximately $         million, or approximately $         per share. This amount represents an immediate increase in pro forma net tangible book value of $         per share to our existing stockholders and an immediate dilution in pro forma net tangible book value of approximately $         per share to new investors purchasing shares of common stock in this offering at the assumed initial public offering price.

The following table illustrates this dilution:

 

Assumed initial public offering price per share

     $                

Net tangible book value per share as of June 30, 2015

   $ (0.33  

Increase in net tangible book value per share attributable to preferred stock conversion

     0.31     
  

 

 

   

Pro forma net tangible book value per share as of June 30, 2015

     (0.02  

Increase in pro forma net tangible book value per share attributable to new investors

    
  

 

 

   

Pro forma as adjusted net tangible book value per share after this offering

    
    

 

 

 

Dilution per share to investors in this offering

     $                
    

 

 

 

A $1.00 increase or decrease in the assumed initial public offering price of $         per share, which is the midpoint of the offering price range set forth on the cover page of this prospectus, would increase or decrease our pro forma as adjusted net tangible book value per share to new investors by approximately $         and would increase or decrease dilution per share to new investors by approximately $        , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The following table presents on a pro forma as adjusted basis as of June 30, 2015, after giving effect to the conversion of all outstanding shares of convertible preferred stock into common stock immediately upon the closing of this offering, the differences between the existing stockholders and the new investors purchasing shares of our common stock in this offering, with respect to the number of shares purchased from us, the total consideration paid or to be paid to us, which includes net proceeds received from the issuance of common and convertible preferred stock, cash received from the exercise of stock options and the average price per share paid

 

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or to be paid to us at an assumed offering price of $         per share, which is the midpoint of the offering price range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

     Shares Purchased (1)     Total Consideration (1)     Average Price
Per Share
 
     Number    Percent     Amount      Percent    

Existing stockholders

               $                                 $                    

New investors

            
  

 

  

 

 

   

 

 

    

 

 

   

Totals

        100.0   $           100.0  
  

 

  

 

 

   

 

 

    

 

 

   

 

(1) Includes                  shares that we expect to issue upon net exercise of warrants immediately prior to the completion of this offering that would otherwise expire, based upon an assumed initial public offering price of $         per share, which is the midpoint of the offering price range set forth on the cover page of this prospectus.

A $1.00 increase or decrease in the assumed initial public offering price of $         per share, which is the midpoint of the offering price range set forth on the cover page of this prospectus, would increase or decrease the total consideration paid by new investors by $         million and increase or decrease the percent of total consideration paid by new investors by     %, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

Assuming the underwriters’ over-allotment option to purchase additional shares is exercised in full, the total consideration paid by new investors would increase by approximately $         million, and the percentage of shares held by existing stockholders would decrease to     % and will increase the number of shares held by our new investors to             , or     %.

In addition, assuming all of our stock options and warrants outstanding as of June 30, 2015 are exercised in full, the total consideration paid by existing stockholders would increase by approximately $             million, the number of shares held by existing stockholders would increase to             , or     %, and the percentage of shares held by our new investors will decrease to     %.

The number of shares of our common stock to be outstanding after this offering is based upon 319,406,077 shares of our common stock outstanding as of June 30, 2015 and does not include:

 

    24,586,662 shares of our common stock issuable upon the exercise of stock options outstanding as of June 30, 2015, with a weighted-average exercise price of $0.06 per share;

 

    13,580,074 shares of our common stock issuable upon the exercise of warrants outstanding as of June 30, 2015, with a weighted-average exercise price of $0.2301 per share; and

 

                 shares of our common stock reserved for future issuance under our equity compensation plans, consisting of (1) 61,612,398 shares of common stock available for issuance under our 2007 Equity Incentive Plan as of June 30, 2015, which shares will be added to the shares to be reserved under our 2015 Equity Incentive Plan, or the 2015 Plan, to the extent not granted prior to the completion of this offering, (2)                  shares of common stock reserved for future issuance under our 2015 Plan and our 2015 Employee Stock Purchase Plan, which will become effective on the date immediately prior to the date of this prospectus and contain provisions that automatically increase its share reserve each year, as more fully described in “Executive Compensation—Employee Benefit Plans.”

 

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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

We derived the selected consolidated statements of operations data for the years ended December 31, 2013 and 2014 and the selected consolidated balance sheets data as of December 31, 2013 and 2014 from our audited consolidated financial statements included elsewhere in this prospectus. We derived the unaudited summary consolidated statements of operations data for the six months ended June 30, 2014 and 2015 and the unaudited summary consolidated balance sheets data as of June 30, 2015 from our unaudited consolidated financial statements included elsewhere in this prospectus. The unaudited consolidated financial statements were prepared on a basis consistent with our annual consolidated financial statements and, in the opinion of management, include all adjustments of a normal, recurring nature that are necessary for the fair presentation of the financial information set forth in those statements. Our historical results are not necessarily indicative of the results to be expected in the future, and our results for the six months ended June 30, 2015 are not necessarily indicative of the operating results to be expected for the full year ending December 31, 2015 or any other period. You should read the following summary consolidated financial data in conjunction with the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements, related notes and other financial information included elsewhere in this prospectus.

 

     Year Ended December 31,     Six Months Ended June 30,  
         2013             2014             2014             2015      
    

(in thousands, except share and per share data)

 

Consolidated Statements of Operations Data:

        

Revenue

   $ 49,684      $ 41,465      $ 21,062      $ 20,290   

Cost of revenue (1)

     29,738        25,532        13,034        12,236   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     19,946        15,933        8,028        8,054   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses: (1)

        

Research and development

     15,033        14,410        7,919        6,096   

Sales and marketing

     8,094        7,211        3,633        4,063   

General and administrative

     2,677        2,356        1,170        1,670   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     25,804        23,977        12,722        11,829   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (5,858     (8,044     (4,694     (3,775

Other income (expense), net

     (2,223     (750     (379     (197
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before provision for income taxes

     (8,081     (8,794     (5,073     (3,972

Provision for income taxes

     72        140        110        71   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (8,153   $ (8,934   $ (5,183   $ (4,043
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share: (2)

        

Basic and diluted

   $ (0.46   $ (0.50   $ (0.29   $ (0.22
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average number of shares used in computing net loss per share: (2)

        

Basic and diluted

       17,766,856        17,892,558          17,794,873          18,503,305   
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per share (unaudited): (2)

        

Basic and diluted

     $ (0.03     $ (0.01
    

 

 

     

 

 

 

Shares used in computing pro forma net loss per share (unaudited): (2)

        

Basic and diluted

       318,681,678          319,292,425   
    

 

 

     

 

 

 

 

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(1) Includes stock-based compensation expense as follows (in thousands):

 

     Year Ended December 31,      Six Months Ended
June 30,
 
         2013              2014              2014              2015      

Cost of revenue

   $ 1       $ 4       $ 2       $ 3   

Research and development

     95         86         41         41   

Sales and marketing

     13         30         7         21   

General and administrative

     55         126         27         47   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 164       $ 246       $ 77       $ 112   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(2) Please see notes 1 and 12 to our consolidated financial statements included elsewhere in this prospectus for an explanation of the calculations of our basic and diluted net loss per share and our pro forma net loss per share.

 

     As of December 31,     As of June 30,
2015
 
          2013               2014         
    

(in thousands)

 

Consolidated Balance Sheets Data:

      

Cash and cash equivalents

   $ 11,580      $ 5,972      $ 6,470   

Property and equipment, net

     2,745        1,725        1,059   

Total assets

     43,589        31,447        32,078   

Current liabilities

     20,139        21,634        15,475 (1)  

Debt

     14,901        10,749        14,133 (1)  

Preferred stock warrant liability

     262        122        903   

Convertible preferred stock

     78,467        78,467        78,467   

Total stockholders’ deficit

     (61,661     (70,252     (74,363

 

(1)   In April 2015 we entered into a three-year $15.0 million term loan facility. As of June 2015, we had net borrowings of $15.0 million outstanding under our term loan facility, of which $4.0 million is included in current liabilities.

Key Metrics

We monitor a variety of key financial metrics to help us evaluate growth trends, establish budgets, measure the effectiveness of our business strategies and assess operational efficiencies. In addition to our financial results determined in accordance with accounting principles generally accepted in the United States of America, or GAAP, we believe the following non-GAAP and operational measures are useful in evaluating our performance. For a discussion of the changes in our key metrics from period to period, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics.”

 

     Year Ended December 31,     Six Months Ended
June 30,
 
         2013             2014         2014     2015  
     (dollars in thousands)  

Non-GAAP gross margin

     42     43     43     39

Adjusted EBITDA

   $ 57      $ (2,912   $ (2,073   $ (2,079

Non-GAAP gross margin.  We define non-GAAP gross profit as gross profit as reported on our consolidated statements of operations, excluding the impact of stock-based compensation and certain reserves for products based on CBRAM technology and losses on CBRAM wafer purchase commitments. We define non-GAAP gross margin as non-GAAP gross profit divided by revenue. Non-GAAP gross margin is a key measure used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short-term and long-term operating plans. In particular, non-GAAP gross margin excludes certain non-cash expenses and certain inventory reserves that can provide useful measures for period-to-period comparisons of our core business.

 

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Adjusted EBITDA.  We define adjusted EBITDA as our net loss excluding stock-based compensation, certain reserves for products based on CBRAM technology and losses on CBRAM wafer purchase commitments, amortization of acquisition-related intangible assets, interest expense, depreciation and amortization, and our provision for income taxes. Adjusted EBITDA is a key measure used by our management and the board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget, to monitor compliance with debt agreements and to develop short and long-term operating plans. In particular, we believe that the exclusion of the amounts eliminated in calculating adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core operating performance. Accordingly, we believe that adjusted EBITDA provides useful information in understanding and evaluating our operating results in the same manner as our management and our board of directors.

Reconciliation of Non-GAAP Financial Measures

The non-GAAP measures discussed above under “—Key Metrics” have limitations as analytical tools, and you should not consider them in isolation or as a substitute for an analysis of our results under GAAP. There are a number of limitations related to the use of these non-GAAP financial measures versus their nearest GAAP equivalents. First, non-GAAP gross margin and adjusted EBITDA are not substitutes for gross margin and net loss, respectively. These non-GAAP financial measures exclude certain recurring, non-cash charges such as stock-based compensation and amortization of acquisition-related intangible assets. Stock-based compensation has been, and will continue to be for the foreseeable future, a significant recurring expense in our business and is an important part of our employees’ compensation affecting their performance. Furthermore, while depreciation and amortization and amortization of acquisition-related intangible assets expense are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements. Adjusted EBITDA also does not reflect changes in, or cash requirements for, our working capital needs and the potentially dilutive impact of stock-based compensation. Finally, other companies may calculate non-GAAP financial measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. The presentation of non-GAAP financial information is not meant to be considered in isolation or as a substitute for the directly comparable financial measures prepared in accordance with GAAP. We urge our investors to review the reconciliation of our non-GAAP financial measures to the comparable GAAP financial measures included below and not to rely on any single financial measure to evaluate our business.

The following table reconciles gross profit to non-GAAP gross profit and non-GAAP gross margin:

 

     Year Ended December 31,     Six Months Ended
June 30,
 
         2013             2014         2014     2015  
     (dollars in thousands)  

Gross profit

   $ 19,946      $ 15,933      $ 8,028      $ 8,054   

Stock-based compensation

     1        4        2        3   

Reserves for products based on CBRAM technology and losses on CBRAM wafer purchase commitments

     852        1,756        1,010        (150
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP gross profit

   $ 20,799      $ 17,693      $ 9,040      $ 7,907   
  

 

 

   

 

 

   

 

 

   

 

 

 

Revenue

   $ 49,684      $ 41,465      $ 21,062      $ 20,290   
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP gross margin

     42     43     43     39
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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The following table reconciles net loss to adjusted EBITDA:

 

     Year Ended December 31,      Six Months Ended
June 30,
 
         2013              2014          2014      2015  
     (in thousands)  

Net loss

   $ (8,153    $ (8,934    $ (5,183    $ (4,043

Stock-based compensation

     164         246         77         112   

Reserves for products based on CBRAM technology and losses on CBRAM wafer purchase commitments

     852         1,756         1,010         (150

Amortization of acquisition-related intangible assets

     3,320         1,236         618         618   

Interest expense, net

     2,731         864         422         486   

Provision for income taxes

     72         140         110         71   

Depreciation and amortization

     1,071         1,780         873         827   
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 57       $ (2,912    $ (2,073    $ (2,079
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis in conjunction with the information set forth under “Selected Consolidated Financial Data” and our consolidated financial statements and related notes included elsewhere in this prospectus. The statements in this discussion regarding our expectations of our future performance, liquidity and capital resources, and other non-historical statements in this discussion, are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described under “Risk Factors” and elsewhere in this prospectus. Our actual results may differ materially from those contained in or implied by any forward-looking statements.

Overview

We are a leading provider of application-specific, feature-rich, ultra-low power non-volatile memory products. We optimize our NVM products for Internet of Things, or IoT, applications including current and next-generation Internet-connected devices in the consumer, industrial, medical and wearables markets. We combine our NVM design capabilities with proprietary intellectual property and differentiated technology platforms to deliver high-performance products that dramatically reduce the overall energy consumption of our customers’ systems and extend battery life. Our products feature embedded intelligence in a small form factor and high reliability. We believe that our ultra-low power and feature-rich NVM products will become a key hardware building block for billions of IoT edge devices operating on and connected to networks worldwide. Through December 31, 2014, we have shipped over 200 million units to more than 500 end customers.

Our revenue is derived from the sale of our NVM products, primarily our flash memory products, which represented substantially all of our revenue in 2013 and 2014 and for the six months ended June 30, 2015. On September 28, 2012, we purchased certain flash memory product assets from Atmel Corporation for a total of $25.0 million, of which $22.2 million was funded with term debt from a financial institution. The acquisition brought us a large customer base for NVM products, a world-wide sales and distribution network and products and technology to further broaden our technology platform offerings. The products we acquired as part of the acquisition were approaching the end of their life cycle and experiencing annual revenue declines. While we provide support for these products, we have not invested further in research and development. Revenue from these legacy products have declined from $43.7 million in 2013 to $13.0 million in 2014 and from $10.3 million during the six months ended June 30, 2014 to $1.7 million during the six months ended June 30, 2015. We expect that revenue from these products will continue to decline in the future. Since the acquisition, we have invested in developing new products that are better suited for low-power, high-growth applications, accelerated development of select products and introduced new products based on the acquired technology. In 2013, we introduced the first of our next-generation DataFlash and Fusion Flash products, which have similar functionality to our legacy products, but also offer enhanced features such as ultra-deep power down and wide supply voltage range operation. Collectively, sales of our next-generation NVM products have experienced a high rate of growth. Revenue from these new products were $6.0 million in 2013 and $28.5 million in 2014, and we generated $18.6 million in revenue from new products during the six months ended June 30, 2015. We had been exclusively developing products based on CBRAM technology prior to the acquisition of assets from Atmel, and shipped more than 1.0 million units of our CBRAM-based products by 2014. We continue to develop and enhance our family of CBRAM-based products, although revenue associated with these products has not been material to date. We have made and continue to make these upfront investments because we believe that the introduction of any fundamentally new semiconductor technology must necessarily go through a lengthy customer evaluation process and several cycles of improvement in the field before it can be widely adopted or generate material revenue.

In 2014, our products were sold to more than 500 end customers, 59 of which are large multi-national companies. In general, we work directly with our customers to have our NVM devices designed into and qualified for their products. Although we maintain direct sales, support and development relationships with our customers, once our products are designed into a customer’s product, we sell a majority of our products to those

 

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customers through distributors. We generated 72%, 70% and 65% of our revenue from distributors for the years ended December 31, 2013 and 2014 and for the six months ended June 30, 2015, respectively, and sales to three distributors generated approximately 54% and 26% of our revenue in 2014 and for the six months ended June 30, 2015, respectively. Additionally, we derived more than 85%, 82% and 80% of our revenue internationally for the years ended December 31, 2013 and 2014 and during the six months ended June 30, 2015, respectively, the majority of which was recognized in the APAC region. Revenue by geography is recognized based on the region to which our products are sold, and not to where the end products are shipped.

We employ a fabless manufacturing strategy and use market-leading suppliers for all phases of the manufacturing process, including wafer fabrication, assembly, testing and packaging. This strategy significantly reduces the capital investment that would otherwise be required to operate manufacturing facilities of our own.

In order to develop differentiated products to attract and retain customers, we have made significant investments in research and development. For the years ended December 31, 2013 and 2014 and during the six months ended June 30, 2015, our research and development expense was $15.0 million, $14.4 million and $6.1 million, respectively. We expect that our research and development expenses will increase significantly in the future as we pursue the opportunities we see in the emerging IoT market. As of June 30, 2015, we had 84 employees, approximately 60% of whom are in research and development. Our headquarters are located in Sunnyvale, California, with additional sales operations in North America, the Middle East and Africa, or EMEA, and Asia-Pacific, or APAC, regions. We recorded revenue of $49.7 million and $41.5 million, and net loss of $8.2 million and $8.9 million, for the years ended December 31, 2013 and 2014, respectively. In addition, our revenue decreased from $21.1 million during the six months ended June 30, 2014 to $20.3 million during the six months ended June 30, 2015 and our net loss decreased from $5.2 million to $4.0 million over that same period.

Key Metrics

We monitor a variety of key financial metrics to help us evaluate growth trends, establish budgets, measure the effectiveness of our business strategies and assess operational efficiencies. In addition to our financial results determined in accordance with GAAP, we believe the following non-GAAP and operational measures are useful in evaluating our performance.

 

     Year Ended
December 31,
    Six Months Ended
June 30,
 
         2013             2014             2014             2015      
     (dollars in thousands)  

Non-GAAP gross margin

     42     43     43     39

Adjusted EBITDA

   $ 57      $ (2,912   $ (2,073   $ (2,079

Non-GAAP gross margin.  We define non-GAAP gross profit as gross profit as reported on our consolidated statements of operations, excluding the impact of stock-based compensation and certain reserves for products based on CBRAM technology and losses on CBRAM wafer purchase commitments. We define non-GAAP gross margin as non-GAAP gross profit divided by revenue. Non-GAAP gross margin is a key measure used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short-term and long-term operating plans. Non-GAAP gross margin increased in 2014 as compared to 2013 as a result of a higher level of revenue from new products. Non-GAAP gross margin for the six months ended June 30, 2015 was lower than non-GAAP gross margin for the six months ended June 30, 2014 due primarily to lower costs for legacy products in the six months ended June 30, 2014. As a result of the decrease in non-GAAP gross margin, we have accelerated our ongoing efforts to reduce new product costs, including qualifying second source suppliers, primarily for assembly services, and investing higher resources to accelerate the transfer of certain products into more advanced wafer fabrication technologies, which we expect to result in lower product costs beginning in the first half of 2016.

Adjusted EBITDA.  We define adjusted EBITDA as our net loss excluding: stock-based compensation, certain reserves for products based on CBRAM technology and losses on CBRAM wafer purchase commitments,

 

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amortization of acquisition-related intangible assets, interest expense, depreciation and amortization, and our provision for income taxes. Adjusted EBITDA is a key measure used by our management and the board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget, to monitor compliance with debt agreements and to develop short and long-term operating plans. Adjusted EBITDA decreased from $0.1 million in 2013 to $(2.9) million in 2014, as a result of higher losses from operations and lower amortization of acquisition-related intangible assets and interest expense. Adjusted EBITDA was $(2.1) million for the six months ended June 30, 2014 and the six months ended June 30, 2015. In light of the adjusted EBITDA loss for the six months ended June 30, 2015, we assessed our current and projected levels of spending and revenue outlook relative to our internal plans, and decided to continue to invest in our business in accordance with those plans, including hiring additional personnel, primarily in Asia, to expand our sales and marketing organization and increasing research and development spending to continue the introduction of new products.

See “Selected Consolidated Financial Data—Key Metrics” for more information and reconciliations of non-GAAP financial measures to their most directly comparable financial measures calculated in accordance with GAAP.

Factors Affecting Our Performance

Product adoption in new markets and applications. We optimize our products to meet the technical requirements of the emerging IoT market. The growth in the IoT market is dependent on many factors, most of which are outside of our control. Should the IoT market not develop or develop more slowly, our financial results could be adversely affected.

Ability to attract and retain customers that make large orders .  In 2014, our products were sold to more than 500 end customers, of which approximately 50 generated more than half our revenue. While we expect the composition of our customers to change over time, our business and operating results will depend on our ability to continually target new and retain existing customers that make large orders, particularly those in growth markets which are less dependent on macroeconomic conditions.

Design wins with new and existing customers .  We believe our solutions significantly improve the performance and potentially lower the system cost of our customers’ designs, particularly if we are part of the early design phase. Accordingly, we work closely with our customers and targeted prospects to understand their product roadmaps and strategies. We consider design wins to be critical to our future success. We define a design win as the successful completion of the evaluation stage, where a customer has tested our product, verified that our product meets its requirements and qualified our NVM device for their products. The number of our design wins has grown from 32 in 2013 to 65 in 2014 and to 88 in the six months ended June 30, 2015, including 19, 52 and 68 design wins for new products, respectively. The revenue that we generate, if any, from each design win can vary significantly. Our long-term sales expectations are based on forecasts from customers, internal estimates of customer demand factoring in expected time to market for end customer products incorporating our solutions and associated revenue potential and internal estimates of overall demand based on historical trends.

Pricing, product cost and gross margins of our products .  Our gross margin has been and will continue to be affected by a variety of factors, including the timing of changes in pricing, shipment volumes, new product introductions, changes in product mixes, changes in our purchase price of fabricated wafers and assembly and test service costs, manufacturing yields and inventory write downs, if any. In general, newly introduced products and products with higher performance and more features tend to be priced higher than older, more mature products. Average selling prices in the semiconductor industry typically decline as products mature. Consistent with this historical trend, we expect that the average selling prices of our products will decline as they mature. In the normal course of business, we will seek to offset the effect of declining average selling prices on existing products by reducing manufacturing costs and introducing new and higher value-added products. If we are unable to maintain overall average selling prices or offset any declines in average selling prices with realized savings on product costs, our gross margin will decline.

 

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Investment in growth. We have invested, and intend to continue to invest, in expanding our operations, increasing our headcount, developing our products and differentiated technologies to support our growth and expanding our infrastructure. We expect our total operating expenses to increase significantly in the foreseeable future to meet our growth objectives. We plan to continue to invest in our sales and support operations throughout the world, with a particular focus in the near term of adding additional sales and field applications personnel in APAC to further broaden our support and coverage of our existing customer base, in addition to developing new customer relationships and generating design wins. We also intend to continue to invest additional resources in research and development to support the development of our products and differentiated technologies. Any investments we make in our sales and marketing organization or research and development will occur in advance of experiencing any benefits from such investments, and the return on these investments may be lower than we expect. In addition, as we invest in expanding our operations internationally, our business and results will become further subject to the risks and challenges of international operations, including higher operating expenses and the impact of legal and regulatory developments outside the United States.

Components of Our Results of Operations

Revenue

We derive substantially all of our revenue through the sale of our NVM products to OEMs and ODMs, primarily through distributors. We generated 72%, 70% and 65% of our revenue from distributors for the years ended December 31, 2013 and 2014 and for the six months ended June 30, 2015, respectively. We recognize revenue from product sales when persuasive evidence of an arrangement exists and all other revenue recognition criteria are met. We sell the majority of our products to distributors and generally recognize revenue when we ship the product directly to the distributors.

Because our distributors market and sell their products worldwide, our revenue by geographic location is not necessarily indicative of where our customers’ product sales and design win activity occur, but rather of where their manufacturing operations occur.

Cost of Revenue and Gross Margin

Cost of revenue primarily consists of costs paid to our third-party manufacturers for wafer fabrication, assembly and testing of our NVM products, provisions for excess and obsolete inventories including reserves for products based on CBRAM technology and accruals for future losses on CBRAM wafer purchase commitments to the extent our costs exceed the market price for such products. To a lesser extent, cost of revenue also includes depreciation of test equipment and expenses relating to manufacturing support activities, including personnel-related costs, logistics and quality assurance and shipping.

Our gross margin has been and will continue to be affected by a variety of factors, including the timing of changes in pricing, shipment volumes, new product introductions, changes in product mixes, changes in our purchase price of fabricated wafers and assembly and test service costs, manufacturing yields and inventory write downs, if any. We expect our gross margin to fluctuate over time depending on the factors described above.

Operating Expenses

Our operating expenses consist of research and development, sales and marketing and general and administrative expense. Personnel-related costs, including salaries, benefits, bonuses and stock-based compensation, are the most significant component of each of our operating expense categories. In addition, in the near term we expect to hire additional personnel, primarily in our selling and marketing functions, and increase research and development expenditures, such as prototype wafers, associated with the implementation of our CBRAM technology in a manufacturing facility in Asia. Accordingly, we expect our operating expenses to increase as we invest in these initiatives.

 

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Index to Financial Statements

Research and Development . Our research and development expenses consist primarily of personnel-related costs for the design and development of our products and technologies. Additional research and development expenses include product prototypes, mask costs, external test and characterization expenses, depreciation, amortization of design tool software licenses, amortization of acquisition-related intangible assets and allocated overhead expenses. We also incur costs related to outsourced research and development activities. We expect research and development expenses to increase in absolute dollars for the foreseeable future as we continue to improve our product features, increase our portfolio of solutions and implement our CBRAM manufacturing technology in a new manufacturing facility.

Sales and Marketing. Sales and marketing expenses consist primarily of personnel-related costs for our sales, business development, marketing, and applications engineering activities, third-party sales representative commissions, promotional and other marketing expenses, amortization of acquisition-related intangible assets and travel expenses. We expect sales and marketing expenses to increase in absolute dollars for the foreseeable future as we continue to expand our direct sales teams, primarily in APAC, and increase our marketing activities.

General and Administrative . General and administrative expenses consist primarily of personnel-related costs, consulting expenses and professional fees. Professional fees principally consist of legal, audit, tax and accounting services. We expect general and administrative expenses to increase in absolute dollars for the foreseeable future as we hire additional personnel, make improvements to our infrastructure and incur significant additional costs for the compliance requirements of operating as a public company, including higher legal, insurance and accounting expenses.

Other Income (Expense), Net

Other income (expense), net is comprised of interest income (expense) and other income (expense). Interest expense consists of interest on our outstanding debt. Other expense, net consists primarily of the change in fair value of our preferred stock warrant liability and foreign exchange gains or losses. Our foreign currency exchange gains and losses relate to transactions and asset and liability balances denominated in currencies other than the U.S. dollar. We expect our foreign currency gains and losses to continue to fluctuate in the future due to changes in foreign currency exchange rates.

We classify our preferred stock warrants as a liability on our consolidated balance sheets and record changes in fair value at each balance sheet date with the corresponding change recorded as other income (expense). We will continue to record adjustments to the fair value of the warrants at each balance sheet date until they are exercised, automatically convert into warrants to purchase common stock or expire. Following completion of this offering, these warrants will automatically convert into warrants to purchase common stock and, upon that conversion, will no longer be classified as a liability on our consolidated balance sheet and subject to fair value accounting.

Provision for Income Taxes

Provision for income taxes consists primarily of U.S. federal and state income taxes in the United States and income taxes in certain foreign jurisdictions in which we conduct business. We have a full valuation allowance for deferred tax assets, including net operating loss carryforwards, and tax credits related primarily to research and development. We expect to maintain this full valuation allowance for the foreseeable future.

 

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Results of Operations

The following table sets forth our consolidated results of operations for the periods shown:

 

     Year Ended
December 31,
    Six Months Ended
June 30,
 
     2013     2014     2014     2015  
    

(in thousands)

 

Revenue

   $ 49,684      $ 41,465      $ 21,062      $ 20,290   

Cost of revenue (1)

     29,738        25,532        13,034        12,236   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     19,946        15,933        8,028        8,054   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses: (1)

        

Research and development

     15,033        14,410        7,919        6,096   

Sales and marketing

     8,094        7,211        3,633        4,063   

General and administrative

     2,677        2,356        1,170        1,670   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     25,804        23,977        12,722        11,829   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (5,858     (8,044     (4,694     (3,775

Other income (expense), net

     (2,223     (750     (379     (197
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before provision for income taxes

     (8,081     (8,794     (5,073     (3,972

Provision for income taxes

     72        140        110        71   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (8,153   $ (8,934   $ (5,183   $ (4,043
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Includes stock-based compensation expense as follows (in thousands):

 

     Year Ended
December 31,
     Six Months Ended
June 30,
 
         2013              2014              2014              2015      

Cost of revenue

   $ 1       $ 4       $ 2       $ 3   
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating expenses:

           

Research and development

     95         86         41         41   

Sales and marketing

     13         30         7         21   

General and administrative

     55         126         27         47   
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating expenses

     163         242         75         109   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 164       $ 246       $ 77       $ 112   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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The following table sets forth the consolidated statements of operations data for each of the periods presented as a percentage of revenue:

 

     Year Ended
December 31,
    Six Months Ended
June 30,
 
         2013             2014             2014             2015      

Revenue

     100     100     100     100

Cost of revenue (1)

     60        62        62        60   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

     40        38        38        40   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses : (1)

        

Research and development

     30        35        38        30   

Sales and marketing

     16        17        17        20   

General and administrative

     5        6        6        8   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     52        58        60        58   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (12     (19     (22     (19

Other income (expense), net

     (4     (2     (2     (1
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before provision for income taxes

     (16     (21     (24     (20

Provision for income taxes

     —          —          (1     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (16 )%      (22 )%      (25 )%      (20 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Stock-based compensation was not material as a percent of revenue for the periods presented.

Comparison of the Six Months Ended June 30, 2014 and 2015

Revenue

 

     Six Months Ended
June 30,
    Change  
     2014     2015     Amount      %  
     (dollars in thousands)  

Revenue

   $ 21,062      $ 20,290      $ (772      (4 )% 

Revenue by category of products:

         

Legacy products

   $ 10,297      $ 1,738      $ (8,559      (83 )% 

New products

   $ 10,765      $ 18,552      $ 7,787         72

Revenue by geography:

         

United States

     19     20     

Europe

     23     12     

Asia Pacific

     56     65     

Rest of world

     2     3     

Revenue decreased by $0.8 million, or 4%, during the six months ended June 30, 2015 as compared to the six months ended June 30, 2014. The decrease was due primarily to a decrease of $0.9 million related to the end of life of a customer program. In addition, we believe that revenue for the six months ended June 30, 2014 was adversely impacted by the bankruptcy in December 2013 of one of our wafer fabrication suppliers, which caused us to be unable to fulfill a portion of our customers’ orders in 2014 while we transitioned wafer production to a new foundry. There was no corresponding impact in the six months ended June 30, 2015.

 

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Cost of Revenue and Gross Margin

 

     Six Months Ended
June 30,
    Change  
     2014     2015     Amount      %  
     (dollars in thousands)  

Cost of revenue

   $ 13,034      $ 12,236      $ (798      (6 )% 

Gross margin

     38     40     

Cost of revenue decreased by $0.8 million, or 6%, during the six months ended June 30, 2015, as compared to the six months ended June 30, 2014, due primarily to a decrease of $2.8 million in inventory reserve activity offset by an increase of $2.1 million in product costs.

Gross margin increased during the first six months ended June 30, 2015 as compared to the six months ended June 30, 2014 due to a release of inventory reserves from the sale of previously reserved product partially offset by increased product costs including increased compensation and equipment depreciation which are being allocated across a smaller revenue base.

Operating Expenses

 

     Six Months Ended
June 30,
        
     2014      2015      Change  
     Amount      Amount      ($)      %  
     (in thousands, except percentages)  

Operating expenses:

           

Research and development

   $ 7,919       $ 6,096       $ (1,823      (23 )% 

Sales and marketing

     3,633         4,063         430         12

General and administrative

     1,170         1,670         500         43
  

 

 

    

 

 

    

 

 

    

Total operating expenses

   $ 12,722       $ 11,829       $ (893      (7 )% 
  

 

 

    

 

 

    

 

 

    

Research and D evelopment . Research and development expense decreased $1.8 million during the six months ended June 30, 2015 as compared to the six months ended June 30, 2014, due to a $0.8 million decrease in personnel-related costs associated with a decrease in headcount and a $0.9 million decrease in mask costs and product prototype expense due to lower product tapeout activity.

Sales and M arketing. Sales and marketing expense increased $0.4 million during the six months ended June 30, 2015, as compared to the six months ended June 30, 2014, due primarily to a $0.3 million increase in personnel-related costs associated with increased headcount and a $0.1 million increase in promotional and marketing costs.

General and A dministrative. General and administrative expenses increased $0.5 million during the six months ended June 30, 2015 as compared to the six months ended June 30, 2014, due primarily to an increase in accounting, tax, and audit expense of $0.4 million, a $0.2 million increase in personnel-related costs associated with an increase in headcount and a $0.1 million decrease in bank fees.

 

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Other Income (Expense), Net

 

     Six
Months Ended
June 30,
     Change  
     2014      2015      Amount      %  
     (dollars in thousands)  

Interest expense, net

   $ (422    $ (486    $ (64      15

Other income (expense), net

     43         289         246         572
  

 

 

    

 

 

    

 

 

    

Total other income (expense), net

   $ (379    $ (197    $ 182         48
  

 

 

    

 

 

    

 

 

    

Interest expense, net increased $64,000 during the six months ended June 30, 2015 as compared to the six months ended June 30, 2014 due to increased levels of debt outstanding.

Other income (expense), net increased $0.2 million during the six months ended June 30, 2015 as compared to the six months ended June 30, 2014 due primarily to a settlement with Atmel regarding certain funds held in escrow in connection with our purchase of assets from them.

Provision for Income Taxes

 

     Six
Months Ended
June 30,
     Change  
     2014      2015      Amount      %  
     (dollars in thousands)  

Provision for income taxes

   $ 110       $ 71       $ (39      (35 )% 

Provision for income taxes decreased due to a reduction in tax expense related to our French subsidiary.

Comparison of Years Ended December 31, 2013 and 2014

Revenue

 

     Year Ended
December 31,
    Change  
     2013     2014     Amount      %  
     (dollars in thousands)  

Revenue

   $ 49,684      $ 41,465      $ (8,219      (17 )% 

Revenue by category of products:

         

Legacy products

   $ 43,715      $ 13,006      $ (30,709      (70 )% 

New products

   $ 5,969      $ 28,459      $ 22,490         377

Revenue by geography:

         

United States

     15     18     

Europe

     17     18     

Asia Pacific

     65     62     

Rest of world

     3     2     

Revenue decreased by $8.2 million, or 17%, for 2014 as compared to 2013. The decrease was due primarily to a significant interruption in 2014 in our ability to supply sufficient legacy products to meet market demand as a result of the sudden declaration of bankruptcy in December 2013 by one of our wafer fabrication suppliers. Due to the bankruptcy, the supplier shut down its foundry and was unable to deliver to us wafers that were in production at that time and, therefore, we were unable to fulfill a portion of our customers’ orders in 2014 while we transitioned wafer production to a new foundry. Based on the average selling prices then in effect for those wafers, we estimate that the potential loss of revenue from sales of these legacy products exceeded $10.0 million. We believe the potential loss primarily impacted the first two quarters of 2014, as the process of transitioning our wafer production to another foundry, which began before the bankruptcy, was largely completed in the first half of 2014.

 

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Cost of Revenue and Gross Margin

 

     Year Ended
December 31,
    Change  
     2013     2014     Amount      %  
     (dollars in thousands)  

Cost of revenue

   $ 29,738      $ 25,532      $ (4,206      (14 )% 

Gross margin

     40     38     

Cost of revenue decreased by $4.2 million, or 14%, for 2014 as compared to 2013 due primarily to $5.2 million in lower costs associated with a decrease in product revenue, partially offset by a $1.1 million increase in spending on manufacturing support activities.

Gross margin decreased in 2014 as compared to 2013 due primarily to the increase in spending on manufacturing support activities allocated across lower revenue.

Operating Expenses

 

     Year Ended
December 31,
     Change  
     2013      2014      Amount      %  
     (dollars in thousands)  

Research and development

   $ 15,033       $ 14,410       $ (623      (4 )% 

Sales and marketing

     8,094         7,211         (883      (11 )% 

General and administrative

     2,677         2,356         (321      (12 )% 
  

 

 

    

 

 

    

 

 

    

Total operating expenses

   $ 25,804       $ 23,977       $ (1,827      (7 )% 
  

 

 

    

 

 

    

 

 

    

Research and Development . Research and development expense decreased $0.6 million as compared to 2013, due to a $0.9 million decrease in personnel-related costs associated with a reduction in headcount associated with the completion of certain development activities, partially offset by higher personnel-related costs in our international operations.

Sales and Marketing. Sales and marketing expense decreased $0.9 million, as compared to 2013, due primarily to a $0.8 million increase in personnel-related costs in connection with increased headcount and a $0.2 million increase in promotional and marketing costs that was more than offset by a decrease of $2.1 million in amortization of acquisition-related intangible assets, primarily customer backlog, which had an estimated useful life of 12 months, ending September 30, 2013. As a result, there was no amortization expense related to customer backlog in 2014.

General and Administrative. General and administrative expenses decreased $0.3 million, as compared to 2013, due primarily to lower consulting expenses.

Other Income (Expense), Net

 

     Year Ended
December 31,
     Change  
     2013      2014      Amount      %  
     (dollars in thousands)  

Interest expense

   $ (2,731    $ (864    $ 1,867         68

Other income (expense), net

     508         114         (394      (78 )% 
  

 

 

    

 

 

    

 

 

    

Total other income (expense), net

   $ (2,223    $ (750    $ 1,473         66
  

 

 

    

 

 

    

 

 

    

Interest expense decreased $1.9 million, as compared to 2013, due to lower interest rates charged on lower levels of outstanding debt.

 

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Other income (expense), net decreased $0.4 million, as compared to 2013, due primarily to a $1.0 million change in fair value of our preferred stock warrant liability offset primarily by a decrease of $0.3 million in bank fees.

Provision for Income Taxes

 

     Year Ended
December 31,
     Change  
     2013      2014      Amount      %  
     (dollars in thousands)  

Provision for income taxes

   $ 72       $ 140       $ 68         94

Provision for income taxes increased due to a higher level of taxes in a foreign jurisdiction.

Quarterly Results of Operations

The following tables set forth selected unaudited quarterly consolidated statements of operations data for each of the six quarters in the period ended June 30, 2015 as well as the percentage that each line item represents of revenue for each quarter. The information for each of these quarters has been prepared on a basis consistent with our audited consolidated financial statements included elsewhere in this prospectus and, in the opinion of management, includes all adjustments of a normal, recurring nature that are necessary for the fair presentation of the results of operations for these periods. This data should be read in conjunction with our consolidated financial statements, related notes and other financial information included elsewhere in this prospectus. These quarterly operating results are not necessarily indicative of our operating results for the full year ending December 31, 2015 or any other period.

 

     Three months ended  
     March 31,
2014
    June 30,
2014
    September 30,
2014
    December 31,
2014
    March 31,
2015
    June 30,
2015
 
Quarterly results of operations:    (in thousands)  

Revenue:

   $ 10,730      $ 10,332      $ 10,034      $ 10,369      $ 9,690      $ 10,600   

Cost of revenue:

     5,960        7,074        6,333        6,165        5,830        6,406   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     4,770        3,258        3,701        4,204        3,860        4,194   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

            

Research and development

     4,328        3,591        3,456        3,035        2,964        3,132   

Sales and marketing

     1,761        1,872        1,735        1,843        1,977        2,086   

General and administrative

     591        579        639        547        848        822   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     6,680        6,042        5,830        5,425        5,789        6,040   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (1,910     (2,784     (2,129     (1,221     (1,929     (1,846
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

            

Interest expense, net

     (219     (203     (189     (253     (181     (305

Other income (expense), net

     45        (2     (38     109        (118     407   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense), net

     (174     (205     (227     (144     (299     102   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before provision of income taxes

     (2,084     (2,989     (2,356     (1,365     (2,228     (1,744

Provision for income taxes

     93        17        15        15        49        22   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

   $ (2,177   $ (3,006   $ (2,371   $ (1,380   $ (2,277   $ (1,766
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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     Three months ended  
     March 31,
2014
    June 30,
2014
    September 30,
2014
    December 31,
2014
    March 31,
2015
    June 30,
2015
 
Quarterly results of operations:    (as a percentage of total revenue)  

Revenue:

     100     100     100     100     100     100

Cost of revenue:

     56        68        63        59        60        60   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     44        32        37        41        40        40   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

            

Research and development

     40        35        34        29        31        30   

Sales and marketing

     16        18        17        18        20        20   

General and administrative

     6        6        6        5        9        8   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     62        58        58        52        60        57   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (18     (27     (21     (12     (20     (17
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

            

Interest expense, net

     (2     (2     (2     (2     (2     (3

Other income (expense), net

     —          —          —          1        (1     4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense), net

     (2     (2     (2     (1     (3     1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before provision of income taxes

     (19     (29     (23     (13     (23     (16

Provision for income taxes

     1        —          —          —          1        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

     (20 )%      (29 )%      (24 )%      (13 )%      (23 )%      (17 )% 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Our quarterly revenue decreased quarter over quarter for each of the periods presented, except for the three months ended December 31, 2014 and the three months ended June 30, 2015. For the three months ended December 31, 2014, revenue increased to $10.4 million as sales of new products increased with the commencement of mass production of design wins. Revenue increased to $10.6 million for the three months ended June 30, 2015 as sales of new products increased by approximately $1.0 million, due primarily to increased revenue from an IoT application. Our quarterly revenue for the first three quarters of 2014 was impacted by the significant interruption in our ability to supply sufficient legacy products to meet market demand discussed under “—Results of Operations” above.

Our gross profit has fluctuated historically from quarter to quarter primarily due to fluctuations in our revenue, except for the three months ended June 30, 2014. Gross profit declined in the three months ended June 30, 2014 to $3.3 million, primarily as a result of an increase in product costs of $2.0 million offset by a reduction of net inventory reserves booked during the quarter of $1.3 million along with a reduction in revenue of approximately $0.4 million.

Total operating expenses decreased quarter over quarter for each of the periods presented in 2014 due to lower personnel-related costs associated with a decrease in headcount as a result of lower product tapeout and other research and development activity. Total operating expenses increased to $5.8 million in the three months ended March 31, 2015 due primarily to an increase of $0.3 million in general and administrative costs due to higher compensation costs and higher accounting, tax, and audit fees. Total operating expenses increased to $6.0 million in the three months ended June 30, 2015 due to increases in sales and marketing expense associated with higher personnel-related costs due to increased headcount and in research and development expense due to an increase in product prototype costs.

 

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Liquidity and Capital Resources

Since inception, we have funded our operations primarily with gross proceeds from the sale of an aggregate of $78.5 million of convertible preferred stock, $22.5 million of term debt associated with the acquisition of the certain flash memory product assets from Atmel Corporation. Our principal source of liquidity as of June 30, 2015 consisted of cash and cash equivalents of $6.5 million. We did not have any borrowing capacity available under our credit facility as of June 30, 2015. Our outstanding borrowings under this credit facility as of June 30, 2015 were $15.0 million. Substantially all of our cash and cash equivalents are held in the United States.

We believe our existing cash and cash equivalents will be sufficient to meet our anticipated cash needs over the next 12 months. Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of our spending to support research and development activities, the timing and cost of establishing additional sales and marketing capabilities, the introduction of new and enhanced products and our costs to implement new manufacturing technologies. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. Any additional debt financing obtained by us in the future could also involve restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. Additionally, if we raise additional funds through further issuances of equity, convertible debt securities or other securities convertible into equity, our existing stockholders could suffer significant dilution in their percentage ownership of our company, and any new equity securities we issue could have rights, preferences and privileges senior to those of holders of our common stock. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to grow or support our business and to respond to business challenges could be significantly limited.

Our cash flows for the periods indicated were as follows:

 

     Year Ended December 31,     Six Months Ended
June 30,
 
         2013             2014             2014             2015      
     (in thousands)  

Cash flows provided by (used in) operating activities

   $ (689   $ (580   $ (184   $ (3,272

Cash flows provided by (used in) investing activities

     1,761        (760     (596     (107

Cash flows provided by (used in) financing activities

     10,531        (4,229     (2,331     4,038   

Cash Flows from Operating Activities

Our primary source of cash from operating activities has been from cash collections from our customers. We expect cash inflows from operating activities to be affected by increases in sales and timing of collections. Our primary uses of cash from operating activities have been for personnel costs and investments in research and development and sales and marketing. Net cash used in operating activities for the periods presented consisted of net losses adjusted for certain noncash items and changes in working capital. Within changes in working capital, changes in accounts receivable, inventory and accounts payable generally account for the largest adjustments, as we typically use more cash to fund accounts receivable and build inventory as our business grows. Increases in accounts payable typically provides more cash as we do more business with our contract foundries and other third parties, depending on the timing of payments.

During the six months ended June 30, 2015, cash used in operating activities was $3.3 million, primarily from a net loss of $4.0 million and a net change in our operating assets and liabilities of $0.9 million and non-cash charges of $1.7 million primarily related to depreciation and amortization.

During the six months ended June 30, 2014, cash used in operating activities was $0.2 million, primarily from a net loss of $5.2 million partially offset by a net change in our operating assets and liabilities of $3.4 million and non-cash charges of $1.6 million primarily related to depreciation and amortization.

 

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During the year ended December 31, 2014, net cash used in operating activities was $0.6 million, primarily due to a net loss of $8.9 million, partially offset by non-cash charges of $3.2 million, primarily depreciation and amortization and stock-based compensation, and a net change in our net operating assets and liabilities of $5.2 million. The change in our net operating assets and liabilities was primarily due to a $2.9 million decrease in inventory and a $2.9 million decrease in accounts receivable reflecting lower levels of revenue and a $0.8 million decrease in prepaid expenses and other current assets partially offset by a $1.2 million decrease in accounts payable primarily attributable to a reduction in wafer and other inventory purchases and timing of payments.

During the year ended December 31, 2013, cash used in operating activities was $0.7 million, primarily from a net loss of $8.2 million, non-cash charges of $4.4 million primarily related to depreciation and amortization and stock based compensation and a net increase in our net operating assets and liabilities of $3.0 million. The change in our net operating assets and liabilities was primarily due to a $6.5 million increase in accounts payable primarily attributable to inventory purchases and timing of payments, a $0.7 million increase in employee-related liabilities, and a decrease of $3.2 million in accounts receivable reflecting higher cash collections from customers partially offset by a $5.2 million increase in inventory in support of higher sales.

Cash Flows from Investing Activities

Our investing activities consist primarily of purchases of property and equipment. We expect to continue to make significant capital expenditures to support continued growth of our business. During the six months ended June 30, 2014 and 2015, cash used in investing activities was $0.6 million and $0.1 million, respectively, due to purchases of equipment. During the year ended December 31, 2014, cash used in investing activities was $0.8 million related primarily to the purchase of equipment. During the year ended December 31, 2013, cash provided by investing activities was $1.8 million, related to the increase in restricted cash of $4.0 million, partially offset by purchase of equipment of $2.2 million.

Cash Flows from Financing Activities

Cash flows from financing activities primarily include net proceeds from issuance of convertible preferred stock and proceeds and payments related to our term loans and our credit facilities.

During the six months ended June 30, 2015, cash provided by financing activities was $4.0 million due to proceeds from our term loan facility partially offset by payments on our prior credit facility.

During the six months ended June 30, 2014, cash used in financing activities was $2.3 million, due primarily to principal payments on our outstanding borrowings.

During the year ended December 31, 2014, cash used in financing activities was $4.2 million, due primarily to $6.9 million in principal payments on outstanding borrowings offset by proceeds of $2.7 million from additional borrowings under our prior credit facility.

During the year ended December 31, 2013, cash provided by financing activities was $10.5 million, consisting of $17.4 million in net proceeds from issuance of convertible notes payable, convertible preferred stock and exercises of stock options, and $14.9 million in proceeds from a new term loan facility, offset by $21.7 million in principal payments on loan obligations.

Off Balance Sheet Arrangements

During the periods presented, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off balance sheet arrangements or other contractually narrow or limited purpose.

 

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Credit Facility

In April 2015, we entered into a three-year $15.0 million credit agreement, or the new term loan facility, which replaced our prior senior secured revolving credit and term loan facility. The agreement provides for a senior secured term loan facility, in an aggregate principal amount of up to $15.0 million to be used for general corporate purposes including working capital, to repay certain indebtedness and for capital expenditures and other expenses. Interest will accrue on any outstanding borrowings at a rate equal to (a) the higher of (i) the prime rate (as publicly announced from time to time by the Wall Street Journal) and (ii) 3.25% plus (b) (i) 1.00% if our cash and cash equivalents are greater than 125% of the outstanding principal of our borrowings under the new term loan facility, or (ii) 2.00% if our cash and cash equivalents are less than or equal to 125% of such borrowings. Indebtedness we incur under this agreement is secured by substantially all of our assets and contains financial covenants requiring us to maintain a monthly asset coverage ratio of not less than 1.00 to 1.00 through September 30, 2015 and 1.10 to 1.00 thereafter, and quarterly adjusted EBITDA (measured on a trailing three-month basis) of $1 through March 31, 2016 and increasing to higher levels thereafter. These financial covenants are substantially similar to the ones in our prior credit facility. The agreement contains customary affirmative and negative covenants, including covenants that limit or restrict our ability to, among other things, incur additional indebtedness, grant liens, make investments, repurchase stock, pay dividends, transfer assets, merge or consolidate and make acquisitions. Upon an occurrence of an event of default, we could be required to pay interest on all outstanding obligations under the agreement at a rate of five percent above the otherwise applicable interest rate, and the lender may accelerate our obligations under the agreement. As of June 30, 2015, we were in compliance with all financial covenants and restrictions and had borrowings of $15.0 million outstanding. We may not draw additional funds under the new term loan facility and our borrowings mature on April 30, 2018.

Contractual Obligations and Commitments

The following is a summary of our contractual obligations and commitments as of December 31, 2014:

 

            Payments Due by Period  
Contractual Obligations    Total      Less than
1 Year
     1 - 3
Years
     3 - 5
Years
     More than
5 Years
 
     (in thousands)  

Operating leases (1)

   $ 225       $ 225       $ —         $ —         $ —     

Inventory-related commitments (2)

     4,260         4,260         —           —           —     

Financing arrangements (3)

     11,497         8,396         3,101         —           —     

Capital leases (4)

     75         75         —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 16,057       $ 12,956       $ 3,101       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Operating leases primarily relate to our leases of office space with terms that would have expired in July 2015.
(2) Represents outstanding purchase orders for wafer commitments and component and assembly commitments that we have placed with our suppliers as of December 31, 2014.
(3) Financing arrangements represent debt maturities under our prior credit facility. See note 5 to the notes to our consolidated financial statements. We repaid in full and terminated this credit facility in April 2015 and entered into a new term loan in April 2015.
(4) Capital lease obligations relate to the lease of certain equipment with terms that expire in 2015.

As of December 31, 2014 we had a liability of $0.1 million for uncertain tax positions.

In April 2015, we entered into a three-year $15.0 million term loan facility, which replaced our prior credit facility. As of June 30, 2015, we had borrowings of $15.0 million outstanding under our new term loan facility. See “—Credit Facility” above. In June 2015, we extended our existing headquarters lease by six months. As a result of entering into this extension, our operating lease obligations increased by $0.2 million under the columns captioned “Total” and “Less than 1 year.”

Internal Control Over Financial Reporting

Prior to this offering we were a private company and have had limited accounting and financial reporting personnel and other resources with which to address our internal controls and procedures. In connection with the

 

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audits of our consolidated financial statements as of and for the years ended December 31, 2013 and 2014, we identified a material weakness in our internal control over financial reporting, as defined in the standards established by the Public Company Accounting Oversight Board (United States). A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our consolidated financial statements will not be prevented or detected on a timely basis. The identified material weakness related to our lack of sufficient, qualified personnel in accounting and financial reporting functions with sufficient experience and expertise with respect to the application of GAAP and related financial reporting, which led to a delay in the closing of our books and resulted in a number of post-closing adjustments to our consolidated financial statements as of and for the years ended December 31, 2013 and 2014.

Our management and independent registered public accounting firm did not and were not required to perform an evaluation of our internal control over financial reporting as of and for the years ended December 31, 2013 and 2014 in accordance with the provisions of the JOBS Act.

We are in the process of taking steps intended to remedy this material weakness in our internal control over financial reporting identified by our independent registered public accounting firm. Since the material weakness relates at least in part to inadequate staffing, we plan to address it through the hiring of additional personnel in addition to other steps approved by our audit committee. We will not be able to assess whether the steps we are taking will fully remedy the material weakness until we have fully implemented them and a sufficient time passes in order to evaluate their effectiveness. If we fail to further increase and maintain the number and expertise of our staff for our accounting and finance functions and to improve and maintain internal control over financial reporting adequate to meet the demands that will be placed upon us as a public company, including the requirements of the Sarbanes-Oxley Act, we may be unable to report our financial results accurately and prevent fraud. In addition, we cannot be certain that any such measures we undertake will successfully remediate the material weakness or that other material weaknesses and control deficiencies will not be discovered in the future. If our remediation efforts are not successful or other material weaknesses or control deficiencies occur in the future, we may be unable to report our financial results accurately or on a timely basis, which could cause our reported financial results to be materially misstated and result in the loss of investor confidence or delisting and cause the trading price of our common stock to decline. As a result of such failures, we could also become subject to investigations by the NASDAQ Stock Market, the SEC, or other regulatory authorities, and become subject to litigation from investors and stockholders, which could harm our reputation, financial condition or divert financial and management resources. See “Risk Factors—If we fail to make necessary improvements to address a material weakness in our internal control over financial reporting identified by our independent registered public accounting firm, we may not be able to report our financial results accurately and timely or prevent fraud, any of which could cause our reported financial results to be materially misstated and result in the loss of investor confidence or delisting and cause the trading price of our common stock to decline.”

Critical Accounting Policies and Estimates

Our consolidated financial statements and the related notes included elsewhere in this prospectus are prepared in accordance with GAAP. The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of our assets, liabilities, revenue, costs and expenses and related disclosures. We base our estimates on our historical experience and various other assumptions that we believe are reasonable under the circumstances. Our actual results could differ materially from these estimates. To the extent that there are material differences between our estimates and our actual results, our future financial statements will be affected.

The critical accounting policies involving judgments and estimate that we believe have the most impact on our consolidated financial statements are discussed below.

 

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Revenue Recognition

We recognize revenue from product sales when persuasive evidence of an arrangement exists, the selling price is fixed or determinable, transfer of title occurs, and the collectibility of the resulting receivable is reasonably assured. Due to the historical immaterial level of product returns under warranty, we do not record a reserve for estimated returns under warranty.

Generally, we meet these conditions upon shipment because, in most cases, title and risk of loss passes to the customer at that time. In addition, we estimate and record provisions for future returns and other charges against revenue at the time of shipment, consistent with the terms of sale. We sell products to distributors at the price listed in our distributor price book. At the time of sale we record a sales reserve for ship from stock and debits, or SSDs, stock rotation rights and any special programs approved by management. We offset the sales reserve against revenue, producing the revenue amount reported in the consolidated statements of operations.

The market price for our products can be significantly different from the book price at which we sold the product to a distributor. When the market price, as compared to our original book price, of a particular distributor’s sales opportunity to their customers would result in low or negative margins for our distributor, we negotiate SSDs with the distributor. Management analyzes our SSD history to develop current SSD rates that form the basis of the SSD revenue reserve recorded each period. We obtain the historical SSD rates from our distributor’s records and our internal records.

We typically grant payment terms of between 30 and 60 days to our customers. Our customers generally pay within those terms. Distributors are invoiced for shipments at listed book price. When the distributors pay the invoice, they may claim debits for SSDs previously authorized by us when appropriate. Once claimed, we process the requests against prior authorizations and reduce reserves previously established for that customer.

The revenue we record for sales to our distributors is net of estimated provisions for these programs. When determining this net revenue, we must make significant judgments and estimates. We base our estimates on historical experience rates, the levels of inventory held by our distributors, current trends and other related factors. However, because of the inherent nature of estimates, there is a risk that there could be significant differences between actual amounts and our estimates. Our consolidated financial condition and operating results depend on our ability to make reliable estimates and we believe that such estimates are reasonable.

Inventories

We record inventories at the lower of standard cost (which generally approximates actual cost on a first-in, first-out basis) or market value. The carrying value of inventory is adjusted for excess and obsolete inventory based on inventory age, shipment history and the forecast of demand over a specific future period. At the point of loss recognition, a new lower cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in the restoration or increase in that new cost basis. The semiconductor markets that we serve are volatile and actual results may vary from forecast or other assumptions, potentially affecting our assessment of excess and obsolete inventory which could have a material effect on our results of operations.

Accounting for Income Taxes

We account for income taxes using an asset and liability approach, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the consolidated financial statements, but have not been reflected in our taxable income. Valuation allowances are established to reduce deferred tax assets as necessary when in management’s estimate, based on available objective evidence, it is more likely than not that we will not generate sufficient taxable income in future periods to realize the benefit of our deferred tax assets. We include interest and penalties related to unrecognized tax benefits in income tax expense. We recognize in our consolidated financial statements the impact of a tax position that based on its technical merits is more likely than not to be sustained upon examination. The valuation allowance as of December 31, 2014 was approximately $29.7 million.

 

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Stock-based Compensation

Stock-based compensation costs related to stock options granted to employees are measured at the date of grant based on the estimated fair value of the award, net of estimated forfeitures. We estimate the grant date fair value, and the resulting stock-based compensation expense, using the Black-Scholes option-pricing model. We recognize compensation costs for awards with service and performance vesting conditions on an accelerated method under the graded vesting method over the requisite service period of the award. For stock options with no performance condition, we recognize compensation costs on a straight-line basis over the requisite service period of the award, which is generally the vesting term of four years.

The Black-Scholes option-pricing model requires the use of highly subjective assumptions which determine the fair value of stock-based awards.

The assumptions used in our option-pricing model represent management’s best estimates. These estimates are complex, involve a number of variables, uncertainties and assumptions and the application of management’s judgment, so that they are inherently subjective. If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the future.

These assumptions are estimated as follows:

 

    Fair Value of Common Stock . Because our stock is not publicly traded, we must estimate its fair value, as discussed in “Common Stock Valuations” below.

 

    Risk-Free Interest Rate . We base the risk-free interest rate used in the Black-Scholes valuation model on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent remaining term of the options for each option group.

 

    Expected Term . The expected term represents the period that our stock-based awards are expected to be outstanding. Because of the limitations on the sale or transfer or our common stock as a privately held company, we do not believe our historical exercise pattern is indicative of the pattern we will experience as a publicly traded company. We have consequently used the Staff Accounting Bulletin, or SAB 110, simplified method to calculate the expected term, which is the average of the contractual term and vesting period. We plan to continue to use the SAB 110 simplified method until we have sufficient trading history as a publicly traded company.

 

    Volatility . We determine the price volatility factor based on the historical volatilities of our peer group as we did not have a sufficient trading history for our common stock. Industry peers consist of several public companies in the technology industry that provide similar services with comparable characteristics including enterprise value, risk profiles and position within the industry. We intend to continue to consistently apply this process using the same or similar public companies until a sufficient amount of historical information regarding the volatility of our own common stock share price becomes available, or unless circumstances change such that the identified companies are no longer similar to us, in which case, more suitable companies whose share prices are publicly available would be utilized in the calculation.

 

    Dividend Yield . The expected dividend assumption is based on our current expectations about our anticipated dividend policy. We currently do not expect to issue any dividends.

In addition to assumptions used in the Black-Scholes option-pricing model, we must also estimate a forfeiture rate to calculate the stock-based compensation for our awards. We will continue to use judgment in evaluating the assumptions related to our stock-based compensation on a prospective basis. As we continue to accumulate additional data, we may have refinements to our estimates, which could materially impact our future stock-based compensation expense.

 

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The fair value of the employee stock options was estimated using the following assumptions for the periods presented:

 

     Year Ended
December 31,
    Six Months Ended
June 30, 2015
 
         2013             2014        

Expected term (in years)

     6        6        5   

Risk-free interest rate

     1.06     1.84     1.62

Volatility

     63     67     70

Dividend yield

     —       —       —  

For the years ended December 31, 2013 and 2014 and for the six months ended June 30, 2014 and 2015, stock-based compensation expense was $0.2 million, $0.2 million, $0.1 million and $0.1 million respectively. As of June 30, 2015, we had approximately $0.6 million of total unrecognized compensation expense, net of related forfeiture estimates, which we expect to recognize over a weighted-average period of approximately 2 years. The intrinsic value of all outstanding options as of June 30, 2015 was $         million based on the estimated fair value of our common stock of $         per share, which is the midpoint of the price range set forth on the cover of this prospectus.

Common Stock Valuations. Our board of directors intends all options granted to be exercisable at a price per share not less than the per share fair value of our common stock underlying those options on the date of grant. The estimated fair value of our common stock was determined at each valuation date in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. Our board of directors, with the assistance of management, developed these valuations using significant judgment and taking into account numerous factors, including developments at our company, market conditions and contemporaneous independent third-party valuations.

Depending on whether stock options were granted near periods in which we also had a preferred stock issuance, the valuations of our common stock were back-solved for the common stock equity value using the Option Pricing Method, or OPM, the multi-period discounting method and the probability-weighted expected return method, or PWERM, or a combination thereof.

The OPM treats the rights of the holders of preferred and common stock as equivalent to call options on any value of the enterprise above certain break points of value based upon the liquidation preferences of the holders of preferred stock, as well as their rights to participation and conversion. Thus, the estimated value of the common stock can be determined by estimating the value of its portion of each of these call option rights.

The multi-period discounting approach values the business based on the future benefits that will accrue to it, with the value of future benefits discounted back to a present value at an appropriate discount rate. The discounted cash flow analysis forecasts future revenue and free cash flow, or net operating profit after tax from continuing operations, associated with that revenue.

The PWERM is a scenario-based analysis that estimates the value per share based on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available to us, as well as the economic and control rights of each stock class.

Following the closing of this offering, the fair value of our common stock will be determined based on the closing price of our common stock on the NASDAQ Global Market.

Repricing of Options. During the year ended December 31, 2014, we repriced a total of 12,798,381 outstanding options by way of amending existing outstanding option grants with exercise prices greater than

 

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$0.05 per share such that the new exercise price is $0.05 per share. Except for the change in exercise price, all other terms of the options did not change, including the contractual term, vesting schedule and the vesting start date. As a result of such modification, we expensed incremental stock compensation on the date of modification of $0.1 million relating to options that were already vested. An additional $0.1 million relating to the options that were unvested will be expensed over the remaining vesting term.

JOBS Act

Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We are choosing to irrevocably “opt out” of the extended transition periods available under the JOBS Act for complying with new or revised accounting standards, but we intend to take advantage of the other exemptions and reduced reporting requirements provided by the JOBS Act, including without limitation, providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act and complying with any requirement that may be adopted regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis). These exemptions will apply until the earliest to occur of: the last day of the first fiscal year in which we have more than $1.0 billion in annual revenue; the date we qualify as a “large accelerated filer,” with at least $700 million in market value of common equity securities held by non-affiliates; the issuance, in any three-year period, by us of more than $1.0 billion in non-convertible debt securities; and the last day of the fiscal year ending after the fifth anniversary of our initial public offering.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board, or the FASB, issued Accounting Standards Update, or ASU, No. 2014-09 regarding ASC Topic 606—Revenue from Contracts with Customers. The standard provides principles for recognizing revenue for the transfer of promised goods or services to customers with the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance is effective for us in the first quarter of fiscal 2018 using either of two methods: (i) retrospective to each prior reporting period presented with the option to elect certain practical expedients as defined within the guidance; or (ii) retrospective with the cumulative effect of initially applying the guidance recognized at the date of initial application and providing certain additional disclosures as defined per the guidance. Early adoption is not permitted. We are currently evaluating the accounting, transition and disclosure requirements of the standard and cannot currently estimate the financial statement impact of adoption.

In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU 2014-15 requires management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. In doing so, companies will have reduced diversity in the timing and content of footnote disclosures than under today’s guidance. ASU 2014-15 is effective for us in the first quarter of 2016 with early adoption permitted. We do not believe the impact of adopting ASU 2014-15 will be material to our consolidated financial statements and disclosure.

Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risks in the ordinary course of our business. These risks primarily include foreign exchange rate and interest rate sensitivities as follows:

Foreign Currency Risk

Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates.

 

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The majority of our revenue is denominated in U.S. dollars. Our expenses are generally denominated in the currencies in which our operations are located, which is primarily in the United States and to a lesser extent in EMEA and APAC. Our results of operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. The effect of a hypothetical 10% change in foreign currency exchanges rates applicable to our business would not have a material impact on our historical consolidated financial statements.

We have not hedged exposures denominated in foreign currencies or used any other derivative financial instruments. Although we transact the substantial majority of our business in U.S. dollars, future fluctuations in the value of the U.S. dollar may affect the competitiveness of our products and thus may impact our results of operations and cash flows.

Interest Rate Sensitivity

We had cash and cash equivalents of $6.5 million as of June 30, 2015, consisting of bank deposits and money market funds. Such interest-earning instruments carry a degree of interest rate risk. To date, fluctuations in interest income have not been significant. We also had total outstanding debt of $15.0 million as of June 30, 2015. The outstanding debt relates to a term loan.

We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. We have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates. Our exposure to interest rates relates to the change in the amounts of interest we must pay on our variable rate borrowings. A hypothetical 10% increase in our borrowing rates would not have a material impact on interest expense on our principal balances as of June 30, 2015.

 

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BUSINESS

Overview

We are a leading provider of application-specific, feature-rich, ultra-low power non-volatile memory products. We optimize our non-volatile memory products for Internet of Things, or IoT, applications including current and next-generation Internet-connected devices in the consumer, industrial, medical and wearables markets. We combine our non-volatile memory design capabilities with proprietary intellectual property and differentiated technology platforms to deliver high-performance products that dramatically reduce the overall energy consumption of our customers’ systems and extend battery life. Our products feature embedded intelligence in a small form factor and high reliability. We believe that our ultra-low power and feature-rich non-volatile memory products will become a key hardware building block for billions of IoT edge devices operating on and connected to networks worldwide. Through December 31, 2014, we have shipped over 200 million units to more than 500 end customers, 59 of which are large multi-national companies.

Our non-volatile memory, or NVM, product families include DataFlash, Fusion Flash and Mavriq. Our DataFlash family of products is well-suited for data-logging applications, such as fitness trackers and sensors, and allows for system simplification. Our Fusion Flash family of products offers the ability to function at a wide range of voltages and battery charge levels, which extends the useful battery life of our customers’ systems. Our Mavriq family of products utilizes our proprietary Conductive Bridging RAM, or CBRAM, technology and is ideally suited for applications that require high-performance while consuming 1/10th to 1/100th the energy of existing flash memory products. We believe the power and speed advantages of our products have enabled us to become a preferred NVM provider to customers demanding a combination of exceptional battery life, energy efficiency, reliability and low cost.

We sell our products directly to leading original equipment manufacturers and original design manufacturers, or OEMs and ODMs, respectively, that manufacture products for our end customers. In general, we work directly with our customers to have our NVM devices designed into and qualified for their products, which we refer to as design wins. The number of design wins has grown from 32 in 2013 to 65 in 2014 and to 88 in the six months ended June 30, 2015, including 19, 52 and 68 design wins for new products, respectively. Although we maintain direct sales, support and development relationships with our customers, most of our products are sold to those customers through distributors.

As of June 30, 2015, we had 84 employees, approximately 60% of whom are engaged in research and development. Our headquarters are located in Sunnyvale, California, with additional sales operations in North America, EMEA and APAC regions. For the years ended December 31, 2013 and 2014, we recorded revenue of $49.7 million and $41.5 million, and a net loss of $8.2 million and $8.9 million, respectively. In addition, our revenue decreased from $21.1 million during the six months ended June 30, 2014 to $20.3 million during the six months ended June 30, 2015 and our net loss decreased from $5.2 million to $4.0 million over that same period. In 2012, we purchased certain flash memory product assets from Atmel Corporation. Since the acquisition, we improved certain features of the acquired products, enhanced their capabilities for low-power IoT applications, accelerated development of other select products, and introduced our next-generation DataFlash and Fusion Flash products based on the acquired technology, which we refer to as our new products. Revenue from new products grew from $6.0 million in 2013 to $28.5 million in 2014, and we generated $18.6 million in revenue from new products during the six months ended June 30, 2015.

Industry Background

The Internet of Things (IoT)

Historically, innovation in the semiconductor industry has been driven by end user demand for increasingly higher performance, lower cost, more compact and energy efficient devices from computer systems to communication networks to mobile devices and now to any physical device, or “thing.” The Internet, together with advances in low-cost, high-speed connectivity and declines in the cost and size of sensors, processors and

 

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communication modules, has enabled a network of interconnected devices used in all manner of purposes, including communication, entertainment, industrial applications, medicine, retail and business. We believe that IoT has the potential to impact every industry and could represent a major transformation as great as the Internet itself. Everyday consumer devices and industrial equipment, from wearables and health monitors to smart meters and environmental sensors, can now connect to the Internet, enabling information gathering and management of these devices over a connected network, allowing businesses to increase efficiency, acquire intelligent data and enable new services and business models. The “edge of IoT” includes all devices at the end-points of this vast network of computing systems that interface with the physical world across a wide variety of devices, such as small wearable technologies, smartphones, household appliances, environmental sensors, smart automobiles and industrial meters. The perimeter of this vast IoT network consists of the so-called “IoT edge nodes,” or IoT nodes. A typical construct of these nodes include a sensor to collect information from the real world, a microcontroller to manage and process the collected data, a communication unit for connectivity and memory to store code and data locally on the node.

The sensors, microcontrollers, radios and memories that are embedded in these IoT nodes, which we also refer to collectively as system components, need to take up less space and communicate with each other and the physical world over connected networks and to do so while consuming less energy than ever before. A fundamental design challenge for IoT devices is how to satisfy the lower energy requirements of small devices while increasing their processing performance, connectivity, speed, and intelligence. Addressing this challenge will require new designs for the system components of these devices.

While other factors, such as connectivity, reliability, affordability and security, will be important to the adoption of IoT, energy efficiency will be critical for IoT to achieve its full potential as it will enable a new class of IoT devices: those without a frequent power connection. The growth of the IoT market will depend on advancements in the power and energy efficiency, connectivity, reliability, cost and security of each system component within an IoT device. Memory is integral to IoT device systems and reducing the energy consumption of memory while enabling increased read/write performance can help reduce the overhead of other components within the device. With greater energy efficiency, we believe further technological advancements in energy harvesting and battery life will enable IoT devices to operate for several years without maintenance or battery replacement, supporting billions of always-on, interconnected, intelligent devices operating autonomously and communicating via the Internet. Gartner estimates that the installed base of IoT devices will exceed 25 billion units in 2020, up from approximately 4 billion units in 2014, representing a compound annual growth rate, or CAGR, of 38%.

 

 

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The Market for Non-Volatile Memory

NVM is the primary semiconductor system component used to store and access software code and digital content. Currently, the NVM market consists of two major flash memory architectures: NAND flash memory and NOR flash memory. Both of these memories are built on industry-standard “floating gate” technology, which was commercialized in the early 1970s. These two flash memory devices are distinguishable by their internal architectures and the corresponding applications they are designed to serve. NAND flash memory, which has faster write and slower read speeds, is well-suited for mass storage and data-heavy applications, such as solid state and USB drives. NOR flash memory, which has fast read speeds, is well-suited for code storage and execution of commands by the system processor and is used for a broader set of applications where high-performance and reliability are important, such as in appliances, industrial and automotive applications, display controllers, handsets and set-top boxes. Customers seeking fast read performance and superior reliability currently rely on NOR flash memory. The majority of applications for IoT nodes do not require high memory capacity for storage. For example, while the typical environmental sensor node does not need to store massive amounts of data, it does require NVM that is reliable, provides fast read access, and can operate at very low energy to conserve battery power and prolong battery life. As such, a NVM is better suited for a large number of IoT applications. In this prospectus, unless the context indicates otherwise, we refer to the market for our products, which compete primarily with NOR flash memory products, as the NVM market.

In general, NVM devices are designed as either commodity devices or as specialty devices. As compared to commodity devices, specialty memory devices have enhanced features that optimize the performance of the specific applications they serve and hence tend to command a higher price and better margins. NVM can enable systems requiring integrated functionality in a small form factor, high mobility, high reliability and reduced energy consumption. Web-Feet Research estimates that the NVM segment represents a $1.7 billion market opportunity in 2015, growing to $2.7 billion by 2019, representing a 12% CAGR. This growth is largely driven by the demand for NVM in IoT devices, which is expected to grow from $0.7 billion in 2015 to $1.7 billion in 2019, representing a 25% CAGR.

 

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Next-Generation Memory Requirements for IoT

We believe that the requirements of the IoT market create fundamentally new technological challenges, necessitating the development of new and innovative features, architectures and core silicon technology platforms for NVM devices used in IoT nodes. Without these innovations, we believe that the NVM components of these nodes will be unable to reliably deliver the necessary performance, energy efficiency and cost requirements demanded by the IoT market. Legacy commodity memory products are designed to maximize storage capacity per

 

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area, serving the needs of the PC, communication and storage end markets. In contrast, the utility of IoT devices are typically less dependent on storage capacity and more reliant on their ability to perform tasks while using very little

energy. In addition, these devices require high reliability and integrated functionality in a small form factor. Accordingly, we believe IoT edge nodes will require a NVM product with the following features:

 

    Ultra-low energy operation. Controllable IoT nodes will need to operate for a long duration, in some cases several months or even years, without having to change batteries. This extended battery life will be enabled by reducing the energy consumption of the components in the IoT node, including the memory components used to store data and code.

 

    High reliability . IoT devices, such as industrial and environmental sensors, must be highly reliable in order to avoid the costs associated with frequent replacements and system failures. The use of efficient components and simplified firmware in IoT nodes can increase reliability and decrease total cost of ownership of IoT devices.

 

    Embedded intelligence in a small form factor. To drive smaller footprints and reduce component count for integration across form factors such as wearables, appliances and sensors, NVM system components must have intelligent functionality, such as the ability to manage the energy use of the device, beyond simple storage, in a small form factor.

Legacy NVM products are limited in their ability to address these needs. We believe an opportunity exists for an entirely new generation of NVM solutions to serve the unique needs of the IoT market.

Our Solutions

We provide innovative, application-specific products designed to address the requirements of emerging IoT applications, including low energy consumption, high reliability and embedded intelligence in a small form factor. Legacy and commodity NVM products are limited in their ability to address these design challenges, particularly the low energy consumption design requirements. Our products address these challenges, enabling customers to better realize the full potential of IoT through extended battery life and better performance and reliability.

We offer three product families, DataFlash, Fusion Flash and Mavriq, which are manufactured using two technology platforms: industry-standard floating gate technology and our proprietary CBRAM technology. Our products have unique features and architectures and deliver the following system-level benefits to our customers:

 

    Extended battery life. We optimize our products to operate at a wide voltage range and can continue to operate even as the battery discharges and reaches very low power levels, where commodity NVM devices typically fail. Operating intelligence, such as low power mode, is designed into our products to help systems save energy. For example, in a typical IoT application, where the vast majority of battery life is consumed in standby mode, our 4Mb Fusion family NVM products can reduce the standby power requirements by a factor of 2-5x as compared to similar commodity NVM, extending battery life.

 

    Enhanced functionality and reliability. Our components allow for greater storage efficiency than competing NVM products in logging small packets of data for IoT. This reduces microcontroller unit burden on system resources and allows for less frequent re-write cycles, enabling dramatic increases in battery life and enhancing the reliability of the flash memory components. For example, using our DataFlash family in a typical data-logging application, a customer can reduce the frequency of re-write cycles, which we believe could significantly extend the endurance of the NVM used in the system.

 

   

System simplification and lower total cost of ownership. By incorporating power management features in our NVM products, our customers could reduce the number of components included in and the overall footprint of their systems, thereby lowering the total cost of their systems. For example, our wide voltage products reduce the need for ODMs to incorporate a power management chip in their

 

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designs. For IoT devices with a small physical footprint, the ability to eliminate components can generate significant cost reduction and scaling benefits.

Our Competitive Strengths

We believe the following attributes and capabilities provide us with several competitive advantages:

 

    Purpose-built memory solutions for specific applications, including IoT. We believe our new products represent significant advances in NVM memory solutions, with their multiple layers of innovation and differentiated feature sets and chip architectures. They feature a combination of ultra-low energy consumption, an efficient, high-performance interface and a high level of integration. As such, our new products are able to address a wide variety of specialty applications and, we believe, are ideally suited to the requirements of the IoT market. Our revenue from these new products increased from $6.0 million to $28.5 million in the years ended December 31, 2013 and 2014, respectively, and from $10.8 million during the six months ended June 30, 2014 to $18.6 million during the six months ended June 30, 2015.

 

    Large, diversified and global customer base . In 2014, our products were sold to more than 500 end customers of varying sizes for use across multiple industry applications, including next-generation connected appliances, wearables, sensors and medical devices. More than 400 of our end customers purchased new products in 2014, including more than 100 that purchased both new and legacy products. We have also secured a number of reference design wins for Bluetooth 4.0 applications. No end customer accounted for 10% or more of our revenue in 2013 or 2014 and more than half our revenue for the year ended December 31, 2014 was generated by over 50 end customers that purchased our products directly or through distributors. In 2014, approximately 54% of our revenue was generated from sales of our products to three independent, non-exclusive distributors. Our customer base provides us with an opportunity to earn more business through follow-on sales and design wins.

 

    Close collaboration and relationships with customers and industry participants for future products . Through our close relationships with customers, including leading OEMs and ODMs, we gain valuable insights into critical product design, development and production timelines, product roadmaps and next-generation memory design requirements to meet the needs of future products. These relationships serve to our advantage because once our NVM products are designed into customers’ products, we believe that it becomes difficult to replicate the benefits our differentiated technology provide using competing products. Further, our system-level engineers engage with customers to help them develop targeted solutions that commodity memory suppliers typically do not provide. In addition, our field application engineering team provides customers with design support capabilities, enabling OEMs and ODMs to effectively deploy our NVM solutions across their product portfolios.

 

    Highly innovative CBRAM technology platform. Our CBRAM technology, which we believe is the first new memory process technology commercialized in the last 15 years, offers dramatic improvements in energy efficiency, performance and cost over industry-standard floating gate NVM technology. This platform technology enables us to build highly differentiated products for customers and provides us licensing opportunities to OEMs, ODMs and foundries for embedding our CBRAM technology. Since inception, we have focused on building a strong intellectual property position in this area, and now have over 170 patents and patent applications relating to our CBRAM technology.

Our Strategy

Key elements of our strategy include:

 

   

Maintain application-specific product design focus . We plan to continue to work closely with our customers’ system design, engineering and procurement groups to understand their requirements and create NVM feature sets that address the needs of their specific products and applications. These solutions are not custom designed for specific customers, but are instead application-specific, and therefore can be used by multiple customers for similar applications. As a result, we can easily

 

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integrate our products into devices with similar requirements. Our application-specific NVM products are highly scalable and cost-effective and meet the needs of a broad customer base, creating the potential for high-volume sales. This strategy differentiates us from commodity memory providers that compete primarily based on cost and availability.

 

    Continue to build on design wins . We plan to continue to engage and build strong relationships with customers to obtain design wins. We define a design win as the successful completion of the evaluation stage, where a customer has tested our product, verified that it meets their requirements and qualifies our NVM devices for their products. The number of our design wins has grown from 32 in 2013 to 65 in 2014 and to 88 in the six months ended June 30, 2015, including 19, 52 and 68 design wins for new products, respectively. Through the expansion of our salesforce and our continued collaboration with customers, we expect to build on this momentum. We also work with leading OEMs and ODMs to incorporate our application-specific NVM solutions into and qualify our products for their reference designs, which we refer to as reference design wins. We believe securing reference design wins is an effective way of increasing our presence in the end markets we serve because these designs may be used by many end customers across multiple applications.

 

    Achieve leadership position in our target markets through the continued release of new products optimized to address customer-specific requirements . Through the continued development and enhancement of our feature-rich NVM products and technologies designed to meet evolving customer requirements, we intend to achieve a leadership position in a broad range of vertical markets impacted by the emergence of IoT, such as wearables in the consumer market and sensors in the industrial market. Leveraging our architectural and design expertise, we intend to enhance existing and introduce new product families based on both of our manufacturing platforms. We believe that continued investment in our technology platforms will enable us to advance the features and performance of our low-power memory solutions, further strengthening our technological leadership.

 

    Expand our manufacturing capabilities. We intend to scale our manufacturing capabilities by working with additional foundries that will allow us to support higher volumes and access a broader base of potential customers. These additional foundries also provide advanced technologies that enable us to reduce costs, facilitate the integration of a broader set of product features and enhance our ability to pursue our CBRAM licensing strategy. We believe having our products manufactured by leading manufacturing partners will also help us promote adoption of our products by their existing customer base and penetrate new markets.

 

    Pursue CBRAM licensing opportunities. In addition to sales of our CBRAM-based products, we intend to monetize our proprietary CBRAM platform by licensing our technology to OEMs, ODMs integrated device manufacturers, fabless semiconductor companies and foundries focused on embedding our technology in their current and future solutions. As of June 30, 2015, we had licensing arrangements with three semiconductor companies to include our CBRAM technology in their products or embedded applications. Through the licensing of our CBRAM technology, we expect to expand the presence of the CBRAM platform, enabling our CBRAM technology to address a broad range of applications and end markets.

Our Technology

Our three product families are based on multiple layers of innovation and differentiation arising from feature sets and architectures that are built on two fundamental silicon technology platforms: industry-standard floating gate and our proprietary CBRAM. We believe these areas of differentiation enable us to address the specific needs of the IoT market.

 

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We offer over 200 products across our three product families. Each product family utilizes technologies that differentiate it from competing commodity products and provides value to our customers.

As shown in the diagram below, our DataFlash and Fusion Flash product families, which are based on floating gate technology, utilize different architectures, as compared to commodity NVM devices.

 

 

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Key components of our DataFlash and Fusion Flash architectures include small page write operation, auto-erase and ultra-deep power down modes to reduce standby energy consumption. Both families also include wide voltage input-output interface, which helps extend battery life. In addition, our DataFlash family incorporates dual static random access memory, or SRAM, buffers that enable utilization of a single, very low pin-count memory device for all NVM needs related to data and code storage, reducing the overall required footprint of the system.

These product families also contain smart features that reduce power requirements and improve system efficiencies. A distinguishing feature of our DataFlash family is its byte-write capability, which does not require it to re-write entire pages of data as standard commodity devices do today. With our DataFlash products, programmers issue a single software command to erase/write a single byte, which differs from standard NVM

 

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products that require erasing an entire block to record new data. With our products, less memory management is required from the host controller, freeing it for higher priority operations. Less memory management also allows for a smaller software footprint in the controller’s SRAM and the flexibility to use a smaller microcontroller or eliminate the need for an external SRAM. This feature also reduces microcontroller overhead, significantly reducing energy consumption and increasing reliability.

CBRAM Technology Platform

We believe CBRAM is a disruptive technology platform that will help unlock the full potential of IoT. CBRAM technology utilizes a fundamentally different method of storing information in a chip compared to the floating gate approach. CBRAM memory cells store information at higher speeds while utilizing significantly lower energy compared to other technologies commonly used today. Furthermore, CBRAM requires fewer manufacturing steps than floating gate technologies, which can lower its production cost.

Today, information storage in flash memory devices is based on the principle of capacitive storage of an electric charge in a floating gate transistor, which modulates the electrical conductivity of the transistor channel between a more conductive and less conductive state. Sensing this modulation and subsequent interpretation by the control circuitry of the chip results in identification of digital state “1” or digital state “0.” From the early 1990s through 2008, the storage capacity of commercial flash memory devices based on floating gate technology has increased at a rate consistent with Moore’s law. However, we believe little has changed in the energy consumption and performance of memory products built on this technology. For example, despite a more than 100x improvement in density, an NVM product introduced in the early 1990s built on 350 nanometer floating gate technology writes a byte of data at a similar speed and consumes a comparable amount of energy as a more current NVM product built on 65 nanometer floating gate technology.

In contrast, our CBRAM technology is based on completely different physics for storing information. The basic storage element of our CBRAM-based products consists of an access transistor and a programmable resistor. Information storage occurs as a result of the creation and removal of an electrochemically induced nanoscale conductive link in a dielectric inserted between two electrodes. Insertion of CBRAM technology in a standard CMOS process is simpler than inserting floating gate technology. As shown in the diagram below, CBRAM’s storage element is the simple layer that is inserted between the metal interconnects of a standard CMOS process. By comparison, the storage element for floating gate technology is a more complex structure requiring many additional masking steps and process modules.

CBRAM Memory Platform vs. Traditional Floating Gate Memory Platform

 

 

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As a result of the benefits this platform technology provides, our current CBRAM-based product family, Mavriq, is able to operate at significantly lower voltage and with better performance. We believe that the scaling benefits of CBRAM-based products will allow them to be manufactured at lower cost than floating gate NVM.

 

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The diagram below shows the architectural differentiation of the Mavriq family versus commodity floating gate NVM.

 

 

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Our Mavriq product family incorporates the above architectural features built on our proprietary CBRAM technology platform and enables us to create feature-rich products ideally suited for IoT and other next-generation applications. The Mavriq family of products is designed with standard functionality and is pin-to-pin compatible with existing solutions, which allows for easy integration into existing processes. These products also operate at lower energy and deliver higher performance than commodity solutions, making them ideally suited for devices that require ultra-low power.

Our Products

Our products offer different feature sets and architectures and are organized into three product families based on two silicon technology platforms: floating gate and our proprietary CBRAM.

Floating Gate-based Products

DataFlash. Our DataFlash family of NVM products contains smart features that reduce power requirements and improve system efficiencies, and is especially well suited for data-logging applications, such as industrial automation, home automation sensing and health and fitness tracking.

Fusion Flash. Our Fusion Flash product family combines industry-standard sector sizes and read/write commands with new features, such as wide voltage, ultra-deep power down mode and flexible erase capability. The Fusion Flash family of memory products is designed for use in a wide variety of high-volume consumer applications, such as wearables, mobile and other applications requiring energy conservation and in which program code is copied from flash into embedded RAM for execution. Its features can extend the life of battery-operated devices, such as Bluetooth 4.0 products, DECT ULE (Ultra Low Energy) products, ZigBee RF4CE, Z-Wave and other Wi-Fi and Wi-Fi-direct applications.

Key features provided by our DataFlash and Fusion Flash product families include:

 

   

Ultra-deep power down. Both product families have special features to assist in system-level energy savings. The ultra-deep power down mode can be accessed via a simple software instruction by the

 

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system controller. The power down mode is measured in nanoamps, an order of magnitude better than competing products. Software control of power down allows the designer to eliminate extra hardware components that regulate voltage in a system such as low dropout voltage regulators, DC-DC converters or transistors, which add cost and complexity and can reduce reliability.

 

    Wide supply voltage range operation. Both product families offer the ability to operate under a wide supply voltage range, which is an important feature for battery operated systems. These products can run from unregulated power supplies to maximize battery life from as low as 1.65V to 3.6V uninterrupted, which are the most common voltages for these applications today. The ability to operate at wide supply voltage is enabled by integrating an internal power management block inside our devices. In comparison to commodity NVM devices, the extended voltage range can maximize the energy utilization from the battery by as much as 1000%, significantly enhancing the battery life of the product. This feature is especially well-suited for wearable, mobile, and other energy conscious devices, such as Bluetooth 4.0 products, DECT ULE (Ultra Low Energy), ZigBee RF4CE, Z-Wave and other Wi-Fi and Wi-Fi Direct devices.

In addition to the features described above, our DataFlash product family also has the following key feature:

 

    Byte-write capability. Our DataFlash product family, enabled by its dual SRAM buffer architecture, brings byte-write functionality to NVM devices. This functionality enables programmers to issue a single software command to erase/write a single byte, which differs from standard commodity NVM products that require a 4KB block erase. As such, the host controller can manage the NVM system resources with a much simpler stack. Less memory management resources also allows for a smaller software footprint in the controller’s SRAM, more resources available for higher priority operation and lower energy consumption. DataFlash provides system designers the flexibility to use a smaller microcontroller, or forego external SRAM altogether.

CBRAM-based Products

We intend to create several families of CBRAM-based products in addition to Mavriq, our initial CBRAM-based product family. We are currently working with several leading companies who are developing differentiated solutions for IoT and other emerging markets to define and develop our next family of products based on our proprietary CBRAM technology. We intend to release future product families based on customer feedback that incorporate many of the features currently used in our DataFlash and Fusion Flash families. CBRAM is implemented at the manufacturing level, allowing architectural and feature set enhancements, such as bit-write capability, to be introduced on top of the base CBRAM silicon layer.

 

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CBRAM-based products offer many advantages over NOR flash memory products built on floating gate technology, including:

 

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    Faster: ultra-fast byte-write capability. CBRAM-based products can write a byte of data at 10-100x the speed of floating gate products.

 

    Lower energy: low energy byte-write capability. CBRAM-based products can perform byte-write operation while consuming as little as 1/100th the energy and 1/5th the standby energy used by conventional floating gate products.

 

    Bit-write capability . CBRAM-based products utilize an architecture that allows single bit alterability. This allows more energy efficient operation in applications such as data-logging.

 

    Tolerant of extreme environments and hardened against ionizing radiation. Products built on our CBRAM-technology are capable of being used in applications which operate in extreme environments. For example, commodity memory devices have limited application in the medical field because they cannot survive the harsh thermal and radiation conditions imposed by the sterilization process, which can cause data corruption and data loss. Our Mavriq product family is a robust, embedded or stand-alone storage technology that can survive the extreme conditions of sterilization. Our specialty medical CBRAM products have passed both gamma and e-beam sterilization testing and are compatible across the sterilization conditions of heat, pressure and irradiation.

Customers

Our end customers include leading tier-1 OEMs and ODMs that use our products across multiple industries and applications, including next-generation Internet-connected appliances, wearables, smart meters, sensors and medical devices. We have also secured a number of reference design wins for Bluetooth 4.0 applications. During the year ended December 31, 2014, more than 500 end customers purchased our products. We generate a substantial amount of our revenue from sales of our products to three independent, non-exclusive distributors, which many of our end customers use as an alternative means of fulfillment to direct purchases from us. For the year ended December 31, 2014, sales of our products to Arrow Electronics, Avnet Inc. and ATM Electronic Corporation accounted for approximately 20%, 20% and 14% of our revenue. Revenue from these same distributors comprised 25%, 9% and 12% of our revenue for the year ended December 31, 2013, respectively. In addition, for the six months ended June 30, 2015, sales to Arrow Electronics represented 15% of our revenue. No other customers and

 

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no end customer accounted for 10% or more of our revenue in 2013, 2014 or for the six months ended June 30, 2015 and the substantial majority of our revenue for the year ended December 31, 2014 was generated by over 50 end customers.

Sales

We sell our products through our worldwide sales organization and through our channel of representatives and distributors to OEMs and ODMs. End customers primarily fulfill and procure product orders through our distribution partners. We have sales personnel covering three primary regions, the Americas, APAC and EMEA. We have sales personnel in North America, United Kingdom, Hong Kong, Singapore, South Korea and Taiwan.

Our typical sales cycle consists of a sales and development process involving our end customers’ system design, engineering and procurement groups and our system-level engineers that can last several months to a year. Successful sales cycles culminate in design and reference design wins. Our collaborative relationships with our customers enable us to understand their product designs and memory device requirements, which allow us to create solutions that are not custom designed for a specific customer and can be used by multiple customers in their products and, in some cases, to have customers design their products to match the unique features of our NVM solutions.

Manufacturing

We employ a fabless manufacturing business model and rely on third-party suppliers for all phases of the manufacturing process, including fabrication, assembly and testing. Our fabless business model allows us to leverage the expertise of industry-leading suppliers in such areas as fabrication, assembly, quality control and assurance, reliability and testing, and avoid the significant costs and risks associated with owning and operating such manufacturing operations. These suppliers also are responsible for procurement of raw materials used in the production of our products. As a result, we are able to focus our resources on product design, additional quality assurance, marketing and customer support.

Our engineers work closely with foundries and other contractors to increase yields, lower manufacturing costs and improve quality. In addition, we believe outsourcing our manufacturing and assembly activities provides us the flexibility needed to respond to new market opportunities, simplifies our operations and significantly reduces our capital requirements. We do not have a guaranteed level of production capacity from any of our suppliers’ facilities for the production of our DataFlash and Fusion Flash products. We carefully qualify each of our suppliers and their subcontractors and processes to ensure they meet our standards for quality and reliability.

We are committed to maintaining the highest level of quality for all of our products. Our overall objective is that all of our products meet customer requirements, are delivered on time and function reliably throughout their useful lives.

Wafer Fabrication

We currently manufacture the majority of our floating gate solutions in 110nm silicon wafer production process geometries utilizing the services of United Microelectronics Corporation in Taiwan. In early 2015, we commenced developing our first floating gate technology-based flash products in a 65nm process node at XMC, a foundry in Wuhan, China. Our CBRAM-based products are manufactured in 130nm silicon wafer production process geometries by Altis Semiconductor S.N.C., or Altis, in Corbeil-Essonnes, France. We are currently in discussions with a foundry in Asia to manufacture our next-generation CBRAM-based products on a 300mm fab.

Assembly, Testing and Wafer Probe

We maintain multiple sources for assembly and final testing of our products. However, Amkor Technology, Inc. in Taiwan, Korea, and the Philippines currently provides substantially all of our assembly and final test services. Our wafer probing is performed by King Yuan Electronics Co., Ltd. in Taiwan. We continually monitor

 

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the manufacturing and test of our products at all of our contractors to ensure that our manufacturing and testing procedures are properly implemented. As part of our total quality assurance program, our quality management system has been certified to ISO 9001:2000 standards. Our foundry vendors are also ISO 9001 certified.

Research and Development

We intend to continue to devote significant resources to develop new products and product families and integrate additional features and capabilities into our existing product offerings. We believe that our continued success depends on our ability to both introduce improved versions of our existing solutions and to develop new solutions for the markets that we serve. We have assembled an experienced team of engineers with core competencies in floating gate design and fabrication, CBRAM design and software development. Our memory design team has extensive experience in large-scale memory design, including process and device development, qualification and reliability, improving manufacturing yields and implementation and verification. The experience of our hardware design team enables us to effectively assess the tradeoffs and advantages when determining which features and capabilities of our solutions should be implemented. Through our research and development efforts, we have developed intellectual property and know-how that we are able to leverage across our products and end markets. Our research and development efforts are generally targeted at two areas:

 

    Floating gate technology platform . We intend to continue to invest in our architecture and design technology to further refine our technology platform with respect to overall form factor, product performance and application-specific optimization and to expand the platform to enable us to further develop our product offerings beyond what is currently achievable. We expect to introduce new product families based on 65nm floating gate technology.

 

    CBRAM technology platform. We intend to continue to invest in our CBRAM-based solutions. First, we intend to develop differentiated architecture, design and feature sets that will be implemented on our qualified CBRAM process with our existing foundry partner. Second, we plan to invest to establish our CBRAM manufacturing process in an advanced 300mm foundry to manufacture next generation products. We expect that both of these development activities will allow us to offer solutions not currently available in our Mavriq product family.

Through our research and development efforts, we intend to continually expand our portfolio of patents to enhance of our intellectual property position. As of June 30, 2015, we had a core team of 48 engineers involved in research and development, 29 of whom have advanced degrees, located in our research and development design center at our headquarters in Sunnyvale, California and at our facility in France.

For the years ended December 31, 2013 and 2014 and during the six months ended June 30, 2015, our research and development expense was $15.0 million, $14.4 million and $6.1 million, respectively.

Competition

Our solutions include features and capabilities that differentiate us from our competitors. In general our product lines are tailored to the needs of the IoT and specialty NVM markets. We believe our products provide significant value, and whether a customer will opt for our solution or a competitor’s, depends on their perceived value of our solution for their specific application.

The global semiconductor market in general and the semiconductor memory market in particular, are highly competitive. We expect competition to increase and intensify as more and larger semiconductor companies enter our markets. Increased competition could result in price pressure, reduced profitability and loss of market share, any of which could materially and adversely affect our business, revenue and operating results.

Currently, our competitors range from large, international companies offering a wide range of commodity NVM products to companies specializing in other alternative, specialized emerging memory technologies. Our

 

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primary competitors in the NVM market include Atmel Corporation, Macronix International Co. Ltd., Microchip Technology Inc., Micron Technology, Inc., Spansion Inc. (recently acquired by Cypress Semiconductor Corporation), STMicroelectronics NV and Winbond Electronics Corp. Among these large memory suppliers, we compete primarily as an overall value proposition and not on a product or technology basis. We expect competition in our current markets to increase in the future as existing competitors improve or expand their product offerings and as new companies enter these markets.

Our ability to compete successfully depends on elements both within and outside of our control, including industry and general economic trends. Many of our competitors are substantially larger, have greater financial, technical, marketing, distribution, customer support and other resources, are more established than we are, and have significantly better brand recognition and broader product offerings which may enable them to better withstand adverse economic or market conditions in the future.

Our ability to compete successfully in the rapidly evolving memory market depends on several factors, including:

 

    performance of our products, as measured by speed;

 

    energy consumption of our products;

 

    the ease of implementation of our products by customers;

 

    the strength of customer relationships;

 

    reputation and reliability;

 

    customer support;

 

    our products’ cost effectiveness for the total solution relative to that of our competitors;

 

    our success in designing and manufacturing new products that anticipate the memory and integration needs of our customers’ current and future products and applications; and

 

    the design, manufacture, commercialization and market adoption of our CBRAM technology that anticipate the power, performance, reliability and integration needs of our customers’ next-generation and application-specific products and applications.

We believe we compete favorably with respect to each of these factors.

Intellectual Property and Licensing

Our success depends in part on our ability to protect our products and technologies from unauthorized third-party copying and use. To accomplish this, we rely on a combination of intellectual property rights, including patents, trade secrets, copyrights and trademarks, as well as customary contractual protections. As of June 30, 2015, we held 97 patents that expire at various times between June 2020 and December 2033 and had 48 U.S. patent applications pending. We also held 34 foreign patents that expire at various times between April 2021 and September 2029 and had 27 foreign patent applications pending.

We seek to file for patents that have broad application in the semiconductor industry and that would provide a competitive advantage. However, there can be no assurance that our pending patent application or any future applications will be approved, that any issued patents will provide us with competitive advantages or will not be challenged by third parties, or that the patents of others will not have an adverse effect on our ability to do business. In addition, there can be no assurance that others will not independently develop substantially equivalent intellectual property or otherwise gain access to our trade secrets or intellectual property, or disclose such intellectual property or trade secrets, or that we can effectively protect our intellectual property.

 

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In addition to intellectual property that we developed, we have acquired and licensed technology from third parties for incorporation in our products. In January 2007, we entered into a license agreement with Axon Technologies Corp. Pursuant to this license agreement, we have rights in Axon’s patents and trade secrets covering, among other things, Axon’s programmable metallization cell, or PMC, technology, which is a component of our CBRAM technology. This license provides us with broad rights to use and sub-license this technology, and we have the exclusive right to make, have made by authorized foundries or integrated device manufacturers, use, sell, lease, offer for sale, and import products covered by Axon’s licensed patents and trade secrets in certain fields of use. The license will last for the lifetime of the licensed patents, which currently ends in September 2026. We pay a royalty for use of the licensed intellectual property in our products. In July 2012, we purchased certain flash memory product assets from Atmel Corporation. As part of the asset purchase, Atmel granted us non-exclusive, perpetual and irrevocable licenses to its patent portfolio for development of flash memory products. As part of our intellectual property strategy we have invested significant resources to develop a broad patent portfolio around in-licensed technology, enabling us to provide application-specific solutions to our customers and providing us with, we believe, a significant advantage relative to our competitors.

Employees

As of June 30, 2015, we had 84 full-time employees. Of these full-time employees, 48 were engaged in research and development, 21 in sales and marketing, six in operations and support and nine in general and administrative capacities. Of our employees, 76 were based in the United States, four were based in the United Kingdom, two were based in France, one was based in Hong Kong and one was based in Taiwan. None of our employees are represented by a labor union. We have not experienced any work stoppages. We consider our relations with our employees to be good.

Facilities

We lease approximately 22,000 square feet in Sunnyvale, California for our corporate headquarters, pursuant to a noncancelable lease, which expires January 2016. We intend to add new facilities and expand our existing facilities as we add employees and grow our business, and we believe that suitable additional or substitute space will be available on commercially reasonable terms to meet our future needs.

Legal Proceedings

We are not currently a party to any legal proceedings which, if determined adversely to us, would individually or in the aggregate have a material adverse effect on our business, operating results, financial condition or cash flows. We may, from time to time, become involved in legal proceedings arising in the ordinary course of our business and as our business grows, we may become a party to an increasing number of legal proceedings.

 

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MANAGEMENT

Executive Officers and Directors

The following table provides information regarding our executive officers and directors and their ages as of June 30, 2015, after giving effect to the subsequent appointments of Messrs. Lee and Palatnik to our board of directors.

 

Name

   Age     

Position(s)

Narbeh Derhacobian

     52       President, Chief Executive Officer and Director

Ron Shelton

     54       Chief Financial Officer

Shane Hollmer

     47       Vice President, Engineering

Ishai Naveh

     57       Vice President, Marketing

Tom Spade

     49       Vice President, Worldwide Sales

Janet Wang

     47       Vice President, Discrete Products Group

Alexei Andreev

     43       Director

Nelson Chan

     54       Director

Barry Cox

     73       Chairman of the Board Directors

Keith Crandell

     55       Director

Francis Lee

     62       Director

Kevin Palatnik

     57       Director

 

(1) Member of the audit committee.
(2) Member of the compensation committee.
(3) Member of the nominating and governance committee.

Narbeh Derhacobian co-founded our company in January 2006, and has served as our President and Chief Executive Officer and as a member of our board of directors since January 2006. During the twelve years prior to founding our company, he served in technical and managerial roles sequentially at Silicon Storage Technology, Inc., a flash memory company, Advanced Micro Devices, Inc., a semiconductor company, Virage Logic Corporation, a semiconductor company, and Cswitch Corporation, a semiconductor company. Mr. Derhacobian has a B.S. and M.S. degrees in physics and a Ph.D. in solid state physics from the University of California, Los Angeles and an M.B.A. from San Jose State University. We believe that Mr. Derhacobian is qualified to serve as a member of our board of directors because of the perspective and experience he brings as our President and Chief Executive Officer and his management and leadership experience.

Ron Shelton has served as our Chief Financial Officer since December 2011. Prior to joining our company, he served as Senior Vice President and Chief Financial Officer of GigOptix Inc., a fabless semiconductor company, from 2009 to January 2011. During the thirteen years prior to joining GigOptix, Inc., Mr. Shelton served as Chief Financial Officer sequentially at Cirrus Logic, Inc, a fabless semiconductor company, Lara Technology Inc., a network technologies company, Alliance Semiconductor Corporation, a semiconductor company, Alien Technology LLC, an RFID company, and IML, Inc., a semiconductor company. Mr. Shelton has a B.A. in economics from Stanford University.

Shane Hollmer co-founded our company in January 2006, and has served as our Vice President of Engineering since April 2007. During the fifteen years prior to founding our company, he served in engineering and engineering management roles at Advanced Micro Devices, Inc., a semiconductor company, Emosyn LLC, a fabless semiconductor company, and Monolithic Power Systems, Inc., a semiconductor company. Mr. Hollmer has a B.S. degree in electrical engineering from the University of California, Berkeley, and an M.B.A. from San Jose State University.

Ishai Naveh co-founded our company in January 2006, and has served as our Vice President of Marketing and Business Development since April 2007. Prior to founding our company, he served in various roles at Tower Semiconductor Ltd., a semiconductor company, from March 1993 to September 2007, including most recently as

 

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Vice President of Marketing for Non-volatile Memories and Mixed Signal Technologies from October 2002 to September 2007. Previously, he served in various roles at National Semiconductor Corporation, a semiconductor company, from September 1984 to March 1993. Mr. Naveh has a B.Sc. degree in physics from the Hebrew University and an M.B.A. from Heriott-Watt University.

Tom Spade has served as our Vice President Worldwide Sales since December 2014. Prior to joining our company, he served as Vice President of Worldwide Sales at Audience, Inc., a semiconductor company, from August 2010 to August 2014, and at Boston-Power, Inc., a battery systems company, from August 2009 to August 2010. Prior to that, he served as Vice President of Worldwide Sales at Validity, Inc., a sensor technology company, from June 2007 to August 2009. Mr. Spade served as Vice President of Worldwide Sales at Synaptics, a mobile interface solutions company, from March 1998 to June 2007. Prior to that, he served as the Director of Sales at Alliance Semiconductor from May 1993 until March 1998. Mr. Spade has a B.A. degree in economics and management from Albion College.

Janet Wang has served as our Vice President of the Discrete Products Group since August 2012. Prior to that, Ms. Wang served as our Vice President of CBRAM Technology Development from December 2009 to August 2012. From November 2007 to December 2009, she served as our Director of Technology Development. Prior to joining our company, Ms. Wang served in managerial and engineering roles sequentially at Broadcom Corporation, a network and communications company, from 2002 to 2007, Transmeta Corporation, a fabless semiconductor company, from 2000 to 2002, Advanced Micro Devices, Inc., a semiconductor company, from 1997 to 2000, and Aerospace Corporation, an aerospace research corporation, from 1995 to 1997. Ms. Wang has a B.Sc. degree, a M.Sc. degree and a Ph.D. degree in electrical engineering from the University of California, Los Angeles.

Alexei Andreev has been a director of our company since August 2010. He has served as Executive Vice President and Managing Director of Harris & Harris Group, Inc., a venture capital firm specializing in nanotechnology and microsystems, since March 2005. From August 2002 to March 2005, Mr. Andreev was an associate with Draper Fisher Jurvetson, a venture capital firm. Previously, he worked for TLcom Capital Partners, a London-based venture capital fund and Renaissance Capital Group / Sputnik Funds, a venture capital fund in Moscow, Russia from September 1997 to August 2000. Mr. Andreev earned a B.S. degree with honors in material sciences and condensed matter physics and a Ph.D. in theoretical physics from Moscow Steel & Alloys Institute and a M.B.A. from Stanford Graduate School of Business. Our board of directors believes that Mr. Andreev’s significant experience in business operations, finance and investments qualify him to serve on our board of directors.

Nelson Chan has been a director of our company since September 2010. Mr. Chan served as Chief Executive Officer of Magellan Corporation, a consumer electronics company, from December 2006 to August 2008. From 1992 through 2006, he held various senior management positions at SanDisk Corporation, a flash memory storage company, including as Executive Vice President and General Manager, Consumer Business. Mr. Chan has been a director of Affymetrix, Inc., a genetic analysis company, since March 2010, Deckers Outdoor Corporation, a footwear, apparel and accessories design, marketing and distribution company, since December 2014, Outerwall Inc., a retail kiosk company, since July 2011 and the Chairman of the Board since June 2013, and Synaptics, since February 2007. Mr. Chan was a member of the board of directors of Silicon Laboratories, a semiconductor company. Mr. Chan is also a member of the board of several privately-held companies. Mr. Chan holds a B.S. degree in electrical and computer engineering from the University of California at Santa Barbara and a M.B.A. from Santa Clara University. Our board of directors believes that Mr. Chan’s substantial experience with public and private companies, both as an executive and board member, and his expertise in building profitable technology companies qualify him to serve on our board of directors.

Barry Cox has been a director of our company since July 2014 and the Chairman of our board of directors since October 2014. Mr. Cox served as the Chairman of the Board of Audience, Inc., a provider of voice and audio solutions, from October 2009 to September 2011 and as a member of its board of directors until July 2015 when it was acquired by Knowles Corporation. Since March 2012, he has served as director of Pixelworks, Inc.,

 

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a semiconductor company. Mr. Cox served as the Executive Chairman of the board of Touchstone Semiconductor Inc., a manufacturer of integrated circuits, from November 2012 until March 2014, when it was acquired by Silicon Laboratories Inc. Mr. Cox was a director of Summit Microelectronics, a semiconductor company, from April 1999 until May 2012, when Summit was acquired by Qualcomm Incorporated. Mr. Cox was a director of Grandis, Inc., a magnetic memory licensing company, from March 2009 until April 2011, when Grandis was acquired by Samsung Electronics Co., Ltd. Mr. Cox has over 45 years of experience in executive leadership positions in the semiconductor industry, including Chief Operating Officer, Chief Executive Officer and Chairman of the Board, in publicly and privately held companies. Mr. Cox holds a B.S. degree in general engineering from the United States Air Force Academy and an M.B.A. from Boston University. Our board of directors believes that Mr. Cox’s leadership roles in the global semiconductor industry and his experiences gained from serving as director of the boards of other public semiconductor companies qualify him to serve on our board of directors.

Keith Crandell has been a director of our company since February 2007. Since July 1994, Mr. Crandell has served as a managing director of ARCH Venture Partners, a venture capital firm focused on early-stage technology companies. He is a director of several private companies and he also serves as a director of the Illinois Venture Capital Association. Mr. Crandell holds a B.S. degree in chemistry and mathematics from St. Lawrence University, an M.S degree in chemistry from the University of Texas at Arlington and an M.B.A. from the University of Chicago. Our board of directors believes that Mr. Crandell’s extensive knowledge of the semiconductor industry and his financial and investment expertise qualify him to serve on our board of directors.

Francis Lee has been a director of our company since July 2015. Mr. Lee has served as the Chairman of the Board of Directors of Synaptics Incorporated, a semiconductor company, since October 2008 and a director of that company since December 1998. Mr. Lee served as Chief Executive Officer of Synaptics from December 1998 until July 2009 and as President of Synaptics from December 1998 to July 2008. Mr. Lee was a consultant from August 1998 to November 1998. From May 1995 until July 1998, he served as General Manager of NSM, a Hong Kong-based joint venture between National Semiconductor Corporation and S. Megga. Mr. Lee held a variety of executive positions for National Semiconductor from 1988 until August 1995. These positions included Vice President of Communication and Computing Group, Vice President of Quality and Reliability, Director of Standard Logic Business Unit, and various other operations and engineering management positions. Mr. Lee holds a B.S. degree in electrical engineering from the University of California, Davis. Our board of directors believes that Mr. Lee’s extensive knowledge of the semiconductor industry and his extensive business experience qualify him to serve on our board of directors.

Kevin Palatnik has been a director of our company since August 2015. Mr. Palatnik served as the Chief Financial Officer of Audience, Inc., a provider of voice and audio solutions, from August 2011 until July 2015 when it was acquired by Knowles Corporation. From 1994 to 1999 and June 2001 to November 2010, he held various positions at Cadence Design Systems, Inc., an electronic design automation software company, including Corporate Controller and most recently Senior Vice President and Chief Financial Officer. Mr. Palatnik also spent 14 years at IBM where he held various engineering and executive financial positions. Mr. Palatnik holds a B.S. degree in industrial engineering and operations research, as well as an M.B.A. from Syracuse University. Our board of directors believes that Mr. Palatnik’s extensive business and financial experience over the past two decades qualify him to serve on our board of directors.

Our executive officers are elected by, and serve at the discretion of, our board of directors. There are no familial relationships among our directors and officers.

 

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Board of Directors Composition

Current Board of Directors

Under our bylaws, our board of directors may set the authorized number of directors. Our board of directors has set the authorized number of directors as seven. Our board of directors currently consists of seven members.

Pursuant to our Fifth Amended and Restated Voting Agreement dated as of August 19, 2013, Messrs. Andreev, Chan, Crandell and Derhacobian and four former directors were designated to serve as members of our board of directors. Pursuant to that agreement, Mr. Derhacobian was selected the “CEO Director” (as defined in the voting agreement) voted on by the holders of our common stock. Messrs. Crandell and Andreev and three former directors were selected as the representatives of our preferred stock. Mr. Chan and a former director were selected as the two “Outside Directors” (as defined in the voting agreement), elected by the holders of our common stock and preferred stock voting together as a single class. On July 15, 2014, our board of directors appointed Barry Cox for the position of an outside director, replacing the former director. Current members of our board of directors will continue to serve as directors until their resignations or until their successors are duly elected by the holders of our common stock, despite the fact that the voting agreement will terminate upon the closing of this offering.

Classified Board of Directors Following This Offering

Our restated certificate of incorporation and bylaws that will be in effect upon the closing of this offering provide for a classified board of directors consisting of three classes of directors, each serving staggered three-year terms. Our directors will be divided among the three classes as follows:

 

    Class I directors will be Messrs.              and             , whose initial term will expire at the annual meeting of stockholders to be held in 2016;

 

    Class II directors will be Messrs.             ,                  and             , whose initial term will expire at the annual meeting of stockholders to be held in 2017; and

 

    Class III directors will be Messrs.             ,              and             , whose initial term will expire at the annual meeting of stockholders to be held in 2018.

Directors in a particular class will be elected for three-year terms at the annual meeting of stockholders in the year in which their term expires. As a result, only one class of directors will be elected at each annual meeting of our stockholders, with the other classes continuing for the remainder of their respective three-year terms. Each director’s term continues until the election and qualification of his successor, or his earlier death, resignation or removal for cause.

Our restated certificate of incorporation and amended and restated bylaws that will be in effect following the closing of this offering provide that only our board of directors may fill vacancies on our board of directors until the next annual meeting of stockholders. Any additional directorships resulting from an increase in the authorized number of directors would be distributed among the three classes so that, as nearly as possible, each class would consist of one-third of the authorized number of directors.

The classification of our board of directors and provisions described above may have the effect of delaying or preventing changes in our control or management. See “Description of Capital Stock—Anti-Takeover Provisions—Restated Certificate of Incorporation and Restated Bylaw Provisions.”

Director Independence

We intend to apply for listing of our common stock on the NASDAQ Global Market. The listing rules of the NASDAQ Stock Market require that a majority of the members of our board of directors be independent within

 

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one year of the closing of this offering. Based upon information requested from and provided by each director concerning his background, employment and affiliations, our board of directors has determined that none of our non-employee directors has a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is “independent” as that term is defined under the rules of the NASDAQ Stock Market. In making this determination, our board of directors considered the relationships that each non-employee director has with our company and all other facts and circumstances our board of directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director. The independence of our board committee members is discussed below.

Committees of Our Board of Directors

Our board of directors has established an audit committee, a compensation committee and a nominating and governance committee. The composition and responsibilities of each committee are described below. Members serve on these committees until their resignations or until otherwise determined by our board of directors. Our board of directors has adopted a charter for each of these committees that complies with the applicable requirements of current NASDAQ Stock Market and Securities Exchange Commission, or the SEC, rules and regulations. Following the closing of this offering, copies of the charters for each committee will be available without charge, upon request in writing to Adesto Technologies Corporation, 1250 Borregas Avenue, Sunnyvale, California 94089, Attn: Investor Relations, or on the investor relations portion of our website.

Audit Committee

Our audit committee is comprised of Mr.                     , who is the chair of the audit committee, and Messrs.                      and                     . The composition of our audit committee meets the requirements for independence under current NASDAQ Stock Market and SEC rules and regulations. Each member of our audit committee is financially literate as required by current NASDAQ Stock Market listing standards. In addition, our board of directors has determined that Mr.                      is an audit committee financial expert within the meaning of Item 407(d) of Regulation S-K under the Securities Act. Our audit committee, among other things:

 

    selects a qualified firm to serve as the independent registered public accounting firm to audit our financial statements;

 

    helps to ensure the independence and performance of the independent registered public accounting firm;

 

    discusses the scope and results of the audit with the independent registered public accounting firm, and reviews, with management and the independent accountants, our interim and year-end financial statements;

 

    develops procedures for employees to submit concerns anonymously about questionable accounting or audit matters;

 

    reviews our policies on risk assessment and risk management;

 

    obtains and reviews a report by the independent registered public accounting firm at least annually, that describes our internal quality-control procedures, any material issues with such procedures, and any steps taken to deal with such issues;

 

    approves (or, as permitted, pre-approves) all audit and all permissible non-audit services, other than de minimis non-audit services, to be performed by the independent registered public accounting firm; and

 

    reviews related party transactions and proposed waivers of our code of conduct.

 

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Compensation Committee

Our compensation committee is comprised of Mr.                     , who is the chair of the compensation committee, and Messrs.                      and                     . The composition of our compensation committee meets the requirements for independence under current NASDAQ Stock Market and SEC rules and regulations. Each member of this committee is also a non-employee director, as defined pursuant to Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and an outside director, as defined pursuant to Section 162(m) of the Code. The purpose of our compensation committee is to discharge the responsibilities of our board of directors relating to compensation of our executive officers. Our compensation committee will, among other things:

 

    review, approve and determine, or make recommendations to our board of directors regarding, the compensation of our executive officers;

 

    administer our stock and equity incentive plans;

 

    review and approve and make recommendations to our board of directors regarding incentive compensation and equity plans; and

 

    establish and review general policies relating to compensation and benefits of our employees.

Nominating and Governance Committee

The nominating and governance committee is comprised of Mr.                     , who is the chair of the nominating and governance committee, and Messrs.                      and                     . The composition of our nominating and governance committee meets the requirements for independence under current NASDAQ Stock Market and SEC rules and regulations. Our nominating and governance committee, among other things:

 

    identifies, evaluates and selects, or makes recommendations to our board of directors regarding, nominees for election to our board of directors and its committees;

 

    evaluates the performance of our board of directors and of individual directors;

 

    considers and makes recommendations to our board of directors regarding the composition of our board of directors and its committees;

 

    reviews developments in corporate governance practices;

 

    evaluates the adequacy of our corporate governance practices and reporting; and

 

    develops and makes recommendations to our board of directors regarding corporate governance guidelines and matters.

Compensation Committee Interlocks and Insider Participation

During 2014, all compensation decisions were made by our board of directors; provided that in certain instances the compensation committee provided recommendations to the board. Our chief executive officer, Mr. Derhacobian, and Chairman, Mr. Cox, participated in deliberations of our board of directors concerning executive officer compensation during 2014. No interlocking relationship exists between our board of directors and the board of directors or compensation committee of any other company, nor has any interlocking relationship existed in the past.

Director Compensation

Other than as set forth in the table and described more fully below we did not pay any fees to, reimburse any expense of (other than reimbursement of reasonable travel and related expenses incurred by non-employee directors in connection with their attendance at meetings of our board of directors and its committees), make any

 

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equity awards or non-equity awards to, or pay any other compensation to any of the non-employee members of our board of directors in 2014. All compensation that we paid to Mr. Derhacobian, one of our two employee directors, is set forth in the tables below under “Executive Compensation—Executive Compensation Tables.” No compensation was paid to Mr. Derhacobian in his capacity as a director.

 

Director Name

   Fees Earned
or Paid in
Cash ($)
     Option Awards
($) (1)(2)
    Total ($)  

Alexei Andreev

   $ —         $ —        $ —     

Matthew Boyle*

     —           —          —     

Nelson Chan

     30,000         2,148 (4)       32,148   

Barry Cox (3)

     —           9,291        9,291   

Keith Crandell

     —           —          —     

Steve Drehobl*

     —           —          —     

Peter Thomas*

     —           —          —     

 

* Former director.
(1) The amounts reported in the Option Awards column represent the grant date fair value of the stock options granted to the non-employee directors during 2014, computed in accordance with Accounting Standards Codification Topic 718, Compensation—Stock Compensation , or ASC 718, and as discussed in note 10 of our notes to consolidated financial statements. The amounts reported in the Option Awards column reflect the accounting cost for these stock-based awards, and do not correspond to the actual economic value that may be received by the non-employee directors from the awards.
(2) As of December 31, 2014, Messrs. Chan and Cox were our only non-employee directors with outstanding options of which they held 566,298 and 800,000 respectively.
(3) Mr. Cox is an executive officer of Adesto (other than a named executive officer). Mr. Cox’s compensation for services provided other than as a director in 2014 is excluded from this table.
(4) Represents the incremental fair value of stock options computed in accordance with ASC 718 in connection with a stock option exercise price adjustment effective as of August 2014, as described below under the section titled “Stock Option Repricing.”

In September 2015, our board of directors approved a compensation policy for non-employee directors that will be effective following the closing of this offering. Pursuant to the director compensation policy, each non-employee director is entitled to receive the following cash compensation, paid quarterly, in equal installments, an annual cash retainer of $35,000 for serving on the board of directors and additional fees for services as follows:

 

    $25,000 for the chairman of the board of directors;

 

    $19,000 for the chair of the audit committee and $8,000 for each of its other members;

 

    $10,000 for the chair of the compensation committee and $5,000 for each of its other members; and

 

    $6,000 for the chair of the nominating and governance committee and $3,000 for each of its other members.

Pursuant to a policy adopted by our board of directors, each non-employee director who first becomes a member of our board of directors after the completion of this offering will be granted a stock option having a fair market value on the grant date equal to $50,000 and, immediately following each annual meeting of our stockholders, each non-employee director will automatically be granted an additional restricted stock unit having a fair market value on the grant date equal to $30,000 if the non-employee director has served continuously as a member of our board of directors for at least one year. Each stock option will have a ten-year term and will vest monthly over four years. Each restricted stock unit grant will fully vest on the one-year anniversary of the grant date. Vesting of the stock options and restricted stock units is subject to the director’s continuous service on the board of directors.

In September 2015, we granted Francis Lee an option to purchase                  shares of our common stock at an exercise price of $         per share. In addition, we granted Kevin Palatnik an option to purchase                  shares of our common stock at an exercise price of $         per share. These stock options have a ten-year term and will vest monthly over four years.

 

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EXECUTIVE COMPENSATION

Executive Compensation Tables

The following table provides information regarding all plan and non-plan compensation awarded to, earned by or paid to our chief executive officer and our two other most highly compensated executive officers as of December 31, 2014.

Summary Compensation Table

 

Name and Principal Position

   Year      Salary ($)      Option
Awards ($) (1)
    Non-Equity
Incentive Plan
Compensation ($)
     All Other
Compensation ($)
     Total ($) (2)  

Narbeh Derhacobian

     2014       $ 297,375       $ 19,466 (3)     $ 1,766         —         $ 318,607   

President and Chief Executive Officer

                

Ron Shelton

     2014         272,594         82,002 (4)       —           —           354,596   

Chief Financial Officer

                

Shane Hollmer

     2014         245,830         48,995 (3)       3,566         —           298,391   

Vice President, Engineering

                

 

(1) The amounts reported in this column represent the grant date fair value of the stock options granted during 2014, computed in accordance with ASC 718, and as discussed in note 10 of our notes to consolidated financial statements. The amounts reported in this column reflect the accounting cost for these stock-based awards, and do not correspond to the actual economic value that may be received by the executive officers from the awards.
(2) The amounts in this column represent the sum of the compensation amounts reflected in the other columns of this table.
(3) Includes the incremental fair value of stock options computed in accordance with ASC 718 in connection with a stock option exercise price adjustment effective as of August 2014, as described below under the section titled “Stock Option Repricing.”
(4) Represents the incremental fair value of stock options computed in accordance with ASC 718 in connection with a stock option exercise price adjustment effective as of August 2014, as described below under the section titled “Stock Option Repricing.”

In April 2015, we granted Mr. Derhacobian a stock option to purchase 150,000 shares of common stock, Mr. Shelton a stock option to purchase 450,000 shares of common stock and Mr. Hollmer a stock option to purchase 500,000 shares of common stock, each at an exercise price of $0.10 per share. Each of these stock options vests as to 1/24 of the underlying shares each month over two years. In April 2015, we also granted Mr. Derhacobian a stock option to purchase 1,666 shares of common stock and Mr. Hollmer a stock option to purchase 833 shares of common stock, each at an exercise price of $0.10 per share. Each of these stock options is fully vested.

In August 2015, we approved increases to the base salary levels for Mr. Derhacobian, Mr. Shelton and Mr. Hollmer to $360,000, $300,000 and $275,000 per year, respectively, and to their cash bonus percentages to 35%, 35% and 25% of their annual base salaries, respectively, with all such increases to take effect upon the closing of this offering.

In addition, to address the dilution of our employees’ equity interests in our company as a result of the conversion of the Series E convertible preferred stock in connection with this offering, upon the closing of this offering, we intend to grant to our employees restricted stock units equal to the number of outstanding options held by them on the grant date. Accordingly, upon the closing of this offering, Mr. Derhacobian, Mr. Shelton and Mr. Hollmer are expected to be granted 3,078,165, 3,481,000 and 2,938,165 restricted stock units, respectively. Each of these restricted stock units will vest over two years, with one-half of the underlying shares vesting one-year after the grant date and one-eighth of the underlying shares vesting at the end of each calendar quarter thereafter.

 

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Outstanding Equity Awards at December 31, 2014

 

    Option Awards  

Name

  Grant Date     Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
     Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
    Option
Exercise
Price ($) (1)
     Option
Expiration
Date
 

Narbeh Derhacobian

    2/15/2007 (2)(3)       2,102,000         —   (4)     $ 0.03         2/14/2017   
    5/11/2010 (2)(3)       150,000         —   (5)       0.05         5/10/2020   
    12/14/2010 (2)(3)       4,000         —   (5)       0.05         12/13/2020   
    12/13/2011 (2)(3)       1,500         —   (6)       0.05         12/12/2021   
    6/18/2013 (2)(3)       391,846         274,154 (5)       0.05         6/17/2023   
    8/11/2014 (2)(3)       1,133         —   (6)       0.05         8/10/2024   
    10/14/2014 (2)(3)       1,666         —   (6)       0.05         10/13/2024   

Ron Shelton

    2/7/2012 (2)(3)       46,000         —   (5)       0.05         2/6/2022   
    6/18/2013 (2)(3)       1,989,984         995,016 (5)       0.05         6/17/2023   

Shane Hollmer

    10/23/2007 (3)       1,075,000         —   (4)       0.05         10/22/2017   
    6/19/2008 (3)       175,600         —   (4)       0.05         6/18/2018   
    5/11/2010 (3)       450,000         —   (5)       0.05         5/10/2020   
    12/14/2010 (3)       4,000         —   (5)       0.05         12/13/2020   
    12/13/2011 (3)        4,250         —   (6)       0.05         12/12/2021   
    4/10/2012 (3)       500         —   (6)       0.05         4/9/2022   
    6/18/2013 (3)       418,353         304,547 (5)       0.05         6/17/2023   
    8/11/2014 (3)       2,333         —   (6)       0.05         8/10/2024   
    10/14/2014 (3)       2,749         —   (6)       0.05         10/13/2024   

 

(1) Represents the fair market value of a share of our common stock, as determined by our board of directors.
(2) Option is subject to 50% accelerated vesting following a change of control. See “—Employment Arrangements” below.
(3) Option is subject to 100% accelerated vesting upon a qualifying termination of the executive’s employment with us following a change of control. See “—Employment Arrangements” below.
(4) The option vests over a four-year period as follows: 25% of the shares of our common stock underlying the options vest on the first anniversary of the individual’s vesting commencement date and, thereafter, the remaining shares of our common stock underlying the options vest in 36 equal monthly installments over the next three years. The vesting commencement dates for Mr. Derhacobian’s and Mr. Hollmer’s options are February 21, 2007 and April 16, 2007, respectively.
(5) The option vested or vests over a four-year period as follows: 1/48th of the shares of common stock underlying the option vest each month following the grant date.
(6) Fully vested as of the grant date.

Employment Arrangements

Narbeh Derhacobian

On February 21, 2007, we entered into an employment agreement with Mr. Derhacobian in connection with his appointment as our President and Chief Executive Officer, which we subsequently amended and restated on August 16, 2013. The terms and conditions of his amended employment agreement provided for an annual base salary of $300,000, subject to review by the board of directors at the start of each fiscal year, and eligibility for an annual bonus, health insurance and other employee benefits as we establish for our employees from time to time. Pursuant to his amended and restated employment agreement, Mr. Derhacobian is an at-will employee of the company. In the event a “Change in Control” (as such term is defined in his amended and restated employment agreement), Mr. Derhacobian is eligible to receive accelerated vesting with respect to 50% of the total number of unvested shares subject to all of his other outstanding stock options. In the event a “Change in Control” (as such term is defined in his employment agreement) and Mr. Derhacobian’s termination other than for “Cause” (as such term is defined in his employment agreement) or self-termination for “Good Reason” (as

 

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such term is defined in his employment agreement), in either case upon or within 12 months following the Change in Control, Mr. Derhacobian is eligible to receive accelerated vesting with respect to 100% of the total number of unvested shares subject to all of his other outstanding stock options. In addition, in the event of such a qualifying termination, he would also receive a lump sum payment equal to the sum of twelve months of his then-current annual base salary, 100% of the target annual bonus and reimbursement of COBRA premiums for up to twelve months.

Ron Shelton

On May 30, 2013, we entered into an employment offer letter with Mr. Shelton in connection with his appointment as our Chief Financial Officer. The terms and conditions of his employment offer letter provided for an annual base salary of $275,000, subject to review by the board of directors at the start of each fiscal year, and eligibility for an annual equity and cash bonuses, health insurance and other employee benefits as we establish for our employees from time to time. Pursuant to his employment offer letter, Mr. Shelton is an at-will employee of the company. In the event a “Change in Control” (as such term is defined in his employment offer letter), Mr. Shelton is eligible to receive accelerated vesting with respect to 50% of the total number of unvested shares subject to all of his other outstanding stock options. In the event a “Change in Control” (as such term is defined in his employment offer letter) and Mr. Shelton’s termination other than for “Cause” (as such term is defined in his employment offer letter) or self-termination for “Good Reason” (as such term is defined in his employment offer letter), in either case upon or within 12 months following the Change in Control, Mr. Shelton is eligible to receive accelerated vesting with respect to 100% of the total number of unvested shares subject to all of his other outstanding stock options. In addition, in the event of such a qualifying termination, he would also receive a lump sum payment equal to the sum of twelve months of his then-current annual base salary, 100% of the target annual bonus and reimbursement of COBRA premiums for up to twelve months.

Shane Hollmer

On April 1, 2007, we entered into an offer of employment with Mr. Hollmer in connection with his appointment as our Vice President of Engineering, which we subsequently amended and restated on August 16, 2013. The terms and conditions of his amended employment agreement provided for an annual base salary of $248,000, subject to review by the board of directors at the start of each fiscal year, and eligibility for an annual bonus, health insurance and other employee benefits as we establish for our employees from time to time. In the event a “Change in Control” (as such term is defined in his employment agreement) and Mr. Hollmer’s termination other than for “Cause” (as such term is defined in his employment agreement) or self-termination for “Good Reason” (as such term is defined in his employment agreement), in either case upon or within 12 months following the Change in Control, Mr. Hollmer is eligible to receive accelerated vesting with respect to 100% of the total number of unvested shares subject to all of his other outstanding stock options. In addition, in the event of such a qualifying termination, he would also receive a lump sum payment equal to the sum of six months of his then-current annual base salary, 100% of the target annual bonus and reimbursement of COBRA premiums for up to six months.

Stock Option Repricing

In August 2014, we amended certain of our outstanding stock options to reset their respective exercise prices to $0.05 per share, the fair market value of our common stock as of August 11, 2014, as determined by our board of directors. Options repriced included all then-outstanding stock options with an exercise price higher than $0.05 per share that remained unexercised on August 11, 2014. Pursuant to this repricing, options to purchase 12,798,381 shares of common stock held by our then current employees were repriced, including options to purchase 5,034,150 shares of common stock held by our named executive officers.

 

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Employee Benefit Plans

2007 Equity Incentive Plan

Our board of directors adopted our 2007 Equity Incentive Plan, or 2007 Plan, in February 2007. The 2007 Plan was subsequently approved by our stockholders in February 2007. The 2007 Plan, as amended from time to time, provides for the grant of both incentive stock options, which qualify for favorable tax treatment to their recipients under Section 422 of the Code, and nonstatutory stock options, as well as for the issuance of shares of restricted stock. We may grant incentive stock options only to our employees. We may grant nonstatutory stock options to our employees, directors and consultants. The exercise price of each incentive stock option must be at least equal to the fair market value of our common stock on the date of grant. The exercise price of incentive stock options granted to 10% stockholders must be at least equal to 110% of the fair market value of our common stock on the date of grant. The maximum permitted term of options granted under our 2007 Plan is ten years (or five years in the event of incentive stock options granted to 10% stockholders). In the event we are a party to a merger, consolidation, or sale of substantially all of our assets, the 2007 Plan provides that the acquiring corporation or successor to us may assume, convert, substitute or replace awards under the 2007 Plan. In the event such successor or acquiring corporation refuses to assume, convert, substitute or replace awards, then such awards will expire on such transaction at such time and on such conditions as our board of directors will determine.

As of June 30, 2015, we had 87,500,000 shares of our common stock reserved for issuance under our 2007 Plan, after giving effect to the reservation of an additional 61,500,000 shares of our common stock in April 2015. As of June 30, 2015, options to purchase 1,300,940 of these shares had been exercised, options to purchase 24,586,662 of these shares remained outstanding and 61,612,398 of these shares remained available for future grant. The options outstanding as of June 30, 2015, had a weighted-average exercise price of $0.06 per share. Our 2015 Equity Incentive Plan will be effective upon the date immediately prior to the date of this prospectus. As a result, we will not grant any additional awards under the 2007 Plan following that date. Any outstanding awards granted under the 2007 Plan will remain outstanding, subject to the terms of our 2007 Plan and agreements thereunder, until such outstanding options are exercised or shares become vested or until such awards terminate or expire by their terms. Options granted under the 2007 Plan have terms similar to those described below with respect to options granted under our 2015 Equity Incentive Plan.

2015 Equity Incentive Plan

On                     , 2015, our board of directors adopted and our stockholders approved our 2015 Equity Incentive Plan. The 2015 Equity Incentive Plan will become effective on the date immediately prior to the date of this prospectus and will serve as the successor to our 2007 Plan. Any remaining shares available for issuance under our 2007 Plan will become shares reserved for issuance under our 2015 Equity Incentive Plan, and we will cease granting awards under our 2007 Plan. The number of shares reserved for issuance under our 2015 Equity Incentive Plan will increase automatically on the 1st day of January of each of 2016 through 2025 by the number of shares equal to 4% of the total outstanding shares of our common stock as of the immediately preceding December 31. However, our board of directors may reduce the amount of the increase in any particular year. In addition, the following shares will be available for grant and issuance under our 2015 Equity Incentive Plan:

 

    shares subject to awards granted under our 2015 Equity Incentive Plan that cease to be subject to the awards for any reason other than exercises of stock options or stock appreciation rights;

 

    shares subject to awards granted under our 2015 Equity Incentive Plan that are subsequently forfeited or repurchased by us at the original issue price;

 

    shares subject to awards granted under our 2015 Equity Incentive Plan that otherwise terminate without shares being issued;

 

    shares surrendered, cancelled, or exchanged for cash or a different award (or combination thereof);

 

    shares subject to outstanding awards under our 2007 Plan on the date of this prospectus that cease to be subject to the awards by forfeiture or otherwise after the date of this prospectus;

 

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    shares issuable upon the exercise of options or subject to other awards under our 2007 Plan prior to the date of this prospectus that cease to be subject to such options or other awards by forfeiture or otherwise after the date of this prospectus;

 

    shares issued under our 2007 Plan that are repurchased by us or forfeited after the date of this prospectus; and

 

    shares subject to awards under our 2007 Plan that are used to pay the exercise price of an option or withheld to satisfy the tax withholding obligations related to any award.

Our 2015 Equity Incentive Plan authorizes the award of stock options, restricted stock awards, stock appreciation rights, restricted stock units, performance awards and stock bonuses. No person will be eligible to receive more than 2,000,000 shares in any calendar year under our 2015 Equity Incentive Plan other than a new employee of ours, who will be eligible to receive no more than 4,000,000 shares under the plan in the calendar year in which the employee commences employment. The aggregate number of shares of our common stock that may be subject to awards granted to any one non-employee director pursuant to the 2015 Equity Incentive Plan in any calendar year shall not exceed 300,000. Our 2015 Equity Incentive Plan provides that no more than 25,000,000 shares will be issued as incentive stock options.

Our 2015 Equity Incentive Plan will be administered by our compensation committee, all of the members of which are outside directors as defined under applicable federal tax laws, or by our board of directors acting in place of our compensation committee. The compensation committee will have the authority to construe and interpret our 2015 Equity Incentive Plan, grant awards and make all other determinations necessary or advisable for the administration of the plan.

Our 2015 Equity Incentive Plan provides for the grant of awards to our employees, directors, consultants, independent contractors and advisors, provided the consultants, independent contractors, directors and advisors render services not in connection with the offer and sale of securities in a capital-raising transaction. The exercise price of stock options must be at least equal to the fair market value of our common stock on the date of grant.

We anticipate that in general, options will vest over a four-year period. Options may vest based on time or achievement of performance conditions. Our compensation committee may provide for options to be exercised only as they vest or to be immediately exercisable with any shares issued on exercise being subject to our right of repurchase that lapses as the shares vest. The maximum term of options granted under our 2015 Equity Incentive Plan is ten years.

A restricted stock award is an offer by us to sell shares of our common stock subject to restrictions, which may vest based on time or achievement of performance conditions. The price, if any, of a restricted stock award will be determined by the compensation committee. Unless otherwise determined by the compensation committee at the time of award, vesting will cease on the date the holder no longer provides services to us and unvested shares will be forfeited to or repurchased by us. Stock appreciation rights provide for a payment, or payments, in cash or shares of our common stock, to the holder based upon the difference between the fair market value of our common stock on the date of exercise and the stated exercise price at grant up to a maximum amount of cash or number of shares. Stock appreciation rights may vest based on time or achievement of performance conditions.

Restricted stock units represent the right to receive shares of our common stock at a specified date in the future, subject to forfeiture of that right because of termination of employment or failure to achieve certain performance conditions. If a restricted stock unit has not been forfeited, then on the date specified in the restricted stock unit agreement, we will deliver to the holder of the restricted stock unit whole shares of our common stock (which may be subject to additional restrictions), cash or a combination of our common stock and cash.

 

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Performance awards cover a number of shares of our common stock that may be settled upon achievement of the pre-established performance conditions in cash or by issuance of the underlying shares. These awards are subject to forfeiture prior to settlement due to termination of employment or failure to achieve the performance conditions.

Stock bonuses may be granted as additional compensation for service or performance. Stock bonuses can be subject to restrictions such as performance criteria or service criteria.

In the event there is a specified type of change in our capital structure without our receipt of consideration, such as a stock split, appropriate adjustments will be made to: the number of shares reserved under our 2015 Equity Incentive Plan, the exercise prices of and number of shares subject to outstanding stock options and stock appreciation rights, the number of shares subject to all other outstanding awards, the maximum number of shares that may be issued as incentive stock options, the maximum number of shares that may be issued to an individual or to a new employee in any one calendar year and the number of shares that may be granted as awards to our non-employee members of our board of directors.

Awards granted under our 2015 Equity Incentive Plan may not be transferred in any manner other than by will or by the laws of descent and distribution or as determined by our compensation committee. Unless otherwise permitted by our compensation committee, stock options may be exercised during the lifetime of the optionee only by the optionee or the optionee’s guardian or legal representative. Options granted under our 2015 Equity Incentive Plan generally may be exercised for a period of three months after the termination of the optionee’s service to us, for a period of 12 months in the case of death or disability, or such longer period as our compensation committee may provide. Stock options generally terminate immediately upon termination of employment for cause.

Our 2015 Equity Incentive Plan provides that, in the event of a sale, lease or other disposition of all or substantially all of our assets or specified types of mergers or consolidations or a corporate transaction, outstanding awards under our 2015 Equity Incentive Plan may be continued, assumed, substituted, have their vesting accelerated (in full or partially); settled for their full value in cash, cash equivalents or securities of the successor entity (and such settled awards may continue to have vesting attached to them so long as such vesting schedule is no less favorable than the schedule attached to the original award); or cancelled in exchange for no consideration. Awards need not be treated similarly in such a corporate transaction. In the event of a corporate transaction, the vesting of all awards granted to our non-employee directors shall accelerate and such awards shall become exercisable (as applicable) in full upon consummation of the corporate transaction.

Our 2015 Equity Incentive Plan will terminate ten years from the date our board of directors approves the plan, unless it is terminated earlier by our board of directors. Our board of directors may amend or terminate our 2015 Equity Incentive Plan at any time. If our board of directors amends our 2015 Equity Incentive Plan, it does not need to ask for stockholder approval of the amendment unless required by applicable law.

2015 Employee Stock Purchase Plan

On                     , 2015, our board of directors adopted and on                     , 2015 our stockholders approved our 2015 Employee Stock Purchase Plan. The 2015 Employee Stock Purchase Plan will become effective upon the completion of this offering. We adopted our 2015 Employee Stock Purchase Plan in order to enable eligible employees to purchase shares of our common stock at a discount following the date of this offering. Purchases will be accomplished through participation in discrete offering periods. Our 2015 Employee Stock Purchase Plan is intended to qualify as an employee stock purchase plan under Section 423 of the Code. We reserved             shares of our common stock for issuance under our 2015 Employee Stock Purchase Plan. The number of shares reserved for issuance under our 2015 Employee Stock Purchase Plan will increase automatically on the 1st day of January following the first offering date by the number of shares equal to 1% of the total outstanding shares of our common

 

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stock as of the immediately preceding December 31 (rounded to the nearest whole share). However, our board of directors may reduce the amount of the increase in any particular year. The aggregate number of shares issued over the term of our 2015 Employee Stock Purchase Plan will not exceed             shares of our common stock.

Our compensation committee will administer our 2015 Employee Stock Purchase Plan. Our employees generally are eligible to participate in our 2015 Employee Stock Purchase Plan if they are employed by us for at least 20 hours per week and more than five months in a calendar year. Employees who are 5% stockholders, or would become 5% stockholders as a result of their participation in our 2015 Employee Stock Purchase Plan, are ineligible to participate in our 2015 Employee Stock Purchase Plan. We may impose additional restrictions on eligibility. Under our 2015 Employee Stock Purchase Plan, eligible employees will be able to acquire shares of our common stock by accumulating funds through payroll deductions. Eligible employees will be able to select a rate of payroll deduction between 1% and 15% of their base cash compensation. We also have the right to amend or terminate our 2015 Employee Stock Purchase Plan at any time. Our 2015 Employee Stock Purchase Plan will continue until the earlier to occur of its termination by our board of directors, the issuance of all shares reserved for issuance under it or the tenth anniversary of its effective date.

When an initial offering period commences, our employees who meet the eligibility requirements for participation in that offering period will automatically be granted a nontransferable option to purchase shares in that offering period. For subsequent offering periods, new participants will be required to enroll in a timely manner. Once an employee is enrolled, participation will be automatic in subsequent offering periods. An employee’s participation automatically ends upon termination of employment for any reason.

Except for the first offering period, each offering period will run for no more than six months, with purchases occurring every six months. The first offering period will begin upon the date of this prospectus and will end approximately six months later.

No participant will have the right to purchase shares of our common stock in an amount, when aggregated with purchase rights under all our employee stock purchase plans that are also in effect in the same calendar year, that have a fair market value of more than $25,000, determined as of the first day of the applicable purchase period, for each calendar year in which that right is outstanding. In addition, no participant will be permitted to purchase more than 2,500 shares during any one purchase period or a lesser amount determined by our compensation committee. The purchase price for shares of our common stock purchased under our 2015 Employee Stock Purchase Plan will be 85% of the lesser of the fair market value of our common stock on (i) the first trading day of the applicable offering period and (ii) the last trading day of each purchase period in the applicable offering period.

In the event of a corporate transaction any then outstanding offering period that commenced prior to the closing of the proposed corporate transaction will be shortened and terminated on a new purchase date. The new purchase date will occur on or prior to the closing of the proposed corporate transaction, and our 2015 Employee Stock Purchase Plan will terminate upon the consummation of the proposed corporate transaction.

401(k) Plan

We maintain a retirement plan for the benefit of our employees. The plan is intended to qualify as a tax-qualified plan under Section 401(k) of the Code, so that contributions to the 401(k) plan, and income earned on such contributions, are not taxable to participants until withdrawn or distributed from the 401(k) plan (except in the case of contributions under the 401(k) plan designated as Roth contributions). The 401(k) plan provides that each participant may contribute up to 100% of his or her pre-tax compensation, up to a statutory limit, which is $18,000 for 2015. Participants who are at least 50 years old can also make “catch-up” contributions of up to an additional $6,000 above the statutory limit. Under the 401(k) plan, each employee is fully vested in his or her deferred salary contributions. Employee contributions are held and invested by the plan’s trustee as directed by participants. Our 401(k) plan provides for discretionary matching of employee contributions.

 

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Limitation of Liability and Indemnification of Directors and Officers

Our restated certificate of incorporation contains provisions that limit the liability of our directors for monetary damages to the fullest extent permitted by Delaware law. Consequently, our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors, except for liability:

 

    for any breach of their duty of loyalty to our company or our stockholders;

 

    for any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;

 

    unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or

 

    for any transaction from which they derived an improper personal benefit.

Any amendment to or repeal of these provisions will not eliminate or reduce the effect of these provisions in respect of any act, omission or claim that occurred or arose prior to that amendment or repeal. If the Delaware General Corporation Law is amended to provide for further limitations on the personal liability of directors of corporations, then the personal liability of our directors will be further limited to the greatest extent permitted by the Delaware General Corporation Law.

Our amended and restated bylaws provide that we will indemnify, to the fullest extent permitted by law, any person who is or was a party or is threatened to be made a party to any action, suit or proceeding by reason of the fact that he or she is or was one of our directors or officers or is or was serving at our request as a director or officer of another corporation, partnership, joint venture, trust or other enterprise. Our amended and restated bylaws provide that we may indemnify to the fullest extent permitted by law any person who is or was a party or is threatened to be made a party to any action, suit or proceeding by reason of the fact that he or she is or was one of our employees or agents or is or was serving at our request as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise. Our amended and restated bylaws also provide that we must advance expenses incurred by or on behalf of a director or officer in advance of the final disposition of any action or proceeding, subject to very limited exceptions.

We have entered into indemnification agreements with each of our directors and executive officers that may be broader than the specific indemnification provisions contained in the Delaware General Corporation Law. These indemnification agreements require us, among other things, to indemnify our directors and executive officers against liabilities that may arise by reason of their status or service to us. Subject to certain exceptions, these indemnification agreements also require us to advance all expenses incurred by the directors and executive officers in investigating or defending any such action, suit or proceeding. We believe that these agreements are necessary to attract and retain qualified individuals to serve as directors and executive officers.

The limitation of liability and indemnification provisions in our restated certificate of incorporation and amended and restated bylaws or in these indemnification agreements may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. They may also reduce the likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and other stockholders. Further, a stockholder’s investment may be adversely affected to the extent that we pay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions. At present, we are not aware of any pending litigation or proceeding involving any person who is or was one of our directors, officers, employees or other agents or is or was serving at our request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, for which indemnification is sought, and we are not aware of any threatened litigation that may result in claims for indemnification.

 

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We have obtained insurance policies under which, subject to the limitations of the policies, coverage is provided to our directors and officers against losses arising from claims made by reason of breach of fiduciary duty or other wrongful acts as a director or officer, including claims relating to public securities matters, and to us with respect to payments that may be made by us to these officers and directors pursuant to our indemnification obligations or otherwise as a matter of law.

Certain of our non-employee directors, through their relationships with their employers, are insured and/or indemnified against certain liabilities incurred in their capacity as members of our board of directors.

The underwriting agreement provides for indemnification by the underwriters of us and our officers, directors and employees for certain liabilities arising under the Securities Act or otherwise.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling our company pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

 

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

In addition to the compensation arrangements, including employment, termination of employment and change of control arrangements and indemnification arrangements, discussed, when required, above in the sections entitled “Management” and “Executive Compensation,” and the voting rights in our amended and restated voting agreement described above under “Management—Board of Directors Composition,” the following is a description of each transaction since January 1, 2012 and each currently proposed transaction in which:

 

    we have been or are to be a participant;

 

    the amount involved exceeded or exceeds $120,000; and

 

    any of our directors, executive officers or beneficial owners of more than 5% of our capital stock, or any immediate family member of or person sharing the household with any of these individuals, had or will have a direct or indirect material interest.

Series D Convertible Preferred Stock Financing

In August 2012, we sold an aggregate of 14,736,837 shares of our Series D convertible preferred stock at a purchase price of $0.95 per share for an aggregate purchase price of approximately $14.0 million. Of such shares, 5% beneficial owners purchased the following amounts: 2,333,022 shares, ARCH Venture Fund VI, L.P.; 1,834,259 shares, ATA Ventures II, L.P.; 26,839 shares, ATA Affiliates Fund II, L.P.; 5,319 shares, ATA Investment Fund II, L.P.; 1,466,470 shares, Harris & Harris Group, Inc.; 547,844 shares, Adams Street 2006 Direct Fund, L.P; 618,666 shares, Adams Street 2007 Direct Fund, L.P.; 1,293,478 shares, Applied Ventures, LLC; 1,110,962 shares, Microchip Technology Incorporated; and 1,146,180 shares, Serge Dassault. Each share of our Series D convertible preferred stock will convert automatically into 1.0330576 shares of our common stock upon the completion of this offering.

Convertible Note and Series D-1 and Series E Convertible Preferred Stock Financing

In August 2013, we sold an aggregate of 7,348,235 shares of our Series D-1 convertible preferred stock and 17,384,526 shares of our Series E convertible preferred stock, in each case, at a purchase price of $0.7125 per share for an aggregate purchase price of approximately $17.6 million. The shares of Series D-1 convertible preferred stock were issued upon conversion in full of convertible notes in an aggregate principal amount of $5,000,000. These notes had an annual interest rate of 8% and a maturity rate of July 16, 2013. The following amounts of principal and interest were converted into Series D-1 convertible preferred stock by 5% beneficial owners: $1,119,586.98, ARCH Venture Fund VI, L.P.; $880,237.16, ATA Ventures II, L.P.; $12,879.74, ATA Affiliates Fund II, L.P.; $2,552.61, ATA Investment Fund II, L.P.; $703,740.36, Harris & Harris Group, Inc.; $262,903.39, Adams Street 2006 Direct Fund, L.P.; $296,890.06, Adams Street 2007 Direct Fund, L.P.; $620,723.38, Applied Ventures, LLC; $550,037.19, Serge Dassault; and $184,174.30, Altera Corporation. Of such shares of Series E convertible preferred stock, 5% beneficial owners purchased the following amounts: 3,508,771 shares, ARCH Venture Fund VI, L.P.; 1,379,326 shares, ATA Ventures II, L.P.; 20,183 shares, ATA Affiliates Fund II, L.P.; 3,999 shares, ATA Investment Fund II, L.P.; 3,508,771 shares, Harris & Harris Group, Inc.; 880,954 shares, Adams Street 2006 Direct Fund, L.P; 994,839 shares, Adams Street 2007 Direct Fund, L.P.; 3,508,771 shares, Applied Ventures, LLC; 1,473,649 shares, Serge Dassault; 2,105,263 shares, Altera Corporation. Each share of our Series D-1 convertible preferred stock will convert automatically into one share of our common stock upon the completion of this offering and each share of our Series E convertible preferred stock will convert automatically into 9.8841 shares of our common stock upon the completion of this offering.

Amended and Restated Investors’ Rights Agreement

We have entered into an amended and restated investors’ rights agreement with certain holders of our convertible preferred stock, including entities with which certain of our directors are affiliated. These

 

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stockholders are entitled to rights with respect to the registration of their shares following our initial public offering under the Securities Act. For a description of these registration rights, see “Description of Capital Stock—Registration Rights.”

Indemnification Agreements

We have entered into indemnification agreements with each of our directors and executive officers. The indemnification agreements and our amended and restated bylaws require us to indemnify our directors to the fullest extent not prohibited by Delaware law. Subject to certain limitations, our amended and restated bylaws also require us to advance expenses incurred by our directors and executive officers. For more information regarding these agreements, see “Executive Compensation—Limitation of Liability and Indemnification of Directors and Officers.”

Review, Approval or Ratification of Transactions With Related Parties

Prior to this offering we had no formal, written policy or procedure for the review and approval of related party transactions; however, our practice has been that all related party transactions are reviewed and approved by a majority of the disinterested members of our board of directors.

We will adopt, effective upon the consummation of this offering, a formal written policy that requires audit committee approval of transactions to which we are a party and in which an officer, director, nominee for director, stockholder beneficially owning more than five percent of our outstanding capital stock, an immediate family member of such person, or any firm, corporation or other entity in which any of the foregoing persons is employed, is a general partner or principal or in a similar position, or in which such person has a five percent or greater beneficial ownership interest, has a material interest. In approving or rejecting any such transaction, our audit committee is to consider the relevant facts and circumstances available and deemed relevant to our audit committee, including whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related party’s interest in the transaction. Under the policy, certain transactions will not require audit committee approval, including certain employment arrangements of executive officers, director compensation, transactions with another company at which a related party’s only relationship is as a non-executive employee or beneficial owner of less than five percent of that company’s shares, transactions where a related party’s interest arises solely from the ownership of our common stock and all holders of our common stock received the same benefit on a pro rata basis, and transactions available to all employees generally.

 

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PRINCIPAL STOCKHOLDERS

The following table presents information with respect to the beneficial ownership of our common stock as of June 30, 2015, and as adjusted to reflect the sale of common stock in this offering assuming no exercise of the underwriters’ over-allotment option to purchase additional shares, by:

 

    each person known by us to be the beneficial owner of more than 5% of our common stock;

 

    each of our directors;

 

    each of our named executive officers; and

 

    all of our directors and executive officers as a group.

We have determined beneficial ownership in accordance with the rules of the SEC, and thus it represents sole or shared voting or investment power with respect to our securities. Unless otherwise indicated below, to our knowledge, the persons and entities named in the table have sole voting and sole investment power with respect to all shares that they beneficially owned, subject to community property laws where applicable. We have deemed shares of our common stock subject to options and warrants that are currently exercisable or exercisable within 60 days of June 30, 2015 to be outstanding and to be beneficially owned by the person holding the option or warrant for the purpose of computing the percentage ownership of that person but have not treated them as outstanding for the purpose of computing the percentage ownership of any other person.

We have based percentage ownership of our common stock before this offering on 319,406,077 shares of our common stock outstanding on June 30, 2015, which includes 300,789,120 shares of common stock resulting from the automatic conversion of all outstanding shares of our convertible preferred stock upon the closing of this offering, as if this conversion had occurred as of June 30, 2015. Percentage ownership of our common stock after this offering also assumes our sale of             shares of common stock in this offering and the issuance of             shares of common stock that we expect to issue upon the net exercise of warrants that would expire if not exercised prior to the completion of this offering based on the assumed initial public offering price of $         per share, which is the midpoint of the offering price range set forth on the cover page of this prospectus. Unless otherwise indicated, the address of each of the individuals and entities named below that owns 5% or more of our common stock is c/o Adesto Technologies Corporation, 1250 Borregas Avenue, Sunnyvale, California 94089.

 

     Shares Beneficially
Owned Prior to
This Offering
    Shares Beneficially
Owned After
This Offering
 

Name of Beneficial Owner

   Shares      Percentage     Shares    Percentage  

Named executive officers and directors:

          

Narbeh Derhacobian (1)

     9,796,670         3.0            

Ron Shelton (2)

     2,608,480         *        

Shane Hollmer (3)

     2,670,763         *        

Alexei Andreev (4)

     51,805,883         16.2        

Nelson Chan (5)

     607,962         *        

Barry Cox (6)

     326,026         *        

Keith Crandell (7)

     61,925,109         19.4        

All executive officers and directors as a group (10 persons) (8)

     135,201,784         40.8            

5% Stockholders:

          

ARCH Venture Fund VI, L.P. (9)

     61,925,109         19.4            

Harris & Harris Group, Inc. (10)

     51,805,883         16.2        

Applied Ventures, LLC (11)

     49,785,746         15.6        

Entities affiliated with ATA Ventures (12)

     35,667,663         11.2        

Entities affiliated with Adams Street (13)

     32,162,556         10.1        

Serge Dassault

     27,950,316         8.8        

Altera Corporation (14)

     25,416,835         8.0        

 

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* Represents beneficial ownership of less than 1% of our outstanding shares of common stock.
(1) Represents (i) 7,006,667 shares held by Mr. Derhacobian and (ii) 2,790,003 shares subject to options held by Mr. Derhacobian that are exercisable within 60 days of June 30, 2015.
(2) Represents 2,608,480 shares subject to options held by Mr. Shelton that are exercisable within 60 days of June 30, 2015.
(3) Represents (i) 333,333 shares held by Mr. Hollmer and (ii) 2,337,430 shares subject to options held by Mr. Hollmer that are exercisable within 60 days of June 30, 2015.
(4) Represents 51,805,883 shares held by Harris & Harris Group, Inc. as noted in footnote 10. Alexei Andreev, one of our directors, is an executive vice president and managing director of Harris & Harris Group, Inc. Thus, Mr. Andreev may be deemed to share voting and investment power over the shares held by Harris & Harris Group, Inc.
(5) Represents 607,962 shares subject to options held by Mr. Chan that are exercisable within 60 days of June 30, 2015.
(6) Represents 326,026 shares subject to options held by Mr. Cox that are exercisable within 60 days of June 30, 2015.
(7) Represents 61,925,109 shares held by ARCH Venture Fund VI, L.P. as noted in footnote 9. Keith L. Crandell, one of our directors, is a managing director of ARCH Venture Partners VI, LLC, the sole general partner of ARCH Venture Partners VI, L.P., the sole general partner of ARCH Venture Fund VI, L.P., and may be deemed to share voting and investment power over the shares held by ARCH Venture Fund VI, L.P.
(8) Represents (i) 123,226,992 shares and (ii) 11,974,792 shares subject to options that are exercisable within 60 days of June 30, 2015 held by our directors and executive officers as a group.
(9) Represents 61,925,109 shares held by ARCH Venture Fund VI, L.P. ARCH Venture Partners VI, L.P. is the sole general partner of ARCH Venture Fund VI, L.P., and may be deemed to beneficially own certain of the shares held of record by ARCH Venture Fund VI, L.P. ARCH Venture Partners VI, L.P. disclaims beneficial ownership of all shares held of record by ARCH Venture Fund VI, L.P. in which ARCH Venture Partners VI, L.P. does not have an actual pecuniary interest. ARCH Ventures Partners VI, LLC, as the sole general partner of ARCH Venture Partners VI, L.P., may be deemed to beneficially own certain of the shares held of record by ARCH Venture Fund VI, L.P. ARCH Venture Partners VI, LLC disclaims beneficial ownership of all shares held of record by ARCH Venture Fund VI, L.P. in which ARCH Venture Partners VI, LLC does not have an actual pecuniary interest. Clinton W. Bybee, Keith L. Crandell and Robert T. Nelsen are the managing directors of ARCH Venture Partners VI, LLC and may be deemed to share voting and investment power over the shares held by ARCH Venture Fund VI, L.P. The managing directors disclaim beneficial ownership of all shares held of record by ARCH Venture Fund VI, L.P. in which they do not have an actual pecuniary interest. Mr. Crandell is a member of our board of directors. The address for ARCH Venture Fund VI, L.P. is 8725 W. Higgins Road, Suite 290, Chicago, Illinois 60631.
(10) Represents 51,805,883 shares held by Harris & Harris Group, Inc. Harris & Harris Group, Inc. is a public venture capital firm. Mr. Andreev is a member of our board of directors and an executive officer of Harris & Harris Group, Inc. All shares held by Harris & Harris Group, Inc. are subject to a pledge in favor of ORIX Corporate Capital, Inc. under a loan facility. The address for Harris & Harris Group, Inc. is 1450 Broadway, 24 th Floor, New York, New York 10018.
(11) Represents 49,785,746 shares held by Applied Ventures, LLC. Applied Ventures, LLC is the venture capital arm of Applied Materials, Inc., a public company. J. Christopher Moran, Dr. Omkaran Nalamasu, Dr. Mark R. Pinto and Larry Sparks, in their capacity as members of the Venture Investment Committee of Applied Materials, Inc., have shared voting and investment power over shares held by Applied Ventures, LLC; however, Messrs. Moran and Sparks, and Drs. Nalamasu and Pinto disclaim beneficial ownership of these shares. The address for Applied Ventures, LLC is 3050 Bower Ave., MS 0105, Santa Clara, California 95054.
(12) Represents (i) 35,053,116 shares held by ATA Ventures II, L.P., (ii) 512,906 shares held by ATA Affiliates Fund II, L.P. and (iii) 101,641 shares held by ATA Investment Fund II, L.P. ATA Management II, LLC is the general partner of ATA Ventures II, L.P., ATA Affiliates Fund II, L.P. and ATA Investment Fund II, L.P., and may be deemed to beneficially own certain of the shares held of record by ATA Ventures II, L.P., ATA Affiliates Fund II, L.P. and ATA Investment Fund II, L.P. Hatch Graham, Michio Fujimura, and T. Peter Thomas are the managing directors of ATA Management II, LLC and may be deemed to share voting and investment power over the shares held by ATA Ventures II, L.P., ATA Affiliates Fund II, L.P. and ATA Investment Fund II, L.P. The principal address for each of the ATA Ventures Entities is 4300 El Camino Real, Suite 205, Los Altos, California 94022.
(13) Represents (i) 15,104,936 shares held by Adams Street 2006 Direct Fund, L.P. and (ii) 17,057,620 shares held by Adams Street 2007 Direct Fund, L.P. Adams Street Partners, LLC is the managing member and general partner of Adams Street 2006 Direct Fund, L.P. and Adams Street 2007 Direct Fund, L.P., and may be deemed to have sole voting and investment power over the shares held by Adams Street 2006 Direct Fund, L.P. and Adams Street 2007 Direct Fund, L.P. Thomas D. Berman, David Brett, Jeffrey T. Diehl, Elisha P. Gould, III, Robin P. Murray, Sachin Tulyani, Craig D. Waslin and David S. Welsh, each of whom is a partner of Adams Street Partners, LLC (or a subsidiary thereof), may be deemed to share voting and investment power over the shares held by Adams Street 2006 Direct Fund, L.P. and Adams Street 2007 Direct Fund, L.P. The principal address for each of the Adams Street Entities is 2500 Sand Hill Road, Suite 100, Menlo Park, California 94025.
(14) Represents 25,416,835 shares held by Altera Corporation. The address for Altera Corporation is 101 Innovation Drive, San Jose, California 95134.

 

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DESCRIPTION OF CAPITAL STOCK

The following description summarizes the most important terms of our capital stock, as they will be in effect upon the closing of this offering. Because it is only a summary, it does not contain all the information that may be important to you. For a complete description, you should refer to our restated certificate of incorporation and amended and restated bylaws, which are included as exhibits to the registration statement of which this prospectus forms a part, and to the applicable provisions of Delaware law. For a description of registration rights held by certain holders of our capital stock and the duration of those rights see “Registration Rights” below. Upon the closing of this offering, our authorized capital stock will consist of             shares of common stock, $0.0001 par value per share, and             shares of undesignated preferred stock, $0.0001 par value per share.

Assuming the conversion of all outstanding shares of our convertible preferred stock into shares of our common stock, which will occur immediately following the closing of this offering, as of June 30, 2015, there were 319,406,077 shares of our common stock outstanding, held by 37 stockholders of record, and no shares of our preferred stock outstanding.

Common Stock

Dividend Rights

Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of our common stock are entitled to receive dividends out of funds legally available if our board of directors, in its discretion, determines to issue dividends and then only at the times and in the amounts that our board of directors may determine. See “Dividend Policy” above.

Voting Rights

Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders. We have not provided for cumulative voting for the election of directors in our restated certificate of incorporation. Our restated certificate of incorporation establishes a classified board of directors, to be divided into three classes with staggered three-year terms. Only the directors in one class will be subject to election by a plurality of the votes cast at each annual meeting of our stockholders, with the directors in the other classes continuing for the remainder of their respective three-year terms.

No Preemptive or Similar Rights

Our common stock is not entitled to preemptive rights, and is not subject to conversion, redemption or sinking fund provisions.

Right to Receive Liquidation Distributions

Upon our liquidation, dissolution or winding-up, the assets legally available for distribution to our stockholders would be distributable ratably among the holders of our common stock and any participating preferred stock outstanding at that time, subject to prior satisfaction of all outstanding debt and liabilities and the preferential rights of and the payment of liquidation preferences, if any, on any outstanding shares of preferred stock.

Fully Paid and Non-Assessable

All of the outstanding shares of our common stock are, and the shares of our common stock to be issued pursuant to this offering will be, fully paid and non-assessable.

 

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Preferred Stock

Following this offering, our board of directors will be authorized, subject to limitations prescribed by Delaware law, to issue up to             shares of preferred stock in one or more series, to establish from time to time the number of shares to be included in each series, and to fix the designation, powers, preferences and rights of the shares of each series and any of its qualifications, limitations or restrictions, in each case without further vote or action by our stockholders. Our board of directors can also increase or decrease the number of shares of any series of preferred stock, but not below the number of shares of that series then outstanding, without any further vote or action by our stockholders. Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of our common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in our control of our company and might adversely affect the market price of our common stock and the voting and other rights of the holders of our common stock. We have no current plan to issue any shares of preferred stock.

Options

As of June 30, 2015, there were outstanding options to purchase an aggregate of 24,586,662 shares of our common stock, with a weighted-average exercise price of $0.06 per share, pursuant to our 2007 Equity Incentive Plan. In addition, to address the dilution of our employees’ equity interests in our company as a result of the conversion of the Series E convertible preferred stock in connection with this offering, upon the closing of this offering, we intend to grant to our employees restricted stock units equal to the number of outstanding options held by them on the grant date, which based on the number of options outstanding as of the date of this prospectus would be an aggregate of approximately                  million restricted stock units. Each of these restricted stock units will vest over two years, with one-half of the underlying shares vesting one-year after the grant date and one eighth of the underlying shares vesting at the end of each calendar quarter thereafter.

Warrants

As of June 30, 2015, there were outstanding warrants to purchase 7,214,408 shares of common stock that will expire if not exercised prior to the completion of this offering and outstanding warrants to purchase shares of our capital stock as follows:

 

Type of Capital Stock

   Total Number of
Shares

Subject to
Warrants
     Exercise Price
Per Share
   Expiration Dates

Series B convertible preferred stock

     243,506       $0.3696    Feb. 2017

Series D convertible preferred stock

     2,368,420       $0.95        Sep. 2019

Series E convertible preferred stock

     1,101,755       $0.7125    Apr. 2022; Oct. 2024

We expect all warrants that would expire if not exercised prior to the completion of this offering will be exercised immediately prior to this offering. Immediately following the closing of this offering, the warrants to purchase shares of our Series B, Series D and Series E convertible preferred stock that remain outstanding will convert automatically into warrants to purchase the shares of our common stock as follows: 243,506 – Series B; 2,446,713 – Series D; and 10,889,855 – Series E. The exercise prices of these warrants may be paid either in cash or by surrendering the right to receive shares of our common stock having a value equal to the exercise price.

Registration Rights

Following the completion of this offering, after giving effect to the issuance of                 shares of common stock that we expect to issue upon the net exercise of warrants that would expire if not exercised prior to the

 

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completion of this offering, the holders of approximately 316 million shares of our common stock will be entitled to rights with respect to the registration of these shares under the Securities Act. These rights are provided under the terms of an amended and restated investors’ rights agreement between us and the holders of these shares, which was entered into in connection with our convertible preferred stock financings, and include demand, Form S-3 and piggyback registration rights.

Demand Registration Rights

As of June 30, 2015, the holders of an aggregate of approximately 316 million shares of our common stock or their permitted transferees were entitled to demand registration rights. At any time after 180 days from the date of this offering, the holders of at least 40% of the then-outstanding shares subject to registration rights can request that we file a registration statement covering registrable securities with an anticipated aggregate offering price of at least $5.0 million. We are only required to file two registration statements that are declared effective pursuant to these demand registration rights. We may postpone the filing of a registration statement for up to 90 days once in a 12-month period if our board of directors determines that the filing would be materially detrimental to us and our stockholders.

Piggyback Registration Rights

As of June 30, 2015, the holders of an aggregate of approximately 316 million shares of our common stock or their permitted transferees were entitled to piggyback registration rights. If we register any of our securities for public sale, holders of shares having registration rights will have the right to include their shares in the registration statement. However, this right does not apply to a registration relating to sales of shares of participants in one of our stock plans, a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of the shares having registration rights or a registration in which the only common stock being registered is common stock issuable upon conversion of debt securities that are also being registered. The underwriters of any underwritten offering will have the right, in their sole discretion, to limit, because of marketing reasons, the number of shares registered by these holders, in which case the number of shares to be registered will be apportioned pro rata among these holders, according to the total amount of securities entitled to be included by each holder, or in a manner mutually agreed upon by the holders. However, the number of shares to be registered by these holders cannot be reduced below 33% of the total shares covered by the registration statement.

Form S-3 Registration Rights

As of June 30, 2015, the holders of an aggregate of approximately 316 million shares of our common stock or their permitted transferees were entitled to Form S-3 registration rights. The holders of then-outstanding shares having registration rights can request that we register all or part of their shares on Form S-3 if we are eligible to file a registration statement on Form S-3 and if the aggregate price to the public, net of underwriters’ discounts and commissions, of the shares offered is at least $1 million. The stockholders may only require us to effect two registration statements on Form S-3 in a 12-month period. We may postpone the filing of a registration statement on Form S-3 for up to 90 days once in a 12-month period if our board of directors determines that the filing would be materially detrimental to us and our stockholders.

Expenses of Registration Rights

We generally will pay all expenses, other than underwriting discounts and commissions and the reasonable fees and disbursements of more than one counsel for the selling stockholders, incurred in connection with the registrations described above.

 

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Expiration of Registration Rights

The registration rights described above will expire, with respect to any particular holder of these rights, on the earlier of the seventh anniversary of the closing of this offering or when that holder can sell all of its registrable securities in any three month period without restriction under Rule 144 of the Securities Act.

Anti-Takeover Provisions

The provisions of Delaware law, our restated certificate of incorporation and our amended and restated bylaws may have the effect of delaying or discouraging another person from acquiring control of our company. These provisions, which are summarized below, may have the effect of discouraging takeover bids. They are also designed, in part, to encourage persons seeking to acquire control of us to negotiate first with our board of directors. We believe that the benefits of increased protection of our potential ability to negotiate with an unfriendly or unsolicited acquirer outweigh the disadvantages of discouraging a proposal to acquire us.

Delaware Law

We are governed by the provisions of Section 203 of the Delaware General Corporation Law. In general, Section 203 prohibits a public Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. A “business combination” includes mergers, asset sales or other transactions resulting in a financial benefit to the stockholder. An “interested stockholder” is a person who, together with affiliates and associates, owns, or within three years did own, 15% or more of the corporation’s outstanding voting stock. These provisions may have the effect of delaying, deferring or preventing a change in our control.

Restated Certificate of Incorporation and Amended and Restated Bylaw Provisions

Our restated certificate of incorporation and our amended and restated bylaws include a number of provisions that could deter hostile takeovers or delay or prevent changes in control of our management team, including the following:

 

    Board of Directors Vacancies . Our restated certificate of incorporation and amended and restated bylaws authorize only our board of directors to fill vacant directorships, including newly created seats. In addition, the number of directors constituting our board of directors is permitted to be set only by a resolution adopted by a majority vote of our entire board of directors. These provisions would prevent a stockholder from increasing the size of our board of directors and then gaining control of our board of directors by filling the resulting vacancies with its own nominees. This makes it more difficult to change the composition of our board of directors but promotes continuity of management.

 

    Classified Board . Our restated certificate of incorporation and amended and restated bylaws provide that our board is classified into three classes of directors. A third party may be discouraged from making a tender offer or otherwise attempting to obtain control of us as it is more difficult and time consuming for stockholders to replace a majority of the directors on a classified board of directors. See “Management—Board of Directors Composition.”

 

    Stockholder Action; Special Meeting of Stockholders . Our restated certificate of incorporation provides that our stockholders may not take action by written consent, but may only take action at annual or special meetings of our stockholders. As a result, a holder controlling a majority of our capital stock would not be able to amend our bylaws or remove directors without holding a meeting of our stockholders called in accordance with our amended and restated bylaws. Our amended and restated bylaws further provide that special meetings of our stockholders may be called only by a majority of our board of directors, the chairman of our board of directors, our chief executive officer or our president, thus prohibiting a stockholder from calling a special meeting. These provisions might delay the ability of our stockholders to force consideration of a proposal or for stockholders controlling a majority of our capital stock to take any action, including the removal of directors.

 

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    Advance Notice Requirements for Stockholder Proposals and Director Nominations . Our amended and restated bylaws provide advance notice procedures for stockholders seeking to bring business before our annual meeting of stockholders or to nominate candidates for election as directors at our annual meeting of stockholders. Our amended and restated bylaws also specify certain requirements regarding the form and content of a stockholder’s notice. These provisions might preclude our stockholders from bringing matters before our annual meeting of stockholders or from making nominations for directors at our annual meeting of stockholders if the proper procedures are not followed. We expect that these provisions might also discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of our company.

 

    No Cumulative Voting . The Delaware General Corporation Law provides that stockholders are not entitled to the right to cumulate votes in the election of directors unless a corporation’s certificate of incorporation provides otherwise. Our amended and restated certificate of incorporation and amended and restated bylaws do not provide for cumulative voting.

 

    Directors Removed Only for Cause . Our restated certificate of incorporation provides that stockholders may remove directors only for cause and only with the approval of holders of at least two-thirds of our outstanding common stock.

 

    Amendment of Charter Provisions . Any amendment of the above provisions in our restated certificate of incorporation would require approval by holders of at least two-thirds of our outstanding common stock.

 

    Issuance of Undesignated Preferred Stock . Our board of directors has the authority, without further action by the stockholders, to issue up to             shares of undesignated preferred stock with rights and preferences, including voting rights, designated from time to time by our board of directors. The existence of authorized but unissued shares of preferred stock would enable our board of directors to render more difficult or to discourage an attempt to obtain control of us by means of a merger, tender offer, proxy contest or other means.

 

    Choice of Forum . Our restated certificate of incorporation will provide that the Court of Chancery of the State of Delaware will be the exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our restated certificate of incorporation or our amended and restated bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine.

Listing

We have applied to list our common stock on the NASDAQ Global Market under the symbol “IOTS”.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is             . The transfer agent’s address is             .

 

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SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for our common stock, and we cannot predict the effect, if any, that market sales of shares of our common stock or the availability of shares of our common stock for sale will have on the market price of our common stock prevailing from time to time. Nevertheless, sales of substantial amounts of our common stock, including shares issued upon exercise of outstanding options or warrants, in the public market following this offering could adversely affect market prices prevailing from time to time and could impair our ability to raise capital through the sale of our equity securities.

Following the closing of this offering, based on the number of shares of our capital stock outstanding as of June 30, 2015, we will have a total of             shares of our common stock outstanding. Of these outstanding shares, all of the             shares of common stock sold in this offering will be freely tradable, except that any shares purchased in this offering by our affiliates, as that term is defined in Rule 144 under the Securities Act, would only be able to be sold in compliance with the Rule 144 limitations described below.

The remaining outstanding shares of our common stock will be deemed “restricted securities” as defined in Rule 144 under the Securities Act. Restricted securities may be sold in the public market only if they are registered under the Securities Act or if they qualify for an exemption from registration under Rule 144 or Rule 701 promulgated under the Securities Act, which rules are summarized below. In addition, our security holders have entered into market standoff agreements with us or lock-up agreements with the underwriters under which they have agreed, subject to specific exceptions, not to sell any of our stock for at least 180 days following the date of this prospectus, as described below. As a result of these agreements and subject to the provisions of Rule 144 or Rule 701, based on an assumed offering date of June 30, 2015, shares will be available for sale in the public market as follows:

 

    Beginning on the date of this prospectus, the             shares sold in this offering will be immediately available for sale in the public market; and

 

    Beginning 181 days after the date of this prospectus, subject to extension as described in the section entitled “Underwriting” below,             additional shares will become eligible for sale in the public market, of which             shares will be held by affiliates and subject to the volume and other restrictions of Rule 144, as described below.

Lock-Up/Market Standoff Agreements

All of our directors, officers and the holders of substantially all of our outstanding stock, stock options and warrants are subject to lock-up agreements or market standoff provisions that, subject to exceptions described in the section entitled “Underwriting” below, prohibit them from offering for sale, selling, contracting to sell, granting any option for the sale of, transferring or otherwise disposing of any shares of our common stock, options or warrants to acquire shares of our common stock or any security or instrument related to our common stock and options or warrants to acquire shares of our common stock for a period of at least 180 days following the date of this prospectus without the prior written consent of Needham & Company, LLC and Oppenheimer & Co. Inc.

Rule 144

In general, under Rule 144 as currently in effect, once we have been subject to the public company reporting requirements of Section 13 or Section 15(d) of the Exchange Act for at least 90 days, a person who is not deemed to have been one of our affiliates for purposes of the Securities Act at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least six months, including the holding period of any prior owner other than our affiliates, is entitled to sell those shares without complying with the manner of sale, volume limitation or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144. If such a person has beneficially owned the shares proposed to be sold for

 

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at least one year, including the holding period of any prior owner other than our affiliates, then that person would be entitled to sell those shares without complying with any of the requirements of Rule 144.

In general, under Rule 144, as currently in effect, our affiliates or persons selling shares on behalf of our affiliates are entitled to sell upon expiration of the lock-up and market standoff agreements described above, within any three-month period, a number of shares that does not exceed the greater of:

 

    1% of the number of shares of our common stock then outstanding, which will equal approximately             shares immediately after this offering; or

 

    the average weekly trading volume of our common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to that sale.

Sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.

Rule 701

Rule 701 generally allows a stockholder who purchased shares of our common stock pursuant to a written compensatory plan or contract and who is not deemed to have been an affiliate of our company during the immediately preceding 90 days to sell these shares in reliance upon Rule 144, but without being required to comply with the public information, holding period, volume limitation or notice provisions of Rule 144. Rule 701 also permits affiliates of our company to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. All holders of Rule 701 shares, however, are required by that rule to wait until 90 days after the date of this prospectus before selling those shares pursuant to Rule 701.

Stock Options

As soon as practicable after the closing of this offering, we intend to file one or more registration statements on Form S-8 under the Securities Act covering all of the shares of our common stock subject to outstanding options and the shares of our common stock reserved for issuance under our stock plans. However, the shares registered on Form S-8 may be subject to the volume limitations and the manner of sale, notice and public information requirements of Rule 144 and will not be eligible for resale until expiration of the lock-up and market standoff agreements to which they are subject.

Warrants

As of June 30, 2015, after giving effect to the issuance of             shares of common stock that we expect to issue upon the exercise of warrants that would expire if not exercised prior to the completion of this offering and after giving effect to the issuance of a warrant to purchase 1,052,632 shares of Series E convertible preferred stock in April 2015, we had outstanding warrants that, following the closing of this offering, will entitle their holders to purchase 13,580,074 shares of common stock at a weighted-average exercise price of $0.2301.

Registration Rights

We have granted demand, piggyback and Form S-3 registration rights to certain of our stockholders to sell our common stock. Registration of the sale of these shares under the Securities Act would result in these shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the registration, except for shares purchased by affiliates. For a further description of these rights, see “Description of Capital Stock—Registration Rights.”

 

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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS OF OUR COMMON STOCK

The following summary describes the material U.S. federal income tax considerations of the acquisition, ownership and disposition of our common stock by “non-U.S. holders” (as described below under the heading “—Non-U.S. Holder Defined”). This summary does not address all aspects of U.S. federal income tax considerations relating thereto. This summary also does not address the tax considerations arising under the laws of any non-U.S., state or local jurisdiction, or under U.S. federal gift and estate tax laws, except to the limited extent provided below.

Special rules different from those described below may apply to certain non-U.S. holders that are subject to special treatment under the Code, including, without limitation:

 

    banks, insurance companies or other financial institutions;

 

    partnerships or entities or arrangements treated as partnerships or other pass-through entities for U.S. federal tax purposes (or investors in such entities);

 

    corporations that accumulate earnings to avoid U.S. federal income tax;

 

    persons subject to the alternative minimum tax or Medicare contribution tax;

 

    tax-exempt entities (including private foundations) or tax-qualified retirement plans;

 

    controlled foreign corporations or passive foreign investment companies;

 

    persons who acquired our common stock as compensation for services;

 

    dealers in securities or currencies;

 

    traders in securities that elect to use a mark-to-market method of accounting for their securities holdings;

 

    persons that own, or are deemed to own, more than 5% of our capital stock (except to the extent specifically set forth below);

 

    U.S. expatriates, certain former citizens or long-term residents of the United States;

 

    persons who hold our common stock as a position in a hedging transaction, “straddle,” “conversion transaction” or other risk reduction transaction;

 

    persons who do not hold our common stock as a capital asset within the meaning of Section 1221 of the Code (generally, for investment purposes); or

 

    persons deemed to sell our common stock under the constructive sale provisions of the Code.

In addition, if a partnership or an entity or an arrangement classified as a partnership for U.S. federal income tax purposes is a beneficial owner of our common stock, the tax treatment of a partner in the partnership or an owner of the entity will depend upon the status of the partner or other owner and the activities of the partnership or other entity. Therefore, this summary does not address tax considerations applicable to partnerships that hold our common stock, and partners in such partnerships should consult their tax advisors.

This summary also does not address tax considerations applicable to entities that are disregarded for U.S. federal income tax purposes (regardless of their place of organization or formation).

The information provided below is based upon provisions of the Code, Treasury regulations promulgated thereunder, administrative rulings and judicial decisions as of the date hereof. Such authorities may be subject to differing interpretations, repealed, revoked or modified, perhaps retroactively, so as to result in U.S. federal income tax consequences different from those discussed below. We have not requested a ruling from the Internal Revenue Service, or the IRS, with respect to the statements made and the conclusions reached in the following summary, and there can be no assurance that the IRS will not take a contrary position regarding the tax

 

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consequences of the acquisition, ownership and disposition of our common stock, or that any such contrary position would not be sustained by a court. In either case, the tax considerations of owning or disposing of our common stock could differ from those described below and as a result, we cannot assure you that the tax consequences described in this discussion will not be challenged by the IRS or will be sustained by a court if challenged by the IRS.

INVESTORS CONSIDERING THE PURCHASE OF OUR COMMON STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE APPLICATION OF THE U.S. FEDERAL INCOME AND ESTATE TAX LAWS TO THEIR PARTICULAR SITUATIONS AND THE CONSEQUENCES OF FOREIGN, STATE OR LOCAL LAWS, AND TAX TREATIES.

Non-U.S. Holder Defined

For purposes of this summary, a “non-U.S. holder” is any beneficial owner of our common stock, other than a partnership, that is not:

 

    an individual who is a citizen or resident of the United States (as determined under U.S. federal income tax rules);

 

    a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized under the laws of the United States, any state therein or the District of Columbia;

 

    a trust if it (1) is subject to the primary supervision of a court within the United States and one of more U.S. persons have authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person; or

 

    an estate whose income is subject to U.S. income tax regardless of its source.

If you are a non-U.S. citizen that is an individual, you may, in some cases, be deemed to be a resident alien (as opposed to a nonresident alien) by virtue of being present in the United States for at least 31 days in the calendar year and for an aggregate of at least 183 days during a three-year period ending in the current calendar year. Generally, for this purpose, all the days present in the current year, one-third of the days present in the immediately preceding year, and one-sixth of the days present in the second preceding year, are counted.

Resident aliens are generally subject to U.S. federal income tax as if they were U.S. citizens. Such an individual is urged to consult his or her own tax advisor regarding the U.S. federal income tax consequences of the ownership or disposition of our common stock.

Distributions

We do not expect to declare or make any distributions on our common stock in the foreseeable future. If we do make distributions on our common stock, however, such distributions will generally constitute dividends for U.S. federal income tax purposes to the extent it is paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Distributions in excess of our current and accumulated earnings and profits will constitute a return of capital that is applied against and reduces, but not below zero, a non-U.S. holder’s adjusted tax basis in our common stock. Any remaining excess will be treated as gain realized on the sale or exchange of our common stock as described below under the heading “—Gain on Disposition of our Common Stock.” The amount of any distribution of property other than cash will be the fair market value of that property on the date of distribution.

Any distribution on our common stock that is treated as a dividend paid to a non-U.S. holder that is not effectively connected with the non-U.S. holder’s conduct of a trade or business in the United States will generally be subject to U.S. withholding tax at a 30% rate or such lower rate as may be specified under the terms of an applicable income tax treaty between the United States and the non-U.S. holder’s country of residence. Non-U.S. holders should consult their tax advisors regarding their entitlement to benefits under a relevant income tax

 

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treaty. Generally, in order for us or our paying agent to withhold tax at a lower treaty rate, a non-U.S. holder must certify its entitlement to treaty benefits. A non-U.S. holder generally can meet this certification requirement by providing a properly executed IRS Form W-8BEN (or any successor form) or appropriate substitute form to us or our paying agent. In the case of a non-U.S. holder that is an entity, Treasury Regulations and the relevant tax treaty provide rules to determine whether, for purposes of determining the applicability of a tax treaty, dividends will be treated as paid to the entity or to those holding an interest in that entity. If the non-U.S. holder holds the stock through a financial institution or other agent acting on the holder’s behalf, the holder will be required to provide appropriate documentation to the agent. The holder’s agent will then be required to provide certification to us or our paying agent, either directly or through other intermediaries. For payments made to a partnership or other pass-through entity, the certification requirements generally apply to the partners or other owners rather than to the partnership or other entity, and the partnership or other entity must provide the partners’ or other owners’ documentation to us or our paying agent. A non-U.S. holder that is eligible for a reduced rate of U.S. federal withholding tax under an income tax treaty with the United States may obtain a refund or credit of any excess amounts withheld by filing an appropriate claim for a refund with the IRS in a timely manner.

Dividends received by a non-U.S. holder that are effectively connected with a U.S. trade or business conducted by the non-U.S. holder, and if required by an applicable income tax treaty between the United States and the non-U.S. holder’s country of residence, are attributable to a permanent establishment maintained by the non-U.S. holder in the United States, are not subject to U.S. withholding tax. To obtain this exemption, a non-U.S. holder must provide us or our paying agent with a properly executed IRS Form W-8ECI certifying such exemption. Such effectively connected dividends, although not subject to withholding tax, are taxed at the same graduated rates applicable to U.S. persons, net of certain deductions and credits. In addition to being taxed at graduated income tax rates, dividends received by corporate non-U.S. holders that are effectively connected with a U.S. trade or business of the corporate non-U.S. holder may also be subject to an additional “branch profits tax,” which is imposed, under certain circumstances, at a rate of 30% (or such lower rate as may be specified by an applicable tax treaty) on the corporate non-U.S. holder’s effectively connected earnings and profits, subject to certain adjustments.

For additional withholding rules that may apply to dividends paid to certain foreign entities, see the discussion below under the heading “—Foreign Accounts.”

Gain on Disposition of our Common Stock

Subject to the discussions below under the heading “—Backup Withholding and Information Reporting” and “—Foreign Accounts,” non-U.S. holders will generally not be subject to U.S. federal income tax on gain realized on the sale, exchange or other disposition of our common stock unless:

 

  (a) the gain is effectively connected with the conduct by the non-U.S. holder of a U.S. trade or business and if required by an applicable income tax treaty between the United States and the non-U.S. holder’s country of residence, is attributable to a permanent establishment maintained by the non-U.S. holder in the United States;

 

  (b) the non-U.S. holder is a nonresident individual and is present in the United States for 183 days or more in the taxable year of the sale, exchange or other disposition of our common stock, and certain other requirements are met; or

 

  (c) the rules of the Foreign Investment in Real Property Tax Act, or FIRPTA, apply to treat the gain as effectively connected with a U.S. trade or business.

A non-U.S. holder described in (a) above, will generally be required to pay tax on the net gain derived from the sale, exchange or other disposition of our common stock at regular graduated U.S. federal income tax rates, and corporate non-U.S. holders described in (a) above may be subject to the additional branch profits tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty.

 

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An individual non-U.S. holder described in (b) above, will be required to pay a flat 30% tax on the gain derived from the sale, exchange or other disposition of our common stock, or such other reduced rate as may be specified by an applicable income tax treaty, which gain may be offset by U.S. source capital losses (even though the non-U.S. holder is not considered a resident of the United States).

With respect to (c) above, in general, the FIRPTA rules may apply to a sale, exchange or other disposition of our common stock if we are, or were within the shorter of the five-year period preceding the disposition and the non-U.S. holder’s holding period, a U.S. real property holding corporation, or a USRPHC. In general, we would be a USRPHC if the fair market value of property interests that we hold equals or exceeds 50% of the sum of the fair market values of our (i) U.S. real property interests, (ii) interests in real property located outside of the United States; and (iii) other assets that we use or hold for use in our trade or business. We do not believe that we are a USRPHC and we do not anticipate becoming a USRPHC; however, there can be no assurance that we will not become a USRPHC in the future. Even if we become a USRPHC, gain realized by a non-U.S. holder on a disposition of our common stock will not be subject to U.S. federal income tax as long as (1) our common stock is regularly traded on an established securities market, and (2) the non-U.S. holder owned, directly, indirectly and constructively, no more than 5% of our outstanding common stock at all times within the shorter of (i) the five-year period preceding the disposition or (ii) the holder’s holding period. There can be no assurance that our common stock will qualify as regularly traded on an established securities market.

For additional withholding rules that may apply to proceeds of a disposition of our common stock paid to certain foreign entities, see the discussion below under the heading “—Foreign Accounts.”

U.S. Federal Estate Tax

The estates of nonresident alien individuals generally are subject to U.S. federal estate tax on property with a U.S. situs. Because we are a U.S. corporation, our common stock will be U.S. situs property and therefore will be included in the taxable estate of a nonresident alien decedent, unless an applicable estate tax treaty between the United States and the decedent’s country of residence provides otherwise. Investors are urged to consult their own tax advisors regarding the U.S. federal estate tax consequences of the ownership or disposition of our common stock.

Backup Withholding and Information Reporting

The Code and the Treasury regulations require those who make specified payments to report the payments to the IRS. Among the specified payments are dividends and proceeds paid by brokers to their customers. The required information returns enable the IRS to determine whether the recipient properly included the payments in income. This reporting regime is reinforced by “backup withholding” rules. These rules require the payors to withhold tax from payments subject to information reporting if the recipient fails to comply with the reporting requirements by failing to provide his taxpayer identification number or other certification of exempt status to the payor, furnishing an incorrect identification number, or failing to report interest or dividends on his returns. The backup withholding tax rate is currently 28%. The backup withholding rules do not apply to payments to corporations, whether domestic or foreign, provided they establish such exemption.

Payments to non-U.S. holders of dividends on common stock generally will not be subject to backup withholding, so long as the non-U.S. holder certifies its nonresident status (and we or our paying agent do not have actual knowledge or reason to know the holder is a U.S. person or that the conditions of any other exemption are not, in fact, satisfied) or otherwise establishes an exemption. U.S. backup withholding generally will not apply to a non-U.S. holder who provides a properly executed applicable IRS Form W-8 or otherwise establishes an exemption. We must report annually to the IRS any dividends paid to each non-U.S. holder and the tax withheld, if any, with respect to these dividends. Copies of these reports may be made available to tax authorities in the country where the non-U.S. holder resides.

Under the Treasury regulations, the payment of proceeds from the disposition of shares of our common stock by a non-U.S. holder made to or through a U.S. office of a broker generally will be subject to information

 

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reporting and backup withholding unless the beneficial owner certifies, under penalties of perjury, among other things, its status as a non-U.S. holder (and the broker does not have actual knowledge or reason to know the holder is a U.S. person) or otherwise establishes an exemption. The payment of proceeds from the disposition of shares of our common stock by a non-U.S. holder made to or through a non-U.S. office of a broker generally will not be subject to backup withholding and information reporting, except as noted below. Information reporting, but not backup withholding, will apply to a payment of proceeds, even if that payment is made outside of the United States, if a non-U.S. holder sells our common stock through a non-U.S. office of a broker that is:

 

    a U.S. person (including a foreign branch or office of such person);

 

    a “controlled foreign corporation” for U.S. federal income tax purposes;

 

    a foreign person 50% or more of whose gross income from certain periods is effectively connected with a U.S. trade or business; or

 

    a foreign partnership if at any time during its tax year (a) one or more of its partners are U.S. persons who, in the aggregate, hold more than 50% of the income or capital interests of the partnership or (b) the foreign partnership is engaged in a U.S. trade or business,

unless the broker has documentary evidence that the beneficial owner is a non-U.S. holder and certain other conditions are satisfied, or the beneficial owner otherwise establishes an exemption (and the broker has no actual knowledge or reason to know to the contrary).

Backup withholding is not an additional tax. Any amounts withheld from a payment to a holder of common stock under the backup withholding rules can be credited against any U.S. federal income tax liability of the holder and may entitle the holder to a refund, provided that the required information is furnished to the IRS in a timely manner.

Foreign Accounts

A U.S. federal withholding tax of 30% may apply to dividends and the gross proceeds of a disposition of our common stock paid to a foreign financial institution (as specifically defined by the applicable rules) unless such institution enters into an agreement with the U.S. government to withhold on certain payments and to collect and provide to the U.S. tax authorities (or, where permitted by an applicable intergovernmental agreement, to the local tax authorities) substantial information regarding U.S. account holders of such institution (which includes certain equity holders of such institution, as well as certain account holders that are foreign entities with U.S. owners). This U.S. federal withholding tax of 30% will also apply on dividends and the gross proceeds of a disposition of our common stock paid to a non-financial foreign entity unless such entity provides the withholding agent with either a certification that it does not have any substantial direct or indirect U.S. owners or provides information regarding direct and indirect U.S. owners of the entity. The 30% federal withholding tax described in this paragraph cannot be reduced under an income tax treaty with the United States or by providing an IRS Form W-8BEN or similar documentation. The withholding tax described above will not apply if the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from the rules. Under certain circumstances, a non-U.S. holder might be eligible for refunds or credits of such taxes. Holders should consult with their own tax advisors regarding the possible implications of the withholding described herein.

The withholding provisions described above generally apply to payments of gross proceeds from a sale or other disposition of our common stock that occurs after January 1, 2017, and to payments of dividends. THE PRECEDING DISCUSSION OF U.S. FEDERAL TAX CONSIDERATIONS IS FOR GENERAL INFORMATION PURPOSES ONLY. IT IS NOT TAX ADVICE. EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR U.S. FEDERAL, GIFT, ESTATE, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF OUR COMMON STOCK, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE LAWS.

 

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UNDERWRITING

We have entered into an underwriting agreement with the underwriters named below. Needham & Company, LLC and Oppenheimer & Co. Inc. are acting as representatives of the underwriters.

The underwriting agreement provides for the purchase of a specific number of shares of common stock by each of the underwriters. The underwriters’ obligations are several, which means that each underwriter is required to purchase a specified number of shares of common stock, but is not responsible for the commitment of any other underwriter to purchase shares of common stock. Subject to the terms and conditions of the underwriting agreement, each underwriter has severally agreed to purchase the number of shares of common stock set forth opposite its name below:

 

Underwriter

   Number of
Shares

Needham & Company, LLC

  

Oppenheimer & Co. Inc.

  

Roth Capital Partners, LLC

  
  

 

Total

  
  

 

The underwriters have agreed to purchase all of the shares of common stock offered by this prospectus (other than those covered by the over-allotment option described below) if any are purchased. Under the underwriting agreement, if an underwriter defaults in its commitment to purchase shares of common stock, the commitments of non-defaulting underwriters may be increased or the underwriting agreement may be terminated, depending on the circumstances.

The underwriters are offering the shares of common stock subject to various conditions and may reject all or part of any order. The representatives have advised us that the underwriters propose to offer the shares of common stock directly to the public at the public offering price that appears on the cover page of this prospectus. In addition, the representatives may offer some of the shares of common stock to other securities dealers at such price less a concession of $         per share. The underwriters may also allow, and such dealers may reallow, a concession not in excess of $         per share to other dealers. After the shares of common stock are released for sale to the public, the representatives may change the offering price and other selling terms at various times.

We have granted the underwriters an over-allotment option. This option, which is exercisable for up to 30 days after the date of this prospectus, permits the underwriters to purchase a maximum of                  additional shares of common stock from us to cover over-allotments. If the underwriters exercise all or part of this option, they will purchase shares of common stock covered by the option at the initial public offering price that appears on the cover page of this prospectus, less the underwriting discount. The underwriters have severally agreed that, to the extent the over-allotment option is exercised, they will each purchase a number of additional shares of common stock proportionate to the underwriter’s initial amount reflected in the foregoing table.

The following table provides information regarding the amount of the discount to be paid to the underwriters by us:

 

    Per Share      Total Without
Exercise of
Over-Allotment
Option
     Total With Full
Exercise of
Over-Allotment
Option
 

Public offering price

  $                        $                        $                    

Underwriting discounts and commissions

  $         $         $     

Proceeds before expenses, to us

  $         $         $     

 

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We estimate that our total expenses of the offering, excluding the underwriting discounts and commissions, will be approximately $        . This amount includes up to $         that we have agreed to reimburse the underwriters for expenses relating to the clearance of this offering with the Financial Industry Regulatory Authority, Inc.

The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include sales and trading, commercial and investment banking, advisory, investment management, investment research, principal investment, hedging, market making, brokerage and other financial and non-financial activities and services. Certain of the underwriters and their respective affiliates have provided, and may in the future provide, a variety of these services to us and to persons and entities with relationships with us, for which they received or will receive customary fees and expenses.

We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933.

We have applied to list our common stock on the NASDAQ Global Market under the symbol “IOTS”.

We, our officers and directors and substantially all other stockholders have agreed to a 180 day “lock up” with respect to                  shares of common stock and other of our securities that they beneficially own, including securities that are convertible into shares of common stock and securities that are exchangeable or exercisable for shares of common stock. This means that, subject to certain exceptions, for a period of 180 days following the date of this prospectus, we and such persons may not offer, sell, pledge or otherwise dispose of these securities without the prior written consent of the representatives.

Rules of the Securities and Exchange Commission may limit the ability of the underwriters to bid for or purchase shares before the distribution of the shares is completed. However, the underwriters may engage in the following activities in accordance with the rules:

 

    Stabilizing transactions—The representative may make bids or purchases for the purpose of pegging, fixing or maintaining the price of the shares, so long as stabilizing bids do not exceed a specified maximum.

 

    Over-allotments and syndicate covering transactions—The underwriters may sell more shares of common stock in connection with this offering than the number of shares of common stock than they have committed to purchase. This over-allotment creates a short position for the underwriters. This short sales position may involve either “covered” short sales or “naked” short sales. Covered short sales are short sales made in an amount not greater than the underwriters’ over-allotment option to purchase additional shares of common stock in this offering described above. The underwriters may close out any covered short position either by exercising their over-allotment option or by purchasing shares of common stock in the open market. To determine how they will close the covered short position, the underwriters will consider, among other things, the price of shares of common stock available for purchase in the open market, as compared to the price at which they may purchase shares of common stock through the over-allotment option. Naked short sales are short sales in excess of the over-allotment option. The underwriters must close out any naked short position by purchasing shares of common stock in the open market. A naked short position is more likely to be created if the underwriters are concerned that, in the open market after pricing, there may be downward pressure on the price of the shares of common stock that could adversely affect investors who purchase shares of common stock in this offering.

 

   

Penalty bids—If the representative purchases shares of common stock in the open market in a stabilizing transaction or syndicate covering transaction, they may reclaim a selling concession from the underwriters and selling group members who sold those shares of common stock as part of this offering. Similar to other purchase transactions, the underwriters’ purchases to cover the syndicate short sales or to stabilize the market price of our shares of common stock may have the effect of raising

 

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or maintaining the market price of our shares of common stock or preventing or mitigating a decline in the market price of our shares of common stock. As a result, the price of the shares of our common stock may be higher than the price that might otherwise exist in the open market. The imposition of a penalty bid might also have an effect on the price of the shares of common stock if it discourages resales of the shares of common stock.

Neither we nor the underwriters makes any representation or prediction as to the effect that the transactions described above may have on the price of the shares of common stock. These transactions may occur on the NASDAQ Global Market or otherwise. If such transactions are commenced, they may be discontinued without notice at any time.

Electronic Delivery of Preliminary Prospectus

A prospectus in electronic format may be delivered to potential investors by one or more of the underwriters participating in this offering. The prospectus in electronic format will be identical to the paper version of such preliminary prospectus. Other than the prospectus in electronic format, the information on any underwriter’s web site and any information contained in any other website maintained by an underwriter is not part of the prospectus or the registration statement of which this prospectus forms a part.

Determination of Offering Price

Prior to the offering, there has not been a public market for our shares of common stock. Consequently, the public offering price for our shares of common stock has been determined by negotiations between us and the representatives of the several underwriters for this offering. Among the factors to be considered in these negotiations were the prevailing market conditions, our financial information, market valuations of other companies that we and the representatives believe to be comparable to us, estimates of our business potential, the present state of our development and other factors deemed relevant.

We offer no assurances that the public offering price will correspond to the price at which the shares of common stock will trade in the public market subsequent to the offering or that an active trading market for the shares of common stock will develop and continue after the offering.

Notice to Non-U.S. Investors

In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive, or a Relevant Member State, an offer to the public of any securities which are the subject of the offering contemplated by this prospectus may not be made in that Relevant Member State except that an offer to the public in that Relevant Member State of any securities may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:

 

  a) to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;

 

  b) to any legal entity which has two or more of (i) an average of at least 250 employees during the last financial year; (ii) a total balance sheet of more than €43,000,000 and (iii) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts;

 

  c) by the representative to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus Directive); or

 

  d) in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided, that no such offer of securities shall result in a requirement for the publication by us or any representative of a prospectus pursuant to Article 3 of the Prospectus Directive.

For the purposes of this provision, the expression an “offer to the public” in relation to any securities in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any securities to be offered so as to enable an investor to decide to purchase any securities,

 

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as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression “Prospectus Directive” means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.

Each underwriter has represented, warranted and agreed that:

 

  a) it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000, or the FSMA, received by it in connection with the issue or sale of any securities in circumstances in which section 21(1) of the FSMA does not apply to us; and

 

  b) it has complied with and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the securities in, from or otherwise involving the United Kingdom.

LEGAL MATTERS

Fenwick & West LLP, Mountain View, California, will pass upon the validity of the issuance of the shares of our common stock offered by this prospectus. Pillsbury Winthrop Shaw Pittman LLP, Palo Alto, California, is acting as counsel to the underwriters in connection with certain legal matters relating to the shares of common stock offered by this prospectus.

EXPERTS

The consolidated financial statements of Adesto Technologies Corporation and its subsidiaries as of December 31, 2013 and 2014 and for each of the two years in the period ended December 31, 2014, included in this prospectus, have been so included in reliance on the report of Burr Pilger Mayer, Inc., an independent registered public accounting firm, given on the authority of such firm as experts in accounting and auditing.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to our common stock. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits to the registration statement as permitted by the rules and regulations of the SEC. For further information with respect to us and our common stock, we refer you to the registration statement, including the exhibits filed as a part of the registration statement. Statements contained in this prospectus concerning the contents of any contract or any other document are not necessarily complete. If a contract or document has been filed as an exhibit to the registration statement, please see the copy of the contract or document that has been filed for a more complete understanding of that contract or document. Each statement in this prospectus relating to a contract or document filed as an exhibit is qualified in all respects by the filed exhibit. A copy of the registration statement, including the exhibits filed as a part of the registration statement, may be inspected without charge at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549, and copies of all or any part of the registration statement may be obtained from the SEC upon the payment of fees prescribed by it. You may call the SEC at 1-800-SEC-0330 for more information on the operation of the public reference facilities. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding companies that file electronically with it.

As a result of this offering, we will become subject to the information and reporting requirements of the Exchange Act, and, in accordance with this law, will file periodic reports, proxy statements and other information with the SEC. These periodic reports, proxy statements and other information will be available for inspection and copying at the SEC’s public reference facilities and the website of the SEC referred to above.

 

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Index to Financial Statements

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

     Page  

Adesto Technologies Corporation

  

Report of Independent Registered Public Accounting Firm

     F-2   

Consolidated Balance Sheets

     F-3   

Consolidated Statements of Operations

     F-4   

Consolidated Statements of Comprehensive Loss

     F-5   

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Deficit

     F-6   

Consolidated Statements of Cash Flows

     F-7   

Notes to Consolidated Financial Statements

     F-8   

 

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Index to Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Adesto Technologies Corporation

We have audited the accompanying consolidated balance sheets of Adesto Technologies Corporation and its subsidiaries (the “Company”) as of December 31, 2013 and 2014, and the related consolidated statements of operations, comprehensive loss, convertible preferred stock and stockholders’ deficit and cash flows for each of the two years in the period ended December 31, 2014. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Adesto Technologies Corporation and its subsidiaries as of December 31, 2013 and 2014, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2014 in conformity with accounting principles generally accepted in the United States of America.

/s/ Burr Pilger Mayer, Inc.

San Jose, California

May 14, 2015

 

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Index to Financial Statements

ADESTO TECHNOLOGIES CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

 

    December 31,     June 30,
2015
    Pro Forma as of
June 30, 2015
 
    2013     2014      
                (unaudited)  

Assets

       

Current assets:

       

Cash and cash equivalents

  $ 11,580      $ 5,972      $ 6,470      $                            

Accounts receivable, net

    4,888        1,994        4,388     

Inventories

    10,375        7,453        5,579     

Prepaid expenses

    380        239        421     

Deferred tax asset, current

    —          291        291     

Other current assets

    1,568        1,095        1,810     
 

 

 

   

 

 

   

 

 

   

Total current assets

    28,791        17,044       

 

18,959

 

  

 

 

Property and equipment, net

    2,745        1,725        1,059     

Deferred tax asset, non-current

    —          1,861        1,861     

Intangible assets, net

    12,031        10,795        10,177     

Goodwill

    22        22        22     
 

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  $ 43,589      $ 31,447      $

 

 32,078

 

  

 

  $                
 

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities, Convertible Preferred Stock and Stockholders’ Equity (Deficit)

       

Current liabilities:

       

Revolving line of credit

  $ 6,000      $ 4,273     

 

 

 

$

 

 

 

—  

 

 

 

  

  $     

Accounts payable

    9,050        7,814       

 

8,322

 

  

 

 

Income taxes payable

    8        134       

 

195

 

  

 

 

Accrued compensation and benefits

    1,207        877        1,004     

Accrued expenses and other current liabilities

    1,280        1,334        1,223     

Deferred tax liability, current

    —          726        733     

Term loan

    2,594        6,476        3,998     
 

 

 

   

 

 

   

 

 

   

Total current liabilities

    20,139        21,634     

 

 

 

 

15,475

 

 

  

 

    —     

Preferred stock warrant liability

    262        122     

 

 

 

 

 

 

903

 

 

 

  

 

 

Term loan

    6,307        —       

 

 

 

 

 

 

 

 

 

10,135

 

 

 

 

  

 

Deferred tax liability, non-current

    13        1,453     

 

 

 

 

 

 

 

1,453

 

 

 

  

 

Other liabilities, non-current

    62        23     

 

 

 

 

 

8

 

 

  

 
 

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    26,783        23,232       

 

 

27,974

 

 

  

 

 

    —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Commitments and contingencies (See Note 7)

       

Convertible preferred stock:

       

Convertible preferred stock, no par value, 153,568,221 shares authorized as of December 31, 2013 and 2014 and June 30, 2015 (unaudited); 145,856,098 shares issued and outstanding with aggregated liquidation preference of $128.4 million as of December 31, 2013 and 2014 and June 30, 2015 (unaudited); no shares issued and outstanding as of June 30, 2015 pro forma (unaudited)

    78,467        78,467     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

78,467

 

 

 

 

 

 

 

 

 

  

 

    —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Stockholders’ equity (deficit):

       

Common stock, $0.0001 par value, 220,000,000 shares authorized as of December 31, 2013 and 2014 and 485,000,000 shares authorized as of June 30, 2015 (unaudited); 17,792,319, 18,465,527 and 18,616,957 shares issued and outstanding as of December 31, 2013 and 2014 and June 30, 2015 (unaudited), respectively; 319,406,077 shares issued and outstanding as of June 30, 2015 pro forma (unaudited)

    2        2     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

    —     

Additional paid-in capital

    3,630        3,910     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,030

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

    —     

Accumulated other comprehensive loss

    (66     (3  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(191

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    —     

Accumulated deficit

    (65,227     (74,161  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(78,204

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ equity (deficit)

    (61,661     (70,252     (74,363     —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities, convertible preferred stock and stockholders’ equity
(deficit)

  $ 43,589      $ 31,447      $ 32,078      $     
 

 

 

   

 

 

   

 

 

   

 

 

 

See notes to consolidated financial statements.

 

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ADESTO TECHNOLOGIES CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

 

     Year Ended December 31,      Six Months Ended June 30,  
     2013     2014            2014                 2015        
                  (unaudited)  

Revenue

   $ 49,684      $ 41,465       $  21,062      $  20,290   

Cost of revenue

     29,738        25,532         13,034        12,236   
  

 

 

   

 

 

    

 

 

   

 

 

 

Gross profit

     19,946        15,933         8,028        8,054   
  

 

 

   

 

 

    

 

 

   

 

 

 

Operating expenses:

         

Research and development

     15,033        14,410         7,919        6,096   

Sales and marketing

     8,094        7,211         3,633        4,063   

General and administrative

     2,677        2,356         1,170        1,670   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total operating expenses

     25,804        23,977         12,722        11,829   
  

 

 

   

 

 

    

 

 

   

 

 

 

Loss from operations

     (5,858     (8,044      (4,694     (3,775
  

 

 

   

 

 

    

 

 

   

 

 

 

Other income (expense):

         

Interest expense, net

     (2,731     (864      (422     (486

Other income (expense), net

     508        114         43        289   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total other income (expense), net

     (2,223     (750      (379     (197
  

 

 

   

 

 

    

 

 

   

 

 

 

Loss before provision for income taxes

     (8,081     (8,794      (5,073     (3,972

Provision for income taxes

     72        140         110        71   
  

 

 

   

 

 

    

 

 

   

 

 

 

Net loss attributable to common stockholders

   $ (8,153   $ (8,934    $ (5,183   $ (4,043
  

 

 

   

 

 

    

 

 

   

 

 

 

Net loss per share attributable to common stockholders

         

Basic and diluted

   $ (0.46   $ (0.50    $ (0.29   $ (0.22
  

 

 

   

 

 

    

 

 

   

 

 

 

Weighted average number of shares used in computing net loss per share attributable to common stockholders

         

Basic and diluted

       17,766,856        17,892,558           17,794,873          18,503,305   
  

 

 

   

 

 

    

 

 

   

 

 

 

Pro forma net loss per share

         

Basic and diluted (See Note 1)

     $ (0.03      $ (0.01
    

 

 

      

 

 

 

Shares used in computing pro forma net loss per share

         

Basic and diluted (See Note 1)

       318,681,678           319,292,425   
    

 

 

      

 

 

 

 

 

See notes to consolidated financial statements.

 

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ADESTO TECHNOLOGIES CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

 

     Year Ended December 31,     Six Months Ended June 30,  
         2013             2014             2014             2015      
                 (unaudited)  

Net loss

   $ (8,153   $ (8,934   $ (5,183   $ (4,043

Other comprehensive income (loss), net of tax

        

Foreign currency translation adjustment

     (58     63        182        (188
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss, net of tax

   $ (8,211   $ (8,871   $ (5,001   $ (4,231
  

 

 

   

 

 

   

 

 

   

 

 

 

 

See notes to consolidated financial statements.

 

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Index to Financial Statements

ADESTO TECHNOLOGIES CORPORATION

CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT

(in thousands, except share data)

 

                Stockholders’ Deficit  
   

 

Convertible Preferred Stock

   

 

Common Stock

    Additional
Paid-In
Capital
    Accumulated
Other
Comprehensive

Loss
    Accumulated
Deficit
    Total
Stockholders’

Deficit
 
        Shares             Amount          Shares     Amount          

Balances as of December 31, 2012

    120,409,052      $ 60,366       17,713,317     $ 2     $ 3,460     $ (8 )   $ (57,074 )   $ (53,620

Issuance of convertible preferred stock, net of exchange of liability due to investors

    25,447,046        18,101       —          —          —          —          —          —     

Options exercised

    —          —          79,002        —          6        —          —          6   

Stock-based compensation

    —          —          —          —          164        —          —          164   

Foreign currency translation adjustments

    —          —          —          —          —          (58     —          (58

Net loss

    —          —          —          —          —          —          (8,153     (8,153
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances as of December 31, 2013

    145,856,098        78,467       17,792,319       2       3,630       (66 )     (65,227 )     (61,661

Options exercised

    —          —          673,208        —          34        —          —          34   

Stock-based compensation

    —          —          —          —          246        —          —          246   

Foreign currency translation adjustments

    —          —          —          —          —          63        —          63   

Net loss

    —          —          —          —          —          —          (8,934     (8,934
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances as of December 31, 2014

    145,856,098        78,467       18,465,527       2       3,910       (3 )     (74,161 )     (70,252

Options exercised (unaudited)

    —          —          151,430        —          8        —          —          8   

Stock-based compensation (unaudited)

    —          —          —          —          112        —          —          112   

Foreign currency translation adjustments (unaudited)

    —          —          —          —          —          (188     —          (188

Net loss (unaudited)

    —          —          —          —          —          —          (4,043     (4,043
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances as of June 30, 2015 (unaudited)

    145,856,098      $ 78,467        18,616,957      $ 2      $ 4,030      $ (191   $ (78,204   $ (74,363
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

See notes to consolidated financial statements.

 

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ADESTO TECHNOLOGIES CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

    Year Ended December 31, 2014     Six Months Ended June 30,  
            2013                     2014                     2014                     2015          
                (unaudited)  

Cash flows from operating activities:

       

Net loss

  $ (8,153   $ (8,934   $ (5,183   $ (4,043

Adjustments to reconcile net loss to net cash used in operating activities:

       

Stock-based compensation expense

    164        246        77        112   

Depreciation and amortization

    1,071        1,780        873        827   

Amortization of intangible assets

    3,320        1,236        618        618   

Amortization of debt discount

    1,071        115        17        217   

Deferred income taxes

    13        14        —          7   

Changes in fair value of preferred stock warrant liability

    (1,200     (206     (28     (81

Changes in assets and liabilities:

       

Accounts receivable

    3,161        2,894        2,378        (2,393

Inventory

    (5,199     2,922        229        1,874   

Prepaid and other current assets

    (170     760        384        (977

Accounts payable

    6,512        (1,236     (271     508   

Accrued compensation and benefits

    715        (330     (50     126   

Accrued expenses and other liabilities

    (1,994     159        772        (67
 

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in operating activities

    (689     (580     (184     (3,272
 

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities

       

Acquisition of property and equipment

    (2,239     (760     (596     (107

Change in restricted cash

    4,000        —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

    1,761        (760     (596     (107
 

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities

       

Proceeds from issuance of common stock

    6        34        1        8   

Proceeds from issuance of convertible preferred stock

    12,365        —          —          —     

Proceeds from convertible notes payable

    5,000        —          —          —     

Proceeds from term loan

    8,910        —          —          14,903   

Proceeds from revolving line of credit

    5,980        2,660        2,030        —     

Payments on revolving line of credit

    —          (4,462     (3,762     (4,273

Payments on term loan

    (21,730     (2,461     (600     (6,600
 

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

    10,531        (4,229     (2,331     4,038   
 

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rates on cash and cash equivalents

    (23     (39     184        (161
 

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

    11,580        (5,608     (2,927     498   

Cash and cash equivalents-beginning of year

    —          11,580        11,580        5,972   
 

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents-end of year

  $ 11,580      $ 5,972      $ 8,653      $ 6,470   
 

 

 

   

 

 

   

 

 

   

 

 

 

Supplemental disclosures of other cash flow information:

   

Cash paid for interest expense

  $ 1,983      $ 760      $ 422      $ 318   

Noncash investing and financing activities:

   

Conversion of convertible notes payable to Series D-1 convertible preferred stock, including interest

  $ 5,236      $ —        $ —        $ —     

Release of liability in conjunction with exercise of preferred stock warrant

  $ 500      $ —        $
—  
  
  $ —     

Acquisition of property and equipment under capital leases

  $ 113      $ —        $ —        $ —     

Issuance of preferred stock warrants in connection with term loan

  $ 619      $ 66      $ —        $ 863   

See notes to consolidated financial statements.

 

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ADESTO TECHNOLOGIES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Organization and Summary of Significant Accounting Policies

Organization and Nature of Operations.

Adesto Technologies Corporation (together with its subsidiaries; “we”, “our” or “us”) was incorporated in the state of California in January 2006. In connection with our planned initial public offering, we plan to reincorporate in the state of Delaware. We are a leading provider of application-specific, feature-rich, ultra-low power non-volatile memory (“NVM”) products. Our corporate headquarters are located in Sunnyvale, California.

On September 28, 2012, we purchased certain flash memory product assets from Atmel Corporation and our financial results include the operating results of those assets from the date of acquisition.

Basis of Presentation.

The consolidated financial statements include the results of our operations, and the operations of our wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.

Use of Estimates.

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) requires management to make estimates, judgments and assumptions that affect the reported amount of assets, liabilities, revenue and expenses and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate those estimates, including those related to allowances for doubtful accounts, reserves for sales, warranty accrual, inventory write-downs, valuation of long-lived assets, including property and equipment and identifiable intangible assets and goodwill, loss on purchase commitments, valuation of deferred taxes and contingencies. In addition, we use assumptions when employing the Black-Scholes option-pricing model to calculate the fair value of stock options granted and to estimate the carrying value of our convertible preferred stock warrant liability. We base our estimates of the carrying value of certain assets and liabilities on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, when these carrying values are not readily available from other sources. Actual results could differ from these estimates.

Revenue Recognition and Accounts Receivable Allowances.

We recognize revenue from product sales when persuasive evidence of an arrangement exists, the selling price is fixed or determinable, transfer of title occurs, and the collectibility of the resulting receivable is reasonably assured. Due to the historical immaterial level of product returns under warranty, we do not record a reserve for estimated returns under warranty.

Generally, we meet these conditions upon shipment because, in most cases, title and risk of loss passes to the customer at that time. In addition, we estimate and record provisions for future returns and other charges against revenue at the time of shipment, consistent with the terms of sale. We sell products to distributors at the price listed in our distributor price book. At the time of sale, we record a sales reserve for ship from stock and debits (“SSDs”), stock rotation rights and any special programs approved by management. We offset the sales reserve against revenues, producing the revenue amount reported in the consolidated statements of operations.

The market price for our products can be significantly different from the book price at which we sold the product to the distributor. When the market price, as compared to our original book price, of a particular distributor’s sales opportunity to their customers would result in low or negative margins for the distributor, we negotiate SSDs with the distributor. Management analyzes our SSD history to develop current SSD rates that form the basis of the SSD revenue reserve recorded each period. We obtain the historical SSD rates from the distributor’s records and our internal records.

 

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Index to Financial Statements

We typically grant payment terms of between 30 and 60 days to our customers. Our customers generally pay within those terms. Distributors are invoiced for shipments at listed book price. When the distributors pay the invoice, they may claim debits for SSDs previously authorized by us when appropriate. Once claimed, we process the requests against prior authorizations and adjust reserves previously established for that customer.

The revenue we record for sales to our distributors is net of estimated provisions for these programs. When determining this net revenue, we must make significant judgments and estimates. We base our estimates on historical experience rates, the levels of inventory held by our distributors, current trends and other related factors. However, because of the inherent nature of estimates, there is a risk that there could be significant differences between actual amounts and our estimates. Our consolidated financial condition and operating results depend on our ability to make reliable estimates and we believe that such estimates are reasonable.

In addition, we monitor collectibility of accounts receivable primarily through review of our accounts receivable aging. When facts and circumstances indicate the collection of specific amounts or from specific customers is at risk, we assess the impact on amounts recorded for bad debts and, if necessary, record a charge in the period such determination is made. As of December 31, 2013 and 2014, there was no allowance for doubtful accounts.

Shipping Costs.

We charge shipping costs to cost of revenue as incurred.

Product Warranty.

Our products are sold with a limited warranty for a period of one year, warranting that the product conforms to specifications and is free from material defects in design, materials and workmanship. To date, we have had insignificant returns of any defective production parts. As such, there is no accrual for warranty included in the consolidated financial statements for the periods presented.

Income Taxes.

We account for income taxes using an asset and liability approach, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the consolidated financial statements, but have not been reflected in our taxable income. Valuation allowances are established to reduce deferred tax assets as necessary when in management’s estimate, based on available objective evidence, it is more likely than not that we will not generate sufficient taxable income in future periods to realize the benefit of our deferred tax assets. We include interest and penalties related to unrecognized tax benefits in income tax expense. We recognize in our consolidated financial statements the impact of a tax position that based on its technical merits is more likely than not to be sustained upon examination.

Foreign Currency Translation.

The functional currency of our foreign subsidiaries is the local currency. In consolidation, we translate assets and liabilities at exchange rates in effect at the consolidated balance sheet date. We translate revenue and expense accounts at the average exchange rates during the period in which the transaction takes place. Net gains or losses from foreign currency translation of assets and liabilities were a loss of $0.1 million, a gain of $0.1 million, a gain of $0.2 million and a loss of $0.2 million for the years ended December 31, 2013 and 2014 and the six months ended June 30, 2014 and 2015, respectively, and are included in the cumulative translation adjustment component of accumulated other comprehensive income, net of tax, a component of stockholders’ equity (deficit). Net gains and losses arising from transactions denominated in currencies other than the functional currency were a $0.1 million gain, a $0.1 million loss, a $15,000 gain and a $0.1 million loss for the years ended December 31, 2013 and 2014 and the six months ended June 30, 2014 and 2015, respectively, and are included in other income (expense), net.

 

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Index to Financial Statements

Unaudited Pro Forma Stockholders’ Equity (Deficit).

All of our outstanding shares of convertible preferred stock (“preferred stock”) will automatically convert into shares of common stock upon the completion of an initial public offering with gross proceeds to us of not less than $30 million. We expect this offering to generate proceeds to us of at least $30 million and have assumed that all 145,856,098 shares of preferred stock would convert into 300,789,120 shares of common stock based on the shares of preferred stock outstanding as of June 30, 2015. In addition, the preferred stock warrants would convert into common stock warrants and the preferred stock warrant liability would be reclassified to additional paid-in capital in stockholders’ equity (deficit). The unaudited pro forma stockholders’ equity (deficit) as of June 30, 2015 gives effect to the automatic conversion of all outstanding shares of our preferred stock into shares of common stock and the reclassification of the preferred stock warrant liability to additional paid-in capital in stockholders’ equity (deficit).

Unaudited Interim Financial Information.

The accompanying interim consolidated balance sheet as of June 30, 2015, the interim consolidated statements of operations, comprehensive loss and cash flows for the six month periods ended June 30, 2014 and 2015, the consolidated statement of convertible preferred stock and stockholders’ deficit for the six month period ended June 30, 2015, and the related footnote disclosures are unaudited. These unaudited interim consolidated financial statements have been prepared in accordance with US GAAP applicable to interim financial statements. The interim financial statements are presented in accordance with the rules and regulations of the Securities and Exchange Commission and do not include all disclosures normally required in annual consolidated financial statements prepared in accordance with US GAAP. In management’s opinion, the unaudited interim consolidated financial statements have been prepared on the same basis as the annual financial statements and include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of our financial position as of June 30, 2015 and our consolidated results of operations and cash flows for the six months ended June 30, 2014 and 2015. The results for the six months ended June 30, 2015 are not necessarily indicative of the results expected for the year ending December 31, 2015.

Cash and Cash Equivalents.

We consider all highly liquid investments with an initial maturity of 90 days or less at the date of purchase to be cash equivalents. We maintain such funds in overnight cash deposits.

Deferred Initial Public Offering Costs.

Deferred initial public offering costs, consisting of direct and incremental legal, accounting and other fees and costs attributable to our registration statement, are capitalized. The deferred offering costs will be offset against the proceeds received upon the closing of the offering. In the event the offering does not occur in a timely manner, all of the deferred offering costs will be expensed within operations. The balance of other assets in the accompanying consolidated balance sheets as of June 30, 2015 included $0.8 million of such costs. There were no deferred offering costs capitalized as of December 31, 2013 and 2014.

Property and Equipment.

Property and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets or the term of the related lease, whichever is shorter. Estimates of useful lives are as follows:

 

    Estimated useful lives

Machinery and equipment

  2-5 years

Furniture and fixtures

  3 years

Leasehold improvements

  Shorter of lease term or 5 years

Computer software

  3 years

 

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Index to Financial Statements

Inventories.

We record inventories at the lower of standard cost (which generally approximates actual cost on a first-in, first-out basis) or market value. On a quarterly basis, we analyze inventories on a part-by-part basis. The carrying value of inventory is adjusted for excess and obsolete inventory based on inventory age, shipment history and the forecast of demand over a specific future period. At the point of loss recognition, a new lower cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in the restoration or increase in that new cost basis. The semiconductor markets that we serve are volatile and actual results may vary from forecast or other assumptions, potentially affecting our assessment of excess and obsolete inventory which could have a material effect on our results of operations.

Long-Lived Assets.

We evaluate our long-lived assets, including property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. We recognize an impairment loss when the net book value of such assets exceeds the estimated future undiscounted cash flows attributable to the asset. If impairment is indicated, we write the asset down to its estimated fair value. For all periods presented, we have not recognized any impairment losses on our long-lived assets.

Purchased Intangible Assets.

Purchased intangible assets are amortized over their useful lives unless these lives are determined to be indefinite. Purchased intangible assets with definite lives are carried at cost less accumulated amortization. Amortization is computed over the estimated useful lives of the respective assets as follows:

 

     Years  

Developed technology

     10   

Customer relationships

     12   

Customer backlog

     1   

Non-compete agreement

     5   

Goodwill.

Goodwill represents the excess of the cost of an acquisition over the sum of the amounts assigned to tangible and identifiable intangible assets acquired less liabilities assumed.

We evaluate our goodwill, at a minimum, on an annual basis and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. We perform our annual goodwill impairment test as of December 31 of each year.

When evaluating goodwill for impairment, we may initially perform a qualitative assessment which includes a review and analysis of certain quantitative factors to estimate if a reporting units’ fair value significantly exceeds its carrying value. When the estimate of a reporting unit’s fair value appears more likely than not to be less than its carrying value based on this qualitative assessment, we continue to the first step of a two step impairment test. The first step requires a comparison of the fair value of the reporting unit to its net book value, including goodwill. The fair value of the reporting units is determined based on a weighting of income and market approaches. Under the income approach, we calculate the fair value of a reporting unit based on the present value of estimated future cash flows. Under the market approach, we estimate the fair value based on market multiples of revenue or earnings for comparable companies. Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, and future economic and market conditions and determination of appropriate market comparables. We base these fair value estimates on reasonable assumptions but that are unpredictable and inherently uncertain. Actual

 

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Index to Financial Statements

future results may differ from those estimates. A potential impairment exists if the fair value of the reporting unit is lower than its net book value. The second step of the process is only performed if a potential impairment exists, and it involves determining the difference between the fair values of the reporting unit’s net assets, other than goodwill, and the fair value of the reporting unit, and, if the difference is less than the net book value of goodwill, an impairment charge is recorded. In the event that we determine that the value of goodwill has become impaired, we record a charge for the amount of impairment during the fiscal quarter in which the determination is made. We operate in one reporting unit. We conducted our annual goodwill impairment analysis in the fourth quarter of 2014 and no goodwill impairment was indicated.

Research and Development Expenses.

Research and development expenditures are expensed as incurred.

Stock-based Compensation.

We account for stock-based compensation using the fair value method. We determine fair value for stock options awarded to employees at the grant date using the Black-Scholes option pricing model, which requires us to make various assumptions, including the fair value of the underlying common stock, expected future share price volatility and expected term. We determine the fair value of stock options awarded to non-employees at each vesting date using the Black-Scholes option pricing model, and re-measure fair value at each reporting period until the services required under the arrangement are completed. Fair value is recognized as an expense on a straight-line basis over the requisite service period, which is generally the vesting period. We are required to estimate the expected forfeiture rate and only recognize expense for those stock-based awards expected to vest. We estimate the forfeiture rate based on historical experience of our stock-based awards that are granted, exercised and cancelled. If the actual forfeiture rate is materially different from our estimate, stock-based compensation expense in future periods could be significantly different from what was recorded in the current period.

Preferred Stock Warrant Liability.

We account for outstanding warrants to purchase preferred stock that are contingently redeemable as liabilities on the consolidated balance sheets at their estimated fair value because the warrants are contingently redeemable and, therefore, may obligate us to transfer assets at some point in the future. The preferred stock warrants are recorded at fair value upon issuance and are subject to re-measurement to fair value at each reporting date, with any change in fair value recognized in the consolidated statements of operations as a component of other income (expense), net. We determine fair value of the preferred stock warrants using the Black-Scholes option pricing model, which requires us to make various assumptions, including expected future share price volatility and expected term. The preferred stock warrant liability will be re-measured to its fair value at each reporting date until the earlier of the (i) exercise of the warrants, (ii) expiration of the warrants, or (iii) other triggering events as applicable to the terms of the warrant agreements, including the completion of an initial public offering, at which time the preferred stock issuable upon exercise of the warrants will become common stock and the related liability will be reclassified to additional paid-in capital in stockholders’ equity (deficit).

Concentration of Risk.

Our products are primarily manufactured, assembled and tested by third-party foundries and other contractors in Asia and we are heavily dependent on a single foundry in Taiwan for the manufacture of wafers and a single contractor in the Philippines for assembly and testing of our products. We do not have long-term agreements with either of these suppliers. A significant disruption in the operations of either of these parties would adversely impact the production of our products for a substantial period of time, which could have a material adverse effect on our business, financial condition, operating results and cash flows.

 

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Index to Financial Statements

Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and cash equivalents and accounts receivables. We place substantially all of our cash and cash equivalents on deposit with a reputable, high credit quality financial institution in the United States of America. We believe that the bank that holds substantially all of our cash and cash equivalents is financially sound and, accordingly, subject to minimal credit risk. Deposits held with the bank may exceed the amount of insurance provided on such deposits.

We generally do not require collateral or other security in support of accounts receivable. We periodically review the need for an allowance for doubtful accounts by considering factors such as historical experience, credit quality, the age of the accounts receivable balances and current economic conditions that may affect a customer’s ability to pay. As a result of our favorable collection experience and customer concentration, there was no allowance for doubtful accounts as of December 31, 2013 and 2014 and June 30, 2015.

Customer concentrations as a percentage of total revenue were as follows:

 

     Year Ended December 31,     Six Months Ended
June 30,
 
     2013     2014     2014     2015  
                 (unaudited)  

Customer A

     25     20     22     15

Customer B

     *        20     *        *   

Customer C

     12     14     18     *   

Customer D

     *        *        11     *   

 

* less than 10%

Customer concentrations as a percentage of gross accounts receivable were as follows:

 

     December 31,     June 30,
2015
 
      2013       2014     
                

(unaudited)

 

Customer A

     26     20     14

Customer B

     13     15     15

Customer C

     13     10     *   

Customer D

     *        *        *   

Customer E

     *        *        11

 

* less than 10%

Net Income (Loss) per Share.

Basic net income (loss) per share attributable to common stockholders is calculated by dividing the net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding during the period, without consideration for potentially dilutive securities. Net income (loss) attributable to common stockholders is determined by allocating undistributed earnings between holders of common and preferred stock, based on the contractual dividend rights of the holders of preferred stock including those dividends payable on preferred stock prior and in preference to the holders of common stock. Diluted net income (loss) per share attributable to common stockholders is computed by dividing the net income (loss) attributable to common stockholders for purposes of calculating diluted net income (loss) per share by the weighted average number of common shares and potentially dilutive common stock equivalents outstanding for the period determined using the treasury-stock and if-converted methods. For purposes of the diluted net income (loss) per share calculation, convertible preferred stock, common stock options, and warrants are considered to be potentially dilutive securities.

 

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Index to Financial Statements

Loss Contingencies.

We are or have been subject to claims arising in the ordinary course of business. We evaluate contingent liabilities, including threatened or pending litigation, for potential losses. If the potential loss from any claim or legal proceedings is considered probable and the amount can be estimated, we accrue a liability for the estimated loss. Because of uncertainties related to these matters, accruals are based upon the best information available. For potential losses for which there is a reasonable possibility (meaning the likelihood is more than remote but less than probable) that a loss exists, we will disclose an estimate of the potential loss or range of such potential loss or include a statement that an estimate of the potential loss cannot be made. As additional information becomes available, we reassess the potential liability related to pending claims and litigation and may revise our estimates, which could materially impact our consolidated financial statements.

Unaudited Pro Forma Net Loss per Share of Common Stock.

In contemplation of our initial public offering, we have presented the unaudited pro forma basic and diluted net loss per share of common stock, which has been computed to give effect to the automatic conversion of all series of our preferred stock into shares of common stock. Also, the numerator in the pro forma basic and diluted net loss per common share calculation has been adjusted to remove the loss resulting from the remeasurement of the fair value of the preferred stock warrant liability to fair value as if the conversion had occurred as of the beginning of the period.

Recent Accounting Pronouncements.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09 regarding ASC Topic 606— Revenue from Contracts with Customers . The standard provides principles for recognizing revenue for the transfer of promised goods or services to customers with the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance is effective for us in the first quarter of fiscal 2018 using either of two methods: (i) retrospective to each prior reporting period presented with the option to elect certain practical expedients as defined within the guidance; or (ii) retrospective with the cumulative effect of initially applying the guidance recognized at the date of initial application and providing certain additional disclosures as defined per the guidance. Early adoption is not permitted. We are currently evaluating the accounting, transition and disclosure requirements of the standard and cannot currently estimate the financial statement impact of adoption.

In August 2014, the FASB issued ASU 2014-15,  Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.  ASU 2014-15 requires management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. In doing so, companies will have reduced diversity in the timing and content of footnote disclosures than under today’s guidance. ASU 2014-15 is effective for us in the first quarter of 2016 with early adoption permitted. We do not believe the impact of adopting ASU 2014-15 will be material to our consolidated financial statements and disclosure.

Note 2. Balance Sheet Components.

Accounts Receivable, Net.

Accounts receivable, net consisted of the following (in thousands):

 

     December 31,      June 30,  
     2013      2014      2015  
                   (unaudited)  

Accounts receivable

   $ 11,874       $ 6,079       $ 8,962   

Allowance for SSDs

     (6,986      (4,085      (4,574
  

 

 

    

 

 

    

 

 

 

Total accounts receivable, net

   $ 4,888       $ 1,994       $ 4,388   
  

 

 

    

 

 

    

 

 

 

 

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Index to Financial Statements

Inventories.

Inventories consisted of the following (in thousands):

 

     December 31,      June 30,  
     2013      2014      2015  
                   (unaudited)  

Raw materials

   $ 2,939       $ 728       $ 1,145   

Work-in-process

     5,673         4,707         3,145   

Finished goods

     1,763         2,018         1,289   
  

 

 

    

 

 

    

 

 

 

Total inventories

   $ 10,375       $ 7,453       $ 5,579   
  

 

 

    

 

 

    

 

 

 

For the years ended December 31, 2013 and 2014 and six months ended June 30, 2014 we recorded inventory write-downs of $2.3 million, $0.8 million, and $2.1 million, respectively. Inventory charges we recorded were primarily associated with products built in excess of customer demand which resulted in excess inventory levels, legacy products for which no demand exists and lower of cost or market reserves associated with CBRAM products for which costs exceeded market value. For the six months ended June 30, 2015, we realized a benefit of $0.7 million from sales of inventory previously written off.

Other Current Assets.

Other current assets consisted of the following (in thousands):

 

     December 31,      June 30,  
     2013      2014      2015  
                   (unaudited)  

Foreign research credit receivable

   $ 1,412       $ 947       $ 865   

Deferred initial public offering costs

     —           —           792   

Other current assets

     156         148         153   
  

 

 

    

 

 

    

 

 

 

Total other current assets

   $ 1,568       $ 1,095       $ 1,810   
  

 

 

    

 

 

    

 

 

 

Property and Equipment, Net.

Property and equipment, net consisted of the following (in thousands):

 

     December 31,      June 30,  
     2013      2014      2015  
                   (unaudited)  

Machinery and equipment

   $ 5,381       $ 6,114       $ 6,226   

Furniture and fixtures

     73         77         77   

Leasehold improvements

     123         146         141   

Computer software

     668         668         668   
  

 

 

    

 

 

    

 

 

 

Property and equipment, at cost

     6,245         7,005         7,112   

Accumulated depreciation and amortization

     (3,500      (5,280      (6,053
  

 

 

    

 

 

    

 

 

 

Property and equipment, net

   $ 2,745       $ 1,725       $ 1,059   
  

 

 

    

 

 

    

 

 

 

Depreciation and amortization expense of property and equipment for the years ended December 31, 2013 and 2014 and six months ended June 30, 2014 and 2015 was $1.1 million, $1.8 million, $0.9 million and $0.8 million, respectively.

 

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Accrued Expenses and Other Current Liabilities.

Accrued expenses and other current liabilities consisted of the following (in thousands):

 

     December 31,      June 30,  
     2013      2014      2015  
                   (unaudited)  

Accrual for losses on wafer purchase commitments

   $ 561       $ 583       $ 307   

Accrued sales commissions payable

     234         315         588   

Other accrued liabilities

     485         436         328   
  

 

 

    

 

 

    

 

 

 

Total accrued expenses and other current liabilities

   $ 1,280       $ 1,334       $ 1,223   
  

 

 

    

 

 

    

 

 

 

Note 3. Fair Value Measurements.

Fair value is defined as the exchange price that would be received from selling an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We measure financial assets and liabilities at fair value at each reporting period using a fair value hierarchy which requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value:

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

Level 2 . Quoted prices for similar assets and liabilities in active markets or inputs other than quoted prices which are observable for the assets or liabilities, either directly or indirectly through market corroboration, for substantially the full term of the financial instruments.

Level 3 . Unobservable inputs which are supported by little or no market activity and which are significant to the fair value of the assets or liabilities.

Financial liabilities measured at fair value on a recurring basis were as follows:

 

     Fair Value Measurement as of Reporting Date Using  
     Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
     Significant
Other
Observable
Inputs

(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
     Total  
     (in thousands)  

As of December 31, 2013

  

Liabilities:

           

Preferred stock warrant liability

   $ —         $ —         $ 262       $ 262   
  

 

 

    

 

 

    

 

 

    

 

 

 

As of December 31, 2014

           

Liabilities:

           

Preferred stock warrant liability

   $ —         $ —         $ 122       $ 122   
  

 

 

    

 

 

    

 

 

    

 

 

 

As of June 30, 2015 (unaudited)

           

Liabilities:

           

Preferred stock warrant liability

   $ —         $ —         $ 903       $ 903   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Index to Financial Statements

We used the Black-Scholes option pricing model to determine the fair value of the warrants to purchase preferred stock, including the consideration of underlying common stock price, a risk-free interest rate, expected term and expected volatility. Certain inputs used in the model are unobservable. The fair values could change significantly based on future market conditions. The following table presents quantitative information about the inputs used for our fair value measurements classified in Level 3 of the fair value hierarchy as of December 31, 2013 and 2014:

 

     Year Ended December 31,  
         2013             2014      
              

Volatility

     65     40 %

Expected dividend yield

     —          —     

Risk-free rate

     1.25     1.74 %

Expected term (in years)

     6        6   

We have periodically determined the estimated fair value of our common stock at various dates using contemporaneous valuations performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation . Our most recent common stock valuation as of June 30, 2015, was performed using the probability-weighted expected return method (“PWERM”) whereby the value of the various classes of securities are estimated based upon the analysis of future values for us assuming various possible future liquidity events such as an initial public offering (“IPO”), sale or merger. Share value is based upon the probability-weighted present value of expected future net cash flows, considering each of the possible future events, as well as the rights and preferences of each share class. The PWERM was selected due to our established nature, the prospect of a near term exit via an IPO or sale, and our ability to reasonably forecast financial performance.

First, we considered the most likely future liquidity event scenarios to be used in the PWERM analysis. Those scenarios were selected to be (i) an IPO completed on September 30, 2015, (ii) an IPO completed on March 31, 2016, (iii) a sale completed on December 31, 2015, (iv) a sale completed on March 31, 2016, and (v) an orderly liquidation completed on December 31, 2016. The probability applied to each scenario was estimated by the board of directors to be 35%, 20%, 15%, 15%, and 15%, respectively.

Second, our future total equity values for the IPO scenarios were estimated using our prospective cash flows and the application of a next-twelve-month (“NTM”) revenue multiple of 1.8x and 1.9x based on a review of selected similar guideline public companies. Our future total equity values for the sale scenarios were estimated using our prospective cash flows and the application of a last-twelve-month (“LTM”) revenue multiple of 2.3x and 2.5x based on a review of selected similar M&A transactions. Our future total equity value for the orderly liquidation scenario was based upon an asset approach, where the value of our assets and liabilities were adjusted based on estimated salvage values in an orderly liquidation. For each scenario, the values of cash and debt were adjusted to expected balances as of the liquidity date for each scenario.

Third, the future total equity value for each scenario was bifurcated to each class of security based upon their respective rights and preferences. Security classes included convertible preferred stock (by seniority), outstanding warrants to purchase convertible preferred stock, common stock, and outstanding options to purchase common stock. Under the IPO scenarios, the convertible preferred stock was assumed to automatically convert to common stock without receiving a liquidation preference. Under the sale scenarios, the convertible preferred stock was assumed to receive its respective liquidation preferences and then participate with the common stock on a pro rata basis on any remaining distributions with no cap on participation. The total distributions to common stock were aggregated under each scenario and divided by the total shares of common stock outstanding to determine the share value for the common stock at the subject liquidity date.

 

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Index to Financial Statements

Fourth, the concluded share values for the common stock for each scenario were then discounted to present value using a reasonable rate of return applicable to our prospective risks. The concluded discount rate of 25.1% was based on an application of the weighted average cost of capital (“WACC”) using the capital asset pricing method (“CAPM”).

Lastly, we estimated the discount for lack of marketability (“DLOM”) to be applied to the shares of common stock. The DLOM reflects the lower value placed on securities that are not freely transferable, as compared to those that trade frequently in established markets. The DLOMs were estimated using the protective put method and ranged between 0% to 12.5%, depending on the scenario.

In addition, in order to estimate warrant liabilities, preferred stock warrants were also valued using the above methodologies and assumptions. It should be noted that, prior to IPO or sale, no future financing rounds are expected.

The assumptions underlying these valuations represent management’s best estimates, which involve inherent uncertainties and the application of management judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, the valuation of our equity-based compensation could be materially different. The key subjective factors and assumptions used in our valuation of as of June 30, 2015 primarily consisted of:

 

    the probability and timing of the various possible liquidity scenarios;

 

    the estimate of prospective cash flows leading up to each liquidity scenario;

 

    the selection of LTM and NTM revenue multiples based on a review of selected similar guideline public company and M&A transaction data;

 

    the estimated rate of return using the WACC; and

 

    the estimated DLOM.

The following table sets forth a reconciliation the changes in fair value of preferred stock warrants (in thousands):

 

Balance as of December 31, 2012

   $ 843   

Issuance of preferred stock warrants

     619   

Change in fair value of preferred stock warrants

     (1,200
  

 

 

 

Balance as of December 31, 2013

     262   

Issuance of preferred stock warrants

     66   

Change in fair value of preferred stock warrants

     (206
  

 

 

 

Balance as of December 31, 2014

     122   

Issuance of preferred stock warrants (unaudited)

     862   

Change in fair value of preferred stock warrants (unaudited)

     (81
  

 

 

 

Balance as of June 30, 2015 (unaudited)

   $ 903   
  

 

 

 

As of December 31, 2013 and 2014 and June 30, 2015, we did not have any assets that are measured at fair value on a recurring basis.

 

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Note 4. Purchased Intangible Assets.

In 2012, in connection with our purchase of the serial flash memory product line assets from Atmel Corporation, we recorded $16.4 million of intangible assets (see Note 13).

Intangible assets were as follows (in thousands):

 

          December 31, 2013  
     Estimated Useful
Life (in Years)
   Gross Carrying
Amount
     Accumulated
Amortization
     Net Carrying
Amount
 

Developed technology

   10    $ 4,282       $ 535       $ 3,747   

Customer relationships

   12      9,011         938         8,073   

Customer backlog

   1      2,779         2,779         —     

Non-compete agreement

   5      282         71         211   
     

 

 

    

 

 

    

 

 

 

Total intangible assets subject to amortization

      $ 16,354       $ 4,323       $ 12,031   
     

 

 

    

 

 

    

 

 

 

 

     December 31, 2014  
     Gross Carrying
Amount
     Accumulated
Amortization
     Net Carrying
Amount
 

Developed technology

   $ 4,282       $ 964       $ 3,318   

Customer relationships

     9,011         1,689         7,322   

Customer backlog

     2,779         2,779         —     

Non-compete agreement

     282         127         155   
  

 

 

    

 

 

    

 

 

 

Total intangible assets subject to amortization

   $ 16,354       $ 5,559       $ 10,795   
  

 

 

    

 

 

    

 

 

 
     June 30, 2015  
     Gross Carrying
Amount
     Accumulated
Amortization
     Net Carrying
Amount
 
     (unaudited)  

Developed technology

   $ 4,282       $ 1,178       $ 3,104   

Customer relationships

     9,011         2,065         6,946   

Customer backlog

     2,779         2,779         —     

Non-compete agreement

     282         155         127   
  

 

 

    

 

 

    

 

 

 

Total intangible assets subject to amortization

   $ 16,354       $ 6,177       $ 10,177   
  

 

 

    

 

 

    

 

 

 

We recorded amortization expense related to the acquisition-related intangible assets as follows (in thousands):

 

     Year ended December 31,      Six Months Ended June 30,  
         2013              2014              2014              2015      
                   (unaudited)  

Operating expense category:

           

Research and development

   $ 429       $ 429       $ 242       $ 242   

Sales and marketing

     2,891         807         376         376   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 3,320       $ 1,236       $ 618       $ 618   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Index to Financial Statements

The annual expected amortization expense of acquisition-related intangible assets subject to amortization as of December 31, 2014 is as follows (in thousands):

 

Year Ended December 31,

      

2015

   $ 1,236   

2016

     1,236   

2017

     1,221   

2018

     1,179   

2019

     1,179   

Thereafter

     4,744   
  

 

 

 

Total

   $ 10,795   
  

 

 

 

Note 5. Borrowings.

Bridge Bank Loan.

In October 2013, we entered into the Business Financing Agreement (the “BFA”) with Bridge Bank N.A. The agreement consists of both a revolving credit facility under which we may borrow up to 80% of eligible accounts receivable but not to exceed $7.5 million and a term loan in the amount of $9.0 million. Interest on the revolving credit facility accrues at the bank’s prime rate, which under the BFA shall not be less than 3.25%, plus 1.25% while interest on the term loan accrues at the bank’s prime rate plus 3%. Under the term loan, we are required to make interest only payments through April 2014 and principal payments of $300,000 monthly thereafter plus interest. Borrowings under the BFA are secured by all of our assets and are subject to certain financial covenants, including maintaining minimum levels of EBITDA on a quarterly basis and a certain minimum asset coverage ratio based on the ratio of unrestricted cash plus certain accounts receivable to total outstanding under the agreement.

In 2014, we were not in compliance with certain financial covenants. As a result, in October 2014, we entered into the First Business Financing Modification Agreement (the “BFA Modification”) under which the covenant defaults were waived. The BFA Modification (i) increases the interest rate charged on the term loan from the bank’s prime rate plus 3% to the bank’s prime rate plus 4% declining to the bank’s prime rate plus 3% upon the raising of additional equity of not less than $2.5 million, (ii) requires us to continue to maintain certain minimum levels of EBITDA and asset coverage ratios, (iii) requires us to maintain unrestricted cash of not less than $4.25 million until that point at which we either receive additional equity of not less than $5.0 million or maintain a debt service coverage ratio of not less than 1.00 to 1.00 (based on the ratio of EBITDA to current portion of total amounts outstanding under the BFA Modification plus period-to-date interest expense payments) for two consecutive quarters.

In addition, under the BFA the bank was paid a facility fee of $82,500 at closing. Under the BFA Modification, the bank was paid an additional facility fee of $50,000 and received a warrant to purchase 49,123 shares of our Series E convertible preferred stock. The facility fees and the value of the warrant, $0.1 million, were recorded as debt discount and are being amortized over the life of the agreement. Amortization of debt discount was immaterial during 2013 and $0.1 million in 2014. As of December 31, 2014, the remaining unamortized debt discount was $0.1 million.

As of December 31, 2014 we were not in compliance with the financial covenants of the agreements and all amounts due under the agreement are shown as current on the consolidated balance sheets. Borrowings of $10.9 million under this facility were repaid in full in April 2015 (see Note 15).

 

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Index to Financial Statements

Opus Bank Term Loan.

In September 2012, we entered into a Credit Agreement with Opus Bank for a $22.5 million term loan maturing September 2015. The loan was secured by all of our assets. We used $22.2 million in net proceeds from the loan to purchase the serial flash memory business assets from Atmel Corporation in 2012 (see Note 13), which we repaid in full in October 2013. Interest on the loan was payable monthly at a rate equal to the greater of (i) the Wall Street Journal Prime Rate plus a 4.50% margin, or (ii) 7.75% and monthly principal payments of $625,000 beginning November 1, 2012 and continuing on a monthly basis until the loan was paid in full. The Credit Agreement included a commitment fee of $225,000 that was due upon closing, and we also issued Opus Bank a warrant to purchase 1,184,210 shares of Series D preferred stock at a price per share of $0.95 (see Note 8). The Credit Agreement was amended in November 2012, and in connection therewith, on each of March 31, 2013 and June 30, 2013, we issued to Opus Bank a warrant to purchase 592,105 shares of Series D preferred stock at a price per share of $0.95 (see Note 8).

In April 2015, we entered into a three-year $15.0 million credit agreement, or the new term loan facility, which replaced our prior senior secured revolving credit and term loan facility. The agreement provides for a senior secured term loan facility, in an aggregate principal amount of up to $15.0 million to be used for general corporate purposes including working capital, to repay certain indebtedness and for capital expenditures and other expenses. Interest will accrue on any outstanding borrowings at a rate equal to (a) the higher of (i) the prime rate (as publicly announced from time to time by the Wall Street Journal) and (ii) 3.25% plus (b) (i) 1.00% if our cash and cash equivalents are greater than 125% of the outstanding principal of our borrowings under the new term loan facility, or (ii) 2.00% if our cash and cash equivalents are less than or equal to 125% of such borrowings. Indebtedness we incur under this agreement is secured by substantially all of our assets and contains financial covenants requiring us to maintain a monthly asset coverage ratio of not less than 1.00 to 1.00 through September 30, 2015 and 1.10 to 1.00 thereafter, and quarterly adjusted EBITDA (measured on a trailing three-month basis) of $1 through March 31, 2016 and increasing to higher levels thereafter. These financial covenants are substantially similar to the ones in our prior credit facility. The agreement contains customary affirmative and negative covenants, including covenants that limit or restrict our ability to, among other things, incur additional indebtedness, grant liens, make investments, repurchase stock, pay dividends, transfer assets, merge or consolidate and make acquisitions. Upon an occurrence of an event of default, we could be required to pay interest on all outstanding obligations under the agreement at a rate of five percent above the otherwise applicable interest rate, and the lender may accelerate our obligations under the agreement. As of June 30, 2015, we were in compliance with all financial covenants and restrictions and had borrowings of $15.0 million outstanding. We may not draw additional funds under the new term loan facility and our borrowings mature on April 30, 2018.

In connection with the new term loan facility, Opus Bank received a warrant to purchase 1,052,632 shares of Series E convertible preferred stock. In addition, we paid financing costs of $0.1 million. The financing costs and the value of the warrant, $0.9 million, were recorded as debt discount and are being amortized over the life of the agreement. Amortization of debt discount was $0.1 million during the six months ended June 30, 2015. As of June 30, 2015, the remaining unamortized debt discount was $0.9 million.

Note Purchase Agreement.

In January and February of 2013 we issued a total of $5.0 million of subordinated convertible promissory notes. We used the proceeds for repayment of certain indebtedness, working capital and general corporate purposes. Interest accrued on the notes at the lower of 8% or the highest lawful rate. In August 2013, the notes converted into 7,348,235 shares of Series D-1 convertible preferred stock reflecting conversion of the $5.0 million principal amount and $0.2 million of accrued interest.

 

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Outstanding borrowings consisted of the following (in thousands):

 

     December 31,      June 30,  
     2013      2014      2015  
                   (unaudited)  

Revolving line of credit

   $ 6,000       $ 4,273       $ —     

Term loan, current

     2,594         6,476         3,998   

Term loan, non-current

     6,307         —           10,135   
  

 

 

    

 

 

    

 

 

 

Total

   $ 14,901       $ 10,749       $ 14,133   
  

 

 

    

 

 

    

 

 

 

Future repayments on outstanding borrowings (excluding unamortized discount of $0.1 million as of December 31, 2014) are as follows (in thousands):

 

Year ending December 31,

      

2015

   $ 7,873   

2016

     3,000   
  

 

 

 
   $ 10,873   
  

 

 

 

Future repayments on outstanding borrowings (excluding unamortized discount of $0.9 million as of June 30, 2015) are as follows: (in thousands)

 

Year ending December 31,

      

2015

   $ 1,000   

2016

     6,000   

2017

     6,000   

2018

     2,000   
  

 

 

 
   $ 15,000   
  

 

 

 

Interest expense incurred under our borrowings was $2.7 million, $0.8 million, $0.4 million and $0.5 million for the years ended December 31, 2013 and 2014, and the six months ended June 30, 2014 and 2015, respectively.

Note 6. Segment Information.

We operate in one business segment, application-specific, feature-rich, ultra-low power NVM products. Our chief decision-maker, the President and Chief Executive Officer, evaluates our performance based on company-wide consolidated results. Revenue is evaluated based on product category and by geographic region.

Product revenue from customers is designated based on the geographic region to which the product is delivered. Revenue by geographic region was as follows (in thousands):

 

     Year Ended December 31,      Six Months Ended June 30,  
         2013              2014              2014              2015      
                   (unaudited)  

United States

   $ 7,679       $ 7,318       $ 3,908       $ 3,981   

Rest of Americas

     900         751         313         334   

Europe

     8,370         7,261         4,935         2,525   

Asia Pacific

     32,467         25,885         11,764         13,261   

Rest of world

     268         250         142         189   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 49,684       $ 41,465       $ 21,062       $ 20,290   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Index to Financial Statements

Long-lived assets are attributed to the geographic region were they are located. Long-lived assets by geographic region were as follows (in thousands):

 

     December 31,      June 30,  
         2013              2014              2015      
                   (unaudited)  

United States

   $ 1,216       $ 620       $ 432   

Asia Pacific

     1,414         1,105         627   

Rest of world

     115         —           —     
  

 

 

    

 

 

    

 

 

 

Total

   $ 2,745       $ 1,725       $ 1,059   
  

 

 

    

 

 

    

 

 

 

Note 7. Commitments and Contingencies.

Operating Leases.

We lease facilities under non-cancellable lease agreements which expire in August 2015. Rent expense under operating leases was $0.7 million for each of the years ended December 31, 2013 and 2014, and $0.3 million and $0.4 million for the six months ended June 30, 2014 and 2015, respectively. Future minimum lease payments under operating leases for 2015 are $0.2 million.

Capital Leases.

We have entered into various lease agreements for equipment and software under capital leases with terms of between 24 to 48 months. The equipment and software under the leases are collateral for the lease obligations and are included within property, plant and equipment, net, on the consolidated balance sheets. Future minimum commitments for capital leases as of December 31, 2014 are as follows (in thousands):

 

Payments due in 2015

   $ 75   
  

 

 

 

Total minimum lease payments

     75   

Less: Amounts representing interest

     (13
  

 

 

 

Present value of capital lease obligations and current portion of capital lease obligations

   $ 62   
  

 

 

 

Obligations under capital leases are included in accrued expenses and other current liabilities in the consolidated balance sheets.

Equipment acquired under capital leases is included in property and equipment, net and consisted of the following (in thousands):

 

     December 31,      June 30,
2015
 
     2013      2014     
                   (unaudited)  

Computer software

   $ 108       $ 108       $ 108   

Office equipment

     49         49         49   

Machinery and equipment

     44         44         44   
  

 

 

    

 

 

    

 

 

 

Property and equipment, at cost

     201         201         201   

Accumulated depreciation and amortization

     (81      (114      (161
  

 

 

    

 

 

    

 

 

 

Total

   $ 120       $ 87       $ 40   
  

 

 

    

 

 

    

 

 

 

 

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Index to Financial Statements

Purchase Commitments.

As of December 31, 2014 we had purchase commitments with our third-party foundries and other suppliers of $4.3 million due within one year, of which $0.6 million has been accrued as a loss on wafer purchase commitments.

Litigation.

Although we are not currently subject to any litigation, and no litigation is currently threatened against us, we may be subject to legal proceedings, claims and litigation, including intellectual property litigation, arising in the ordinary course of business. Such matters are subject to many uncertainties and outcomes and are not predictable with assurance. We accrue amounts that we believe are adequate to address any liabilities related to legal proceedings and other loss contingencies that we believe will result in a probable loss that is reasonably estimable.

Indemnification .

During the normal course of business, we may make certain indemnities, commitments and guarantees which may include intellectual property indemnities to certain of our customers in connection with the sales of our products and indemnities for liabilities associated with the infringement of other parties’ technology based upon our products. Our exposure under these indemnification provisions is generally limited to the total amount paid by a customer under the agreement. However, certain agreements include indemnification provisions that could potentially expose us to losses in excess of the amount received under the agreement. In addition, we indemnify our officers, directors and certain key employees while they are serving in good faith in such capacities.

We have not recorded any liability for these indemnities, commitments and guarantees in the accompanying consolidated balance sheets. Where necessary, we accrue for losses for any known contingent liabilities, including those that may arise from indemnification provisions, when future payment is probable.

Note 8. Convertible Preferred Stock and Convertible Preferred Stock Warrants

Convertible Preferred Stock.

We have authorized and issued Series A preferred stock (“Series A”), Series B preferred stock (“Series B”), Series C preferred stock (“Series C”), Series D preferred stock (“Series D”), Series D-1 preferred stock (“Series D-1”), and Series E preferred stock (“Series E”). Preferred stock consisted of the following:

 

     Shares
Authorized
     Shares Issued and
Outstanding
     Aggregate Liquidation
Value
     Carrying
Value
 
     (in thousands, except shares)  

Series A

     35,892,856         35,714,285       $ 12,000       $ 11,836   

Series B

     43,262,987         43,019,481         15,900         15,815   

Series C

     27,652,734         27,652,734         19,357         19,257   

Series D

     17,105,257         14,736,837         14,000         13,958   

Series D-1

     7,354,387         7,348,235         5,236         5,236   

Series E

     22,300,000         17,384,526         61,932         12,365   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     153,568,221         145,856,098       $ 128,425       $ 78,467   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Index to Financial Statements

The rights, preferences and privileges of our preferred stock are as follows:

Dividends. Holders of preferred stock are entitled to receive, pari passu but in preference to the common stockholders, when and as declared by our Board of Directors, but only out of funds that are legally available therefore, non-cumulative cash dividends at the annual rate of eight percent of the original issue price as follows:

 

Class of Shares

   Dividend Per
Share
 

Series A

   $ 0.02688   

Series B

   $ 0.02957   

Series C

   $ 0.05600   

Series D

   $ 0.07600   

Series D-1

   $ 0.05700   

Series E

   $ 0.05700   

No dividends have been declared to date.

Liquidation. The holders of preferred stock and certain of our employees who are eligible to participate in a Management Carve-out Plan have preferences over the holders of common stock in the event of any voluntary or involuntary liquidation, dissolution or winding up of the company, including a merger, consolidation or sale of assets (each a “liquidation event”). These holders have the right to redeem their shares only upon a liquidation event. The amount to be paid per share for the preferred stock is $0.3360 for Series A, $0.3696 for Series B, $0.70 for Series C, $0.95 for Series D, $0.7125 for Series D-1 and an aggregate of $3.5625 for Series E (each as adjusted for certain recapitalization events) plus any declared and unpaid dividends. Holders of Series E are entitled to receive $2.1375 prior and in preference to other holders of preferred stock and the employees eligible to participate in the Management Carve-out Plan to be adopted by our Board of Directors upon a liquidation event. We have set aside an aggregate amount of up to 10% of the proceeds from the liquidation event for payments to such employees (the “Management Carve-out Payments”). The Management Carve-out Payments are made before any payments to the holders of Series D-1, Series D, Series C, Series B, Series A or common stock. After the Management Carve-out Payments holders of Series E are entitled to receive a second payment of $1.425 prior to the other holders of preferred stock and then the Series D-1 and Series D are entitled to receive their liquidation preference pari passu, followed by the Series C, the Series B and the Series A.

Thereafter, any remaining assets available for distribution would be distributed on a pro rata basis to the holders of preferred stock (on an as converted basis) and common stock based on the number of shares of common stock held by each stockholder. If upon liquidation, our assets are not sufficient to permit payment of the full liquidation preference of the preferred stock, the assets will be distributed first to the holders of Series E on a pro rata basis based on the number of shares held by each Series E stockholder, then the Management Carve-out Payments, then to the Series D and Series D-1 together on a pro rata basis, and then sequentially to each of the Series C, Series B and series A on a pro rata basis until all assets have been distributed.

Voting. Each holder of preferred stock is entitled to one vote for each share of common stock into which such holder’s shares of preferred stock is then convertible. The holders of preferred stock vote together with the holders of common stock as a single class unless otherwise provided by law or our articles of incorporation.

Conversion. Each outstanding share of preferred stock is convertible, at the holder’s option into shares of common stock at a conversion rate determined by dividing the original issue price for such share by the then applicable conversion price for such share, with the conversion price subject to adjustment in the event of certain anti-dilutive issuances of shares of common stock. As of December 31, 2014, each share of Series A, Series B, Series C, Series D-1 and Series E would convert at the holder’s option into common stock on a one-for-one basis and the Series D would convert at the holder’s option on an approximately 1-to-1.03 basis.

Each share of Series A, Series B, Series C, Series D and Series D-1 will automatically convert at the then-effective conversion rate into shares of common stock upon the closing of a firm commitment underwritten initial

 

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Index to Financial Statements

public offering pursuant to an effective registration statement under the Securities Act of 1933, with gross proceeds to us of not less than $30 million (“qualified IPO”), and each share of Series E will automatically convert on a 1-to-9.8841 basis in the event of a qualified IPO. In addition, each share of preferred stock will automatically convert at the then-effective conversion ratio into shares of common stock upon receipt by us of a written request for such conversion from the holders of (a) 90% of the Series E and (b) two-thirds of each other series of preferred stock.

Preferred Stock Warrants.

As of the dates below, outstanding preferred stock warrants and associated fair values are as follows (fair value in thousands):

 

Class of

Shares

   Number of
Shares
     December 31,      June 30,
2015
     Exercise
Price
Per Share
           
      2013      2014            Issuance date    Expiration date
                   (unaudited)                   

Series A

     178,571       $ 1       $ —         $ —         $ 0.3360       2008    2015

Series B

     243,506         6         6         —         $ 0.3696       2010    2017

Series D

     2,368,420         255         60         —         $ 0.9500       2012-2013    2019

Series E

     1,101,755         —           56         903       $ 0.7125       2014-2015    2022-2024
  

 

 

    

 

 

    

 

 

    

 

 

          
     3,892,252       $ 262       $ 122       $ 903            
  

 

 

    

 

 

    

 

 

    

 

 

          

In connection with a capital lease financing in January 2008, we issued a warrant to purchase 178,571 shares of Series A at $0.336 per share. In January 2015, this warrant expired unexercised.

In connection with a capital lease financing in February 2010, we issued a warrant to purchase 243,506 shares of Series B at $0.3696 per share. The warrants are exercisable any time at the option of the holder and expire at the earlier of February 2017, an initial public offering, or an acquisition. This warrant was initially valued at $57,000 and recorded as a liability.

Pursuant to a joint development agreement we entered into with a third party in May 2010, we issued a warrant in March 2012 to purchase 2,857,143 shares of Series C at an exercise price of $0.70 per share. Of these, 2,142,858 were exercised in 2012 and 714,285 were exercised in 2013 in conjunction with a release of a liability. This warrant was initially valued at $1.5 million and recorded as a liability.

In connection with a term loan financing with Opus Bank, in September 2012 we issued a warrant to purchase 1,184,210 shares of Series D at a price per share of $0.95. In addition, in connection with a first amendment of the term loan financing with Opus Bank, on each of March 31, 2013 and June 30, 2013 we issued to Opus Bank a warrant to purchase 592,105 shares of Series D at a price per share of $0.95. The warrants were exercisable any time at the option of the holder and expire at the earlier of September 2019, an initial public offering, or an acquisition. The warrants were initially valued at $1.3 million and recorded as a liability.

In connection with a BFA Modification agreement with Bridge Bank, in October 2014 we issued a warrant to purchase 49,123 shares of Series E at a price per share of $0.7125. The warrant was exercisable any time at the option of the holder and expires at the earlier of October 2024, an initial public offering, or an acquisition. The warrant was initially valued at $0.1 million and recorded as a liability.

As of December 31, 2013 and 2014 and June 30, 2015, the fair value of preferred stock warrants was $0.3 million, $0.1 million and $0.9 million, respectively, and classified as long-term liabilities, as the warrants primarily expire in periods beyond one year from December 31, 2014. The warrants are subject to re-measurement at each balance sheet date with any change in fair value recognized as a component of other income (expense), net in our consolidated statements of operations.

 

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During the years ended December 31, 2013 and 2014 and the six months ended June 30, 2014 and 2015, we recorded income of $1.2 million, $0.2 million, $28,000 and $81,000 respectively, for the change in fair value of these warrants. We will continue to adjust the liability for changes in fair value until the earlier of the exercise or expiration of the warrants or the completion of a liquidation event, including the completion of a qualified initial public offering, at which time all preferred stock warrants will be converted into warrants to purchase common stock and, accordingly, the liability will be reclassified to additional paid-in capital.

Note 9. Common Stock, Common Stock Warrants and Stock Option Plan.

Common Stock.

We were authorized to issue 220,000,000 shares of common stock with no par value per share as of December 31, 2013 and 2014 and 485,000,000 shares of common stock with no par value per share as of June 30, 2015. Each holder of common stock is entitled to one vote per share. The holders of common stock are also entitled to receive dividends, when and if declared by our Board of Directors, subject to the consent of two-thirds of the outstanding preferred stock and their preferential dividend rights.

Common Stock Reserved for Future Issuance.

As of December 31, 2014 and June 30, 2015, we had reserved shares of common stock for future issuances as follows:

 

     December 31,
2014
     June 30,
2015
 
           

(unaudited)

 

Preferred stock

     300,789,120         300,789,120   

Warrants to purchase preferred stock

     3,354,326         13,580,074   

Warrants to purchase common stock

     7,214,408         7,214,408   

Stock option plan:

     

Options outstanding

     19,950,879         24,586,662   

Options available for future grants

     4,899,611         61,612,398   
  

 

 

    

 

 

 

Total

     336,208,344         407,782,662   
  

 

 

    

 

 

 

Common Stock Warrants.

As of December 31, 2014 and June 30, 2015, outstanding common stock warrants were as follows:

 

Total amount of securities

issuable under the

outstanding warrants

   Exercise
Price
   Issuance
date
   Expiration
date
    3,787,879         $ 0.06          2009          2016  
    946,970         $ 0.06          2011          2016  
    2,479,559         $ 0.12          2011          2018  
 

 

 

                
    7,214,408                  
 

 

 

                

Common stock warrants are convertible at the option of the holder any time after the date of issuance into shares of our common stock. The aggregate amount of shares of common stock that would be issued is determined by dividing the exercisable price by the conversion price applicable on the date of conversion multiplied by the number of warrants exercised. When a public market exists for our common stock, the conversion price is equal to certain quoted prices for our common stock five trading days prior to the date of conversion. When no public market exists for our common stock, the fair value is determined by our Board of Directors. When a warrant is

 

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exercised in connection with our initial public offering, the conversion price is equal to the per share offering price to the public in the initial public offering.

2007 Equity Incentive Plan.

In 2007, our Board of Directors and shareholders approved the 2007 Equity Incentive Plan (the “2007 Plan”) under which 9,000,000 shares of common stock were reserved and available for the issuance of stock options and restricted stock to eligible participants. The 2007 Plan has been subsequently amended to increase the number of shares of common stock reserved for issuance under the 2007 Plan to 26,000,000 and during the six months ended June 30, 2015, the number of shares reserved for issuance under the 2007 Plan has been increased to 87,500,000. Options and restricted stock awards may be granted at a price per share not less than the 85% of the fair value at the date of grant or award, respectively. Restricted stock awarded to persons controlling more than 10% of our stock may be granted at a price per share not less than the 100% of the fair value at the date of the award. Options granted to new employees generally vest over a four-year period with 25% vesting at the end of one year and the remaining to vest monthly thereafter, while options granted to existing employees generally vest over a four-year period. Options granted generally are exercisable up to 10 years.

A summary of stock option activity under the 2007 Plan is as follows:

 

     Stock Options  
     Shares     Weighted-
Average
Exercise
Price
     Weighted-
Average
Remaining
Contractual
Term
(Years)
     Aggregate
Intrinsic
Value
 
     (aggregate intrinsic value in thousands)  

Outstanding as of December 31, 2012

     12,201,934      $ 0.07         

Granted

     7,534,447        0.17         

Exercised

     (79,001     0.08          $ —     

Canceled

     (1,000,499     0.09         
  

 

 

         

Outstanding as of December 31, 2013

     18,656,881        0.11         5.9      

Granted

     3,635,509        0.05         

Exercised

     (673,208     0.05          $ —     

Canceled

     (1,668,303     0.12         
  

 

 

         

Outstanding as of December 31, 2014

     19,950,879        0.05         6.8       $ —     

Granted (unaudited)

     4,810,518        0.10         

Exercised (unaudited)

     (151,430     0.05         

Canceled (unaudited)

     (23,305     0.05         
  

 

 

         

Outstanding as of June 30, 2015 (unaudited)

     24,586,662      $ 0.06         6.8       $ 1,967   
  

 

 

         

Options vested and expected to vest as of June 30, 2015 (unaudited)

     23,144,721      $ 0.06         6.7       $ 1,852   
  

 

 

         

Options vested and exercisable as of June 30, 2015 (unaudited)

     15,308,290      $ 0.05         5.3       $ 1,378   
  

 

 

         

 

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Additional information regarding stock options outstanding and vested as of December 31, 2014 is summarized below:

 

     Options Outstanding      Options Vested and
Exercisable
 

Exercise Prices

   Number of
Stock
Options
Outstanding
     Weighted-
Average
Remaining
Contractual
Life (Years)
     Weighted-
Average
Exercise
Price per
Share
     Shares
Subject to
Stock
Options
     Weighted-
Average
Exercise
Price per
Share
 

$0.03

     2,102,000         0.2       $ 0.03         2,102,000       $ 0.03   

$0.05

     17,848,879         7.3         0.05         11,553,009         0.05   
  

 

 

          

 

 

    

$0.03-$0.05

     19,950,879         6.8         0.05         13,655,009         0.05   
  

 

 

          

 

 

    

Additional information regarding stock options outstanding and vested as of June 30, 2015 is summarized below (unaudited):

 

     Options Outstanding      Options Vested and
Exercisable
 

Exercise Prices

   Number of
Stock
Options
Outstanding
     Weighted-
Average
Remaining
Contractual
Life (Years)
     Weighted-
Average
Exercise
Price per
Share
     Shares
subject to
Stock
Options
     Weighted-
Average
Exercise
Price per
Share
 

$0.03

     2,102,000         0.1       $ 0.03         2,102,000       $ 0.03   

$0.05

     17,674,144         6.6       $ 0.05         12,792,903       $ 0.05   

$0.10

     4,810,518         9.8       $ 0.10         413,387       $ 0.10   
  

 

 

          

 

 

    

$0.03-$0.10

     24,586,662         6.8       $ 0.06         15,308,290       $ 0.05   
  

 

 

          

 

 

    

Note 10. Stock-based Compensation.

We record stock-based compensation based on fair value as of the grant date using the Black-Scholes option-pricing model. We recognize such costs as compensation expense on a straight-line basis over the employee’s requisite service period, which is generally four years. Our valuation assumptions are as follows:

Fair value of common stock. Given the absence of a public trading market, our Board of Directors considered numerous objective and subjective factors to determine the fair value of our common stock which included, but were not limited to (i) independent third-party valuations of common stock; (ii) the rights and preferences of our preferred stock relative to common stock; (iii) the lack of marketability of common stock; (iv) developments in the business; and (v) the likelihood of achieving a liquidity event, such as an initial public offering or sale of the company, given prevailing market conditions.

Risk-free interest rate. We base the risk-free interest rate used in the Black-Scholes option-pricing model on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent expected term of the options for each option group.

Expected term. The expected term represents the period that our stock-based awards are expected to be outstanding. The expected term assumption is based on the simplified method in which the expected term is equal to the average of the stock-based award’s weighted-average vesting period and its contractual term. We expect to continue using the simplified method until sufficient information about historical behavior is available.

Volatility. We determine volatility based on the historical stock volatilities of a group of publicly listed guideline companies over a period equal to the expected terms of the options, as we do not have any trading history to determine the volatility of our common stock.

 

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Dividend yield. We have never declared or paid any cash dividend and do not currently plan to pay a cash dividend in the foreseeable future. Consequently, we used an expected dividend yield of zero.

The following table summarizes the weighted-average assumptions used in the Black-Scholes option-pricing model to determine fair value of stock options:

 

     Year Ended December 31,     Six Months
Ended
June 30,

    2015    
 
         2013             2014        
                 (unaudited)  

Volatility

     63 %     67 %     70

Expected dividend yield

     —          —          —     

Risk-free rate

     1.06 %     1.84 %     1.62

Expected term (in years)

     6        6        5   

The following table presents the effects of stock-based compensation during the periods (in thousands):

 

     Year Ended December 31,      Six Months Ended June 30,  
         2013              2014              2014              2015      
                  

(unaudited)

 

Cost of revenue

   $ 1       $ 4       $ 2       $ 3   

Research and development

     95         86         41         41   

Sales and marketing

     13         30         7         21   

General and administrative

     55         126         27         47   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 164       $ 246       $ 77       $ 112   
  

 

 

    

 

 

    

 

 

    

 

 

 

We did not realize any income tax benefit from stock option exercises in either of the periods presented due to recurring losses and valuation allowances.

As of December 31, 2014, the total unrecognized compensation cost related to stock options, net of estimated forfeitures, was approximately $0.4 million, and this amount is expected to be recognized over a weighted-average period of approximately 2 years.

Stock Option Repricing.

In August 2014, our Board of Directors approved a common stock option repricing program whereby previously granted and unexercised options held by current employees with exercise prices above $0.05 per share were repriced on a one-for-one basis to $0.05 per share which represented the per share fair value of our common stock as of the date of the repricing. There was no other modification to the vesting schedule of the previously issued options. As a result, 12,798,381 unexercised options originally granted to purchase common stock at prices ranging from $0.06 to $0.17 per share were repriced under this program.

We treated the repricing as a modification of the original awards and calculated additional compensation costs for the difference between the fair value of the modified award and the fair value of the original award on the modification date. The repricing resulted in incremental stock-based compensation expense of $0.2 million. Expense related to vested shares was expensed on the repricing date and expense related to unvested shares is being amortized over the remaining vesting period of such stock options.

 

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Note 11. Income Taxes.

The components of loss before provision for income taxes are as follows:

 

     Year ended December 31,  
         2013              2014      
     (in thousands)  

United States

   $ (8,149    $ (7,885

Foreign

     68         (909
  

 

 

    

 

 

 

Loss before provision for income taxes

   $ (8,081    $ (8,794
  

 

 

    

 

 

 

We provide reserves for U.S. income taxes on the earnings of our foreign subsidiaries, unless the subsidiaries’ earnings are considered indefinitely reinvested outside the United States. As of December 31, 2014, U.S. income taxes were not provided for undistributed earnings from our foreign subsidiaries as they were not material. The components of the provision for income taxes are as follows:

 

     Year Ended December 31,  
         2013              2014      
     (in thousands)  

Current:

     

Federal

   $ —         $ —     

State

     1         3   

Foreign

     58         123   
  

 

 

    

 

 

 

Total current provision for income taxes

     59         126   
  

 

 

    

 

 

 

Deferred:

     

Federal

     13         14   

State

     —           —     
  

 

 

    

 

 

 

Total deferred provision for income taxes

     13         14   
  

 

 

    

 

 

 

Total

   $ 72       $ 140   
  

 

 

    

 

 

 

Reconciliation of the statutory federal income tax to our effective tax consisted of the following:

 

     Year ended December 31,  
         2013          2014      
     (in thousands)  

Federal tax at statutory rate

   $ (2,772    $ (2,989

State taxes

     (167      (185

Foreign rate differential

     29         310   

Nondeductible expenses

     96         92   

Research and development credit

     —           (481

Stock compensation

     52         74   

Valuation allowance

     2,834         3,319   
  

 

 

    

 

 

 

Total

   $ 72       $ 140   
  

 

 

    

 

 

 

 

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Deferred tax assets and liabilities consisted of the following:

 

     December 31,  
     2013      2014  
     (in thousands)  

Deferred tax assets:

     

Net operating loss carry forwards

   $ 20,999       $ 22,688   

Accruals and reserves

     2,300         4,241   

Amortization of intangible assets

     1,482         2,648   

Tax credit carry forwards

     1,462         2,127   

Depreciation

     99         99   

Other

     12         22   
  

 

 

    

 

 

 

Gross deferred tax assets

     26,354         31,825   

Valuation allowance

     (26,354      (29,673
  

 

 

    

 

 

 

Total deferred tax assets

     —           2,152   
  

 

 

    

 

 

 

Deferred tax liabilities:

     

Change in tax accounting method for reserves and allowances

     —           (2,152

Amortization of intangible assets

     (13      (27
  

 

 

    

 

 

 

Total deferred tax liabilities

     (13      (2,179
  

 

 

    

 

 

 

Net deferred tax liability

   $ (13    $ (27
  

 

 

    

 

 

 

A valuation allowance is provided when it is more likely than not that the deferred tax assets will not be realized. We have established a valuation allowance to offset net deferred tax assets as of December 31, 2013 and 2014 due to the uncertainty of realizing future tax benefits from its net operating loss (“NOL”) carry forwards and other deferred tax assets. The net change in the total valuation allowance for the years ended December 31, 2013 and 2014 was an increase of approximately $2.7 million and $3.3 million, respectively.

As of December 31, 2014, we had federal and state NOL carry forwards of approximately $57.8 million and $51.5 million, respectively, expiring beginning in 2027 for federal and 2017 for state. As of December 31, 2014, we had federal and state research credit carry forwards of approximately $2.5 million and $2.7 million, respectively, expiring beginning in 2027 for federal; the state research and development tax credit carry forwards do not expire.

Internal Revenue Code Section 382 places a limitation (the “Section 382 Limitation”) on the amount of taxable income that can be offset by NOL carry forwards after a change in control (generally greater than 50% change in ownership) of a loss corporation. California has similar rules. Our capitalization described herein may have resulted in such a change. Generally, after a control change, a loss corporation cannot deduct NOL carry forwards in excess of the Section 382 Limitation. Management has not yet determined the impact such limitation may have on the utilization of our NOL carry forwards against our taxable income in future periods.

As of December 31, 2014, we had unrecognized tax benefits of approximately $3.0 million. It is unlikely that the amount of liability for unrecognized tax benefits will significantly change over the next twelve months. Our policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of December 31, 2014, there was a liability of $0.1 million related to uncertain tax positions recorded in income taxes payable on the consolidated financial statements.

 

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A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

 

Balance as of December 31, 2012

   $ 1,595   

Tax positions related to the current year:

  

Additions

     615   
  

 

 

 

Balance as of December 31, 2013

     2,210   

Tax positions related to the current year:

  

Additions

     774   
  

 

 

 

Balance as of December 31, 2014

   $ 2,984   
  

 

 

 

Note 12. Net Loss Per Share.

The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders during the periods presented (in thousands, except share and per share data):

 

     Year Ended December 31,     Six Months Ended June 30,  
     2013     2014     2014     2015  
           (unaudited)  

Net loss attributable to common stockholders:

        

Numerator:

        

Basic and diluted:

        

Net loss

   $ (8,153   $ (8,934   $ (5,183   $ (4,043
  

 

 

   

 

 

   

 

 

   

 

 

 

Denominator:

        

Weighted average shares used in computing net loss per share attributable to common stockholders:

        

Basic and diluted

     17,766,856        17,892,558        17,794,873        18,503,305   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to common stockholders:

        

Basic and diluted

   $ (0.46   $ (0.50   $ (0.29   $ (0.22
  

 

 

   

 

 

   

 

 

   

 

 

 

The following outstanding common stock equivalents were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented because including them would have been antidilutive:

 

     Year Ended December 31,      Six Months Ended June 30,  
     2013      2014      2014      2015  
                   (unaudited)  

Shares not used in computing net loss per share attributable to common stockholders as considered anti-dilutive:

           

Preferred stock

     300,789,120         300,789,120         300,789,120         300,789,120   

Stock options

     18,656,881         19,950,879         18,557,131         24,586,662   

Preferred stock warrants

     2,790,497         2,839,620         2,790,497         3,713,681   

Common stock warrants

     7,214,408         7,214,408         7,214,408         7,214,408   

Unaudited Pro Forma Net Loss per Share.

Pro forma basic and diluted net loss per share have been computed to give effect, even if antidilutive, to the conversion of our preferred stock into common stock as of the beginning of the period presented or the original issuance date, if later.

 

 

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The following table shows our calculation of the unaudited pro forma basic and diluted net loss per share (in thousands, except share and per share data):

 

     Year Ended
December 31, 2014
     Six Months Ended 
June 30, 2015
 
            (unaudited)  

Numerator:

     

Net loss

   $ (8,934    $ (4,043
  

 

 

    

 

 

 

Denominator:

     

Weighted average shares used in computing pro forma net income per share, basic

     17,892,558         18,503,305   

Pro forma adjustments to reflect assumed conversion of convertible preferred stock

     300,789,120         300,789,120   
  

 

 

    

 

 

 

Weighted average shares used in computing pro forma net income per share, basic and diluted

     318,681,678         319,292,425   
  

 

 

    

 

 

 

Pro forma net loss per share:

     

Basic and diluted

   $ (0.03    $ (0.01
  

 

 

    

 

 

 

Note 13. Purchase of Serial Flash Memory Product Assets.

In September 2012, we completed the purchase of the serial flash memory product assets from Atmel Corporation. The aggregate purchase price for these assets was $25.0 million and was accounted for as a business combination. The excess of the purchase price over the fair value allocated to the net assets is goodwill. The key factors attributable to the creation of goodwill by the transaction are synergies in technology, operations, existing customer base and cash flow generated from revenue. The estimated fair value of finite-lived intangible assets and tangible assets were determined as follows (i) customer relationships and customer backlog were determined using the excess earnings approach, (ii) developed technology was determined using the royalty method, (iii) non-compete agreement was determined using the income approach, (iv) inventories were estimated using the cost approach and (v) property and equipment was estimated using replacement value.

The following table summarizes the allocation of the purchase price to the tangible and intangible assets purchased as of the date of purchase (in thousands):

 

Finite-lived intangible assets:

  

Developed technology

   $ 4,282   

Customer relationships

     9,011   

Customer backlog

     2,779   

Non-compete agreement

     282   
  

 

 

 

Total

     16,354   
  

 

 

 

Tangible assets:

  

Inventories

     8,365   

Property and equipment

     259   
  

 

 

 

Total

     8,624   
  

 

 

 

Indefinite-lived intangible asset:

  

Goodwill

     22   
  

 

 

 
   $ 25,000   
  

 

 

 

 

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Note 14. Other Income (Expense), Net.

Other income (expense), net consisted of the following (in thousands):

 

     Year Ended December 31,      Six Months Ended June 30,  
         2013              2014              2014              2015      
                   (unaudited)  

Remeasurement of preferred stock warrant liability

   $ 1,200       $ 206       $ 28       $ 81   

Other income (expense), net

     (692      (92      15         208   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 508       $ 114       $ 43       $ 289   
  

 

 

    

 

 

    

 

 

    

 

 

 

Note 15. Subsequent Events.

Opus Bank Credit Facility

In April 2015, we entered into a new three-year $15.0 million credit agreement, or the new term loan facility, which replaced our prior senior secured revolving credit and term loan facility. The agreement provides for senior secured term loan facility, in an aggregate principal amount of up to $15.0 million to be used for general corporate purposes including working capital, to repay certain indebtedness and for capital expenditures and other expenses. Interest will accrue on any outstanding borrowings at a rate equal to (a) the higher of (i) the prime rate (as publicly announced from time to time by the Wall Street Journal) and (ii) 3.25% plus (b) (i) 1.00% if our cash and cash equivalents are greater than 125% of the outstanding principal of our borrowings under the new term loan facility, or (ii) 2.00% if our cash and cash equivalents are less than or equal to than 125% of such borrowings. Indebtedness we incur under this agreement is secured by substantially all of our assets and contains financial covenants requiring us to maintain a monthly asset coverage ratio of not less than 1.00:1.00 through September 30, 2015 and 1.10:1.00 thereafter, and a certain level of quarterly adjusted EBITDA (measured on a trailing three-month basis). This agreement contains customary affirmative and negative covenants, including covenants that limit or restrict our ability to, among other things, incur additional indebtedness, grant liens, make investments, repurchase stock, pay dividends, transfer assets, merge or consolidate and make acquisitions. Upon an occurrence of an event of default, we could be required to pay interest on all outstanding obligations under the agreement at a rate of five percent above the otherwise applicable interest rate, and the lender may accelerate our obligations under the agreement. As of May 14, 2015, we were in compliance with all financial covenants and restrictions and had borrowings of $15.0 million outstanding. We may not draw additional funds under the new term loan facility and our borrowings mature on April 30, 2018.

2007 Equity Incentive Plan

On April 29, 2015, our Board of Directors reserved an additional 61,500,000 shares of common stock for issuance under our 2007 Equity Incentive Plan.

 

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             Shares

 

LOGO

Common Stock

 

Needham & Company   Oppenheimer & Co.

Roth Capital Partners

 

 

 


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Index to Financial Statements

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. Other Expenses of Issuance and Distribution.

The following table sets forth the costs and expenses to be paid by the Registrant in connection with the sale of the shares of common stock being registered hereby. All amounts are estimates except for the SEC registration fee, the FINRA filing fee and the NASDAQ listing fee.

 

SEC registration fee

   $ 5,810   

FINRA filing fee

     8,000   

NASDAQ listing fee

     150,000   

Printing and engraving

                 *   

Legal fees and expenses

                 *   

Accounting fees and expenses

                 *   

Road show expenses

                 *   

Blue sky fees and expenses

                 *   

Transfer agent and registrar fees and expenses

                 *   

Miscellaneous

                 *   
  

 

 

 

Total

   $             *   
  

 

 

 

 

* To be provided by amendment.

ITEM 14. Indemnification of Directors and Officers.

Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporation’s board of directors to grant, indemnity to directors and officers under certain circumstances and subject to certain limitations. The terms of Section 145 of the Delaware General Corporation Law are sufficiently broad to permit indemnification under certain circumstances for liabilities, including reimbursement of expenses incurred, arising under the Securities Act of 1933, as amended, or Securities Act.

As permitted by the Delaware General Corporation Law, the Registrant’s restated certificate of incorporation contains provisions that eliminate the personal liability of its directors for monetary damages for any breach of fiduciary duties as a director, except for liability:

 

    for any breach of the director’s duty of loyalty to the Registrant or its stockholders;

 

    for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;

 

    under Section 174 of the Delaware General Corporation Law (regarding unlawful dividends and stock purchases); or

 

    for any transaction from which the director derived an improper personal benefit.

As permitted by the Delaware General Corporation Law, the Registrant’s amended and restated bylaws provide that:

 

    the Registrant is required to indemnify its directors and officers to the fullest extent permitted by the Delaware General Corporation Law, subject to limited exceptions;

 

    the Registrant may indemnify its other employees and agents as set forth in the Delaware General Corporation Law;

 

    the Registrant is required to advance expenses, as incurred, to its directors and officers in connection with a legal proceeding to the fullest extent permitted by the Delaware General Corporation Law, subject to limited exceptions; and

 

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    the rights conferred in the bylaws are not exclusive.

Prior to the closing of the offering that is the subject of this Registration Statement, the Registrant intends to enter into indemnification agreements with each of its current directors and executive officers to provide these directors and executive officers additional contractual assurances regarding the scope of the indemnification set forth in the Registrant’s restated certificate of incorporation and amended and restated bylaws and to provide additional procedural protections. At present, there is no pending litigation or proceeding involving a director, executive officer or employee of the Registrant for which indemnification is sought. Reference is also made to Section             of the Underwriting Agreement, which provides for the indemnification of executive officers, directors and controlling persons of the Registrant against certain liabilities. The indemnification provisions in the Registrant’s restated certificate of incorporation and amended and restated bylaws and the indemnification agreements entered into or to be entered into between the Registrant and each of its directors and executive officers may be sufficiently broad to permit indemnification of the Registrant’s directors and executive officers for liabilities arising under the Securities Act.

The Registrant has directors’ and officers’ liability insurance for securities matters.

In addition, Messrs. Andreev and Crandell are indemnified by their employers with regard to serving on the Registrant’s board of directors.

Reference is made to the following documents filed as exhibits to this Registration Statement regarding relevant indemnification provisions described above and elsewhere herein:

 

Exhibit Document

   Number  

Form of Underwriting Agreement

     1.01   

Form of Restated Certificate of Incorporation of the Registrant

     3.02   

Form of Amended and Restated Bylaws of the Registrant

     3.04   

Amended and Restated Investors’ Rights Agreement by and among the Registrant and the preferred stockholders of the Registrant

     4.02   

Form of Indemnification Agreement

     10.01   

ITEM 15. Recent Sales of Unregistered Securities.

Since January 1, 2012, the Registrant has issued and sold the following securities:

 

  1. Between January 1, 2012 and September 2, 2015, the Registrant granted options to employees, consultants and directors to purchase an aggregate of 16,188,472 shares of common stock under its 2007 Equity Incentive Plan.

 

  2. Between January 1, 2012 and September 2, 2015, the Registrant issued 1,013,250 shares of common stock to its employees, directors and consultants upon exercise of options granted by it under its 2007 Equity Incentive Plan, with exercise prices ranging from $0.05 to $0.17 per share, for an aggregate purchase price of $53,548.60.

 

  3. In March 2012, the Registrant issued a warrant to purchase 2,857,143 shares of the Registrant’s Series C convertible preferred stock to a foundry partner, with an exercise price of $0.70 per share. Of these, 2,142,858 shares were exercised in 2012 and the remaining 714,285 shares were exercised in September 2013, in conjunction with a release of a liability.

 

  4. In August 2012, the Registrant sold 14,736,837 shares of its Series D convertible preferred stock to twelve accredited investors at a per share price of $0.95, for an aggregate purchase price of approximately $14,000,000.

 

  5. In September 2012, March 2013 and June 2013, the Registrant issued warrants to purchase an aggregate of 2,368,420 shares of the Registrant’s Series D convertible preferred stock to a commercial lender, with an exercise price of $0.95 per share.

 

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  6. Between January and February 2013, the Registrant issued convertible notes in an aggregate principal amount of $5,000,000 to twelve accredited investors.

 

  7. In August 2013, the Registrant sold 7,348,235 shares of its Series D-1 convertible preferred stock to twelve accredited investors and 17,384,526 shares of its Series E convertible preferred stock to ten accredited investors, in each case at a per share price of $0.7125, for an aggregate purchase price of approximately $17,622,000, which included the conversion in full of the convertible notes described in item 6 above.

 

  8. In October 2014, the Registrant issued a warrant to purchase 49,123 shares of the Registrant’s Series E convertible preferred stock to a commercial lender, with an exercise price of $0.7125 per share.

 

  9. In April 2015, the Registrant issued a warrant to purchase 1,052,632 shares of the Registrant’s Series E convertible preferred stock to a commercial lender, with an exercise price of $0.7125 per share.

Unless otherwise stated, the sales of the above securities were deemed to be exempt from registration under the Securities Act in reliance upon Section 4(a)(2) of the Securities Act or Regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b) of the Securities Act as transactions by an issuer not involving any public offering or pursuant to benefit plans and contracts relating to compensation as provided under Rule 701. The recipients of the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were placed upon the stock certificates issued in these transactions.

ITEM 16. Exhibits and Financial Statement Schedules.

(a) Exhibits.

 

Exhibit
Number

  

Exhibit Title

  1.01*    Form of Underwriting Agreement.
  3.01    Restated Certificate of Incorporation of the Registrant, as currently in effect.
  3.02*    Form of Restated Certificate of Incorporation of the Registrant, to be effective upon the closing of this offering.
  3.03*    Bylaws of the Registrant, as currently in effect.
  3.04*    Form of Amended and Restated Bylaws of the Registrant, to be effective upon closing of this offering.
  4.01    Amended and Restated Investors’ Rights Agreement by and among the Registrant and the preferred stockholders of the Registrant dated August 19, 2013.
  5.01*    Opinion of Fenwick & West LLP regarding the legality of the securities being registered.
10.01*    Form of Indemnification Agreement.
10.02    2007 Equity Incentive Plan and form of option grant.
10.03*    2015 Equity Incentive Plan and forms of equity awards.
10.04*    2015 Employee Stock Purchase Plan
10.05   

Standard Industrial/Commercial Multi-Tenant Lease by and between the Registrant and DeGuigne Ventures, LLC dated May 3, 2011.

10.06†    Technology License Agreement, as amended, by and between the Registrant and Axon Technologies Corporation, dated January 15, 2007.
10.07†    Manufacturing Agreement by and between the Registrant and Altis Semiconductor dated September 28, 2012.
10.08    Amended and Restated Employment Agreement, by and between the Registrant and Narbeh Derhacobian, dated August 16, 2013.

 

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Exhibit
Number

  

Exhibit Title

10.09    Offer Letter, dated May 30, 2013, by and between the Registrant and Ron Shelton.
10.10    Amended and Restated Offer of Employment, dated August 16, 2013, between the Registrant and Shane Hollmer.
10.11†    Credit Agreement, dated April 30, 2015, among the Registrant, Artemis Acquisition LLC and Opus Bank
10.12†    Cell Library License Agreement by and between the Registrant and Atmel Corporation, dated September 28, 2012.
10.13†    Process Technology and IP License Agreement by and between the Registrant and Atmel Corporation, dated September 28, 2012.
23.01*    Consent of Fenwick & West LLP (included in Exhibit 5.01).
23.02    Consent of Burr Pilger Mayer, Inc., independent registered public accounting firm.
24.01    Power of Attorney (included on page II-6).

 

* To be filed by amendment.
Registrant has omitted portions of the referenced exhibit and filed such exhibit separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under Rule 406 promulgated under the Securities Act.

(b) Financial Statement Schedules.

All financial statement schedules are omitted because they are not applicable or the information is included in the Registrant’s consolidated financial statements or related notes.

ITEM 17. Undertakings.

The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to provisions described in Item 14 above, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

The undersigned Registrant hereby undertakes that:

(1) for purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

 

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(2) for the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

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SIGNATURES

Pursuant to the requirements of the Securities Act, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Sunnyvale, State of California, on September 14, 2015.

 

ADESTO TECHNOLOGIES CORPORATION
By:  

/s/ Narbeh Derhacobian

 

Narbeh Derhacobian

President and Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature appears below constitutes and appoints Narbeh Derhacobian and Ron Shelton, and each of them, his true and lawful attorneys-in-fact and agents with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to sign any registration statement for the same offering covered by the Registration Statement that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act, and all post-effective amendments thereto, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his or their substitute or substitutes, may lawfully do or cause to be done or by virtue hereof.

Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities and on the date indicated:

 

Name

  

Title

 

Date

Principal Executive Officer:

 

    

/s/ Narbeh Derhacobian

Narbeh Derhacobian

   President, Chief Executive Officer and Director   September 14, 2015

Principal Financial Officer and Principal Accounting Officer:

 

    

/s/ Ron Shelton

Ron Shelton

   Chief Financial Officer   September 14, 2015

Additional Directors:

 

    

/s/ Alexei Andreev

Alexei Andreev

   Director   September 14, 2015

/s/ Nelson Chan

Nelson Chan

   Director   September 14, 2015

/s/ Barry Cox

Barry Cox

  

Chairman

  September 14, 2015

/s/ Keith Crandell

Keith Crandell

   Director   September 14, 2015

 

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Name

  

Title

 

Date

/s/ Francis Lee

Francis Lee

   Director   September 14, 2015

/s/ Kevin Palatnik

Kevin Palatnik

   Director   September 14, 2015

 

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EXHIBIT INDEX

 

Exhibit

Number

  

Exhibit Title

  1.01*    Form of Underwriting Agreement.
  3.01    Restated Certificate of Incorporation of the Registrant, as currently in effect.
  3.02*    Form of Restated Certificate of Incorporation of the Registrant, to be effective upon the closing of this offering.
  3.03*    Bylaws of the Registrant, as currently in effect.
  3.04*    Form of Amended and Restated Bylaws of the Registrant, to be effective upon closing of this offering.
  4.01    Amended and Restated Investors’ Rights Agreement by and among the Registrant and the preferred stockholders of the Registrant dated August 19, 2013.
  5.01*    Opinion of Fenwick & West LLP regarding the legality of the securities being registered.
10.01*    Form of Indemnification Agreement.
10.02    2007 Equity Incentive Plan and form of option grant.
10.03*    2015 Equity Incentive Plan and forms of equity awards.
10.04*    2015 Employee Stock Purchase Plan.
10.05    Standard Industrial/Commercial Multi-Tenant Lease by and between the Registrant and DeGuigne Ventures, LLC dated May 3, 2011.
10.06†    Technology License Agreement, as amended, by and between the Registrant and Axon Technologies Corporation, dated January 15, 2007.
10.07†    Manufacturing Agreement by and between the Registrant and Altis Semiconductor dated September 28, 2012.
10.08    Amended and Restated Employment Agreement, by and between the Registrant and Narbeh Derhacobian dated August 16, 2013.
10.09    Offer Letter, dated May 30, 2013, by and between the Registrant and Ron Shelton.
10.10    Amended and Restated Offer of Employment, dated August 16, 2013, between the Registrant and Shane Hollmer.
10.11†    Credit Agreement, dated April 30, 2015, among the Registrant, Artemis Acquisition LLC and Opus Bank.
10.12†    Cell Library License Agreement by and between the Registrant and Atmel Corporation, dated September 28, 2012.
10.13†    Process Technology and IP License Agreement by and between the Registrant and Atmel Corporation, dated September 28, 2012.
23.01*    Consent of Fenwick & West LLP (included in Exhibit 5.01).
23.02    Consent of Burr Pilger Mayer, Inc., independent registered public accounting firm.
24.01    Power of Attorney (included on page II-6).

 

* To be filed by amendment.
Registrant has omitted portions of the referenced exhibit and filed such exhibit separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under Rule 406 promulgated under the Securities Act.

Exhibit 3.01

AMENDED AND RESTATED ARTICLES OF INCORPORATION

OF

ADESTO TECHNOLOGIES CORPORATION


AMENDED AND RESTATED

ARTICLES OF INCORPORATION

OF

ADESTO TECHNOLOGIES CORPORATION

Narbeh Derhacobian certifies that:

1. He is the President and Secretary of Adesto Technologies Corporation, a California corporation.

2. The Articles of Incorporation of this corporation, as amended to the date of the filing of this certificate, including amendments set forth herein but not separately filed (and with the omissions required by Section 910 of the California Corporations Code), are restated in their entirety as set forth in Exhibit “1” attached hereto and made a part hereof by this reference.

3. The Amended and Restated Articles of Incorporation set forth herein have been duly approved by the Board of Directors.

4. The amendments to the Articles of Incorporation included in the Amended and Restated Articles of Incorporation set forth herein (other than omissions required by Section 910 of the Corporations Code) have been duly approved by the required vote of the shareholders of the corporation in accordance with Sections 902 and 903 of the California Corporations Code. The Corporation has two classes of stock, and the total number of outstanding shares of the Corporation is 17,786,643 shares of Common Stock and 120,409,052 shares of Preferred Stock. Of the outstanding shares of Preferred Stock, 35,714,285 shares are Series A Preferred Stock, 43,019,481 shares are Series B Preferred Stock, 26,938,449 shares are Series C Preferred Stock and 14,736,837 shares are Series D Preferred Stock. The number of shares voting in favor of the Amended and Restated Articles of Incorporation set forth herein equaled or exceeded the vote required. The percentage vote required was more than two-thirds (2/3rds) of the outstanding shares of Preferred Stock voting together as a single class, more than fifty percent (50%) of the outstanding shares of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, voting together as a separate class, more than fifty percent (50%) of the outstanding shares of Series D Preferred Stock voting as a separate class, more than fifty percent (50%) of the outstanding shares of Common Stock voting as a separate class, and more than fifty percent (50%) of the outstanding shares of Common Stock and Preferred Stock voting together as a single class.

The undersigned further declares under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of his own knowledge.

Dated: August 15, 2013

 

/s/ Narbeh Derhacobian

Narbeh Derhacobian
President and Secretary


EXHIBIT “1”

AMENDED AND RESTATED ARTICLES OF INCORPORATION

OF

ADESTO TECHNOLOGIES CORPORATION

ARTICLE I

The name of the corporation is Adesto Technologies Corporation.

ARTICLE II

The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code.

ARTICLE III

The liability of the directors of the corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. Unless applicable law otherwise provides, any amendment, repeal or modification of this Article III shall not adversely affect any right or protection of a director under this Article III that existed at or prior to the time of such amendment, repeal or modification.

ARTICLE IV

The corporation is authorized to provide indemnification of agents (as defined in Section 317 of the California Corporations Code) through bylaw provisions, by agreements with agents, vote of shareholders or disinterested directors or otherwise, in excess of the indemnification otherwise permitted by Section 317 of the California Corporations Code, subject only to the applicable limits on such excess indemnification set forth in Section 204 of the California Corporations Code. Unless applicable law otherwise requires, any amendment, repeal or modification of any provision of this Article IV shall not adversely affect any contract or other right to indemnification of any agent of the corporation that existed at or prior to the time of such amendment, repeal or modification.

ARTICLE V

1. Authorization of Shares . This corporation is authorized to issue two (2) classes of shares, designated “Common Stock” and “Preferred Stock,” respectively, both of which shall have no par value. The total number of shares of Common Stock authorized to be issued is 220,000,000 shares. The total number of shares of Preferred Stock authorized to be issued is 153,568,221 shares, 35,892,856 of which are designated “Series A Preferred Stock,” 43,262,987 of which are designated “Series B Preferred Stock,” 27,652,734 of which are designated “Series


C Preferred Stock,” 17,105,257 of which are designated “Series D Preferred Stock,” 7,354,387 of which are designated “Series D-1 Preferred Stock,” and 22,300,000 of which are designated “Series E Preferred Stock.”

ARTICLE VI

The following is a statement of the rights, preferences, privileges and restrictions granted to and imposed on each class of capital stock of the Corporation. Unless otherwise indicated, references to “Sections” or “Subsections” in this Article refer to sections and subsections of this Article VI.

COMMON STOCK

1. General . The voting, dividend and liquidation rights of the holders of Common Stock are subject to and qualified by the rights, powers and preferences of the holders of Preferred Stock set forth herein and as may be designated by resolution of the Board of Directors of the Corporation with respect to any series of Preferred Stock as authorized herein.

2. Voting . The holders of the Common Stock are entitled to one (1) vote for each share of Common Stock held at all meetings of shareholders (and written actions in lieu of meetings). Pursuant to Section 708 of the California Corporations Code, every shareholder entitled to vote at an election for directors may cumulate such shareholder’s votes and give one (1) candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which such shareholder’s shares are otherwise entitled, or distribute the shareholder’s votes on the same principle among as many candidates as such shareholder desires. No shareholder, however, shall be entitled to so cumulate such shareholder’s votes unless (i) the names of such candidate or candidates have been placed in nomination prior to the voting and (ii) the shareholder has given notice at the meeting, prior to the voting, of such shareholder’s intention to cumulate such shareholder’s votes. If any shareholder has given proper notice to cumulate votes, all shareholders may cumulate their votes for any candidates who have been properly placed in nomination. Under cumulative voting, the candidates receiving the highest number of votes, up to the number of directors to be elected, are elected.

PREFERRED STOCK

Preferred Stock may be issued from time to time in one (1) or more series, each of such series to consist of such number of shares and to have such terms, rights, powers and preferences, and the qualifications and limitations with respect thereto, as stated or expressed herein.

1. Dividends .

Series E Preferred Stock . The Corporation shall not declare, pay or set aside any dividends on shares of any other class or series of capital stock of the Corporation (other than dividends on shares of Common Stock payable in shares of Common Stock) in any year unless the holders of Series E Preferred Stock then outstanding shall first receive in such year a dividend on each outstanding share of Series E Preferred Stock in an amount at least equal to $0.057 per share (in each instance, subject to appropriate adjustment in the event of any stock


dividend, stock split, combination or other similar recapitalization affecting such shares). The Board of Directors of the Corporation is under no obligation to declare dividends, no right shall accrue to the holders of Series E Preferred Stock if dividends are not declared, and any dividends declared shall not be cumulative.

Series D-1 Preferred Stock and Series D Preferred Stock . Subject to the prior dividend rights of the Series E Preferred Stock set forth herein, the Corporation shall not declare, pay or set aside any dividends on shares of any other class or series of capital stock of the Corporation (other than dividends on shares of Common Stock payable in shares of Common Stock) in any year unless the holders of Series D-1 Preferred Stock and Series D Preferred Stock then outstanding shall first receive, on a pari passu basis, in such year a dividend (i) on each outstanding share of Series D-1 Preferred Stock in an amount at least equal to $0.057 per share (in each instance, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares) and (ii) on each outstanding share of Series D Preferred Stock in an amount at least equal to $0.076 per share (in each instance, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares). The Board of Directors of the Corporation is under no obligation to declare dividends, no right shall accrue to the holders of Series D-1 Preferred Stock and Series D Preferred Stock if dividends are not declared, and any dividends declared shall not be cumulative.

Series C Preferred Stock . Subject to the prior dividend rights of the Series E Preferred Stock, the Series D-1 Preferred Stock and the Series D Preferred Stock set forth herein, the Corporation shall not declare, pay or set aside any dividends on shares of any other class or series of capital stock of the Corporation (other than dividends on shares of Common Stock payable in shares of Common Stock) in any year unless the holders of Series C Preferred Stock then outstanding shall first receive in such year a dividend on each outstanding share of Series C Preferred Stock in an amount at least equal to $0.056 per share (in each instance, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares). The Board of Directors of the Corporation is under no obligation to declare dividends, no right shall accrue to the holders of Series C Preferred Stock if dividends are not declared, and any dividends declared shall not be cumulative.

Series B Preferred Stock . Subject to the prior dividend rights of the Series E Preferred Stock, the Series D-1 Preferred Stock, the Series D Preferred Stock and the Series C Preferred Stock set forth herein, the Corporation shall not declare, pay or set aside any dividends on shares of any other class or series of capital stock of the Corporation (other than dividends on shares of Common Stock payable in shares of Common Stock) in any year unless the holders of Series B Preferred Stock then outstanding shall be entitled to receive a dividend when, as and if declared by the Board of Directors of the Corporation, on each outstanding share of Series B Preferred Stock in an amount at least equal to $0.02957 per share (in each instance, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares). The Board of Directors of the Corporation is under no obligation to declare dividends, no right shall accrue to the holders of Series B Preferred Stock if dividends are not declared, and any dividends declared shall not be cumulative.


Series A Preferred Stock . Subject to the prior dividend rights of the Series E Preferred Stock, the Series D-1 Preferred Stock, the Series D Preferred Stock, the Series C Preferred Stock and the Series B Preferred Stock set forth herein, the Corporation shall not declare, pay or set aside any dividends on shares of any other class or series of capital stock of the Corporation (other than dividends on shares of Common Stock payable in shares of Common Stock) in any year unless the holders of Series A Preferred Stock then outstanding shall be entitled to receive a dividend, when, as and if declared by the Board of Directors of the Corporation, on each outstanding share of Series A Preferred Stock in an amount at least equal to $0.02688 per share (in each instance, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares). The Board of Directors of the Corporation is under no obligation to declare dividends, no right shall accrue to the holders of Series A Preferred Stock if dividends are not declared, and any dividends declared shall not be cumulative.

Participation Rights . The Corporation shall not declare, pay or set aside any dividends on shares of any class or series of capital stock of the Corporation (other than dividends on shares of Common Stock payable in shares of Common Stock and other than dividends specified in the preceding sentence) unless the holders of Preferred Stock then outstanding shall first receive, or simultaneously receive, in addition to any dividend payable pursuant to the foregoing provisions of this Section B.1 , a dividend on each outstanding share of Preferred Stock in an amount at least equal to that dividend per share of Preferred Stock as would equal the product of (A) the dividend payable on each share of such class or series determined, if applicable, as if all such shares of such class or series had been converted into Common Stock and (B) the number of shares of Common Stock issuable upon conversion of a share of Preferred Stock, in each case calculated on the record date for determination of holders entitled to receive such dividend; provided , however , that no such adjustment shall be made for the purposes of Section B.4 below regarding the calculation of the conversion rates of the Preferred Stock.

 

  2. Liquidation, Dissolution or Winding Up; Certain Mergers, Consolidations and Asset Sales.

Preferential Payments to Holders of Series E Preferred Stock and Management Carve-Out Payments .

In the event of any voluntary or involuntary liquidation, dissolution or winding up or Deemed Liquidation Event (as defined herein) of the Corporation, the holders of shares of Series E Preferred Stock then outstanding shall be entitled to be paid out of the assets available for distribution to its shareholders, before any payment shall be made to the holders of Series D-1 Preferred Stock, Series D Preferred Stock, Series C Preferred Stock, Series B Preferred Stock, Series A Preferred Stock or Common Stock by reason of their ownership thereof, an amount per share equal to $0.7125 (such amount, as adjusted from time to time in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares, being hereinafter referred to as the “ Series E Original Issue Price ”) multiplied by three (3), plus any dividends declared but unpaid thereon (the “ Series E First Liquidation Preference ”). If upon any such liquidation, dissolution or winding up of the Corporation the remaining assets available for distribution to its shareholders shall be insufficient to pay the


holders of shares of Series E Preferred Stock the full amount of the Series E First Liquidation Preference to which they shall be entitled, the holders of shares of Series E Preferred Stock shall share ratably in any distribution of the remaining assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.

In the event of any voluntary or involuntary liquidation, dissolution or winding up or Deemed Liquidation Event (as defined herein) of the Corporation, after payment of the Series E First Liquidation Preference required to be paid to the holders of Series E Preferred Stock as provided above, certain service providers of the Corporation shall be entitled to be paid out of the assets available for distribution to the Corporation’s shareholders, before any payment shall be made to the holders of Series D-1 Preferred Stock, Series D Preferred Stock, Series C Preferred Stock, Series B Preferred Stock, Series A Preferred Stock or Common Stock by reason of their ownership thereof, an aggregate amount set forth and pursuant to the terms of a management carve-out plan then in effect and duly approved by the Board of Directors of the Corporation (the “ Management Carve-Out Payments ”).

In the event of any voluntary or involuntary liquidation, dissolution or winding up or Deemed Liquidation Event (as defined herein) of the Corporation, after payment of the Series E First Liquidation Preference and the Management Carve-Out Payments as provided above, the holders of shares of Series E Preferred Stock then outstanding shall be entitled to be paid out of the assets available for distribution to its shareholders, before any payment shall be made to the holders of Series D-1 Preferred Stock, Series D Preferred Stock, Series C Preferred Stock, Series B Preferred Stock, Series A Preferred Stock or Common Stock by reason of their ownership thereof, an amount equal to the Series E Original Issue Price multiplied by two (2), plus any dividends declared but unpaid thereon (the “ Series E Second Liquidation Preference ”). If upon any such liquidation, dissolution or winding up of the Corporation the remaining assets available for distribution to its shareholders shall be insufficient to pay the holders of shares of Series E Preferred Stock the full amount of the Series E Second Liquidation Preference to which they shall be entitled, the holders of shares of Series E Preferred Stock shall share ratably in any distribution of the remaining assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.

Preferential Payments to Holders of Series D-1 Preferred Stock and Series D Preferred Stock . In the event of any voluntary or involuntary liquidation, dissolution or winding up or Deemed Liquidation Event (as defined herein) of the Corporation, after payment of all preferential amounts required to be paid to the holders of Series E Preferred Stock and payment of the Management Carve-Out Payments, each as provided above, the holders of shares of Series D-1 Preferred Stock and Series D Preferred Stock then outstanding shall be entitled, on a pari passu basis , to be paid out of the assets available for distribution to its shareholders, before any payment shall be made to the holders of Series C Preferred Stock, Series B Preferred Stock, Series A Preferred Stock or Common Stock by reason of their ownership thereof, (i) with respect to the Series D-1 Preferred Stock, an amount equal to $0.7125 per share (such amount, as adjusted from time to time in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares, being hereinafter referred to as the “ Series D-1


Original Issue Price ”), plus any dividends declared but unpaid thereon, and (ii) with respect to the Series D Preferred Stock, an amount equal to $0.95 per share (such amount, as adjusted from time to time in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares, being hereinafter referred to as the “ Series D Original Issue Price ”), plus any dividends declared but unpaid thereon. If upon any such liquidation, dissolution or winding up of the Corporation the remaining assets available for distribution to its shareholders shall be insufficient to pay the holders of shares of Series D-1 Preferred Stock and Series D Preferred Stock the full amount to which they shall be entitled, the holders of shares of Series D-1 Preferred Stock and Series D Preferred Stock shall share ratably in any distribution of the remaining assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.

Preferential Payments to Holders of Series C Preferred Stock . In the event of any voluntary or involuntary liquidation, dissolution or winding up or Deemed Liquidation Event (as defined herein) of the Corporation, after payment of all preferential amounts required to be paid to the holders of Series E Preferred Stock, payment of the Management Carve-Out Payments, and all preferential payments required to be paid to the holders of Series D-1 Preferred Stock and Series D Preferred Stock, each as provided above, the holders of shares of Series C Preferred Stock then outstanding shall be entitled to be paid out of the assets available for distribution to its shareholders, before any payment shall be made to the holders of Series B Preferred Stock, Series A Preferred Stock or Common Stock by reason of their ownership thereof, an amount equal to $0.70 per share (such amount, as adjusted from time to time in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares, being hereinafter referred to as the “ Series C Original Issue Price ”), plus any dividends declared but unpaid thereon. If upon any such liquidation, dissolution or winding up of the Corporation the remaining assets available for distribution to its shareholders shall be insufficient to pay the holders of shares of Series C Preferred Stock the full amount to which they shall be entitled, the holders of shares of Series C Preferred Stock shall share ratably in any distribution of the remaining assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.

Preferential Payments to Holders of Series B Preferred Stock . In the event of any voluntary or involuntary liquidation, dissolution or winding up or Deemed Liquidation Event (as defined herein) of the Corporation, after payment of all preferential amounts required to be paid to the holders of Series E Preferred Stock, payment of the Management Carve-Out Payments, and all preferential payments required to be paid to the holders of Series D-1 Preferred Stock, Series D Preferred Stock and Series C Preferred Stock, each as provided above, the holders of shares of Series B Preferred Stock then outstanding shall be entitled to be paid out of the assets available for distribution to its shareholders, before any payment shall be made to the holders of Series A Preferred Stock or Common Stock by reason of their ownership thereof, an amount equal to $0.3696 per share (such amount, as adjusted from time to time in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares, being hereinafter referred to as the “ Series B Original Issue Price ”), plus any dividends declared but unpaid thereon. If upon any such liquidation, dissolution or winding up of the Corporation the remaining assets available for distribution to its shareholders shall be insufficient to pay the


holders of shares of Series B Preferred Stock the full amount to which they shall be entitled, the holders of shares of Series B Preferred Stock shall share ratably in any distribution of the remaining assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.

Preferential Payments to Holders of Series A Preferred Stock . In the event of any voluntary or involuntary liquidation, dissolution or winding up or Deemed Liquidation Event of the Corporation, after payment of all preferential amounts required to be paid to the holders of Series E Preferred Stock, payment of the Management Carve-Out Payments, and all preferential payments required to be paid to the holders of Series D-1 Preferred Stock, Series D Preferred Stock, Series C Preferred Stock and Series B Preferred Stock, each as provided above, the holders of shares of Series A Preferred Stock then outstanding shall be entitled to be paid out of the assets available for distribution to its shareholders, before any payment shall be made to the holders of Common Stock by reason of their ownership thereof, an amount equal to $0.3360 per share (such amount, as adjusted from time to time in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares, being hereinafter referred to as the “ Series A Original Issue Price ”), plus any dividends declared but unpaid thereon. If upon any such liquidation, dissolution or winding up of the Corporation the remaining assets available for distribution to its shareholders shall be insufficient to pay the holders of shares of Series A Preferred Stock the full amount to which they shall be entitled, the holders of shares of Series A Preferred Stock shall share ratably in any distribution of the remaining assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.

Distribution of Remaining Assets . After the payment of all preferential amounts required to be paid to the holders of shares of Preferred Stock and payment of the Management Carve-Out Payments, each as provided above, the remaining assets available for distribution to the Corporation’s shareholders shall be distributed among the holders of the shares of Preferred Stock and Common Stock, pro rata based on the number of shares of Common Stock held by each such holder, treating for this purpose all such securities as if they had been converted to Common Stock pursuant to the terms of the Articles of Incorporation in effect immediately prior to such dissolution, liquidation or winding up of the Corporation.

Deemed Liquidation Events .

The following events shall be deemed to be a liquidation of the Corporation for purposes of this Section B.2 (a “ Deemed Liquidation Event ”), unless the holders of at least two-thirds of the then outstanding shares of Preferred Stock, on an as-converted to Common Stock basis, elect otherwise by vote or written consent at least five (5) days prior to the effective date of any such event:

a merger or consolidation in which

the Corporation is a constituent party; or


a subsidiary of the Corporation is a constituent party and the Corporation issues shares of its capital stock pursuant to such merger or consolidation,

except any such merger or consolidation involving the Corporation or a subsidiary in which the shares of capital stock of the Corporation outstanding immediately prior to such merger or consolidation continue to represent, or are converted or exchanged for shares of capital stock which represent, immediately following such merger or consolidation at least a majority, by voting power, of the capital stock of (1) the surviving or resulting corporation or (2) if the surviving or resulting corporation is a wholly owned subsidiary of another corporation immediately following such merger or consolidation, the parent corporation of such surviving or resulting corporation;

a transaction to which the Corporation is a party and pursuant to which any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”)), other than a trustee or other fiduciary holding securities of the Corporation under an employee benefit plan of the Corporation, becomes the “beneficial owner” (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of the Corporation representing more than 50% of the combined voting power of the Corporation’s then-outstanding securities, excluding, for purposes of this subsection (B), any transaction constituting an equity financing in which the Corporation is the surviving corporation; or

the sale, lease, transfer or other disposition (including by way of an exclusive license), in a single transaction or series of related transactions, by the Corporation or any subsidiary of the Corporation of all or substantially all the assets of the Corporation and its subsidiaries taken as a whole, except where such sale, lease, transfer or other disposition is to a wholly owned subsidiary of the Corporation.

The Corporation shall not have the power to effect any transaction constituting a Deemed Liquidation Event pursuant to Subsection B.2(f)(i)(A)(I) above unless the agreement or plan of merger or consolidation provides that the consideration payable to the shareholders of the Corporation shall be allocated among the holders of capital stock of the Corporation in accordance with Subsections B.2(a)-(e)  above.

In the event of a Deemed Liquidation Event pursuant to Subsection B.2(f)(i)(A)(II) or B.2(f)(i)(B) above, if the dissolution of the Corporation shall not have been approved by the Board of Directors and the shareholders of the Corporation as required under the California Corporations Code within sixty (60) days after such Deemed Liquidation Event, then (A) the Corporation shall deliver a written notice to each holder of Preferred Stock no later than the sixtieth (60 th ) day after the Deemed Liquidation Event advising such holders of their right (and the requirements to be met to secure such right) pursuant to the terms of the following clause (B) to require the redemption of such shares of Preferred Stock, and (B) if the Corporation receives from the holders of at least two-thirds of the then outstanding shares of Preferred Stock, on an as-converted to Common Stock basis, not later than seventy-five (75) days after such Deemed Liquidation Event, the vote or written consent approving the redemption of all shares of Preferred Stock, the Corporation shall use the consideration received by the Corporation for such Deemed Liquidation Event (net of any retained liabilities associated with the assets sold or technology licensed, as determined in good faith by the Board of Directors of the Corporation)


(the “ Net Proceeds ”) to redeem, to the extent legally available therefor, on the ninetieth (90 th ) day after such Deemed Liquidation Event (the “ Liquidation Redemption Date ”), all outstanding shares of Preferred Stock at a price per share equal to the amount otherwise to be paid and distributed, as applicable, respecting those shares pursuant to Subsections B.2(a)-(f)  above. In the event of a redemption pursuant to the preceding sentence, if the Net Proceeds are not sufficient to redeem all outstanding shares of Preferred Stock, or if the Corporation does not have sufficient lawfully available funds to effect such redemption, the Corporation shall redeem, in accordance with Subsections B.2(a)-(e)  above, that portion of each holder’s shares of Preferred Stock to the fullest extent of such Net Proceeds or such lawfully available funds, as the case may be, and, where such redemption is limited by the amount of lawfully available funds, the Corporation shall redeem the remaining shares to have been redeemed as soon as practicable after the Corporation has funds legally available therefor, in accordance with Subsections B.2(a)-(e)  above. Prior to the distribution or redemption provided for in this Subsection B.2(f)(iii) , the Corporation shall not expend or dissipate the consideration received for such Deemed Liquidation Event, except to discharge expenses incurred in the ordinary course of business and pre-existing liabilities and debt.

The amount deemed paid or distributed to the holders of capital stock of the Corporation upon any Deemed Liquidation Event shall be the cash or the value of the property, rights or securities paid or distributed to such holders by the Corporation or the acquiring person, firm or other entity. Any such property, rights or securities shall be valued as follows:

Securities not subject to investment letter or other similar restrictions on free marketability covered by (B) below:

If traded on a securities exchange or through the Nasdaq Global Market, the value shall be deemed to be the average of the closing prices of the securities on such exchange or system over the twenty (20) trading-day period ending three (3) trading days prior to the closing of the Deemed Liquidation Event;

If actively traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the twenty (20) trading-day period ending three (3) trading days prior to the closing of the Deemed Liquidation Event; and

If there is no active public market, the value shall be the fair market value thereof, as mutually determined by the Corporation and the holders of at least two-thirds of the voting power of all then outstanding shares of Preferred Stock.

The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a shareholder’s status as an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as above in (A) (I), (II) or (III) to reflect the approximate fair market value thereof, as mutually determined by the Corporation and the holders of at least two-thirds of the voting power of all then outstanding shares of such Preferred Stock.


The value of any property or rights other than securities shall be determined in good faith by the Board of Directors of the Corporation.

The foregoing methods for valuing non-cash consideration to be distributed in connection with a Deemed Liquidation Event shall, upon approval by the shareholders of the Corporation of the definitive agreements governing a Deemed Liquidation Event, be superseded by any determination of such value set forth in the definitive agreements governing such Deemed Liquidation Event.

Voting .

On any matter presented to the shareholders of the Corporation for their action or consideration at any meeting of shareholders of the Corporation (or by written consent of shareholders in lieu of a meeting), each holder of outstanding shares of Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Preferred Stock held by such holder are convertible as of the record date for determining shareholders entitled to vote on such matter. Except as provided by law or by the provisions of Subsection B.3(b) or B.3(c) below, holders of Preferred Stock shall vote together with the holders of Common Stock as a single class.

The Board of Directors shall consist of eight (8) directors. (i) The holders of record of shares of Preferred Stock, exclusively and as a separate class (with cumulative voting rights as among themselves in accordance with Section 708 of the California Corporations Code), shall be entitled to elect five (5) directors of the Corporation (the “ Preferred Directors ”); (ii) the holders of record of shares of Common Stock, exclusively and as a separate class (with cumulative voting rights as among themselves in accordance with Section 708 of the California Corporations Code), shall be entitled to elect one (1) director of the Corporation; and (iii) the holders of record of the shares of Preferred Stock (voting on an as-converted to Common Stock basis) and Common Stock, voting together as a single class (with cumulative voting rights as among themselves in accordance with Section 708 of the California Corporations Code), shall be entitled to elect the remaining directors of the Corporation.

At any meeting held for the purpose of electing a director, the presence in person or by proxy of the holders of a majority of the outstanding shares of the class(es) or series entitled to elect such director shall constitute a quorum for the purpose of electing such director. With respect to the election of any director or directors by the holders of the outstanding shares of a specified series, class or classes of stock given the right to elect such director or directors pursuant to Subsection B.3(b) above (the “ Specified Stock ”), that candidate or those candidates (as applicable) shall be elected who either: (i) in the case of any such vote conducted at a meeting of the holders of such Specified Stock, receive the highest number of affirmative votes (on an as-converted to Common Stock basis) of the outstanding shares of such Specified Stock, up to the number of directors to be elected by such Specified Stock or (ii) in the case of any such vote taken by unanimous written consent without a meeting, are elected by the unanimous written consent of the holders of outstanding shares of such Specified Stock; provided , however , that if such vote is to fill a vacancy on the Board of Directors of the Corporation other than a vacancy created by removal of a director, such vacancy may be filled by election by the written consent of the holders of a majority (on an as-converted to Common Stock basis) of the outstanding shares of such Specified Stock entitled to vote pursuant to Section 305(b) of the California Corporations Code.


If there shall be any vacancy in the office of a director elected or to be elected by the holders of any Specified Stock, then a director to hold office for the unexpired term of such directorship may be elected by the required vote of holders of the shares of such Specified Stock specified in Subsection B.3(c) above that are entitled to elect such director. Any director who shall have been elected to the Board of Directors of the Corporation by the holders of any Specified Stock may be removed during his or her term of office, without cause, by, and only by, the affirmative vote, on an as-converted to Common Stock basis, of shares of Specified Stock representing the percentage vote required by Section 303 of the California Corporations Code, given either at a meeting of such shareholders duly called for that purpose or pursuant to a written consent of shareholders without a meeting, and any vacancy created by such removal may be filled only in the manner provided in Subsection B.3(c) above.

The rights of the holders of Preferred Stock and the rights of the holders of Common Stock under Subsection B.3(b) shall terminate on the first date on which there are issued and outstanding less than ten million (10,000,000) shares of Preferred Stock (subject to appropriate adjustment in the event of any dividend, stock split, combination or other similar recapitalization affecting such shares).

At any time when at least an aggregate of ten million (10,000,000) shares of Preferred Stock (subject to appropriate adjustment in the event of any dividend, stock split, combination or other similar recapitalization affecting such shares) are outstanding, except where the vote or written consent of the holders of a greater number of shares of the Corporation is required by law or these Articles of Incorporation, and in addition to any other vote required by law or these Articles of Incorporation, without the written consent or affirmative vote of the holders of at least two-thirds (2/3rds) of the then outstanding shares of Preferred Stock, consenting or voting together on an as-converted to Common Stock basis, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a class, the Corporation shall not, either directly or by amendment, merger, consolidation or otherwise:

liquidate, dissolve or wind-up the business and affairs of the Corporation, effect any Deemed Liquidation Event, or consent to any of the foregoing;

amend, alter or repeal any provision of the Articles of Incorporation or Bylaws of the Corporation;

create any additional class or series of shares of stock having rights, preferences or privileges senior to, or on parity with, the Series E Preferred Stock, the Series D-1 Preferred Stock, the Series D Preferred Stock, the Series C Preferred Stock, the Series B Preferred Stock or the Series A Preferred Stock, or increase the authorized number of shares of Preferred Stock or increase the authorized number of shares of any additional class or series of shares of stock having rights, preferences or privileges senior to, or on parity with, the Series E Preferred Stock, the Series D-1 Preferred Stock, the Series D Preferred Stock, the Series C Preferred Stock, the Series B Preferred Stock or the Series A Preferred Stock, or create or authorize any obligation or security convertible into shares of any class or series of stock having


rights, preferences or privileges senior to, or on parity with, the Series E Preferred Stock, the Series D-1 Preferred Stock, the Series D Preferred Stock, the Series C Preferred Stock, the Series B Preferred Stock or the Series A Preferred Stock;

purchase or redeem, or pay or declare any dividend or make any distribution on, any shares of stock other than the Preferred Stock as expressly authorized herein, or permit any subsidiary of the Corporation to take any such action, except for dividends or other distributions payable on the Common Stock solely in the form of additional shares of Common Stock and other than securities repurchased from former employees, officers, directors, consultants or other persons who performed services for the Corporation or any subsidiary in connection with the cessation of such employment or service at the lower of fair market value of the original purchase price thereof;

(v) increase or decrease the authorized number of directors constituting the Board of Directors of the Corporation; or

(vi) create or authorize the creation of any debt security unless approved by a majority of the Directors.

At any time when at least an aggregate of three million (3,000,000) shares of Series E Preferred Stock (subject to appropriate adjustment in the event of any dividend, stock split, combination or other similar recapitalization affecting such shares) are outstanding, except where the vote or written consent of the holders of a greater number of shares of the Corporation is required by law or these Articles of Incorporation, and in addition to any other vote required by law or these Articles of Incorporation, without the written consent or affirmative vote of the holders of at least ninety percent (90%) of the then outstanding shares of Series E Preferred Stock, consenting or voting together on an as-converted to Common Stock basis, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a class, the Corporation shall not, either directly or by amendment, merger, consolidation or otherwise, amend, alter or repeal any of the rights, preferences or privileges of the Series E Preferred Stock set forth in the Articles of Incorporation.

Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide or a shareholder demands election by ballot at a meeting before the voting begins.

Optional Conversion .

The holders of the Preferred Stock shall have conversion rights as follows (the “ Conversion Rights ”):

Right to Convert . Each share of Preferred Stock shall be convertible, at the option of the holder thereof, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into such number of fully paid and nonassessable shares of Common Stock as is determined by, with respect to the Series E Preferred Stock, dividing the Series E Original Issue Price by the Conversion Price (as defined below) for the Series E Preferred Stock in effect at the time of conversion, with respect to the Series D-1 Preferred Stock, dividing the Series D-1 Original Issue Price by the Conversion Price (as defined below)


for the Series D-1 Preferred Stock in effect at the time of conversion, with respect to the Series D Preferred Stock, dividing the Series D Original Issue Price by the Conversion Price (as defined below) for the Series D Preferred Stock in effect at the time of conversion, with respect to the Series C Preferred Stock, dividing the Series C Original Issue Price by the Conversion Price (as defined below) for the Series C Preferred Stock in effect at the time of conversion, with respect to the Series B Preferred Stock, dividing the Series B Original Issue Price by the Conversion Price (as defined below) for the Series B Preferred Stock in effect at the time of conversion, and with respect to the Series A Preferred Stock, dividing the Series A Original Issue Price by the Conversion Price (as defined below) for the Series A Preferred Stock in effect at the time of conversion. The “ Conversion Price ” for the Series E Preferred Stock shall initially be equal to the Series E Original Issue Price, for the Series D-1 Preferred Stock shall initially be equal to the Series D-1 Original Issue Price, for the Series D Preferred Stock shall initially be equal to the Series D Original Issue Price, for the Series C Preferred Stock shall initially be equal to the Series C Original Issue Price, for the Series B Preferred Stock shall initially be equal to the Series B Original Issue Price and for the Series A Preferred Stock shall initially be equal to the Series A Original Issue Price. The initial Conversion Price for each series of Preferred Stock, and the rate at which shares of Preferred Stock may be converted into shares of Common Stock, shall be subject to adjustment as provided below.

In the event of a liquidation, dissolution or winding up of the Corporation or a Deemed Liquidation Event, the Conversion Rights shall terminate at the close of business on the last full day preceding the date fixed for the payment of any such amounts distributable on such event to the holders of Preferred Stock.

Fractional Shares . No fractional shares of Common Stock shall be issued upon conversion of the Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the fair market value of a share of Common Stock as determined in good faith by the Board of Directors of the Corporation. Whether or not fractional shares would be issuable upon such conversion shall be determined on the basis of the total number of shares of Preferred Stock the holder is at the time converting into Common Stock and the aggregate number of shares of Common Stock issuable upon such conversion.

Mechanics of Conversion .

In order for a holder of Preferred Stock to voluntarily convert shares of Preferred Stock into shares of Common Stock, such holder shall surrender the certificate or certificates for such shares of Preferred Stock (or, if such registered holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate), at the office of the transfer agent for the Preferred Stock (or at the principal office of the Corporation if the Corporation serves as its own transfer agent), together with written notice that such holder elects to convert all or any number of the shares of Preferred Stock represented by such certificate or certificates and, if applicable, any event on which such conversion is contingent. Such notice shall state such holder’s name or the names of the nominees in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. If


required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or his, her or its attorney duly authorized in writing. The close of business on the date of receipt by the transfer agent of such certificates (or lost certificate affidavit and agreement) and notice (or by the Corporation if the Corporation serves as its own transfer agent) shall be the time of conversion (the “ Conversion Time ”), and the shares of Common Stock issuable upon conversion of the shares represented by such certificate shall be deemed to be outstanding of record as of such date. The Corporation shall, as soon as practicable after the Conversion Time, issue and deliver at such office to such holder of Preferred Stock, or to his, her or its nominees, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled, together with cash in lieu of any fraction of a share.

The Corporation shall at all times when the Preferred Stock shall be outstanding, reserve and keep available out of its authorized but unissued stock, for the purpose of effecting the conversion of the Preferred Stock, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Preferred Stock, the Corporation shall take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite shareholder approval of any necessary amendment to these Articles of Incorporation.

All shares of Preferred Stock which shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares, including the rights, if any, to receive notices and to vote, shall immediately cease and terminate at the Conversion Time, except only the right of the holders thereof to receive shares of Common Stock in exchange therefor and to receive payment of any dividends declared but unpaid thereon. Any shares of Preferred Stock so converted shall be retired and cancelled and shall not be reissued as shares of such series, and the Corporation (without the need for shareholder action) may from time to time take such appropriate action as may be necessary to reduce the authorized number of shares of Preferred Stock accordingly.

Upon any such conversion, no adjustment to the Conversion Price of any series of Preferred Stock shall be made for any declared but unpaid dividends on such series of Preferred Stock surrendered for conversion or on the Common Stock delivered upon conversion.

The Corporation shall pay any and all issue and other similar taxes that may be payable in respect of any issuance or delivery of shares of Common Stock upon conversion of shares of Preferred Stock pursuant to this Section B.4 . The Corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of shares of Common Stock in a name other than that in which the shares of Preferred Stock so converted were registered, and no such issuance or delivery shall be made unless and until the person or entity requesting such issuance has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid.


Adjustments to Conversion Price for Diluting Issues .

Special Definitions . For purposes of this Section B.4 , the following definitions shall apply:

Option ” shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities.

Convertible Securities ” shall mean any evidences of indebtedness, shares or other securities directly or indirectly convertible into or exchangeable for Common Stock, but excluding Options.

Additional Shares of Common Stock ” shall mean all shares of Common Stock issued (or, pursuant to Subsection B.4(d)(iii) below, deemed to be issued) by the Corporation after the date on which the first share of Series D Preferred Stock is issued by the Corporation (the “ Series D Original Issue Date ”), other than the following (“ Exempted Securities ”):

shares of Common Stock issued or deemed issued as a dividend or distribution on the Preferred Stock;

shares of Common Stock issued or issuable by reason of a dividend, stock split, split-up or other distribution on shares of Common Stock that is covered by Subsection B.4(e) or B.4(f) below;

shares of Common Stock issued or deemed issued to officers, employees or directors of, or consultants to, the Corporation or any of its subsidiaries pursuant to a plan, agreement or arrangement approved by the Board of Directors of the Corporation;

shares of Common Stock or Convertible Securities actually issued upon the exercise of Options or shares of Common Stock actually issued upon the conversion or exchange of Convertible Securities, in each case provided such issuance is pursuant to the terms of such Option or Convertible Security;

shares of Common Stock or Preferred Stock issued or issuable in connection with strategic alliances or commercial relationships approved by the Board of Directors of the Corporation;

shares of Common Stock issued or issuable to banks, equipment lessors or other financial institutions, or to real property lessors, pursuant to a debt financing, equipment leasing or real property leasing transaction approved by the Board of Directors of the Corporation;


shares of Common Stock issued or issuable pursuant to a firm-commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, in which gross proceeds received by the Corporation shall be at least $30,000,000 (a “ Qualifying Public Offering ”);

shares of Common Stock or Preferred Stock issued or issuable pursuant to the acquisition of another corporation by the Corporation by merger, purchase of all or substantially all of the assets or other reorganization or pursuant to a joint venture agreement, provided , that such issuances are approved by the Board of Directors of the Corporation;

shares of Series A Preferred Stock, and the Common Stock issuable upon conversion of such Series A Preferred Stock, issuable upon the exercise of the warrant issued to ATEL Ventures, Inc. to purchase up to an aggregate of 178,571 shares of Series A Preferred Stock (subject to appropriate adjustment for stock splits, stock dividends, combinations and other similar recapitalizations affecting such shares);

shares of Series B Preferred Stock, and the Common Stock issuable upon conversion of such Series B Preferred Stock, issuable upon the exercise of the warrant issued to ATEL Ventures, Inc. to purchase up to an aggregate of 243,506 shares of Series B Preferred Stock (subject to appropriate adjustment for stock splits, stock dividends, combinations and other similar recapitalizations affecting such shares);

shares of Series C Preferred Stock, and the Common Stock issuable upon conversion of such Series C Preferred Stock, issuable upon the exercise of the warrant issued to Altis Semiconductor to purchase up to an aggregate of 2,857,143 shares of Series C Preferred Stock (subject to appropriate adjustment for stock splits, stock dividends, combinations and other similar recapitalizations affecting such shares);

shares of Common Stock or rights or warrants to purchase shares of Common Stock and the Common Stock issuable upon exercise of such rights or warrants issued or issuable to Axon Technologies Corporation pursuant to the terms of that certain Technology License Agreement by and between the Corporation and Axon Technologies Corporation dated as of January 15, 2007, as such may be amended from time to time.

No Adjustment of Conversion Price . No adjustment in the Conversion Price of a series of Preferred Stock shall be made as the result of the issuance of Additional Shares of Common Stock if: (a) the consideration per share (determined pursuant to Subsection B.4(d)(v) ) for such Additional Shares of Common Stock issued or deemed to be issued by the Corporation is equal to or greater than the applicable Conversion Price of such series of Preferred Stock in effect immediately prior to the issuance or deemed issuance of such Additional Shares of Common Stock, or (b) prior to such issuance or deemed issuance, the Corporation receives the vote or written consent from the holders of at least two-thirds of the then outstanding shares of such series of Preferred Stock agreeing that no such adjustment shall be made as the result of the issuance or deemed issuance of such Additional Shares of Common Stock.


Deemed Issue of Additional Shares of Common Stock .

If the Corporation at any time or from time to time after the Series D Original Issue Date shall issue any Options or Convertible Securities (excluding Options or Convertible Securities which, upon exercise, conversion or exchange thereof, would entitle the holder thereof to receive Exempted Securities pursuant to Subsection B.4(d)(i)(C) ) or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares of Common Stock (as set forth in the instrument relating thereto, assuming the satisfaction of any conditions to exercisability, convertibility or exchangeability but without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date.

If the terms of any Option or Convertible Security, the issuance of which resulted in an adjustment to the Conversion Price of a series of Preferred Stock pursuant to the terms of Subsection B.4(d)(iv) below, are revised (either automatically pursuant to the provisions contained therein or as a result of an amendment to such terms) to provide for either (1) any increase or decrease in the number of shares of Common Stock issuable upon the exercise, conversion or exchange of any such Option or Convertible Security or (2) any increase or decrease in the consideration payable to the Corporation upon such exercise, conversion or exchange, then, effective upon such increase or decrease becoming effective, the Conversion Price of such series of Preferred Stock computed upon the original issue of such Option or Convertible Security (or upon the occurrence of a record date with respect thereto) shall be readjusted to such Conversion Price as would have been obtained had such revised terms been in effect upon the original date of issuance of such Option or Convertible Security. Notwithstanding the foregoing, no adjustment pursuant to this clause (B) shall have the effect of increasing the Conversion Price of a series of Preferred Stock to an amount which exceeds the lower of (i) the Conversion Price of such series of Preferred Stock on the original adjustment date, or (ii) the Conversion Price of such series of Preferred Stock that would have resulted from any issuances of Additional Shares of Common Stock between the original adjustment date and such readjustment date.

If the terms of any Option or Convertible Security (excluding Options or Convertible Securities which, upon exercise, conversion or exchange thereof, would entitle the holder thereof to receive Exempted Securities pursuant to Subsection B.4(d)(i)(C) ), the issuance of which did not result in an adjustment to the Conversion Price of a series of Preferred Stock pursuant to the terms of Subsection B.4(d)(iv) below (either because the consideration per share (determined pursuant to Subsection B.4(d)(v) hereof) of the Additional Shares of Common Stock subject thereto was equal to or greater than the Conversion Price of such series of Preferred Stock then in effect, or because such Option or Convertible Security was issued before the Series D Original Issue Date), are revised after the Series D Original Issue Date (either automatically pursuant to the provisions contained therein or as a result of an amendment to such terms) to provide for either (1) any increase in the number of shares of Common Stock issuable upon the exercise, conversion or exchange of any such Option or Convertible Security


or (2) any decrease in the consideration payable to the Corporation upon such exercise, conversion or exchange, then such Option or Convertible Security, as so amended, and the Additional Shares of Common Stock subject thereto (determined in the manner provided in Subsection C.4(d)(iii)(A) above) shall be deemed to have been issued effective upon such increase or decrease becoming effective. If the change in such Option or Convertible Security causes an adjustment pursuant to this provision and such Option or Convertible Security is then further changed as a result of the adjustments made pursuant to this provision, no further adjustment shall be made hereunder as a result of the further automatic change in such Option or Convertible Security.

Upon the expiration or termination of any unexercised Option or unconverted or unexchanged Convertible Security which resulted (either upon its original issuance or upon a revision of its terms) in an adjustment to the Conversion Price of a series of Preferred Stock pursuant to the terms of Subsection B.4(d)(iv) below, the Conversion Price of such series of Preferred Stock shall be readjusted to the Conversion Price of such series of Preferred Stock as would have been obtained had such Option or Convertible Security never been issued.

Adjustment of Conversion Price Upon Issuance of Additional Shares of Common Stock . In the event the Corporation shall at any time after the Series D Original Issue Date issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Subsection B.4(d)(iii) ), without consideration or for a consideration per share less than the applicable Conversion Price of a series of Preferred Stock in effect immediately prior to such issue, then, in each such case, the Conversion Price for such series of Preferred Stock shall be reduced, concurrently with such issue, to a price (calculated to the nearest one-hundredth of a cent) determined in accordance with the following formula:

CP 2 = CP 1 * (A + B) ÷ (A + C) For purposes of the foregoing formula, the following definitions shall apply:

CP 2 shall mean the Conversion Price of such series of Preferred Stock in effect immediately after such issue of Additional Shares of Common Stock

CP 1 shall mean the Conversion Price of such series of Preferred Stock in effect immediately prior to such issue of Additional Shares of Common Stock;

“A” shall mean the number of shares of Common Stock outstanding and deemed outstanding immediately prior to such issue of Additional Shares of Common Stock (treating for this purpose as outstanding all shares of Common Stock issuable upon exercise of Options outstanding immediately prior to such issue or upon conversion of Convertible Securities (including the Preferred Stock) outstanding immediately prior to such issue);

“B” shall mean the number of shares of Common Stock that would have been issued if such Additional Shares of Common Stock had been issued at a price per share equal to CP 1 (determined by dividing the aggregate consideration received by the Corporation in respect of such issue by CP 1 ); and

“C” shall mean the number of such Additional Shares of Common Stock issued in such transaction.


Determination of Consideration . For purposes of this Subsection B.4(d) , the consideration received by the Corporation for the issue of any Additional Shares of Common Stock shall be computed as follows:

Cash and Property : Such consideration shall:

insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation, excluding amounts paid or payable for accrued interest;

insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined in good faith by the Board of Directors of the Corporation; and

in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (I) and (II) above, as determined in good faith by the Board of Directors of the Corporation.

Options and Convertible Securities . The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Subsection B.4(d)(iii) , relating to Options and Convertible Securities, shall be determined by dividing:

the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by

the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities.

Multiple Closing Dates . In the event the Corporation shall issue on more than one (1) date Additional Shares of Common Stock that are a part of one (1) transaction or a series of related transactions and that would result in an adjustment to the Conversion Price of a series of Preferred Stock pursuant to the terms of Subsection B.4(d)(iv) above, and such issuance dates occur within a period of no more than ninety (90) days from the first such issuance to the final such issuance, then, upon the final such issuance, the Conversion Price of such series of


Preferred Stock shall be readjusted to give effect to all such issuances as if they occurred on the date of the first such issuance (and without additional giving effect to any adjustments as a result of any subsequent issuances within such period).

Adjustment for Stock Splits and Combinations . If the Corporation shall at any time or from time to time after the Series D Original Issue Date effect a subdivision of the outstanding Common Stock without a comparable subdivision of a series of Preferred Stock or combine the outstanding shares of a series of Preferred Stock without a comparable combination of the Common Stock, the Conversion Price of such series of Preferred Stock in effect immediately before that subdivision or combination shall be proportionately decreased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be increased in proportion to such increase in the aggregate number of shares of Common Stock outstanding. If the Corporation shall at any time or from time to time after the Series D Original Issue Date combine the outstanding shares of Common Stock without a comparable combination of a series of Preferred Stock or effect a subdivision of the outstanding shares of a series of Preferred Stock without a comparable subdivision of the Common Stock, the Conversion Price of such series of Preferred Stock in effect immediately before the combination or subdivision shall be proportionately increased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be decreased in proportion to such decrease in the aggregate number of shares of Common Stock outstanding. Any adjustment under this Subsection B.4(e) shall become effective at the close of business on the date the subdivision or combination becomes effective.

Adjustment for Certain Dividends and Distributions . In the event the Corporation at any time or from time to time after the Series D Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable on the Common Stock in additional shares of Common Stock, then, and in each such event, the Conversion Price of each series of Preferred Stock in effect immediately before such event shall be decreased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying the Conversion Price of each such series of Preferred Stock then in effect by a fraction:

the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and

the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution;

provided , however , that if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Conversion Price of each series of Preferred Stock shall be recomputed accordingly as of the close of business on such record date and thereafter the Conversion Price of each series of Preferred Stock shall be adjusted pursuant to this Subsection B.4(f) as of the time of actual payment of such dividends or


distributions; and provided further , however , that no such adjustment shall be made to the Conversion Price of a series of Preferred Stock if the holders of such series of Preferred Stock simultaneously receive (i) a dividend or other distribution of shares of Common Stock in a number equal to the number of shares of Common Stock as they would have received if all outstanding shares of such series of Preferred Stock had been converted into Common Stock on the date of such event or (ii) a dividend or other distribution of shares of such series of Preferred Stock which are convertible, as of the date of such event, into such number of shares of Common Stock as is equal to the number of additional shares of Common Stock being issued with respect to each share of Common Stock in such dividend or distribution.

Adjustments for Other Dividends and Distributions . In the event the Corporation at any time or from time to time after the Series D Original Issue Date shall make or issue, or fix a record date for the determination of holders of capital stock of the Corporation entitled to receive, a dividend or other distribution payable in securities of the Corporation (other than a distribution of shares of Common Stock in respect of outstanding shares of Common Stock) or in other property and the provisions of Section B.1 do not apply to such dividend or distribution, then and in each such event the holders of Preferred Stock shall receive, simultaneously with the distribution to the holders of such capital stock, a dividend or other distribution of such securities or other property in an amount equal to the amount of such securities or other property as they would have received if all outstanding shares of Preferred Stock had been converted into Common Stock on the date of such event.

Adjustment for Merger or Reorganization, etc . Subject to the provisions of Subsection B.2(e) , if there shall occur any reorganization, recapitalization, reclassification, consolidation or merger involving the Corporation in which the Common Stock (but not the Preferred Stock) is converted into or exchanged for securities, cash or other property (other than a transaction covered by Subsections (e), (f) or (g)  of this Section B.4 ), then, following any such reorganization, recapitalization, reclassification, consolidation or merger, each share of a series of Preferred Stock shall thereafter be convertible in lieu of the Common Stock into which it was convertible prior to such event into the kind and amount of securities, cash or other property which a holder of the number of shares of Common Stock of the Corporation issuable upon conversion of one (1) share of such series Preferred Stock immediately prior to such reorganization, recapitalization, reclassification, consolidation or merger would have been entitled to receive pursuant to such transaction; and, in such case, appropriate adjustment (as determined in good faith by the Board of Directors of the Corporation) shall be made in the application of the provisions in this Section B.4 with respect to the rights and interests thereafter of the holders of such series of Preferred Stock, to the end that the provisions set forth in this Section B.4 (including provisions with respect to changes in and other adjustments of the Conversion Price of such series of Preferred Stock) shall thereafter be applicable, as nearly as reasonably may be, in relation to any securities or other property thereafter deliverable upon the conversion of such series of Preferred Stock.

Certificate as to Adjustments . Upon the occurrence of each adjustment or readjustment of the Conversion Price of a series of Preferred Stock pursuant to this Section B.4 , the Corporation at its expense shall, as promptly as reasonably practicable but in any event not later than ten (10) days thereafter, compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of such series of Preferred Stock a certificate setting


forth such adjustment or readjustment (including the kind and amount of securities, cash or other property into which such series of Preferred Stock is convertible) and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, as promptly as reasonably practicable after the written request at any time of any holder of any series of Preferred Stock (but in any event not later than ten (10) days thereafter), furnish or cause to be furnished to such holder a certificate setting forth (i) the Conversion Price of such series of Preferred Stock then in effect, and (ii) the number of shares of Common Stock and the amount, if any, of other securities, cash or property which then would be received upon the conversion of such series of Preferred Stock.

Notice of Record Date . In the event:

the Corporation shall take a record of the holders of its Common Stock (or other stock or securities at the time issuable upon conversion of the Preferred Stock) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right; or

of any capital reorganization of the Corporation, any reclassification of the Common Stock of the Corporation, or any Deemed Liquidation Event; or

of the voluntary or involuntary dissolution, liquidation or winding-up of the Corporation,

then, and in each such case, the Corporation will send or cause to be sent to the holders of Preferred Stock a notice specifying, as the case may be, (i) the record date for such dividend, distribution or right, and the amount and character of such dividend, distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up is proposed to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such other stock or securities at the time issuable upon the conversion of the Preferred Stock) shall be entitled to exchange their shares of Common Stock (or such other stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up, and the amount per share and character of such exchange applicable to each series of Preferred Stock and the Common Stock. Such notice shall be sent at least five (5) days prior to the record date or effective date for the event specified in such notice. Any notice required by the provisions hereof to be given to a holder of shares of Preferred Stock shall be deemed sent to such holder if deposited in the United States mail, postage prepaid, and addressed to such holder at his, her or its address appearing on the books of the Corporation. Any notice required to be sent to the holders of a series of Preferred Stock pursuant to this Subsection B.4(j) may be waived, either prospectively or retroactively and either generally or in a particular instance, by the consent or vote of the holders of at least two-thirds of the then outstanding shares of such series of Preferred Stock. Any such waiver shall bind all future holders of shares of such series of Preferred Stock.


Mandatory Conversion .

Upon the consummation of a Qualifying Public Offering (the “ QPO Conversion Date ”), (i) all outstanding shares of Series D-1 Preferred Stock, Series D Preferred Stock, Series C Preferred Stock, Series B Preferred Stock and Series A Preferred Stock shall automatically be converted into shares of Common Stock at the then effective conversion rate of each such respective series of Preferred Stock, (ii) all outstanding shares of Series E Preferred Stock shall automatically be converted into shares of Common Stock at a conversion rate equal to the Series E Original Issue Price divided by the lesser of (1) the then effective Conversion Price of the Series E Preferred Stock or (2) one-fifth (1/5) of the per share price paid by the public in a Qualifying Public Offering and (iii) such shares may not be reissued by the Corporation as shares of such series.

Upon the date specified by vote or written consent of the holders of at least ninety percent (90%) of the then outstanding shares of Series E Preferred Stock, on an as-converted to Common Stock basis (the “ Series E Conversion Date ”), (i) all outstanding shares of Series E Preferred Stock shall automatically be converted into shares of Common Stock at the then effective conversion rate of Series E Preferred Stock and (ii) such shares may not be reissued by the Corporation as shares of such series.

Upon the date specified by vote or written consent of the holders of at least two-thirds (2/3rds) of the then outstanding shares of Series D-1 Preferred Stock, on an as-converted to Common Stock basis (the “ Series D-1 Conversion Date ”), (i) all outstanding shares of Series D-1 Preferred Stock shall automatically be converted into shares of Common Stock at the then effective conversion rate of Series D-1 Preferred Stock and (ii) such shares may not be reissued by the Corporation as shares of such series.

Upon the date specified by vote or written consent of the holders of at least two-thirds (2/3rds) of the then outstanding shares of Series D Preferred Stock, on an as-converted to Common Stock basis (the “ Series D Conversion Date ”), (i) all outstanding shares of Series D Preferred Stock shall automatically be converted into shares of Common Stock at the then effective conversion rate of Series D Preferred Stock and (ii) such shares may not be reissued by the Corporation as shares of such series.

Upon the date specified by vote or written consent of the holders of at least two-thirds (2/3rds) of the then outstanding shares of Series C Preferred Stock, on an as-converted to Common Stock basis (the “ Series C Conversion Date ”), (i) all outstanding shares of Series C Preferred Stock shall automatically be converted into shares of Common Stock at the then effective conversion rate of Series C Preferred Stock and (ii) such shares may not be reissued by the Corporation as shares of such series.

Upon the date specified by vote or written consent of the holders of at least two-thirds (2/3rds) of the then outstanding shares of Series B Preferred Stock, on an as-converted to Common Stock basis (the “ Series B Conversion Date ”), (i) all outstanding shares of Series B Preferred Stock shall automatically be converted into shares of Common Stock at the then effective conversion rate of Series B Preferred Stock and (ii) such shares may not be reissued by the Corporation as shares of such series.


Upon the date specified by vote or written consent of the holders of at least two-thirds (2/3rds) of the then outstanding shares of Series A Preferred Stock, on an as-converted to Common Stock basis (the “ Series A Conversion Date ”), (i) all outstanding shares of Series A Preferred Stock shall automatically be converted into shares of Common Stock at the then effective conversion rate of Series A Preferred Stock and (ii) such shares may not be reissued by the Corporation as shares of such series. Each of the QPO Conversion Date, the Series E Conversion Date, the Series D-1 Conversion Date, the Series D Conversion Date, the Series C Conversion Date, the Series B Conversion Date and the Series A Conversion Date is referred to herein as a “ Mandatory Conversion Date ”.

Holders of record of shares of Preferred Stock subject to mandatory conversion pursuant to this Section B.5 shall be given written notice of the applicable Mandatory Conversion Date and the place designated for mandatory conversion of all such shares of Preferred Stock. Such notice need not be given in advance of the occurrence of such Mandatory Conversion Date. Such notice shall be sent by first class or registered mail, postage prepaid, or given by electronic communication in compliance with the provisions of the California Corporations Code, to each record holder of such shares of Preferred Stock. Upon receipt of such notice, each holder of such shares of Preferred Stock shall surrender his, her or its certificate or certificates for all such shares to the Corporation at the place designated in such notice, and shall thereafter receive certificates for the number of shares of Common Stock to which such holder is entitled pursuant to this Section B.5 . On a Mandatory Conversion Date, all outstanding shares of Preferred Stock subject to mandatory conversion on such Mandatory Conversion Date shall be deemed to have been converted into shares of Common Stock, which shall be deemed to be outstanding of record, and all rights with respect to the such Preferred Stock so converted, including the rights, if any, to receive notices and vote (other than as a holder of Common Stock), will terminate, except only the rights of the holders thereof, upon surrender of their certificate or certificates therefor, to receive certificates for the number of shares of Common Stock into which such shares of Preferred Stock have been converted, and payment of any declared but unpaid dividends thereon. If so required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or by his, her or its attorney duly authorized in writing. As soon as practicable after a Mandatory Conversion Date and the surrender of the certificate or certificates for shares of Preferred Stock, the Corporation shall cause to be issued and delivered to such holder, or on his, her or its written order, a certificate or certificates for the number of full shares of Common Stock issuable on such conversion in accordance with the provisions hereof and cash as provided in Subsection B.4(b) in respect of any fraction of a share of Common Stock otherwise issuable upon such conversion.

All certificates evidencing shares of Preferred Stock which are required to be surrendered for conversion in accordance with the provisions hereof shall, from and after an applicable Mandatory Conversion Date, be deemed to have been retired and cancelled, and the shares of Preferred Stock represented thereby converted into Common Stock for all purposes, notwithstanding the failure of the holder or holders thereof to surrender such certificates on or prior to such date. Such converted shares of each series of Preferred Stock may not be reissued as shares of such series of Preferred Stock, and the Corporation may thereafter take such appropriate action (without the need for shareholder action) as may be necessary to reduce the authorized number of shares of Preferred Stock accordingly.


Redemption . Other than pursuant to Subsection B.2(f)(iii) , the Preferred Stock shall not be redeemable by the Corporation.

Miscellaneous .

Waiver. Any of the rights, powers or preferences of the holders of any series of Preferred Stock set forth herein may be waived by the affirmative consent or vote of the holders of at least two-thirds of the shares of such series of Preferred Stock then outstanding.

Preemptive Rights . No shareholder of the Corporation shall have a right to purchase shares of capital stock of the Corporation sold or issued by the Corporation except to the extent that such a right may from time to time be set forth in a written agreement between the Corporation and a shareholder.

Corporate Distributions . For purposes of Section 500 of the California Corporations Code, the Corporation may make a distribution without regard to any preferential dividends arrears amount and without regard to any preferential rights.

 

 


CERTIFICATE OF AMENDMENT

OF AMENDED AND RESTATED ARTICLES OF INCORPORATION OF

ADESTO TECHNOLOGIES CORPORATION

Narbeh Derhacobian certifies that:

1. He is the President and Secretary of Adesto Technologies Corporation, a California corporation.

2. Section 1 of Article V of the Amended and Restated Articles of Incorporation of this corporation is hereby amended to read in its entirety as follows:

“1. Authorization of Shares . This corporation is authorized to issue two (2) classes of shares, designated “Common Stock” and “Preferred Stock,” respectively, both of which shall have no par value. The total number of shares of Common Stock authorized to be issued is 485,000,000 shares. The total number of shares of Preferred Stock authorized to be issued is 153,568,221 shares, 35,892,856 of which are designated “Series A Preferred Stock,” 43,262,987 of which are designated “Series B Preferred Stock,” 27,652,734 of which are designated “Series C Preferred Stock,” 17,105,257 of which are designated “Series D Preferred Stock,” 7,354,387 of which are designated “Series D-1 Preferred Stock,” and 22,300,000 of which are designated “Series E Preferred Stock.”

3. Section B.1(f) of Article VI of the Amended and Restated Articles of Incorporation of this corporation is hereby amended to read in its entirety as follows:

Participation Rights . The Corporation shall not declare, pay or set aside any dividends on shares of any class or series of capital stock of the Corporation (other than dividends on shares of Common Stock payable in shares of Common Stock) unless the holders of Preferred Stock then outstanding shall first receive, or simultaneously receive, in addition to any dividend payable pursuant to the foregoing provisions of this Section B.1 , a dividend on each outstanding share of Preferred Stock in an amount at least equal to that dividend per share of Preferred Stock as would equal the product of (A) the dividend payable on each share of such class or series determined, if applicable, as if all such shares of such class or series had been converted into Common Stock and (B) the number of shares of Common Stock issuable upon conversion of a share of Preferred Stock, in each case calculated on the record date for determination of holders entitled to receive such dividend; provided , however , that no such adjustment shall be made for the purposes of Section B.4 below regarding the calculation of the conversion rates of the Preferred Stock.

4. The first sentence of Section B.2(g)(iii) of Article VI of the Amended and Restated Articles of Incorporation of this corporation is hereby amended such that the reference to “ B.2(f)(i)(A)(II) or B.2(f)(i)(B)U” is amended to be a reference to “ B.2(g)(i)(A)(II) or B.2(g)(i)(B) ”.


5. The second sentence of Section B.4(a) of Article VI of the Amended and Restated Articles of Incorporation of this corporation is hereby amended to read in its entirety as follows:

“The “ Conversion Price ” for the Series E Preferred Stock shall be equal to $0.7125, for the Series D-1 Preferred Stock shall be equal to $0.7125, for the Series D Preferred Stock shall be equal to $0.9196, for the Series C Preferred Stock shall be equal to $0.70, for the Series B Preferred Stock shall be equal to $0.3696 and for the Series A Preferred Stock shall be equal to $0.3360.”

6. Section B.4(d)(i)(C) of Article VI of the Amended and Restated Articles of Incorporation of this corporation is hereby amended to include new subsections (XIII) and (XIV) as follows:

“(XIII) shares of Series E Preferred Stock and the Common Stock issuable upon conversion of such shares of Series E Preferred Stock; and

(XIV) any shares of Common Stock issued or issuable upon any conversion of the Preferred Stock.”

7. Section B.5(a) of Article VI of the Amended and Restated Articles of Incorporation of this corporation is hereby amended to read in its entirety as follows:

“(a) Upon the consummation of a Qualifying Public Offering (the “ QPO Conversion Date ”), (i) all outstanding shares of Series D-1 Preferred Stock, Series D Preferred Stock, Series C Preferred Stock, Series B Preferred Stock and Series A Preferred Stock shall automatically be converted into shares of Common Stock at the then effective conversion rate of each such respective series of Preferred Stock, (ii) each outstanding share of Series E Preferred Stock shall automatically be converted into 9.8841 shares of Common Stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization affecting the shares of Series E Preferred Stock) and (iii) such shares may not be reissued by the Corporation as shares of such series.”

8. Section B.6 of Article VI of the Amended and Restated Articles of Incorporation of this corporation is hereby amended to read in its entirety as follows:

Redemption . Other than pursuant to Subsection B.2(g)(iii) , the Preferred Stock shall not be redeemable by the Corporation.”

9. The amendment to the Amended and Restated Articles of Incorporation included in this Certificate of Amendment of Amended and Restated Articles of Incorporation (this “ Amendment ”) has been duly approved by the Corporation’s Board of Directors.


10. This Amendment (other than omissions required by Section 910 of the California Corporations Code) has been duly approved by the required vote of the shareholders of the Corporation in accordance with Sections 902 and 903 of the California Corporations Code. The Corporation has two classes of stock, and the total number of outstanding shares of the Corporation is 18,465,527 shares of Common Stock and 145,141,813 shares of Preferred Stock. Of the outstanding shares of Preferred Stock, 35,714,285 shares are Series A Preferred Stock, 43,019,481 shares are Series B Preferred Stock, 26,938,449 shares are Series C Preferred Stock, 14,736,837 shares are Series D Preferred Stock, 7,348,235 shares are Series D-1 Preferred Stock and 17,384,526 shares are Series E Preferred Stock. The number of shares voting in favor of the Restated Articles of Incorporation set forth herein equaled or exceeded the vote required. The percentage vote required was more than two-thirds (2/3rds) of the outstanding shares of Preferred Stock voting together as a single class, more than ninety percent (90%) of the outstanding shares of Series E Preferred Stock voting as a separate class, more than fifty percent (50%) of the outstanding shares of Series A Preferred Stock voting as a separate class, more than fifty percent (50%) of the outstanding shares of Series B Preferred Stock voting as a separate class, more than fifty percent (50%) of the outstanding shares of Series C Preferred Stock voting as a separate class, more than fifty percent (50%) of the outstanding shares of Series D Preferred Stock voting as a separate class, more than fifty percent (50%) of the outstanding shares of Series D-1 Preferred Stock voting as a separate class, more than fifty percent (50%) of the outstanding shares of Common Stock voting as a separate class, and more than fifty percent (50%) of the outstanding shares of Common Stock and Preferred Stock voting together as a single class.

The undersigned further declares under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of his own knowledge.

 

Dated: April 29, 2015

/s/ Narbeh Derhacobian

By: Narbeh Derhacobian
Title: President and Secretary

Exhibit 4.01

ADESTO TECHNOLOGIES CORPORATION

FOURTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT


TABLE OF CONTENTS

 

              Page  

1.

 

Definitions

     2   

2.

 

Registration Rights

     5   
 

2.1.

  

Request for Registration

     5   
 

2.2.

  

Company Registration

     8   
 

2.3.

  

Obligations of the Company

     8   
 

2.4.

  

Furnish Information

     10   
 

2.5.

  

Expenses of Demand Registration

     10   
 

2.6.

  

Expenses of Company Registration

     10   
 

2.7.

  

Underwriting Requirements

     10   
 

2.8.

  

Delay of Registration

     11   
 

2.9.

  

Indemnification

     11   
 

2.10.

  

Reports Under Exchange Act

     13   
 

2.11.

  

Form S-3 Registration

     14   
 

2.12.

  

Assignment of Registration Rights

     15   
 

2.13.

  

Limitations on Subsequent Registration Rights

     16   
 

2.14.

  

“Market Stand-Off” Agreement

     16   
 

2.15.

  

Termination of Registration Rights

     17   

3.

 

Information, Observer and Inspection Rights

     17   
 

3.1.

  

Delivery of Financial Statements

     17   
 

3.2.

  

Inspection

     19   
 

3.3.

  

Assignment

     19   
 

3.4.

  

Termination of Information and Inspection Covenants

     19   
 

3.5.

  

Confidentiality

     19   

4.

 

Right of First Offer

     20   
 

4.1.

  

Right of First Offer

     20   
 

4.2.

  

Termination

     21   

5.

 

Additional Covenants

     21   
 

5.1.

  

Insurance

     21   
 

5.2.

  

Employee Agreements

     21   
 

5.3.

  

Employee Vesting

     22   


5.4.

Employment Agreement

  20   

5.5

Milestone Achievement

  20   

5.6

Technology License Option

  20   

5.7

Right to Participate

  20   

5.8

Termination of Covenants

  23   

6.

Miscellaneous

  24   

6.1.

Transfers, Successors and Assigns

  24   

6.2.

Governing Law

  24   

6.3.

Counterparts

  24   

6.4.

Titles and Subtitles

  24   

6.5.

Notices

  24   

6.6.

Costs of Enforcement

  24   

6.7.

Amendments and Waivers

  24   

6.8.

Severability

  25   

6.9.

Aggregation of Stock

  25   

6.10.

Entire Agreement

  25   

6.11.

Transfers of Rights

  25   

6.12.

Dispute Resolution

  26   

6.13.

Delays or Omissions

  26   

6.14.

Further Assurances

  26   

Schedule A

-            Schedule of Investors

  


ADESTO TECHNOLOGIES CORPORATION

FOURTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

THIS FOURTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT (this “ Agreement ”) is made as of the 19 th day of August 2013 by and among Adesto Technologies Corporation, a California corporation (the “ Company ”), and each of the investors listed on Schedule A hereto (each, an “ Investor ,” and collectively, the “ Investors ”).

RECITALS

WHEREAS , certain of the Investors are holders of outstanding shares of the Company’s Series A Preferred Stock (the “ Series A Preferred Stock ”) issued by the Company pursuant to that certain Series A Preferred Stock Purchase Agreement dated as of February 21, 2007 (the “ Prior Series A Investors ”);

WHEREAS , certain of the Investors are holders of outstanding shares of the Company’s Series B Preferred Stock (the “ Series B Preferred Stock ”) issued by the Company pursuant to that certain Series B Preferred Stock Purchase Agreement dated as of August 19, 2009 and that certain Series B Preferred Stock Purchase Agreement dated as of May 27, 2010 (the “ Prior Series B Investors ”);

WHEREAS , certain of the Investors are holders of outstanding shares of the Company’s Series C Preferred Stock (the “ Series C Preferred Stock ”) issued by the Company pursuant to that certain Series C Preferred Stock Purchase Agreement dated as of July 6, 2011 (the “ Prior Series C Investors ” and, together with the Prior Series B Investors and the Prior Series A Investors, the “ Prior Investors ”);

WHEREAS , certain of the Investors are holders of outstanding shares of the Company’s Series D Preferred Stock (the “ Series D Preferred Stock ”) issued by the Company pursuant to that certain Series D Preferred Stock Purchase Agreement dated as of August 8, 2012 (the “ Prior Series D Investors ” and, together with the Prior Series C Investors, the Prior Series B Investors and the Prior Series A Investors, the “ Prior Investors ”);

WHEREAS , the Prior Investors have been granted certain rights to cause the Company to register shares of its Common Stock issuable to the Prior Investors, to receive certain information from the Company, to participate in future equity offerings by the Company and certain other matters pursuant to that certain Third Amended and Restated Investors’ Rights Agreement by and among the Company and the Prior Investors dated as of August 8, 2013 (the “ Prior Agreement ”);

WHEREAS , the Company and certain of the Investors (the “ New Investors ”) are parties to that certain Series E Preferred Stock Purchase Agreement dated as of even date herewith, as such may be amended from time to time (the “ Series E Purchase Agreement ”), pursuant to which such Investors are purchasing shares of Series E Preferred Stock of the Company (the “ Series E Preferred Stock ”) and converting outstanding promissory notes issued by the Company into shares of Series D-1 Preferred Stock of the Company (the “ Series D-1 Preferred Stock ” and, together with the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock and the Series E Preferred Stock, the “ Preferred Stock ”);


WHEREAS , the obligations of the Company and the New Investors under the Series E Purchase Agreement are conditioned, among other things, upon the execution and delivery of this Agreement by the Investors and the Company, and the Prior Investors and the Company desire to amend, restate and replace their rights and obligations under the Prior Agreement with the rights and obligations set forth in this Agreement.

NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS :

1. Definitions . For purposes of this Agreement:

1.1. The term “ Affiliate ” shall mean with respect to any individual, corporation, partnership, association, trust, or any other entity (in each case, a “ Person ”), any Person which, directly or indirectly, controls, is controlled by or is under common control with such Person, including, without limitation any general partner, officer or director of such Person and any venture capital fund now or hereafter existing which is controlled by or under common control with one or more general partners or shares the same management company with such Person.

1.2. The term “ Board ” shall mean the Board of Directors of the Company.

1.3. The term “ Common Stock ” shall mean shares of the Company’s common stock.

1.4. The term “ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

1.5. The term “ Form S-3 ” means such form under the Securities Act as in effect on the date hereof or any registration form under the Securities Act subsequently adopted by the SEC which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC.

1.6. The term “ GAAP ” shall mean generally accepted accounting principles.

1.7. The term “ Holder ” shall mean any Person owning or having the right to acquire Registrable Securities or any assignee thereof in accordance with Section 2.12 hereof.

1.8. The Term “ Immediate Family Member ” shall mean a child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, of a person referred to herein.

1.9. The term “ Initiating Holders ” means, collectively, any Holders who properly initiate a registration request under this Agreement.

 

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1.10. The term “ IPO ” means the Company’s first underwritten public offering of its Common Stock to the general public that is effected pursuant to a registration statement filed with, and declared effective by, the SEC under the Securities Act.

1.11. The term “ Major Investor ” means, any Investor that, collectively with such Investor’s Affiliates, holds at least five million (5,000,000) shares of Registrable Securities (subject to appropriate adjustment for stock splits, stock dividends, combinations and other similar recapitalizations affecting such shares).

1.12. The term “ New Securities ” shall mean equity securities of the Company, whether now authorized or not, or rights, options, or warrants to purchase said equity securities, or securities of any type whatsoever that are, or may become, convertible into or exchangeable into or exercisable for said equity securities; provided, however, that the term “New Securities” does not include any of the following (collectively, the “ Excluded Securities ”): (i) shares of Common Stock issued or deemed issued as a dividend or distribution on the Preferred Stock; (ii) shares of Common Stock issued or issuable by reason of a dividend, stock split, split-up or other distribution on shares of Common Stock; (iii) shares of Common Stock or Preferred Stock issued or deemed issued to officers, employees or directors of, or consultants to, the Company or any of its subsidiaries pursuant to a plan, agreement or arrangement approved by the Board; (iv) shares of Common Stock or convertible securities actually issued upon the exercise of options or shares of Common Stock actually issued upon the conversion or exchange of convertible securities, in each case provided such issuance is pursuant to the terms of such option or convertible security; (v) shares of Common Stock or Preferred Stock issued or issuable in connection with strategic alliances or commercial relationships approved by the Board; (vi) shares of Common Stock or Preferred Stock issued or issuable to banks, equipment lessors or other financial institutions, or to real property lessors, pursuant to a debt financing, equipment leasing or real property leasing transaction approved by the Board; (vii) shares of Common Stock issued or issuable pursuant to a Qualifying Public Offering (as defined below); (viii) shares of Common Stock or Preferred Stock issued or issuable pursuant to the acquisition of another corporation by the Company by merger, purchase of all or substantially all of the assets or other reorganization or pursuant to a joint venture agreement, provided , that such issuances are approved by the Board; (ix) shares of Series E Preferred Stock issued and sold pursuant to the Series E Purchase Agreement and the Common Stock issuable upon conversion thereof; (x) shares of Series A Preferred Stock and Series B Preferred Stock, and the Common Stock issuable upon conversion of such Series A Preferred Stock and Series B Preferred Stock, issuable upon the exercise of those certain warrants issued to ATEL Ventures, Inc. to purchase up to an aggregate of 178,571 shares of Series A Preferred Stock and 243,506 shares of Series B Preferred Stock (subject to appropriate adjustment for stock splits, stock dividends, combinations and other similar recapitalizations affecting such shares) (collectively, the “ ATEL Warrants ”); (xi) shares of Series C Preferred Stock and the Common Stock issuable upon conversion of such Series C Preferred Stock, issuable upon the exercise of that certain warrant issued to Altis Semiconductor to purchase up to an aggregate of 2,857,143 shares of Series C Preferred Stock (subject to appropriate adjustment for stock splits, stock dividends, combinations and other similar recapitalizations affecting such shares) (the “ Altis Warrant ”); and (xii) shares of Common Stock or rights or warrants to purchase shares of Common Stock and the Common Stock issuable upon exercise of such rights or warrants issued or issuable to Axon Technologies Corporation pursuant to the terms of that certain Technology License Agreement by and between the Company and Axon Technologies Corporation dated as of January 15, 2007 as such may be amended from time to time.

 

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1.13. The term “ Qualifying Public Offering ” shall mean a firm-commitment underwritten public offering pursuant to an effective registration statement under the Securities Act in which gross proceeds received by the Corporation shall be at least thirty million dollars ($30,000,000).

1.14. The terms “ register ,” “ registered ,” and “ registration ” refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement or document.

1.15. The term “ Registrable Securities ” means (i) the Common Stock issuable or issued upon conversion of the Preferred Stock; (ii) any Common Stock issued or issuable upon conversion of any capital stock of the Company now held by the Investors or acquired by the Investors after the date hereof; (iii) any Common Stock issued, or Common Stock issuable or issued upon conversion of Preferred Stock issued, in a transaction that is excluded from the definition of New Securities if the Board, including a majority of the Preferred Director(s) then serving on the Board, determines that such shares should receive registration rights under Section 2.2 hereof; (iv) the Common Stock issued or issuable upon exercise of the warrants issued to Axon Technologies Corporation pursuant to the terms of that certain Technology License Agreement by and between the Company and Axon Technologies Corporation dated as of January 15, 2007, as such may be amended from time to time; (v) the Common Stock issued or issuable (the “ ATEL Common Shares ”) upon conversion of up to 178,571 shares of Series A Preferred Stock and up to 243,506 shares of Series B Preferred Stock (subject to appropriate adjustment for stock splits, stock dividends, combinations and other similar recapitalizations affecting such shares) issuable upon exercise of the ATEL Warrants; (vi) the Common Stock issued or issuable (the “ Altis Common Shares ”) upon conversion of up to 2,857,143 shares of Series C Preferred Stock (subject to appropriate adjustment for stock splits, stock dividends, combinations and other similar recapitalizations affecting such shares) issuable upon exercise of the Altis Warrant; (vii) the Common Stock issued or issuable (the “ Opus Common Shares ”) upon conversion of shares of Preferred Stock (subject to appropriate adjustment for stock splits, stock dividends, combinations and other similar recapitalizations affecting such shares) issuable upon exercise of warrants issued by the Company to Opus Bank; and (viii) any Common Stock of the Company issued (or issuable upon the conversion or exercise of any warrant, right or other security which is issued) as a dividend or other distribution with respect to, or upon conversion of, in exchange for, or in replacement of, the shares referenced in clauses (i) through (vii), inclusive, above, excluding in all cases, however, any Registrable Securities sold by a person in a transaction in which his rights under Section 2 hereof are not duly assigned or any shares for which registration rights have terminated pursuant to Section 2.15 of this Agreement.

1.16. The term “ Registrable Securities then outstanding ” means the number of shares determined by adding the number of shares of Common Stock which are then outstanding, and the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities which are Registrable Securities or are securities that are convertible into or exercisable for securities that are Registrable Securities.

1.17. The term “ Restated Articles ” has the meaning set forth in the Series E Purchase Agreement.

 

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1.18. The term “ SEC ” means the Securities and Exchange Commission.

1.19. The term “ SEC Rule 144 ” means Rule 144 promulgated by the SEC under the Securities Act (or any similar or successor rule).

1.20. The term “ SEC Rule 144(k) ” means Rule 144(k) promulgated by the SEC under the Securities Act (or any similar or successor rule).

1.21. The term “ SEC Rule 145 ” means Rule 145 promulgated by the SEC under the Securities Act (or any similar or successor rule).

1.22. The term “ Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

1.23. The term “ Preferred Directors ” means director(s) of the Company elected by the holders of the Preferred Stock, exclusively and as a separate class, pursuant to the Fifth Amended and Restated Voting Agreement of even date herewith, by and among the Company, the Investors and the shareholders of the Company listed on Schedule A attached thereto (the “ Voting Agreement ”).

1.24. The term “ Violation ” means, with respect to a registration statement filed pursuant to Sections 2.1 , 2.2 or 2.11 hereof, losses, claims, damages, or liabilities (joint or several) to which a party hereto may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations: (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by any other party hereto, of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law.

2. Registration Rights . The Company covenants and agrees as follows:

2.1. Request for Registration .

(a) If the Company shall receive at any time after the earlier of (i) five (5) years after the date of this Agreement or (ii) one hundred eighty (180) days after the effective date of the first registration statement for a public offering of securities of the Company (other than a registration statement relating either to the sale of securities to employees of the Company pursuant to a stock option, stock purchase or similar plan or a SEC Rule 145 transaction), a written request from the Holders of at least forty percent (40%) of the Registrable Securities then outstanding that the Company file a registration statement under the Securities Act covering the registration of Registrable Securities representing either an anticipated aggregate public offering price (before any underwriting discounts and commissions) of not less than five million dollars ($5,000,000) or at least twenty percent (20%) of all Registrable Securities then outstanding, then the Company shall:

(i) within twenty (20) days of the receipt thereof, give written notice of such request to all Holders;

 

5


(ii) as soon as reasonably practicable, and in any event within sixty (60) days of the receipt of such request, file a registration statement under the Securities Act covering all Registrable Securities which the Holders request to be registered, subject to the limitations of subsection 2.1(b) , within twenty (20) days of the mailing of such notice by the Company in accordance with Section 6.5 ; and

(iii) use its reasonable best efforts to cause such registration statement to be declared effective by the SEC as soon as reasonably practicable but in no event later than ninety (90) days after such request.

(b) If the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to subsection 2.1(a) and the Company shall include such information in the written notice referred to in subsection 2.1(a) . The underwriter will be selected by the Company, which underwriter shall be reasonably acceptable to a majority in interest of the Holders whose Registrable Securities are to be included in the underwriting. In such event, the right of any Holder to include such Holder’s Registrable Securities in such registration shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in subsection 2.3(e) ) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting. Notwithstanding any other provision of this Section 2.1 , if the underwriter advises the Company in writing that marketing factors require a limitation of the number of shares to be underwritten, then the Company shall so advise all Holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and the number of shares of Registrable Securities that may be included in the underwriting shall be allocated among all Holders of Registrable Securities, including the Initiating Holders, in proportion (as nearly as practicable) to the number of Registrable Securities of the Company owned by each Holder; provided , however , that the number of shares of Registrable Securities held by the Holders to be included in such underwriting shall not be reduced unless all other securities are first entirely excluded from the underwriting. Any Registrable Securities excluded from or withdrawn from such underwriting shall be withdrawn from registration. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriters may round the number of shares allocated to any Holder to the nearest one hundred (100) shares.

(c) The Company shall not be obligated to effect, or to take any action to effect, any registration

(i) pursuant to this Section 2.1 :

(A) If the Company receives the request for registration six (6) months or less before the expected date of filing of the registration statement for the Company’s IPO;

 

6


(B) In any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, unless the Company is already subject to service in such jurisdiction and except as may be required under the Securities Act;

(C) After the Company has effected two (2) registrations pursuant to this Section 2.1 and such registrations have been declared or ordered effective;

(D) If the Initiating Holders propose to dispose of shares of Registrable Securities that may be immediately registered on Form S-3 pursuant to a request made pursuant to Section 2.11 below; or

(E) If the Registrable Securities to be included in the registration statement could be sold without restriction under SEC Rule 144(k) within a ninety (90) day period and the Company is currently subject to the periodic reporting requirements of Sections 12(g) or 15(d) of the Exchange Act; or

(ii) pursuant to any other provision of this Agreement:

(A) In any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, unless the Company is already subject to service in such jurisdiction and except as may be required under the Securities Act; or

(B) If the Registrable Securities to be included in the registration statement could be sold without restriction under SEC Rule 144(k) within a ninety (90) day period and the Company is currently subject to the periodic reporting requirements of Sections 12(g) or 15(d) of the Exchange Act.

(d) Notwithstanding the foregoing, if the Company shall furnish to Holders requesting a registration statement pursuant to this Section 2.1 a certificate signed by the Chief Executive Officer of the Company stating that in the good faith judgment of the Board it would be materially detrimental to the Company and its shareholders for such registration statement to be filed and become effective or to remain effective as long as such registration statement would otherwise be required to remain effective because such action would be materially detrimental to the Company and its shareholders, the Company shall have the right to defer taking action with respect to such filing for a period of not more than ninety (90) days after receipt of the request of the Initiating Holders; provided , however , that the Company may not utilize this right more than once in any twelve-month period.

A registration statement shall not be counted until such time as such registration statement has been declared effective by the SEC (unless the Initiating Holders withdraw their request for such registration (other than as a result of information concerning the business or financial condition of the Company which is made known to the Investors after the date on which such registration was requested) and elect not to pay the registration expenses therefor pursuant to Section 2.5 ). A registration statement shall not be counted if, as a result of an exercise of the underwriter’s cut-back provisions, less than all of the total number of Registrable Securities that Holders have requested to be included in such registration statement are actually included.

 

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2.2. Company Registration . If the Company proposes to register (including for this purpose a registration effected by the Company for shareholders other than the Holders) any of its stock or other securities under the Securities Act in connection with the public offering of such securities solely for cash (other than registration statements relating to registrations made pursuant to Sections 2.1 or 2.11 hereof, a registration statement relating either to the sale of securities to employees of the Company pursuant to a stock option, stock purchase or similar plan or an SEC Rule 145 transaction, a registration on any form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities or a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities which are also being registered), the Company shall, at such time, promptly give each Holder written notice of such registration. Upon the written request of each Holder given within twenty (20) days after mailing of such notice by the Company in accordance with Section 6.5 , the Company shall, subject to the provisions of Section 2.7 , use its reasonably best efforts to cause to be registered under the Securities Act all of the Registrable Securities that each such Holder has requested to be registered. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 2.2 prior to the effectiveness of such registration whether or not any Holder has elected to include securities in such registration. The expenses of such withdrawn registration shall be borne by the Company in accordance with Section 2.6 hereof.

2.3. Obligations of the Company . Whenever required under this Section 2 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible:

(a) prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its reasonable best efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for a period of up to one hundred twenty (120) days or, if earlier, until the distribution contemplated in the registration statement has been completed; provided , however , such one hundred twenty-day period shall be extended for a period of time equal to the period the Holder refrains from selling any securities included in such registration at the request of an underwriter of Common Stock (or other securities) of the Company or, such shorter period of time, if the distribution contemplated in the registration statement has been completed;

(b) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement for a period of up to one hundred twenty (120) days or, if earlier, until the distribution contemplated in the registration statement has been completed;

(c) promptly notify the Holders of the effectiveness of such registration statement and furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them;

 

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(d) following the effective date of such registration statement, notify the Holders of any request by the SEC that the Company amend or supplement such registration statement, or the associated prospectus;

(e) use its reasonable best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders; provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act;

(f) in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement;

(g) notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, such obligation to continue for a period of up to one hundred twenty (120) days or, if earlier, until the distribution contemplated in the registration statement has been completed;

(h) cause all such Registrable Securities registered pursuant to this Agreement hereunder to be listed on a national securities exchange or trading system and each securities exchange and trading system on which similar securities issued by the Company are then listed;

(i) make generally available to its security holders, and to deliver to each Holder participating in the registration statement, an earnings statement of the Company that will satisfy the provisions of Section 11(a) of the Securities Act covering a period of 12 months beginning after the effective date of such registration statement as soon as reasonably practicable after the termination of such 12-month period;

(j) provide a transfer agent and registrar for all Registrable Securities registered pursuant hereunder and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration; and

(k) use its reasonable best efforts to furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section 2 , on the date on which such Registrable Securities are sold to the underwriter, (i) an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to

 

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the underwriters, if any, and (ii) a “comfort” letter dated such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any.

2.4. Furnish Information . It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 2 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be reasonably required to effect the registration of such Holder’s Registrable Securities.

2.5. Expenses of Demand Registration . All expenses other than underwriting discounts and commissions incurred in connection with registrations, filings or qualifications pursuant to Section 2.1 , including (without limitation) all registration, filing and qualification fees, printers’ and accounting fees, fees and disbursements of counsel for the Company and the reasonable fees and disbursements, not to exceed Forty Thousand Dollars ($40,000), of one (1) counsel for the selling Holders shall be borne by the Company; provided , however , that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 2.1 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (in which case all participating Holders shall bear such expenses pro rata based upon the number of Registrable Securities that were to be included in the withdrawn registration), unless the Holders of a majority of the Registrable Securities agree to forfeit their right to one (1) demand registration pursuant to Section 2.1 ; provided further , however, that if at the time of such withdrawal, the Holders have learned of a material adverse change in the condition, business, or prospects of the Company from that known to the Holders at the time of their request and have withdrawn the request with reasonable promptness after learning of such information, then the Holders shall not be required to pay any of such expenses and shall retain their rights pursuant to Section 2.1 .

2.6. Expenses of Company Registration . The Company shall bear and pay all expenses incurred in connection with any registration, filing or qualification of Registrable Securities with respect to the registrations pursuant to Section 2.2 hereof for each Holder (which right may be assigned as provided in Section 2.12 hereof), including (without limitation) all registration, filing, and qualification fees, printers and accounting fees relating or apportionable thereto and the fees and disbursements, not to exceed Forty Thousand Dollars ($40,000) of one (1) counsel for the selling Holders selected by them, but excluding underwriting discounts and commissions relating to Registrable Securities.

2.7. Underwriting Requirements . In connection with any offering involving an underwriting of shares of the Company’s capital stock pursuant to Section 2.2 , the Company shall not be required to include any of the Holders’ securities in such underwriting unless they accept the terms of the underwriting as agreed upon between the Company and its underwriters, and then only in such quantity as the underwriters determine in their sole discretion will not jeopardize the success of the offering by the Company. If the total number of securities, including Registrable Securities, requested by shareholders to be included in such offering exceeds the amount of securities to be sold other than by the Company that the underwriters determine in their reasonable discretion is compatible with the success of the offering, then the

 

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Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters and the Company determine in their sole discretion will not jeopardize the success of the offering. In no event shall any Registrable Securities be excluded from such offering unless all other shareholders’ securities have been first excluded. In the event that the underwriters determine that less than all of the Registrable Securities requested to be registered can be included in such offering, then the Registrable Securities that are included in such offering shall be apportioned pro rata among the selling Holders based on the number of Registrable Securities held by all selling Holders or in such other proportions as shall mutually be agreed to by all such selling Holders. Notwithstanding the foregoing, in no event shall (i) the amount of securities of the selling Holders included in the offering be reduced below thirty-three percent (33%) of the total amount of securities included in such offering, unless such offering is the Company’s IPO in which case the selling Holders may be excluded beyond this amount if the underwriters make the determination described above and no other shareholder’s securities are included in such offering or (ii) notwithstanding (i) above, any Registrable Securities described in Section 1.15(i)-(ii)  be excluded from such underwriting unless all Registrable Securities described in Section 1.15(iii) are first excluded from such offering. For purposes of the preceding parenthetical concerning apportionment, for any selling shareholder which is a Holder of Registrable Securities and which is an investment fund, partnership, limited liability company or corporation, the partners, members, retired partners, retired members, shareholders and Affiliates of such Holder, or the estates and family members of any such partners, retired partners, members and retired members and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single “selling Holder”, and any pro-rata reduction with respect to such “selling Holder” shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such “selling Holder,” as defined in this sentence.

2.8. Delay of Registration . No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any registration pursuant to this Agreement as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 2 .

2.9. Indemnification . In the event any Registrable Securities are included in a registration statement under this Section 2 :

(a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, the partners, members, officers, directors and stockholders of each Holder, legal counsel and accountants for each Holder, any underwriter (as defined in the Securities Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, against any Violation and the Company will pay to each such Holder, underwriter, controlling person or other aforementioned person, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action as such expenses are incurred; provided , however , that the indemnity agreement contained in this subsection 2.9(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holder, underwriter, controlling person or other aforementioned person.

 

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(b) To the extent permitted by law, each selling Holder will severally and not jointly indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Securities Act, legal counsel and accountants for the Company, any underwriter, any other Holder selling securities in such registration statement and any controlling person of any such underwriter or other Holder, against any losses, claims, damages, or liabilities (joint or several) to which any of the foregoing persons may become subject, under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will pay, any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this subsection 2.9(b) , in connection with investigating or defending any such loss, claim, damage, liability, or action; provided , however , that the indemnity agreement contained in this subsection 2.9(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided , further , that, in no event shall any indemnity under this subsection 2.9(b) exceed the net proceeds from the offering received by such Holder, except in the case of fraud or willful misconduct by such Holder.

(c) Promptly after receipt by an indemnified party under this Section 2.9 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 2.9 , deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided , however , that an indemnified party (together with all other indemnified parties which may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the reasonable fees and expenses to be paid by the indemnifying party, if there may be one or more legal defenses available to such indemnified party or parties that are different from or additional to those available to the indemnifying party. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 2.9 , but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 2.9 .

(d) In order to provide for just and equitable contribution to joint liability under the Securities Act in any case in which either (i) any Holder exercising rights under this Agreement, or any controlling person of any such Holder, makes a claim for indemnification pursuant to this Section 2.9 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case

 

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notwithstanding the fact that this Section 2.9 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any such selling Holder or any such controlling person in circumstances for which indemnification is provided under this Section 2.9 , then, and in each such case, the Company and such Holder will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties’ relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission; provided however , that, in any such case, (I) no such Holder will be required to contribute any amount in excess of the public offering price of all such Registrable Securities offered and sold by such Holder pursuant to such registration statement, and (II) no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation; provided further , that in no event shall a Holder’s liability pursuant to this subsection 2.9(d) , when combined with the amounts paid or payable by such holder pursuant to subsection 2.9(b) , exceed the proceeds from the offering (net of any underwriting discounts or commissions) received by such Holder, except in the case of willful fraud by such Holder.

(e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.

(f) Unless otherwise superseded by an underwriting agreement entered into in connection with the underwritten public offering, the obligations of the Company and Holders under this Section 2.9 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 2 , and shall survive the termination of this Agreement.

2.10. Reports Under Exchange Act . With a view to making available to the Holders the benefits of SEC Rule 144 promulgated under the Securities Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company agrees to:

(a) make and keep public information available, as those terms are understood and defined in SEC Rule 144, at all times after the effective date of the first registration statement filed by the Company for the offering of its securities to the general public so long as the Company is subject to the periodic reporting requirements under Sections 13 or 15(d) of the Exchange Act;

(b) voluntarily register its Common Stock under Section 12 of the Exchange Act, as is necessary to enable the Holders to utilize Form S-3 for the sale of their

 

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Registrable Securities, such action to be taken as soon as practicable after the end of the fiscal year in which the first registration statement filed by the Company for the offering of its securities to the general public is declared effective;

(c) file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and

(d) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144, the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC which permits the selling of any such securities without registration or pursuant to such form.

2.11. Form S-3 Registration . In case the Company shall receive from Holders of at least forty percent (40%) of all Registrable Securities then outstanding a written request or requests that the Company effect a registration on Form S-3 and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company will:

(a) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders; and

(b) as soon as reasonably practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder’s or Holders’ Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within fifteen (15) days after receipt of such written notice from the Company; provided , however , that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this Section 2.11 : (1) if Form S-3 is not then available for such offering by the Holders; (2) if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public (net of any underwriters’ discounts or commissions) of less than one million dollars ($1,000,000); (3) if the Company shall furnish to the Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board, it would be materially detrimental to the Company and its shareholders for such Form S-3 Registration to be filed in the near future, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than ninety (90) days after receipt of the request of the Holder or Holders under this Section 2.11 ; provided , however , that the Company shall not utilize this right more than once in any twelve-month period; and provided further that the Company shall not register any securities for the account of itself or any other shareholder during such ninety-day period (other than a registration relating solely to the sale of securities of participants in a Company stock plan, a registration relating to a corporate reorganization or transaction under Rule 145 of

 

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the Securities Act, a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities, or a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities that are also being registered); (4) if the Company has, within the twelve-month period preceding the date of such request, already effected two (2) registrations on Form S-3 for the Holders pursuant to this Section 2.11 ; (5) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance; or (6) during the period ending one hundred eighty (180) days after the effective date of a registration statement subject to Section 2.2 hereof.

(c) Subject to the foregoing, the Company shall file a registration statement covering the Registrable Securities and other securities so requested to be registered under this Section 2.11 as soon as reasonably practicable after receipt of the request or requests of the Holders. All expenses incurred in connection with registrations requested pursuant to Section 2.11 , including (without limitation) all registration, filing, qualification, printer’s and accounting fees and the reasonable fees and disbursements of counsel for the selling Holder or Holders, not to exceed Forty Thousand Dollars ($40,000) for each of such registration, and counsel for the Company, but excluding any underwriters’ discounts or commissions associated with Registrable Securities, shall be borne by the Company. Registrations effected pursuant to this Section 2.11 shall not be counted as demands for registration or registrations effected pursuant to Section 2.1 .

(d) If the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as part of their request made pursuant to this Section 2.11 and the Company shall include such information in the written notice referred to in subsection 2.11(a) . The provisions of subsection 2.1(b) shall be applicable to such request (with the substitution of Section 2.11 for references to Section 2.1 ).

2.12. Assignment of Registration Rights . The rights to cause the Company to register Registrable Securities pursuant to this Section 2 may be assigned (but only with all related obligations) by a Holder to a transferee or assignee of such securities that (i) is a subsidiary, Affiliate, parent, partner, member, limited partner, retired partner, retired member or stockholder of a Holder, (ii) is a Holder’s family member or trust for the benefit of an individual Holder, or (iii) acquires at least twenty percent (20%) of the number of shares of Registrable Securities that such Holder purchases pursuant to the Purchase Agreement (as adjusted for stock splits, stock dividends, combinations and other recapitalizations), provided that : (a) the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned; (b) such transferee or assignee agrees in writing to be bound by, and subject to, the terms and conditions of this Agreement, including, without limitation, the provisions of Section 2.14 below; and (c) such assignment shall be effective only if immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the Securities Act. For the purposes of determining the number of shares of Registrable Securities held by a transferee or assignee, the holdings of transferee or assignee (i) that is a subsidiary, parent, partner, limited partner, retired partner, member, retired member or stockholder of a Holder; (ii) that is an Affiliate of the Holder, which means with

 

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respect to a limited liability company or a limited liability partnership, a fund or entity managed by the same manager or managing member or general partner or management company or by an entity controlling, controlled by, or under common control with such manager or managing member or general partner or management company, (iii) who is a Holder’s Immediate Family Member, or (iv) that is a trust for the benefit of an individual Holder or such Holder’s Immediate Family Member, shall be aggregated together and with those of the assigning Holder; provided that all assignees and transferees who would not qualify individually for assignment of registration rights shall have a single attorney-in-fact for the purpose of exercising any rights, receiving notices or taking any action under this Section 2 . It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 2.12 with respect to the Registrable Securities of any selling Holder that such Holder furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be required to effect the registration of such Holder’s Registrable Securities.

2.13. Limitations on Subsequent Registration Rights . From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of a majority of the Registrable Securities then outstanding, enter into any agreement with any holder or prospective holder of any securities of the Company which would allow such holder or prospective holder (a) to include such securities in any registration unless under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of such securities will not reduce the amount of the Registrable Securities of the Holders that are included or (b) to demand registration of any securities held by such holder or prospective holder.

2.14. “Market Stand-Off” Agreement .

(a) Each Holder hereby agrees that it will not, without the prior written consent of the managing underwriter, during the period commencing on the date of the final prospectus relating to the Company’s IPO and ending on the date specified by the Company and the managing underwriter (the “ Lock-Up Period ”) (i) lend, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock held immediately prior to the effectiveness of the registration statement for such offering, or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or other securities, in cash or otherwise. The Lock-Up Period shall not exceed one hundred eighty (180) days, provided, however, that for the purpose of allowing the underwriters in the Company’s IPO to comply with NASD Rule 2711(f)(4), if (a) during the last seventeen (17) days of the Lock-Up Period the Company releases earnings results or material news or a material event relating to the Company occurs, or (b) prior to the expiration of the Lock-Up Period, the Company announces that it will release earnings results during the sixteen-day period beginning on the last day of the Lock-Up Period, then in each such case, the Lock-Up Period may be extended past one hundred eighty (180) days until the expiration of the eighteen-day period beginning on the date of release of the earnings results or the occurrence of the material news or material event, as applicable. The foregoing provisions of this Section 2.14 shall apply only to the Company’s IPO, shall not

 

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apply to the sale of any shares to an underwriter pursuant to an underwriting agreement, and shall only be applicable to the Holders if all officers, directors and greater than one percent (1%) shareholders of the Company enter into similar agreements. The underwriters in connection with the Company’s IPO are intended third-party beneficiaries of this Section 2.14 and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto. Each Holder further agrees to execute such agreements as may be reasonably requested by the underwriters in the Company’s IPO that are consistent with this Section 2.14 or that are necessary to give further effect thereto within any reasonable timeframe so requested.

(b) For purposes of this Section 2.14 , the term “Company” shall include any wholly-owned subsidiary of the Company into which the Company merges or consolidates. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Registrable Securities of each Holder (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period.

(c) Each Holder agrees that a legend reading substantially as follows shall be placed on all certificates representing all Registrable Securities of each Holder (and the shares or securities of every other person subject to the restriction contained in this Section 2.14 ):

THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A LOCK-UP PERIOD OF 180 DAYS OR MORE AFTER THE EFFECTIVE DATE OF THE ISSUER’S REGISTRATION STATEMENT FILED UNDER THE ACT, AS AMENDED, AS SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE ORIGINAL HOLDER OF THESE SECURITIES, A COPY OF WHICH MAY BE OBTAINED AT THE ISSUER’S PRINCIPAL OFFICE. AS A RESULT OF SUCH AGREEMENT, THESE SHARES MAY NOT BE TRADED PRIOR TO 180 DAYS AFTER THE EFFECTIVE DATE OF THE INITIAL PUBLIC OFFERING OF THE COMMON STOCK OF THE ISSUER HEREOF. SUCH LOCK-UP PERIOD IS BINDING ON TRANSFEREES OF THESE SHARES.

2.15. Termination of Registration Rights .

(a) No Holder shall be entitled to exercise any right provided for in this Section 2 after seven (7) years following the consummation of the IPO.

(b) The rights set forth in this Section 2 shall terminate as to any Holder, when the Registrable Securities held by such Holder (together with any Affiliate of such Holder with whom such Holder must aggregate its sales under SEC Rule 144) could be sold without restriction under SEC Rule 144(k).

3. Information, Observer and Inspection Rights .

3.1. Delivery of Financial Statements . The Company shall deliver to each Holder of at least 4,000,000 shares of Preferred Stock (subject to appropriate adjustment for stock splits, stock dividends, combinations and other similar recapitalizations affecting such shares), or the Common Stock issued upon conversion of such Preferred Stock (each an “ Information Rights Holder ”):

(a) as soon as reasonably practicable, but in any event within ninety (90) days after the end of each fiscal year of the Company, an unaudited balance sheet as of the last day of such year, an unaudited statement of operations and an unaudited statement of cash flows for such year and, unless waived by the Board, within one hundred twenty (120) days after the end of each fiscal year, an audited balance sheet as of the last day of such year, an audited statement of operations and an audited statement of cash flows for such year, such year-end financial reports to be in reasonable detail, prepared in accordance with GAAP, except that the financial report may (i) be subject to normal year-end audit adjustments and (ii) not contain all notes thereto which may be required in accordance with GAAP;

 

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(b) as soon as reasonably practicable, but in any event within forty-five (45) days after the end of each of the first three (3) quarters of each fiscal year of the Company, an unaudited income statement, schedule as to the sources and application of funds for such fiscal quarter, an unaudited balance sheet and a statement of shareholder’s equity as of the end of such fiscal quarter;

(c) as soon as reasonably practicable, but in any event with forty-five (45) days after the end of each of the first three (3) quarters of each fiscal year of the Company, a statement showing the number of shares of each class and series of capital stock and securities convertible into or exercisable for shares of capital stock outstanding at the end of the period, the number of common shares issuable upon conversion or exercise of any outstanding securities convertible or exercisable for common shares and the exchange ratio or exercise price applicable thereto and number of shares of issued stock options and stock options not yet issued but reserved for issuance, if any, all in sufficient detail as to permit the Information Rights Holder to calculate its percentage equity ownership in the Company and certified by the Chief Financial Officer or Chief Executive Officer of the Company as being true, complete and correct;

(d) as soon as reasonably practicable, but in any event within thirty (30) days of the end of each month, an unaudited income statement, an unaudited profit or loss statement; and

(e) as soon as reasonably practicable, but in any event thirty (30) days prior to the end of each fiscal year, a budget and business plan for the next fiscal year prepared on a monthly basis, including balance sheets and sources and applications of funds statements for such months and, as soon as prepared, any other budgets or revised budgets prepared by the Company; and

(f) with respect to the financial statements called for in subsections (a), (b) and (d)  of this Section 3.1 , an instrument executed by the Chief Financial Officer and President or Chief Executive Officer of the Company and certifying that such financials were prepared in accordance with GAAP consistently applied with prior practice for earlier periods (with the exception of footnotes that may be required by GAAP) and fairly present the financial condition of the Company and its results of operation for the periods specified therein, subject to year-end audit adjustments;

(g) If for any period the Company shall have any subsidiary whose accounts are consolidated with those of the Company, then in respect of such period the financial statements delivered pursuant to the foregoing sections shall be the consolidated and consolidating financial statements of the Company and all such consolidated subsidiaries.

 

18


(h) Notwithstanding anything else in this Section 3.1 to the contrary, the Company may cease providing the information set forth in this Section 3.1 during the period starting with the date sixty (60) days prior to the Company’s good faith estimate of the date of filing of, and ending on a date one hundred eighty (180) days after the effective date of the registration effecting the IPO; provided that the Company is actively employing its reasonable best efforts to cause such registration statement to become effective.

(i) Notwithstanding the foregoing, it is acknowledged and agreed that the information rights set forth in this Section 3.1 are not available to any Investor whose shares of Preferred Stock were mandatorily converted into Common Stock for failure to participate in an equity financing round of the Company in accordance with the terms of the Company’s Articles of Incorporation in effect at the time of such equity financing round.

3.2. Inspection . The Company shall permit each Information Rights Holder, at such Information Rights Holder’s expense, to visit and inspect the Company’s properties, to examine its books of account and records and to discuss the Company’s affairs, finances and accounts with its officers, all at such reasonable times and as may be reasonably requested by the Information Rights Holder; provided , however , that the Company shall not be obligated pursuant to this Section 3.2 to provide access to any information which it reasonably considers to be a trade secret or similar confidential information or that would adversely affect the attorney-client privilege between the Company and its counsel.

3.3. Assignment . The information, observer and inspection rights set forth in this Section 3 may not be assigned or transferred except that (i) such right is assignable by each Information Rights Holder to any Affiliate of such Information Rights Holder, and (ii) such right is assignable by any Information Rights Holder to any other Information Rights Holder.

3.4. Termination of Information and Inspection Covenants . The covenants set forth in Section 3.1 and Section 3.2 shall terminate as to Investors and be of no further force or effect immediately prior to (i) the consummation of a Qualifying Public Offering or (ii) upon a Deemed Liquidation Event, as such term is defined in the Company’s then effective Articles of Incorporation, whichever event shall first occur.

3.5. Confidentiality . Each Investor agrees that such Investor will keep confidential and will not disclose, divulge or use for any purpose, other than to monitor its investment in the Company, any confidential information obtained from the Company pursuant to the terms of this Agreement, unless such confidential information (i) is known or becomes known to the public in general (other than as a result of a breach of this Section 3.4 by such Investor), (ii) is or has been independently developed or conceived by the Investor without use of the Company’s confidential information or (iii) is or has been made known or disclosed to the Investor by a third party without a breach of any obligation of confidentiality such third party may have to the Company; provided , however , that an Investor may disclose confidential information (a) to its attorneys, accountants, consultants, and other professionals to the extent necessary to obtain their services in connection with monitoring its investment in the Company, (b) to any prospective investor of any Registrable Securities from such Investor as long as such

 

19


prospective investor agrees to be bound by the provisions of this Section 3.4 , (c) to any Affiliate, financing source, partner, member, stockholder or wholly owned subsidiary of such Investor in the ordinary course of business, or (d) as may otherwise be required by law, provided that the Investor takes reasonable steps to minimize the extent of any such required disclosure.

4. Right of First Offer .

4.1. Right of First Offer . Subject to the terms and conditions specified in this Section 4.1 , and applicable securities laws, in the event the Company proposes to offer or sell any New Securities, the Company shall first make an offering of such New Securities to each Major Investor in accordance with the following provisions of this Section 4.1 . A Major Investor shall be entitled to apportion the right of first offer hereby granted it among itself and its partners, members and Affiliates in such proportions as it deems appropriate.

(a) The Company shall deliver a notice (the “ Offer Notice ”), in accordance with the provisions of Section 6.5 hereof, to each of the Major Investors stating (i) its bona fide intention to offer such New Securities, (ii) the number of such New Securities to be offered, and (iii) the price and terms, if any, upon which it proposes to offer such New Securities.

(b) By written notification received by the Company, within fifteen (15) calendar days after mailing of the Offer Notice, each of the Major Investors may elect to purchase or obtain, at the price and on the terms specified in the Offer Notice, up to that portion of such New Securities which equals the proportion that the number of shares of Registrable Securities then held by such Major Investor bears to the total number of shares of Common Stock of the Company then outstanding (assuming full conversion and exercise of all convertible or exercisable securities and exercise in full of all outstanding options and warrants); provided , however , that such Major Investor shall have no right to purchase any such New Securities if such Investor cannot demonstrate to the Company’s reasonable satisfaction that such Investor is, at the time of the proposed issuance of such New Securities, an “accredited investor” as defined in Regulation D under the Securities Act. The Company shall promptly, in writing, inform each Major Investor that elects to purchase all the shares available to it (each, a “ Fully-Exercising Investor ”) of any other Major Investor’s failure to do likewise. During the fifteen (15) calendar-day period commencing after receipt of such information, each Fully-Exercising Investor shall be entitled to obtain that portion of the New Securities for which Major Investors were entitled to subscribe but which were not subscribed for by the Major Investors which is equal to the proportion that the number of shares of Registrable Securities then held by such Fully-Exercising Investor bears to the total number of shares of Registrable Securities then held by all Fully-Exercising Investors who wish to purchase such unsubscribed shares.

(c) If all New Securities referred to in the Offer Notice are not elected to be purchased or obtained as provided in subsection 4.1(b) hereof, the Company may, during the sixty (60) day period following the expiration of the period provided in subsection 4.1(b) hereof, offer the remaining unsubscribed portion of such New Securities (collectively, the “ Refused Securities ”) to any person or persons at a price not less than, and upon terms no more favorable to the offeree than, those specified in the Offer Notice. If the Company does not enter into an agreement for the sale of the New Securities within such period, or if such agreement is not consummated within thirty (30) days of the execution thereof, the right provided hereunder shall be deemed to be revived and such New Securities shall not be offered unless first reoffered to the Major Investors in accordance with this Section 4.1 .

 

20


(d) The right of first offer in this Section 4.1 shall not be applicable to any Excluded Securities.

(e) The right of first offer set forth in this Section 4.1 may not be assigned or transferred except that (i) such right is assignable by each Major Investor to any Affiliate of such Major Investor, and (ii) such right is assignable by any Major Investor to any other Major Investor. Notwithstanding the foregoing, it is acknowledged and agreed that the right of first offer set forth in this Section 4.1 shall not be available to any Investor whose shares of Preferred Stock were mandatorily converted into Common Stock for failure to participate in an equity financing round of the Company in accordance with the terms of the Company’s Articles of Incorporation in effect at the time of such equity financing round

(f) In lieu of complying with the provisions of this Section 4.1 , the Company may elect to give notice to the Major Investors within thirty (30) days after the issuance of New Securities. Such notice shall describe the type, price and terms of the New Securities. Each Major Investor shall have twenty (20) days from the date of receipt of such notice to elect to purchase up to the number of New Securities that would, if purchased by such Major Investor, maintain such Major Investor’s percentage ownership position, calculated as set forth in subsection 4.1(b) prior to giving effect to the issuance of such New Securities. The closing of such sale shall occur within sixty (60) days of the date of notice to the Major Investors.

4.2. Termination . The provisions of this Section 4 shall terminate and be of no further force or effect immediately prior to (i) the consummation of a Qualifying Public Offering or (ii) upon a Deemed Liquidation Event, as such term is defined in the Company’s then effective Articles of Incorporation, whichever event shall first occur.

5. Additional Covenants .

5.1. Insurance . The Company shall use its reasonable best efforts to maintain, from financially sound and reputable insurers, (i) Directors and Officers Errors and Omissions insurance in an amount reasonably satisfactory to the Board and (ii) term “key-person” insurance on Narbeh Derhacobian, in a minimum of $1,000,000 or an amount reasonably satisfactory to the Board, until such time as the Board determines that such insurance should be discontinued. The “key person” policy shall name the Company as loss payee and neither policy shall be cancelable by the Company without prior approval of the Board.

5.2. Employee Agreements . The Company will cause each person now or hereafter employed by it or any subsidiary (or engaged by the Company or any subsidiary as a consultant or independent contractor) with access to confidential information and/or trade secrets to enter into a non-disclosure and proprietary rights assignment agreement. In addition, the Company shall not amend, modify, terminate, waive or otherwise alter, in whole or in part, any above-referenced agreement or any restricted stock agreement between the Company and any employee without the approval of the Board.

 

21


5.3. Employee Vesting . Unless otherwise approved by the Board, all future employees and consultants of the Company who shall purchase, or receive options to purchase, shares of the Company’s capital stock following the date hereof shall be required to execute stock purchase or option agreements providing for (i) vesting of shares over a four-year period with the first twenty five percent (25%) of such shares vesting following twelve (12) months of continued employment or services, and the remaining shares vesting in equal monthly installments over the following thirty six (36) months and (ii) a 180-day lockup period in connection with the Company’s IPO. The Company shall retain a “right of first refusal” on employee transfers until the Company’s IPO and the right to repurchase unvested shares at cost.

5.4. Qualified Small Business Stock Status . In the event that the Company proposes to take an action or engage in a transaction that would reasonably be expected to result in the Shares no longer being “qualified small business stock” within the meaning of Section 1202(c) of the Internal Revenue Code of 1986, as amended (the “ Code ”), the Company shall notify the Investors and consult in good faith to devise a mutually agreeable and reasonable alternative course of action or transaction structure that would preserve such status. In addition, the Company shall submit to the Investors and to the Internal Revenue Service any reports that may be required under Section 1202(d)(1)(C) of the Code and any related Treasury Regulations. In addition, within ten (10) days after any Investor has delivered to the Company a written request therefor, the Company shall deliver to such Investor a written statement informing the Investor whether, in the Company’s good-faith judgment after a reasonable investigation, such Investor’s interest in the Company constitutes “qualified small business stock” as defined in Section 1202(c) of the Code, or would constitute “qualified small business stock,” if determination of whether stock constitutes “qualified small business stock” were made by taking into account the modifications set forth in Section 1045(b)(4) of the Code. The Company’s obligation to furnish a written statement pursuant to this Section 5.4 shall continue notwithstanding the fact that a class of the Company’s stock may be traded on an established securities market.

5.5. Press Releases .

(a) Any press release issued by the Company in connection with its sale and issuance of Preferred Stock shall have received prior approval by the Board and the Company shall be responsible for any expenses incurred in connection with such press release.

(b) In the event a Company press release contains the name of Applied Ventures, LLC or its Affiliate, such press release shall have received approval from Applied Ventures, LLC prior to its issuance.

(c) The Company acknowledges that Serge Dassault (“ M. Dassault ”) or his affiliates, representatives or agents may be required to give or issue a notice or press release concerning M. Dassault’s investment in the Company in compliance with the applicable laws of France; provided, that any such notice or press release shall not contain the name of Applied Ventures, LLC or its Affiliate without the prior approval by Applied Ventures, LLC.

(d) The Company shall not issue a press release containing the name of Altera Corporation or any of its Affiliates without the prior written consent of Altera Corporation.

 

22


(e) The Company shall not issue a press release containing the name of Microchip Technology Incorporated or any of its Affiliates without the prior written consent of Microchip Technology Incorporated.

(f) In the event that Integrated Silicon Solution Inc. or any of its Affiliates becomes a party to this Agreement as an Investor, the Company shall not issue a press release containing the name of Integrated Silicon Solution Inc. or any of its Affiliates without the prior written consent of Integrated Silicon Solution Inc.

5.6. Military Contracts . The Company shall notify M. Dassault before entering into an agreement with a military institution. For the sake of clarity, the parties hereto acknowledge and agree that such notice obligation of the Company shall not provide M. Dassault with the right to approve or disapprove any such agreement with a military institution or the Company’s entering any such agreement.

5.7. Management Carve-Out Plan .

(a) Following the execution of this Agreement, the Company shall adopt a management carve-out plan (the “ Carve-Out Plan ”), as contemplated by the Restated Articles, for payments to certain service providers of the Company (the “ Plan Participants ”) upon a Deemed Liquidation Event (as defined in the Restated Articles). Such Carve-Out Plan shall contain the following material terms (the “ Carve-Out Plan Terms ”):

(i) Following payment in full of the Series E First Liquidation Preference (as defined in the Restated Articles) to holders of shares of Series E Preferred Stock, the aggregate amount to be paid to the Plan Participants under the Carve-Out Plan will be established in an amount equal to five percent (5%) (the “ Carve-Out Percentage ”) of the remaining proceeds from the Deemed Liquidation Event following the payment of the Series E First Liquidation Preference.

(ii) If the value of the Company in the Deemed Liquidation Event exceeds $300,000,000, but is equal to or less than $400,000,000, then the Carve-Out Percentage will increase to seven and one-half percent (7.5%) for the amount by which such value exceeds $300,000,000.

(iii) If the value of the Company in the Deemed Liquidation Event exceeds $4,000,000, then the Carve-Out Percentage will increase to seven and one-half percent (7.5%) for the amount by which such value exceeds $300,000,000 up to $400,000,000, and then the Carve-Out Percentage will increase to ten percent (10%) for the amount by which such value exceeds $400,000,000.

(b) Following the adoption and implementation of the Carve-Out Plan pursuant to Section 5.7(a) , the Carve-Out Plan Terms set forth herein and therein may only be modified, rescinded or amended upon approval by the Board and holders of ninety percent (90%) of the outstanding shares of Series E Preferred Stock.

5.8. Termination of Certain Covenants . The covenants set forth in these Sections 5.1 through 5.7 shall terminate and be of no further force or effect upon (a) the consummation of a Qualifying Public Offering; (b) upon a Deemed Liquidation Event, as such

 

23


term is defined in the Company’s then effective Amended and Restated Articles of Incorporation; and (c) the Company first becoming subject to the periodic reporting requirements of Sections 12(g) or 15(d) of the Exchange Act, whichever event shall first occur.

6. Miscellaneous .

6.1. Transfers, Successors and Assigns . The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

6.2. Governing Law . This Agreement shall be governed by and construed in accordance with the General Corporation Law of California, without regard to its principles of conflicts of laws.

6.3. Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement may also be executed and delivered by facsimile signature and in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

6.4. Titles and Subtitles . The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

6.5. Notices . All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient, and if not so confirmed, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the respective parties at their address as set forth on the signature page or Schedule A hereto, or to such email address, facsimile number or address as subsequently modified by written notice given in accordance with this Section 6.5 . If notice is given to the Company, a copy shall also be sent to Mark A. Leahy, Esq. c/o Fenwick & West LLP, Silicon Valley Center, 801 California Street, Mountain View, California, 94041, Facsimile: (650) 938-5200.

6.6. Costs of Enforcement . If any Party to this Agreement seeks to enforce its rights under this Agreement by legal proceedings, the non-prevailing Party shall pay all costs and expenses incurred by the prevailing Party, including, without limitation, all reasonable attorneys’ fees.

6.7. Amendments and Waivers . Except as provided in Section 5.7 above, any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively),

 

24


with and only with the written consent of the Company and the holders of a majority of the Registrable Securities then held by the Investors; provided , however , that none of the Registrable Securities held by Axon Technologies Corporation, ATEL Ventures, Inc., Altis Semiconductor or Opus Bank shall be included in any manner in the calculation set forth in this sentence; and provided further , however , that the Investors may not amend the Agreement in any manner that would cause the ATEL Common Shares, the Altis Common Shares or the Opus Common Shares to no longer be Registrable Securities hereunder. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any Registrable Securities then outstanding, each future holder of all such Registrable Securities, and the Company. Notwithstanding the foregoing, this Agreement may not be amended or terminated and the observance of any term hereunder may not be waived with respect to any Investor without the written consent of such Investor, unless such amendment, termination or waiver applies to all Investors in the same fashion (it being agreed that a waiver of the provisions of Section 4 with respect to a particular transaction shall be deemed to apply to all Investors in the same fashion if such waiver does so by its terms, notwithstanding the fact that certain Investors may nonetheless, by agreement with the Company, purchase securities in such transaction). The Company shall give prompt written notice of any amendment or termination hereof or waiver hereunder to any party hereto that did not consent in writing to such amendment, termination or waiver. Any amendment, termination or waiver effected in accordance with this Section 6.7 shall be binding on all parties hereto, even if they do not execute such consent. No waivers of or exceptions to any term, condition or provision of this Agreement, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, condition or provision.

6.8. Severability . Whenever possible, each provision or portion of any provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision or portion of any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or portion of any provision in such jurisdiction, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision or portion of any provision had never been herein.

6.9. Aggregation of Stock . All shares of Registrable Securities held or acquired by Affiliates shall be aggregated together for the purpose of determining the availability of any rights under this Agreement.

6.10. Entire Agreement . This Agreement (including the Schedules and Exhibits hereto, if any) constitutes the full and entire understanding and agreement between the parties with respect to the subject matter hereof, and any other written or oral agreement relating to the subject matter hereof existing between the parties, including, without limitation, the Prior Agreement, are expressly canceled.

6.11. Transfers of Rights . Each Investor hereto hereby agrees that it will not, and may, not assign any of its rights and obligations hereunder, unless such rights and obligations are assigned by such Investor to (a) any person or entity to which Registrable Securities are transferred by such Investor, or (b) to any Affiliate of such Investor, and, in each case, such transferee shall be deemed an “Investor” for purposes of this Agreement; provided

 

25


that such assignment of rights shall be contingent upon the transferee providing a written instrument to the Company notifying the Company of such transfer and assignment and agreeing in writing to be bound by the terms of this Agreement.

6.12. Dispute Resolution . Any unresolved controversy or claim arising out of or relating to this Agreement, except as (i) otherwise provided in this Agreement, or (ii) any such controversies or claims arising out of either party’s intellectual property rights for which a provisional remedy or equitable relief is sought, shall be submitted to arbitration by one arbitrator mutually agreed upon by the parties, and if no agreement can be reached within thirty (30) days after names of potential arbitrators have been proposed by the American Arbitration Association (the “ AAA ”), then by one arbitrator having reasonable experience in corporate finance transactions of the type provided for in this Agreement and who is chosen by the AAA. The arbitration shall take place in San Jose, California, in accordance with the AAA rules then in effect, and judgment upon any award rendered in such arbitration will be binding and may be entered in any court having jurisdiction thereof. There shall be limited discovery prior to the arbitration hearing as follows: (a) exchange of witness lists and copies of documentary evidence and documents relating to or arising out of the issues to be arbitrated, (b) depositions of all party witnesses and (c) such other depositions as may be allowed by the arbitrators upon a showing of good cause. Depositions shall be conducted in accordance with the Federal Arbitration Act, 9 U.S.C. §1 et seq, the arbitrator shall be required to provide in writing to the parties the basis for the award or order of such arbitrator, and a court reporter shall record all hearings, with such record constituting the official transcript of such proceedings. Each party will bear its own costs in respect of any disputes arising under this Agreement. Each of the parties to this Agreement consents to personal jurisdiction for any equitable action sought in the U.S. District Court for the District of California or any court of the State of California having subject matter jurisdiction.

6.13. Delays or Omissions . No delay or omission to exercise any right, power or remedy accruing to any party under this Agreement, upon any breach or default of any other party under this Agreement, shall impair any such right, power or remedy of such non-breaching or non-defaulting party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative.

6.14. Further Assurances . Subject to the terms and conditions herein provided, each of the parties hereto agrees to use its best efforts to take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper, or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement, including using its best efforts to obtain all necessary waivers, consents, and approvals, and effecting all necessary registrations and filings.

6.15. Lender Relationship . Notwithstanding anything herein to the contrary, nothing contained in this Agreement shall affect, limit or impair the rights and remedies of Opus

 

26


Bank, any of its Affiliates or any other lender in their capacity as lenders to the Company or any of its Affiliates pursuant to any agreement under which the Company or such Affiliate has borrowed money. Without limiting the generality of the foregoing, none of Opus Bank or any such other Person, in exercising its rights as a lender, including making its decision on whether to foreclose on any collateral security, will have any duty to consider (a) its status as a direct or indirect shareholder of the Company, (b) the interests of the Company or any of its Affiliates or (c) any duty it may have to any other direct or indirect shareholder of the Company, except as may be required under the applicable loan documents.

[Remainder of Page Intentionally Left Blank]

 

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IN WITNESS WHEREOF , the parties hereto have executed this Fourth Amended and Restated Investors’ Rights Agreement as of the date first above written.

 

THE COMPANY :
ADESTO TECHNOLOGIES CORPORATION
By:

/s/ Narbeh Derhacobian

Name: Narbeh Derhacobian
Title: President and Chief Executive Officer
Address:

1250 Borregas Avenue

Sunnyvale, CA 94089

 

[SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT]


IN WITNESS WHEREOF , the parties hereto have executed this Fourth Amended and Restated Investors’ Rights Agreement as of the date first above written.

 

INVESTORS :
ARCH Venture Fund VI, L.P.
By: ARCH Venture Partners VI, L.P.
Its: General Partner
By: ARCH Venture Partners VI, LLC
Its: General Partner
By:

/s/ Keith Crandell

Its: Managing Director

 

[SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT]


IN WITNESS WHEREOF , the parties hereto have executed this Fourth Amended and Restated Investors’ Rights Agreement as of the date first above written.

 

INVESTORS :

ATA Ventures II, L.P., by its General Partner
ATA Management II, LLC

ATA Affiliates Fund II, L.P., by its General Partner
ATA Management II, LLC

ATA Investment Fund II, L.P.,  by its General Partner
ATA Management II, LLC

By:

/s/ T. Peter Thomas

T. Peter Thomas, Managing Director

 

[SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT]


IN WITNESS WHEREOF , the parties hereto have executed this Fourth Amended and Restated Investors’ Rights Agreement as of the date first above written.

 

INVESTORS :
Harris & Harris Group, Inc.
By:

/s/ Sandra M. Forman

Sandra M. Forman
General Counsel

 

[SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT]


IN WITNESS WHEREOF , the parties hereto have executed this Fourth Amended and Restated Investors’ Rights Agreement as of the date first above written.

 

INVESTORS :
Applied Ventures, LLC
By:

/s/ J. Christopher Moran

Name: J. Christopher Moran
Title: Vice President and General Manager

 

[SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT]


IN WITNESS WHEREOF , the parties hereto have executed this Fourth Amended and Restated Investors’ Rights Agreement as of the date first above written.

 

INVESTORS :
Adams Street 2006 Direct Fund, L.P.
By: ASP 2006 Direct Management, LLC, its General Partner
By: Adams Street Partners, LLC, its Managing Member
By:

/s/ Thomas D. Berman

Name:

Thomas D. Berman

Title: Partner
Adams Street 2007 Direct Fund, L.P.
By: ASP 2007 Direct Management, LLC, its General Partner
By: Adams Street Partners, LLC, its Managing Member
By:

/s/ Thomas D. Berman

Name:

Thomas D. Berman

Title: Partner

 

[SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT]


IN WITNESS WHEREOF , the parties hereto have executed this Fourth Amended and Restated Investors’ Rights Agreement as of the date first above written.

 

INVESTORS :
Microchip Technology Incorporated
By:

/s/ Steve Drehobl

Name:

Steve Drehobl

Title:

Vice President

 

[SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT]


IN WITNESS WHEREOF , the parties hereto have executed this Fourth Amended and Restated Investors’ Rights Agreement as of the date first above written.

 

INVESTORS :
By:

/s/ Serge Dassault

Serge Dassault

 

[SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT]


IN WITNESS WHEREOF , the parties hereto have executed this Fourth Amended and Restated Investors’ Rights Agreement as of the date first above written.

 

INVESTORS :
Altera Corporation
By:

/s/ William Hata

Name:

William Y. Hata

Title:

SVP Worldwide Operations and Engineering

 

[SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT]


SCHEDULE A

INVESTORS

 

Investor

ARCH Venture Fund VI, L.P.

ATA Ventures II, L.P.

ATA Affiliates Fund II, L.P.

ATA Investment Fund II, L.P.

Harris & Harris Group, Inc.

Adams Street 2006 Direct Fund, L.P.

Adams Street 2007 Direct Fund, L.P.

Applied Ventures, LLC

Rambus Inc.

Microchip Technology Incorporated

ATEL Ventures, Inc.


Serge Dassault

Altis Semiconductor

Altera Corporation

Opus Bank

Exhibit 10.02

ADESTO TECHNOLOGIES CORPORATION

2007 EQUITY INCENTIVE PLAN

As adopted on February 15, 2007

and as Amended on July 22, 2009, on July 5, 2011,

on August 3, 2012 and April 29, 2015 i

1. PURPOSE . The purpose of the 2007 Equity Incentive Plan (this “ Plan ”) is to provide incentives to attract, retain and motivate eligible persons whose present and potential contributions are important to the success of Adesto Technologies Corporation, a California corporation (the “ Company ”), by offering them an opportunity to participate in the Company’s future performance through awards of Options and Restricted Stock. Capitalized terms not defined in the text are defined in Section 22 hereof. Although this Plan is intended to be a written compensatory benefit plan within the meaning of Rule 701 promulgated under the Securities Act, grants may be made pursuant to this plan which do not qualify for exemption under Rule 701 or Section 25102(o) of the California Corporations Code. Any requirement of this Plan which is required in law only because of Section 25102(o) need not apply if the Committee so provides.

2. SHARES SUBJECT TO THE PLAN .

2.1 Number of Shares Available . Subject to Sections 2.2 and 17 hereof, the total number of Shares reserved and available for grant and issuance pursuant to this Plan will be 87,500,000 Shares or such lesser number of Shares as permitted by applicable law.

Subject to Sections 2.2, 5.10 and 17 hereof, Shares subject to Awards previously granted will again be available for grant and issuance in connection with future Awards under this Plan to the extent such Shares: (i) cease to be subject to issuance upon exercise of an Option, other than due to exercise of such Option; (ii) are subject to an Award granted hereunder but the Shares subject to such Award are forfeited or repurchased by the Company at the lower of the original issue price or the fair market value on the Termination Date; or (iii) are subject to an Award that otherwise terminates without Shares being issued. At all times the Company will reserve and keep available a sufficient number of Shares as will be required to satisfy the requirements of all Awards granted and outstanding under this Plan.

2.2 Adjustment of Shares . In the event that the number of outstanding shares of the Company’s Common Stock is changed by a stock dividend, recapitalization, stock

 

i   On February 15, 2007, 9,000,000 shares of Common Stock were reserved upon adoption of the Plan for issuance thereunder.

On July 22, 2009, the Plan was amended to reserve an additional 4,000,000 shares for an aggregate total of 13,000,000 shares of Common Stock for issuance thereunder.

On July 5, 2011, the Plan was amended to reserve an additional 3,000,000 shares for an aggregate total of 16,000,000 shares of Common Stock for issuance thereunder.

On August 3, 2012, the Plan was amended to reserve an additional 10,000,000 shares for an aggregate total of 26,000,000 shares of Common Stock for issuance thereunder.

On April 29, 2015, the Plan was amended to reserve an additional 61,500,000 shares for an aggregate total of 87,500,000 shares of Common Stock for issuance thereunder.

 

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split, reverse stock split, subdivision, combination, reclassification or similar change in the capital structure of the Company without consideration, then (i) the number of Shares reserved for issuance under this Plan, (ii) the Exercise Prices of and number of Shares subject to outstanding Options and (iii) the Purchase Prices of and number of Shares subject to other outstanding Awards will be proportionately adjusted, subject to any required action by the Board or the shareholders of the Company and compliance with applicable securities laws; provided, however, that fractions of a Share will not be issued but will either be paid in cash at the Fair Market Value of such fraction of a Share or will be rounded down to the nearest whole Share, as determined by the Committee.

3. ELIGIBILITY . ISOs (as defined in Section 5 hereof) may be granted only to employees (including officers and directors who are also employees) of the Company or of a Parent or Subsidiary of the Company. NQSOs (as defined in Section 5 hereof) and Restricted Stock Awards may be granted to employees, officers, directors and consultants of the Company or any Parent or Subsidiary of the Company; provided such consultants render bona fide services not in connection with the offer and sale of securities in a capital-raising transaction. A person may be granted more than one Award under this Plan.

4. ADMINISTRATION .

4.1 Committee Authority . This Plan will be administered by the Committee or the Board if no Committee is created by the Board. Subject to the general purposes, terms and conditions of this Plan, and to the direction of the Board, the Committee will have full power to implement and carry out this Plan. Without limitation, the Committee will have the authority to:

 

  (a) construe and interpret this Plan, any Award Agreement and any other agreement or document executed pursuant to this Plan;

 

  (b) prescribe, amend and rescind rules and regulations relating to this Plan;

 

  (c) approve persons to receive Awards;

 

  (d) determine the form and terms of Awards;

 

  (e) determine the number of Shares or other consideration subject to Awards;

 

  (f) determine whether Awards will be granted singly, in combination with, in tandem with, in replacement of, or as alternatives to, other Awards under this Plan or awards under any other incentive or compensation plan of the Company or any Parent or Subsidiary of the Company;

 

  (g) grant waivers of any conditions of this Plan or any Award;

 

  (h) determine the terms of vesting, exercisability and payment of Awards;

 

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  (i) correct any defect, supply any omission, or reconcile any inconsistency in this Plan, any Award, any Award Agreement, any Exercise Agreement or any Restricted Stock Purchase Agreement;

 

  (j) determine whether an Award has been earned;

 

  (k) make all other determinations necessary or advisable for the administration of this Plan; and

 

  (l) extend the vesting period beyond a Participant’s Termination Date.

4.2 Committee Discretion . Unless in contravention of any express terms of this Plan or Award, any determination made by the Committee with respect to any Award will be made in its sole discretion either (i) at the time of grant of the Award, or (ii) subject to Section 5.9 hereof, at any later time. Any such determination will be final and binding on the Company and on all persons having an interest in any Award under this Plan. The Committee may delegate to one or more officers of the Company the authority to grant an Award under this Plan, provided such officer or officers are members of the Board.

5. OPTIONS . The Committee may grant Options to eligible persons described in Section 3 hereof and will determine whether such Options will be Incentive Stock Options within the meaning of the Code (“ ISOs ”) or Nonqualified Stock Options (“ NQSOs ”), the number of Shares subject to the Option, the Exercise Price of the Option, the period during which the Option may be exercised, and all other terms and conditions of the Option, subject to the following:

5.1 Form of Option Grant . Each Option granted under this Plan will be evidenced by an Award Agreement which will expressly identify the Option as an ISO or an NQSO (“ Stock Option Agreement ”), and will be in such form and contain such provisions (which need not be the same for each Participant) as the Committee may from time to time approve, and which will comply with and be subject to the terms and conditions of this Plan.

5.2 Date of Grant . The date of grant of an Option will be the date on which the Committee makes the determination to grant such Option, unless a later date is otherwise specified by the Committee. The Stock Option Agreement and a copy of this Plan will be delivered to the Participant within a reasonable time after the granting of the Option.

5.3 Exercise Period . Options may be exercisable immediately but subject to repurchase pursuant to Section 11 hereof or may be exercisable within the times or upon the events determined by the Committee as set forth in the Stock Option Agreement governing such Option; provided, however, that no Option will be exercisable after the expiration of ten (10) years from the date the Option is granted; and provided further that no ISO granted to a person who directly or by attribution owns more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any Parent or Subsidiary of the Company (“ Ten Percent Shareholder ”) will be exercisable after the expiration of five (5) years from the date the ISO is granted. The Committee also may provide for Options to become exercisable at one time or from time to time, periodically or otherwise, in such number of Shares or percentage of Shares as the Committee determines. Subject to earlier termination of the Option as provided herein, to the extent section 25102(o) of the California Corporations Code is intended to apply, each Participant who is not an officer, director or consultant of the Company or of a Parent or

 

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Subsidiary of the Company shall have the right to exercise an Option granted hereunder at the rate of no less than twenty-five percent (25%) per year over four (4) years from the date such Option is granted.

5.4 Exercise Price . The Exercise Price of an Option will be determined by the Committee when the Option is granted and may not be less than eighty-five percent (85%) of the Fair Market Value of the Shares on the date of grant; provided that (i) the Exercise Price of an ISO will not be less than one hundred percent (100%) of the Fair Market Value of the Shares on the date of grant and (ii) the Exercise Price of any Option granted to a Ten Percent Shareholder will not be less than one hundred ten percent (110%) of the Fair Market Value of the Shares on the date of grant. Payment for the Shares purchased must be made in accordance with Section 7 hereof.

5.5 Method of Exercise . Options may be exercised only by delivery to the Company of a written stock option exercise agreement (the “ Exercise Agreement ”) in a form approved by the Committee (which need not be the same for each Participant). The Exercise Agreement will state (i) the number of Shares being purchased, (ii) the restrictions imposed on the Shares purchased under such Exercise Agreement, if any, and (iii) such representations and agreements regarding Participant’s investment intent and access to information and other matters, if any, as may be required or desirable by the Company to comply with applicable securities laws. Participant shall execute and deliver to the Company the Exercise Agreement together with payment in full of the Exercise Price, and any applicable taxes, for the number of Shares being purchased.

5.6 Termination . Subject to earlier termination pursuant to Sections 17 and 18 hereof and notwithstanding the exercise periods set forth in the Stock Option Agreement, exercise of an Option will always be subject to the following:

(a) If the Participant is Terminated for any reason other than death, Disability or for Cause, then the Participant may exercise such Participant’s Options only to the extent that such Options are exercisable as to Vested Shares upon the Termination Date or as otherwise determined by the Committee. Such Options must be exercised by the Participant, if at all, as to all or some of the Vested Shares calculated as of the Termination Date or such other date determined by the Committee, within three (3) months after the Termination Date (or within such shorter time period, not less than thirty (30) days, or within such longer time period, not exceeding five (5) years, after the Termination Date as may be determined by the Committee, with any exercise beyond three (3) months after the Termination Date deemed to be an NQSO) but in any event, no later than the expiration date of the Options.

(b) If the Participant is Terminated because of Participant’s death or Disability (or the Participant dies within three (3) months after a Termination other than for Cause), then Participant’s Options may be exercised only to the extent that such Options are exercisable as to Vested Shares by Participant on the Termination Date or as otherwise determined by the Committee. Such options must be exercised by Participant (or Participant’s legal representative or authorized assignee), if at all, as to all or some of the Vested Shares calculated as of the Termination Date or such other date determined by the Committee, within twelve (12) months after the Termination Date (or within such shorter time period, not less than six (6) months, or within such longer time period, not exceeding five (5) years, after the Termination Date as may be determined by the Committee, with any exercise beyond (i) three

 

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(3) months after the Termination Date when the Termination is for any reason other than the Participant’s death or disability, within the meaning of Section 22(e)(3) of the Code, or (ii) twelve (12) months after the Termination Date when the Termination is for Participant’s disability, within the meaning of Section 22(e)(3) of the Code, deemed to be an NQSO) but in any event no later than the expiration date of the Options.

(c) If the Participant is terminated for Cause, the Participant may exercise such Participant’s Options, but not to an extent greater than such Options are exercisable as to Vested Shares upon the Termination Date and Participant’s Options shall expire on such Participant’s Termination Date, or at such later time and on such conditions as are determined by the Committee.

5.7 Limitations on Exercise . The Committee may specify a reasonable minimum number of Shares that may be purchased on any exercise of an Option, provided that such minimum number will not prevent Participant from exercising the Option for the full number of Shares for which it is then exercisable.

5.8 Limitations on ISOs . The aggregate Fair Market Value (determined as of the date of grant) of Shares with respect to which ISOs are exercisable for the first time by a Participant during any calendar year (under this Plan or under any other incentive stock option plan of the Company or any Parent or Subsidiary of the Company) will not exceed One Hundred Thousand Dollars ($100,000). If the Fair Market Value of Shares on the date of grant with respect to which ISOs are exercisable for the first time by a Participant during any calendar year exceeds One Hundred Thousand Dollars ($100,000), then the Options for the first One Hundred Thousand Dollars ($100,000) worth of Shares to become exercisable in such calendar year will be ISOs and the Options for the amount in excess of One Hundred Thousand Dollars ($100,000) that become exercisable in that calendar year will be NQSOs. In the event that the Code or the regulations promulgated thereunder are amended after the Effective Date (as defined in Section 18 hereof) to provide for a different limit on the Fair Market Value of Shares permitted to be subject to ISOs, then such different limit will be automatically incorporated herein and will apply to any Options granted after the effective date of such amendment.

5.9 Modification, Extension or Renewal . The Committee may modify, extend or renew outstanding Options and authorize the grant of new Options in substitution therefor, provided that any such action may not, without the written consent of a Participant, impair any of such Participant’s rights under any Option previously granted. Any outstanding ISO that is modified, extended, renewed or otherwise altered will be treated in accordance with Section 424(h) of the Code. Subject to Section 5.10 hereof, the Committee may reduce the Exercise Price of outstanding Options without the consent of Participants by a written notice to them; provided, however, that the Exercise Price may not be reduced below the minimum Exercise Price that would be permitted under Section 5.4 hereof for Options granted on the date the action is taken to reduce the Exercise Price.

5.10 No Disqualification . Notwithstanding any other provision in this Plan, no term of this Plan relating to ISOs will be interpreted, amended or altered, nor will any discretion or authority granted under this Plan be exercised, so as to disqualify this Plan under Section 422 of the Code or, without the consent of the Participant, to disqualify any Participant’s ISO under Section 422 of the Code. In no event shall the total number of Shares issued (counting each reissuance of a Share that was previously issued and then forfeited or repurchased by the

 

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Company as a separate issuance) under the Plan upon exercise of ISOs exceed 175,000,000 Shares (adjusted in proportion to any adjustments under Section 2.2 hereof) over the term of the Plan.

6. RESTRICTED STOCK . A Restricted Stock Award is an offer by the Company to sell to an eligible person Shares that are subject to certain specified restrictions. The Committee will determine to whom an offer will be made, the number of Shares the person may purchase, the Purchase Price, the restrictions to which the Shares will be subject, and all other terms and conditions of the Restricted Stock Award, subject to the following:

6.1 Form of Restricted Stock Award . All purchases under a Restricted Stock Award made pursuant to this Plan will be evidenced by an Award Agreement (“ Restricted Stock Purchase Agreement ”) that will be in such form (which need not be the same for each Participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and conditions of this Plan. The Restricted Stock Award will be accepted by the Participant’s execution and delivery of the Restricted Stock Purchase Agreement and full payment for the Shares to the Company within thirty (30) days from the date the Restricted Stock Purchase Agreement is delivered to the person. If such person does not execute and deliver the Restricted Stock Purchase Agreement along with full payment for the Shares to the Company within such thirty (30) days, then the offer will terminate, unless otherwise determined by the Committee.

6.2 Purchase Price . The Purchase Price of Shares sold pursuant to a Restricted Stock Award will be determined by the Committee and will be at least eighty-five percent (85%) of the Fair Market Value of the Shares on the date the Restricted Stock Award is granted or at the time the purchase is consummated, except in the case of a sale to a Ten Percent Shareholder, in which case the Purchase Price will be one hundred percent (100%) of the Fair Market Value on the date the Restricted Stock Award is granted or at the time the purchase is consummated. Payment of the Purchase Price must be made in accordance with Section 7 hereof.

6.3 Restrictions . Restricted Stock Awards may be subject to the restrictions set forth in Section 11 hereof or such other restrictions not inconsistent with Section 25102(o) of the California Corporations Code.

7. PAYMENT FOR SHARE PURCHASES .

7.1 Payment . Payment for Shares purchased pursuant to this Plan may be made in cash (by check) or, where expressly approved for the Participant by the Committee and where permitted by law:

 

  (a) by cancellation of indebtedness of the Company owed to the Participant;

 

  (b) by surrender of shares that: (i) either (A) have been owned by Participant for more than six (6) months and have been paid for within the meaning of SEC Rule 144 (and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with respect to such shares) or (B) were obtained by Participant in the public market and (ii) are clear of all liens, claims, encumbrances or security interests;

 

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  (c) by tender of a full recourse promissory note having such terms as may be approved by the Committee and bearing interest at a rate sufficient to avoid (i) imputation of income under Sections 483 and 1274 of the Code and (ii) variable accounting treatment under Financial Accounting Standards Board Interpretation No. 44 to APB No. 25; provided, however, that Participants who are not employees or directors of the Company will not be entitled to purchase Shares with a promissory note unless the note is adequately secured by collateral other than the Shares;

 

  (d) by waiver of compensation due or accrued to the Participant from the Company for services rendered;

 

  (e) with respect only to purchases upon exercise of an Option, and provided that a public market for the Company’s stock exists:

 

  (i) through a “same day sale” commitment from the Participant and a broker-dealer that is a member of the National Association of Securities Dealers (an “ NASD Dealer ”) whereby the Participant irrevocably elects to exercise the Option and to sell a portion of the Shares so purchased sufficient to pay the total Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the total Exercise Price directly to the Company; or

 

  (ii) through a “margin” commitment from the Participant and an NASD Dealer whereby the Participant irrevocably elects to exercise the Option and to pledge the Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the total Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the total Exercise Price directly to the Company; or

 

  (f) by any combination of the foregoing.

7.2 Loan Guarantees . The Committee may, in its sole discretion, elect to assist the Participant in paying for Shares purchased under this Plan by authorizing a guarantee by the Company of a third-party loan to the Participant.

8. WITHHOLDING TAXES .

8.1 Withholding Generally . Whenever Shares are to be issued in satisfaction of Awards granted under this Plan, the Company may require the Participant to remit to the Company an amount sufficient to satisfy federal, state and local withholding tax requirements prior to the delivery of any certificate or certificates for such Shares. Whenever, under this Plan, payments in satisfaction of Awards are to be made in cash by the Company, such payment will be net of an amount sufficient to satisfy federal, state, and local withholding tax requirements.

 

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8.2 Stock Withholding . When, under applicable tax laws, a Participant incurs tax liability in connection with the exercise or vesting of any Award that is subject to tax withholding and the Participant is obligated to pay the Company the amount required to be withheld, the Committee may in its sole discretion allow the Participant to satisfy the minimum withholding tax obligation by electing to have the Company withhold from the Shares to be issued that minimum number of Shares having a Fair Market Value equal to the minimum amount required to be withheld, determined on the date that the amount of tax to be withheld is to be determined; but in no event will the Company withhold Shares if such withholding would result in adverse accounting consequences to the Company. All elections by a Participant to have Shares withheld for this purpose will be made in accordance with the requirements established by the Committee for such elections and be in writing in a form acceptable to the Committee.

9. PRIVILEGES OF STOCK OWNERSHIP .

9.1 Voting and Dividends . No Participant will have any of the rights of a shareholder with respect to any Shares until the Shares are issued to the Participant. After Shares are issued to the Participant, the Participant will be a shareholder and have all the rights of a shareholder with respect to such Shares, including the right to vote and receive all dividends or other distributions made or paid with respect to such Shares; provided, that if such Shares are Restricted Stock, then any new, additional or different securities the Participant may become entitled to receive with respect to such Shares by virtue of a stock dividend, stock split or any other change in the corporate or capital structure of the Company will be subject to the same restrictions as the Restricted Stock. The Participant will have no right to retain such stock dividends or stock distributions with respect to Unvested Shares that are repurchased pursuant to Section 11 hereof. To the extent required, the Company will comply with Section 260.140.1 of Title 10 of the California Code of Regulations with respect to the voting rights of Common Stock.

9.2 Financial Statements . The Company will provide financial statements to each Participant annually during the period such Participant has Awards outstanding, or as otherwise required under Section 260.140.46 of Title 10 of the California Code of Regulations. Notwithstanding the foregoing, the Company will not be required to provide such financial statements to Participants when issuance of Awards is limited to key employees whose services in connection with the Company assure them access to equivalent information.

10. TRANSFERABILITY . Except as permitted by the Committee, Awards granted under this Plan, and any interest therein, will not be transferable or assignable by Participant, other than by will or by the laws of descent and distribution, and, with respect to NQSOs, by instrument to an inter vivos or testamentary trust in which the options are to be passed to beneficiaries upon the death of the trustor (settlor), or by gift to “immediate family” as that term is defined in 17 C.F.R. 240.16a-1(e), and may not be made subject to execution, attachment or similar process. During the lifetime of the Participant an Award will be exercisable only by the Participant or Participant’s legal representative and any elections with respect to an Award may be made only by the Participant or Participant’s legal representative.

 

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11. RESTRICTIONS ON SHARES .

11.1 Right of First Refusal . At the discretion of the Committee, the Company may reserve to itself and/or its assignee(s) in the Award Agreement a right of first refusal to purchase all Shares that a Participant (or a subsequent transferee) may propose to transfer to a third party, unless otherwise not permitted by Section 25102(o) of the California Corporations Code, provided that such right of first refusal terminates upon the Company’s initial public offering of Common Stock pursuant to an effective registration statement filed under the Securities Act.

11.2 Right of Repurchase . At the discretion of the Committee, the Company may reserve to itself and/or its assignee(s) in the Award Agreement a right to repurchase Unvested Shares held by a Participant, at the lower of (i) the Exercise Price or Purchase Price, as applicable and (ii) the fair market value of the Unvested Shares as of the date of Participant’s termination, for cash and/or cancellation of purchase money indebtedness owed to the Company by the Participant following such Participant’s Termination at any time within the later of ninety (90) days after the Participant’s Termination Date and the date the Participant purchases Shares under the Plan at the Participant’s Exercise Price or Purchase Price, as the case may be, provided that to the extent Section 25102(o) of the California Corporations Code is intended to apply, unless the Participant is an officer, director or consultant of the Company or of a Parent or Subsidiary of the Company, such right of repurchase lapses at the rate of no less than twenty percent (20%) per year over five (5) years from: (a) the date of grant of the Option or (b) in the case of Restricted Stock, the date the Participant purchases the Shares.

12. CERTIFICATES . All certificates for Shares or other securities delivered under this Plan will be subject to such stock transfer orders, legends and other restrictions as the Committee may deem necessary or advisable, including restrictions under any applicable federal, state or foreign securities law, or any rules, regulations and other requirements of the SEC or any stock exchange or automated quotation system upon which the Shares may be listed or quoted.

13. ESCROW; PLEDGE OF SHARES . To enforce any restrictions on a Participant’s Shares set forth in Section 11 hereof, the Committee may require the Participant to deposit all certificates representing Shares, together with stock powers or other instruments of transfer approved by the Committee, appropriately endorsed in blank, with the Company or an agent designated by the Company to hold in escrow until such restrictions have lapsed or terminated. The Committee may cause a legend or legends referencing such restrictions to be placed on the certificates. Any Participant who is permitted to execute a promissory note as partial or full consideration for the purchase of Shares under this Plan will be required to pledge and deposit with the Company all or part of the Shares so purchased as collateral to secure the payment of Participant’s obligation to the Company under the promissory note; provided, however, that the Committee may require or accept other or additional forms of collateral to secure the payment of such obligation and, in any event, the Company will have full recourse against the Participant under the promissory note notwithstanding any pledge of the Participant’s Shares or other collateral. In connection with any pledge of the Shares, Participant will be required to execute and deliver a written pledge agreement in such form as the Committee will from time to time approve. The Shares purchased with the promissory note may be released from the pledge on a pro rata basis as the promissory note is paid.

 

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14. EXCHANGE AND BUYOUT OF AWARDS . The Committee may, at any time or from time to time, authorize the Company, with the consent of the respective Participants, to issue new Awards in exchange for the surrender and cancellation of any or all outstanding Awards. The Committee may at any time buy from a Participant an Award previously granted with payment in cash, shares of Common Stock of the Company (including Restricted Stock) or other consideration, based on such terms and conditions as the Committee and the Participant may agree.

15. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE . Although this Plan is intended to be a written compensatory benefit plan within the meaning of Rule 701 promulgated under the Securities Act, grants may be made pursuant to this plan which do not qualify for exemption under Rule 701 or Section 25102(o) of the California Corporations Code. Any requirement of this Plan which is required in law only because of Section 25102(o) need not apply if the Committee so provides. An Award will not be effective unless such Award is in compliance with all applicable federal and state securities laws, rules and regulations of any governmental body, and the requirements of any stock exchange or automated quotation system upon which the Shares may then be listed or quoted, as they are in effect on the date of grant of the Award and also on the date of exercise or other issuance. Notwithstanding any other provision in this Plan, the Company will have no obligation to issue or deliver certificates for Shares under this Plan prior to (i) obtaining any approvals from governmental agencies that the Company determines are necessary or advisable, and/or (ii) compliance with any exemption, completion of any registration or other qualification of such Shares under any state or federal law or ruling of any governmental body that the Company determines to be necessary or advisable. The Company will be under no obligation to register the Shares with the SEC or to effect compliance with the exemption, registration, qualification or listing requirements of any state securities laws, stock exchange or automated quotation system, and the Company will have no liability for any inability or failure to do so.

16. NO OBLIGATION TO EMPLOY . Nothing in this Plan or any Award granted under this Plan will confer or be deemed to confer on any Participant any right to continue in the employ of, or to continue any other relationship with, the Company or any Parent or Subsidiary of the Company or limit in any way the right of the Company or any Parent or Subsidiary of the Company to terminate Participant’s employment or other relationship at any time, with or without Cause.

17. CORPORATE TRANSACTIONS .

17.1 Assumption or Replacement of Awards by Successor or Acquiring Company . In the event of (i) a dissolution or liquidation of the Company, (ii) any reorganization, consolidation, merger or similar transaction or series of related transactions (each, a “ combination transaction ”) in which the Company is a constituent corporation or is a party if, as a result of such combination transaction, the voting securities of the Company that are outstanding immediately prior to the consummation of such combination transaction ( other than any such securities that are held by an “Acquiring Shareholder”, as defined below) do not represent, or are not converted into, securities of the surviving corporation of such combination transaction (or such surviving corporation’s parent corporation if the surviving corporation is owned by the parent corporation) that, immediately after the consummation of such combination transaction, together possess at least a majority of the total voting power of all securities of such surviving corporation (or its parent corporation, if applicable) that are outstanding immediately

 

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after the consummation of such combination transaction, including securities of such surviving corporation (or its parent corporation, if applicable) that are held by the Acquiring Shareholder; or (iii) a sale of all or substantially all of the assets of the Company, that is followed by the distribution of the proceeds to the Company’s shareholders, any or all outstanding Awards may be assumed, converted or replaced by the successor or acquiring corporation (if any), which assumption, conversion or replacement will be binding on all Participants. In the alternative, the successor or acquiring corporation may substitute equivalent Awards or provide substantially similar consideration to Participants as was provided to shareholders of the Company (after taking into account the existing provisions of the Awards). The successor or acquiring corporation may also substitute by issuing, in place of outstanding Shares of the Company held by the Participant, substantially similar shares or other property subject to repurchase restrictions and other provisions no less favorable to the Participant than those which applied to such outstanding Shares immediately prior to such transaction described in this Section 17.1. For purposes of this Section 17.1, an “ Acquiring Shareholder ” means a shareholder or shareholders of the Company that (i) merges or combines with the Company in such combination transaction, or (ii) owns or controls a majority of another corporation that merges or combines with the Corporation in such combination transaction. In the event such successor or acquiring corporation (if any) refuses to assume, convert, replace or substitute Awards, as provided above, pursuant to a transaction described in this Section 17.1, then notwithstanding any other provision in this Plan to the contrary, such Awards will expire on such transaction at such time and on such conditions as the Board will determine.

17.2 Other Treatment of Awards . Subject to any greater rights granted to Participants under the foregoing provisions of this Section 17, in the event of the occurrence of any transaction described in Section 17.1 hereof, any outstanding Awards will be treated as provided in the applicable agreement or plan of reorganization, merger, consolidation, dissolution, liquidation or sale of assets.

17.3 Assumption of Awards by the Company . The Company, from time to time, also may substitute or assume outstanding awards granted by another company, whether in connection with an acquisition of such other company or otherwise, by either (i) granting an Award under this Plan in substitution of such other company’s award or (ii) assuming such award as if it had been granted under this Plan if the terms of such assumed award could be applied to an Award granted under this Plan. Such substitution or assumption will be permissible if the holder of the substituted or assumed award would have been eligible to be granted an Award under this Plan if the other company had applied the rules of this Plan to such grant. In the event the Company assumes an award granted by another company, the terms and conditions of such award will remain unchanged (except that the exercise price and the number and nature of shares issuable upon exercise of any such option will be adjusted appropriately pursuant to Section 424(a) of the Code). In the event the Company elects to grant a new Option rather than assuming an existing option, such new Option may be granted with a similarly adjusted Exercise Price.

18. ADOPTION AND SHAREHOLDER APPROVAL . This Plan will become effective on the date that it is adopted by the Board (the “ Effective Date ”). This Plan will be approved by the shareholders of the Company (excluding Shares issued pursuant to this Plan), consistent with applicable laws, within twelve (12) months before or after the Effective Date. Upon the Effective Date, the Board may grant Awards pursuant to this Plan; provided, however, that: (i) no Option may be exercised prior to initial shareholder approval of this Plan; (ii) no

 

11


Option granted pursuant to an increase in the number of Shares approved by the Board shall be exercised prior to the time such increase has been approved by the shareholders of the Company; (iii) initial shareholder approval is not obtained within the time period provided herein, all Awards granted hereunder shall be canceled, any Shares issued pursuant to any Award shall be canceled and any purchase of Shares issued hereunder shall be rescinded; and (iv) Awards granted pursuant to an increase in the number of Shares approved by the Board which increase is not timely approved by shareholders shall be canceled, any Shares issued pursuant to any such Awards shall be canceled, and any purchase of Shares subject to any such Award shall be rescinded.

19. TERM OF PLAN/GOVERNING LAW . Unless earlier terminated as provided herein, this Plan will terminate ten (10) years from the Effective Date or, if earlier, the date of shareholder approval. This Plan and all agreements hereunder shall be governed by and construed in accordance with the laws of the State of California.

20. AMENDMENT OR TERMINATION OF PLAN . Subject to Section 5.9 hereof, the Board may at any time terminate or amend this Plan in any respect, including without limitation amendment of any form of Award Agreement or instrument to be executed pursuant to this Plan; provided, however, that the Board will not, without the approval of the shareholders of the Company, amend this Plan in any manner that requires such shareholder approval pursuant to Section 25102(o) of the California Corporations Code or the Code or the regulations promulgated thereunder as such provisions apply to ISO plans.

21. NONEXCLUSIVITY OF THE PLAN . Neither the adoption of this Plan by the Board, the submission of this Plan to the shareholders of the Company for approval, nor any provision of this Plan will be construed as creating any limitations on the power of the Board to adopt such additional compensation arrangements as it may deem desirable, including, without limitation, the granting of stock options and other equity awards otherwise than under this Plan, and such arrangements may be either generally applicable or applicable only in specific cases.

22. DEFINITIONS . As used in this Plan, the following terms will have the following meanings:

Award ” means any award under this Plan, including any Option or Restricted Stock Award.

Award Agreement ” means, with respect to each Award, the signed written agreement between the Company and the Participant setting forth the terms and conditions of the Award, including the Stock Option Agreement and Restricted Stock Agreement.

Board ” means the Board of Directors of the Company.

Cause ” means Termination because of (i) any willful, material violation by the Participant of any law or regulation applicable to the business of the Company or a Parent or Subsidiary of the Company, the Participant’s conviction for, or guilty plea to, a felony or a crime involving moral turpitude, or any willful perpetration by the Participant of a common law fraud, (ii) the Participant’s commission of an act of personal dishonesty which involves personal profit in connection with the Company or any other entity having a business relationship with the Company, (iii) any material breach by the Participant of any provision of any agreement or understanding between the Company or any Parent or Subsidiary of the Company and the

 

12


Participant regarding the terms of the Participant’s service as an employee, officer, director or consultant to the Company or a Parent or Subsidiary of the Company, including without limitation, the willful and continued failure or refusal of the Participant to perform the material duties required of such Participant as an employee, officer, director or consultant of the Company or a Parent or Subsidiary of the Company, other than as a result of having a Disability, or a breach of any applicable invention assignment and confidentiality agreement or similar agreement between the Company or a Parent or Subsidiary of the Company and the Participant, (iv) Participant’s disregard of the policies of the Company or any Parent or Subsidiary of the Company so as to cause loss, damage or injury to the property, reputation or employees of the Company or a Parent or Subsidiary of the Company, or (v) any other misconduct by the Participant which is materially injurious to the financial condition or business reputation of, or is otherwise materially injurious to, the Company or a Parent or Subsidiary of the Company.

Code ” means the Internal Revenue Code of 1986, as amended.

Committee ” means the committee created and appointed by the Board to administer this Plan, or if no committee is created and appointed, the Board.

Company ” means Adesto Technologies Corporation or any successor corporation.

Disability ” means a disability, whether temporary or permanent, partial or total, as determined by the Committee.

Exercise Price ” means the price at which a holder of an Option may purchase the Shares issuable upon exercise of the Option.

Fair Market Value ” means, as of any date, the value of a share of the Company’s Common Stock determined as follows:

 

  (a) if such Common Stock is then quoted on the Nasdaq Global Market, its closing price on the Nasdaq Global Market on the date of determination as reported in The Wall Street Journal ;

 

  (b) if such Common Stock is publicly traded and is then listed on a national securities exchange, its closing price on the date of determination on the principal national securities exchange on which the Common Stock is listed or admitted to trading as reported in The Wall Street Journal ;

 

  (c) if such Common Stock is publicly traded but is not quoted on the Nasdaq Global Market nor listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices on the date of determination as reported by The Wall Street Journal (or, if not so reported, as otherwise reported by any newspaper or other source as the Board may determine); or

 

  (d) if none of the foregoing is applicable, by the Committee in good faith.

 

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Option ” means an award of an option to purchase Shares pursuant to Section 5 hereof.

Parent ” means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if each of such corporations other than the Company owns stock representing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

Participant ” means a person who receives an Award under this Plan.

Plan ” means this Adesto Technologies Corporation 2007 Equity Incentive Plan, as amended from time to time.

Purchase Price ” means the price at which a Participant may purchase Restricted Stock.

Restricted Stock ” means Shares purchased pursuant to a Restricted Stock Award.

Restricted Stock Award ” means an award of Shares pursuant to Section 6 hereof.

SEC ” means the Securities and Exchange Commission.

Securities Act ” means the Securities Act of 1933, as amended.

Shares ” means shares of the Company’s Common Stock reserved for issuance under this Plan, as adjusted pursuant to Sections 2 and 17 hereof, and any successor security.

Subsidiary ” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain owns stock representing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

Termination ” or “ Terminated ” means, for purposes of this Plan with respect to a Participant, that the Participant has for any reason ceased to provide services as an employee, officer, director or consultant to the Company or a Parent or Subsidiary of the Company. A Participant will not be deemed to have ceased to provide services in the case of (i) sick leave, (ii) military leave, or (iii) any other leave of absence approved by the Committee, provided that such leave is for a period of not more than ninety (90) days (a) unless reinstatement (or, in the case of an employee with an ISO, reemployment) upon the expiration of such leave is guaranteed by contract or statute, or (b) unless provided otherwise pursuant to formal policy adopted from time to time by the Company’s Board and issued and promulgated in writing. In the case of any Participant on (i) sick leave, (ii) military leave or (iii) an approved leave of absence, the Committee may make such provisions respecting suspension of vesting of the Award while on leave from the Company or a Parent or Subsidiary of the Company as it may deem appropriate, except that in no event may an Option be exercised after the expiration of the term set forth in the Stock Option Agreement. The Committee will have sole discretion to determine whether a Participant has ceased to provide services and the effective date on which the Participant ceased to provide services (the “ Termination Date ”).

 

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Unvested Shares ” means “ Unvested Shares ” as defined in the Award Agreement.

Vested Shares ” means “ Vested Shares ” as defined in the Award Agreement.

[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]

 

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No.             

ADESTO TECHNOLOGIES CORPORATION, INC.

2007 EQUITY INCENTIVE PLAN

STOCK OPTION AGREEMENT

This Stock Option Agreement (the “ Agreement ”) is made and entered into as of the date of grant set forth below (the “ Date of Grant ”) by and between Adesto Technologies Corporation, Inc., a California corporation (the “ Company ”), and the participant named below (the “ Participant ”). Capitalized terms not defined herein shall have the meaning ascribed to them in the Company’s 2007 Equity Incentive Plan, as amended (the “ Plan ”).

 

Participant:

 

Social Security Number:

 

Address:

 

 

Total Option Shares:

 

Exercise Price Per Share:

 

Date of Grant:

 

First Vesting Date:

 

Expiration Date:

 

(unless earlier terminated under Section 5.6 of the Plan)
Classification of Optionee ¨ Exempt Employee
¨ Nonexempt Employee
Type of Stock Option
(Check one): ¨ Incentive Stock Option
¨ Nonqualified Stock Option

1. Grant of Option . The Company hereby grants to Participant an option (this “ Option ”) to purchase the total number of shares of Common Stock of the Company set forth above as Total Option Shares (the “ Shares ”) at the Exercise Price Per Share set forth above (the “ Exercise Price ”), subject to all of the terms and conditions of this Agreement and the Plan. If designated as an Incentive Stock Option above, the Option is intended to qualify as an “incentive stock option” (an “ ISO ”) within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “ Code ”).

2. Exercise Period .

2.1 Exercise Period of Option . This Option is immediately exercisable although the Shares issued upon exercise of the Option will be subject to the restrictions on transfer and Repurchase Options set forth in Sections 7, 8 and 9 below. Provided Participant continues to provide services to the Company or to any Parent or Subsidiary of the Company, the Shares issuable upon exercise of this Option will become vested with respect to 25% of the

 

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Shares on the First Vesting Date set forth on the first page of this Agreement (the “ First Vesting Date ”) and thereafter at the end of each full succeeding month after the First Vesting Date an additional 2.0833% of the Shares will become vested until the Shares are vested with respect to one hundred percent (100%) of the Shares. If application of the vesting percentage causes a fractional share, such share shall be rounded down to the nearest whole share for each month except for the last month in such vesting period, at the end of which last month this Option shall become vested for the full remainder of the Shares. Unvested Shares may not be sold or otherwise transferred by Participant without the Company’s prior written consent. Notwithstanding any provision in the Plan or this Agreement to the contrary, Options for Unvested Shares (as defined in Section 2.2 of this Agreement) will not be exercisable on or after Participant’s Termination Date.

2.2 Vesting of Options . Shares that are vested pursuant to the schedule set forth in Section 2.1 are “ Vested Shares .” Shares that are not vested pursuant to the schedule set forth in Section 2.1 are “ Unvested Shares .”

2.3 Expiration . The Option shall expire on the Expiration Date set forth above or earlier as provided in Section 3 below or pursuant to Section 5.6 of the Plan.

3. Termination .

3.1 Termination for Any Reason Except Death, Disability or Cause . If Participant is Terminated for any reason, except death, Disability or for Cause, the Option, to the extent (and only to the extent) that it would have been exercisable by Participant on the Termination Date, may be exercised by Participant no later than three (3) months after the Termination Date or at a later date if the Committee so determines, but in any event no later than the Expiration Date. Any exercise more than three (3) months after Participant’s Termination is deemed to be an NQSO.

3.2 Termination Because of Death or Disability . If Participant is Terminated because of death or Disability of Participant (or Participant dies within three (3) months of Termination when Termination is for any reason other than Participant’s Disability or for Cause), the Option, to the extent that it is exercisable by Participant on the Termination Date, may be exercised by Participant (or Participant’s legal representative) no later than twelve (12) months after the Termination Date, but in any event no later than the Expiration Date. Any exercise beyond (i) three (3) months after the Termination Date when the Termination is for any reason other than the Participant’s death or disability, within the meaning of Section 22(e)(3) of the Code; or (ii) twelve (12) months after the Termination Date when the termination is for Participant’s disability, within the meaning of Section 22(e)(3) of the Code, is deemed to be an NQSO.

3.3 Termination for Cause . If the Participant is terminated for Cause, the Participant may exercise such Participant’s Options, but not to an extent greater than such Options are exercisable as to Vested Shares upon the Termination Date and Participant’s Options shall expire on such Participant’s Termination Date, or at such later time and on such conditions as are determined by the Committee.

3.4 No Obligation to Employ . Nothing in the Plan or this Agreement shall confer on Participant any right to continue in the employ of, or other relationship with, the Company or any Parent or Subsidiary of the Company, or limit in any way the right of the Company or any Parent or Subsidiary of the Company to terminate Participant’s employment or other relationship at any time, with or without Cause.

 

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4. Manner of Exercise .

4.1 Stock Option Exercise Agreement . To exercise this Option, Participant (or in the case of exercise after Participant’s death or incapacity, Participant’s executor, administrator, heir or legatee, as the case may be) must deliver to the Company an executed stock option exercise agreement in the form attached hereto as Exhibit A , or in such other form as may be approved by the Committee from time to time (the “ Exercise Agreement ”), which shall set forth, inter alia , (i) Participant’s election to exercise the Option, (ii) the number of Shares being purchased, (iii) any restrictions imposed on the Shares and (iv) any representations, warranties and agreements regarding Participant’s investment intent and access to information as may be required by the Company to comply with applicable securities laws. If someone other than Participant exercises the Option, then such person must submit documentation reasonably acceptable to the Company verifying that such person has the legal right to exercise the Option and such person shall be subject to all of the restrictions contained herein as if such person were the Participant.

4.2 Limitations on Exercise . The Option may not be exercised unless such exercise is in compliance with all applicable federal and state securities laws, as they are in effect on the date of exercise. The Option may not be exercised as to fewer than one hundred (100) Shares unless it is exercised as to all Shares as to which the Option is then exercisable.

4.3 Payment . The Exercise Agreement shall be accompanied by full payment of the Exercise Price for the shares being purchased in cash (by check), or where permitted by law:

 

  (a) by cancellation of indebtedness of the Company to the Participant;

 

  (b) by surrender of shares of the Company’s Common Stock that (i) either (A) have been owned by Participant for more than six (6) months and have been paid for within the meaning of SEC Rule 144 (and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with respect to such shares); or (B) were obtained by Participant in the open public market; and (ii) are clear of all liens, claims, encumbrances or security interests;

 

  (c) by tender of a full recourse promissory note having such terms as may be approved by the Committee and bearing interest at a rate sufficient to avoid (i) imputation of income under Sections 483 and 1274 of the Code and (ii) variable accounting treatment under Financial Accounting Standards Board Interpretation No. 44 to APB No. 25; provided, however, that Participants who are not employees or directors of the Company shall not be entitled to purchase Shares with a promissory note unless the note is adequately secured by collateral other than the Shares;

 

18


  (d) by waiver of compensation due or accrued to Participant for services rendered;

 

  (e) provided that a public market for the Company’s stock exists: (i) through a “same day sale” commitment from Participant and a broker-dealer that is a member of the National Association of Securities Dealers (an “ NASD Dealer ”) whereby Participant irrevocably elects to exercise the Option and to sell a portion of the Shares so purchased sufficient to pay for the total Exercise Price and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the total Exercise Price directly to the Company, or (ii) through a “margin” commitment from Participant and an NASD Dealer whereby Participant irrevocably elects to exercise the Option and to pledge the Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the total Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the total Exercise Price directly to the Company; or

 

  (f) any other form of consideration approved by the Committee; or

 

  (g) by any combination of the foregoing.

4.4 Tax Withholding . Prior to the issuance of the Shares upon exercise of the Option, Participant must pay or provide for any applicable federal, state and local withholding obligations of the Company. If the Committee permits, Participant may provide for payment of withholding taxes upon exercise of the Option by requesting that the Company retain the minimum number of Shares with a Fair Market Value equal to the minimum amount of taxes required to be withheld; but in no event will the Company withhold Shares if such withholding would result in adverse accounting consequences to the Company. In such case, the Company shall issue the net number of Shares to the Participant by deducting the Shares retained from the Shares issuable upon exercise.

4.5 Issuance of Shares . Provided that the Exercise Agreement and payment are in form and substance satisfactory to counsel for the Company, the Company shall issue the Shares registered in the name of Participant, Participant’s authorized assignee, or Participant’s legal representative, and shall deliver certificates representing the Shares with the appropriate legends affixed thereto.

5. Notice of Disqualifying Disposition of ISO Shares . If the Option is an ISO, and if Participant sells or otherwise disposes of any of the Shares acquired pursuant to the ISO on or before the later of (i) the date two (2) years after the Date of Grant, and (ii) the date one (1) year after transfer of such Shares to Participant upon exercise of the Option, Participant shall immediately notify the Company in writing of such disposition. Participant agrees that Participant may be subject to income tax withholding by the Company on the compensation income recognized by Participant from the early disposition by payment in cash or out of the current wages or other compensation payable to Participant.

 

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6. Compliance with Laws and Regulations . The Plan and this Agreement are intended to comply with Section 25102(o) of the California Corporations Code and any regulations relating thereto. Any provision of this Agreement which is inconsistent with Section 25102(o) or any regulations relating thereto shall, without further act or amendment by the Company or the Board, be reformed to comply with the requirements of Section 25102(o) and any regulations relating thereto. The exercise of the Option and the issuance and transfer of Shares shall be subject to compliance by the Company and Participant with all applicable requirements of federal and state securities laws and with all applicable requirements of any stock exchange on which the Company’s Common Stock may be listed at the time of such issuance or transfer. Participant understands that the Company is under no obligation to register or qualify the Shares with the SEC, any state securities commission or any stock exchange to effect such compliance.

7. Nontransferability of Option . The Option may not be transferred in any manner other than by will or by the laws of descent and distribution, and, with respect to NQSOs, by instrument to an inter vivos or testamentary trust in which the options are to be passed to beneficiaries upon the death of the trustor (settlor), or by gift to “immediate family” as that term is defined in 17 C.F.R. 240.16a-1(e), and may be exercised during the lifetime of Participant only by Participant or in the event of Participant’s incapacity, by Participant’s legal representative. The terms of the Option shall be binding upon the executors, administrators, successors and assigns of Participant.

8. Company’s Repurchase Option for Unvested Shares . The Company, or its assignee, shall have the option to repurchase Participant’s Unvested Shares (as defined in Section 2.2 of this Agreement) on the terms and conditions set forth in the Exercise Agreement (the “ Repurchase Option ”) if Participant is Terminated for any reason, or no reason, including without limitation Participant’s death, Disability, voluntary resignation or termination by the Company with or without Cause. Notwithstanding the foregoing, the Company shall retain the Repurchase Option for Unvested Shares only as to that number of Unvested Shares (whether or not exercised) that exceeds the number of shares which remain unexercised.

9. Company’s Right of First Refusal . Unvested Shares may not be sold or otherwise transferred by Participant without the Company’s prior written consent. Before any Vested Shares held by Participant or any transferee of such Vested Shares may be sold or otherwise transferred (including without limitation a transfer by gift or operation of law), the Company and/or its assignee(s) shall have an assignable right of first refusal to purchase the Vested Shares to be sold or transferred on the terms and conditions set forth in the Exercise Agreement (the “ Right of First Refusal ”). The Company’s Right of First Refusal will terminate when the Company’s securities become publicly traded.

10. Tax Consequences . Set forth below is a brief summary as of the Effective Date of the Plan of some of the federal and California tax consequences of exercise of the Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. PARTICIPANT SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THE OPTION OR DISPOSING OF THE SHARES.

10.1 Exercise of ISO . If the Option qualifies as an ISO, there will be no regular federal or California income tax liability upon the exercise of the Option, although the excess, if

 

20


any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price will be treated as a tax preference item for federal alternative minimum tax purposes and may subject the Participant to the alternative minimum tax in the year of exercise.

10.2 Exercise of Nonqualified Stock Option . If the Option does not qualify as an ISO, there may be a regular federal and California income tax liability upon the exercise of the Option. Participant will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price. If Participant is a current or former employee of the Company, the Company may be required to withhold from Participant’s compensation or collect from Participant and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income at the time of exercise.

10.3 Disposition of Shares . The following tax consequences may apply upon disposition of the Shares.

(a) Incentive Stock Options . If the Shares are held for more than twelve (12) months after the date of purchase of the Shares pursuant to the exercise of an ISO and are disposed of more than two (2) years after the Date of Grant, any gain realized on disposition of the Shares will be treated as long term capital gain for federal and California income tax purposes. If Vested Shares purchased under an ISO are disposed of within the applicable one (1) year or two (2) year period, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates in the year of the disposition) to the extent of the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price. To the extent the Shares were exercised prior to vesting coincident with the filing of an 83(b) Election, the amount taxed because of a disqualifying disposition will be based upon the excess, if any, of the fair market value on the date of vesting over the exercise price.

(b) Nonqualified Stock Options . If the Shares are held for more than twelve (12) months after the date of the transfer of the Shares pursuant to the exercise of an NQSO, any gain realized on disposition of the Shares will be treated as long term capital gain.

(c) Withholding . The Company may be required to withhold from the Participant’s compensation or collect from the Participant and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income.

10.4. Section 83(b) Election for Unvested Shares . With respect to Unvested Shares, which are subject to the Repurchase Option, unless an election is filed by the Participant with the Internal Revenue Service (and, if necessary, the proper state taxing authorities), within 30 days of the purchase of the Unvested Shares, electing pursuant to Section 83(b) of the Code (and similar state tax provisions, if applicable) to be taxed currently on any difference between the Exercise Price of the Unvested Shares and their Fair Market Value on the date of purchase, there may be a recognition of taxable income (including, where applicable, alternative minimum taxable income) to the Participant, measured by the excess, if any, of the Fair Market Value of the Unvested Shares at the time they cease to be Unvested Shares, over the Exercise Price of the Unvested Shares.

 

21


11. Privileges of Stock Ownership . Participant shall not have any of the rights of a shareholder with respect to any Shares until the Shares are issued to Participant.

12. Interpretation . Any dispute regarding the interpretation of this Agreement shall be submitted by Participant or the Company to the Committee for review. The resolution of such a dispute by the Committee shall be final and binding on the Company and Participant.

13. Entire Agreement . The Plan is incorporated herein by reference. This Agreement and the Plan constitute the entire agreement and understanding of the parties with respect to the subject matter of this Agreement, and supersede all prior understandings and agreements, whether oral or written, between or among the parties hereto with respect to the specific subject matter hereof.

14. Notices . Any and all notices required or permitted to be given to a party pursuant to the provisions of this Agreement will be in writing and will be effective and deemed to provide such party sufficient notice under this Agreement on the earliest of the following: (i) at the time of personal delivery, if delivery is in person; (ii) at the time of transmission by facsimile, addressed to the other party at its facsimile number specified herein (or hereafter modified by subsequent notice to the parties hereto), with confirmation of receipt made by both telephone and printed confirmation sheet verifying successful transmission of the facsimile; (iii) one (1) business day after deposit with an express overnight courier for United States deliveries, or two (2) business days after such deposit for deliveries outside of the United States, with proof of delivery from the courier requested; or (iv) three (3) business days after deposit in the United States mail by certified mail (return receipt requested) for United States deliveries.

All notices for delivery outside the United States will be sent by facsimile or by express courier. All notices not delivered personally or by facsimile will be sent with postage and/or other charges prepaid and properly addressed to the party to be notified at the address or facsimile number set forth below the signature lines of this Agreement, or at such other address or facsimile number as such other party may designate by one of the indicated means of notice herein to the other parties hereto. Notices to the Company will be marked “Attention: President”. Notices by facsimile shall be machine verified as received.

15. Successors and Assigns . The Company may assign any of its rights under this Agreement including its rights to purchase Shares under the Repurchase Option and the Right of First Refusal. No other party to this Agreement may assign, whether voluntarily or by operation of law, any of its rights and obligations under this Agreement, except with the prior written consent of the Company. This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth herein, this Agreement shall be binding upon Participant and Participant’s heirs, executors, administrators, legal representatives, successors and assigns.

16. Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of California, without giving effect to that body of laws pertaining to conflict of laws.

17. Acceptance . Participant hereby acknowledges receipt of a copy of the Plan and this Agreement. Participant has read and understands the terms and provisions thereof, and accepts the Option subject to all the terms and conditions of the Plan and this Agreement.

 

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Participant acknowledges that there may be adverse tax consequences upon exercise of the Option or disposition of the Shares and that Participant should consult a tax adviser prior to such exercise or disposition.

18. Further Assurances . The parties agree to execute such further documents and instruments and to take such further actions as may be reasonably necessary to carry out the purposes and intent of this Agreement.

19. Titles and Headings . The titles, captions and headings of this Agreement are included for ease of reference only and will be disregarded in interpreting or construing this Agreement. Unless otherwise specifically stated, all references herein to “sections” and “exhibits” will mean “sections” and “exhibits” to this Agreement.

20. Counterparts . This Agreement may be executed in any number of counterparts, each of which when so executed and delivered will be deemed an original, and all of which together shall constitute one and the same agreement.

21. Severability . If any provision of this Agreement is determined by any court or arbitrator of competent jurisdiction to be invalid, illegal or unenforceable in any respect, such provision will be enforced to the maximum extent possible given the intent of the parties hereto. If such clause or provision cannot be so enforced, such provision shall be stricken from this Agreement and the remainder of this Agreement shall be enforced as if such invalid, illegal or unenforceable clause or provision had (to the extent not enforceable) never been contained in this Agreement. Notwithstanding the forgoing, if the value of this Agreement based upon the substantial benefit of the bargain for any party is materially impaired, which determination as made by the presiding court or arbitrator of competent jurisdiction shall be binding, then both parties agree to substitute such provision(s) through good faith negotiations.

22. Facsimile Signatures . This Agreement may be executed and delivered by facsimile and upon such delivery the facsimile signature will be deemed to have the same effect as if the original signature had been delivered to the other party. The failure to deliver the original signature copy and/or the nonreceipt of the original signature copy shall have no effect upon the binding and enforceable nature of this Agreement.

[R EMAINDER OF P AGE I NTENTIONALLY L EFT B LANK .]

 

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IN WITNESS WHEREOF , the Company has caused this Agreement to be executed in triplicate by its duly authorized representative and Participant has executed this Agreement in triplicate, effective as of the Date of Grant.

 

ADESTO TECHNOLOGIES

CORPORATION, INC.

PARTICIPANT

By:

 

 

Name:

 

(Signature of Participant)

Title:

 

 

(Print name of Participant)

Fax No.:

 

Address:

 

Tel No.:

 

 

 

Fax No.:

 

Tel No.:

 

[SIGNATURE PAGE TO ADESTO TECHNOLOGIES CORPORATION, INC.

STOCK OPTION AGREEMENT]

 

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EXHIBIT A

FORM OF STOCK OPTION EXERCISE AGREEMENT


No.        

ADESTO TECHNOLOGIES CORPORATION, INC.

2007 EQUITY INCENTIVE PLAN

STOCK OPTION EXERCISE AGREEMENT

This Stock Option Exercise Agreement (the “ Exercise Agreement ”) is made and entered into as of                     ,             (the “ Effective Date ”) by and between Adesto Technologies Corporation, Inc., a California corporation (the “ Company ”), and the purchaser named below (the “ Purchaser ”). Capitalized terms not defined herein shall have the meanings ascribed to them in the Company’s 2007 Equity Incentive Plan, as amended (the “ Plan ”).

 

Purchaser:

 

 

Social Security Number:

 

Address:

 

 

Total Number of Shares:

 

Exercise Price Per Share:

 

Date of Grant:

 

First Vesting Date:

 

Expiration Date:

 

(Unless earlier terminated under Section 5.6 of the Plan)
Type of Stock Option
(Check one): ¨   Incentive Stock Option
¨   Nonqualified Stock Option

1. Exercise of Option .

1.1 Exercise . Pursuant to exercise of that certain option (the “ Option ”) granted to Purchaser under the Plan and subject to the terms and conditions of this Exercise Agreement, Purchaser hereby purchases from the Company, and the Company hereby sells to Purchaser, the Total Number of Shares set forth above (the “ Shares ”) of the Company’s Common Stock at the Exercise Price Per Share set forth above (the “ Exercise Price ”). As used in this Exercise Agreement, the term “ Shares ” refers to the Shares purchased under this Exercise Agreement and includes all securities received (i) in replacement of the Shares, (ii) as a result of stock dividends or stock splits with respect to the Shares, and (iii) all securities received in replacement of the Shares in a merger, recapitalization, reorganization or similar corporate transaction.

 

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1.2 Title to Shares . The exact spelling of the name(s) under which Purchaser will take title to the Shares is:

 

                                                                                                                                                                        

 

                                                                                                                                                                        

Purchaser desires to take title to the Shares as follows:

¨   Individual, as separate property

¨   Husband and wife, as community property

¨   Joint Tenants

¨   Other; please specify:                                                                                                                                

1.3 Payment . Purchaser hereby delivers payment of the Exercise Price in the manner permitted in the Stock Option Agreement as follows (check and complete as appropriate):

 

¨ in cash (by check) in the amount of $        , receipt of which is acknowledged by the Company;

 

¨ by cancellation of indebtedness of the Company owed to Purchaser in the amount of $        ;

 

¨ by delivery of                     fully-paid, nonassessable and vested shares of the Common Stock of the Company owned by Purchaser for at least six (6) months prior to the date hereof which have been paid for within the meaning of SEC Rule 144, (if purchased by use of a promissory note, such note has been fully paid with respect to such vested shares), or obtained by Purchaser in the open public market, and owned free and clear of all liens, claims, encumbrances or security interests, valued at the current Fair Market Value of $        per share;

 

¨ by tender of a full recourse promissory note in the principal amount of $        having such terms as may be approved by the Committee and bearing interest at a rate sufficient to avoid (i) imputation of income under Sections 483 and 1274 of the Code and (ii) variable accounting treatment under Financial Accounting Standards Board Interpretation No. 44 to APB No. 25; provided, however, that Purchasers who are not employees or directors of the Company shall not be entitled to purchase Shares with a promissory note unless the note is adequately secured by collateral other than the Shares;

 

¨ by the waiver hereby of compensation due or accrued for services rendered in the amount of $        .

 

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2. Delivery .

2.1 Deliveries by Purchaser . Purchaser hereby delivers to the Company (i) this Exercise Agreement, (ii) two (2) copies of a blank Stock Power and Assignment Separate from Stock Certificate in the form of Exhibit 1 attached hereto (the “ Stock Powers ”), both executed by Purchaser (and Purchaser’s spouse, if any), (iii) a Consent of Spouse in the form of Exhibit 2 attached hereto (the “ Spouse Consent ”) executed by Purchaser’s spouse, (iv) the Exercise Price and payment or other provision for any applicable tax obligations in the form of a check, a copy of which is attached hereto as Exhibit 3 , and (v) if applicable, a secured full recourse promissory note.

2.2 Deliveries by the Company . Upon its receipt of the Exercise Price, payment or other provision for any applicable tax obligations and all the documents to be executed and delivered by Purchaser to the Company under Section 2.1, the Company will issue a duly executed stock certificate evidencing the Shares in the name of Purchaser to be placed in escrow as provided in Section 10 to secure payment of Purchaser’s obligation to the Company under the promissory note and until expiration or termination of the Company’s Right of First Refusal described in Sections 8, 9 and 10.

3. Representations and Warranties of Purchaser . Purchaser represents and warrants to the Company that:

3.1 Agrees to Terms of the Plan . Purchaser has received a copy of the Plan and the Stock Option Agreement, has read and understands the terms of the Plan, the Stock Option Agreement and this Exercise Agreement, and agrees to be bound by their terms and conditions. Purchaser acknowledges that there may be adverse tax consequences upon exercise of the Option or disposition of the Shares, and that Purchaser should consult a tax adviser prior to such exercise or disposition.

3.2 Purchase for Own Account for Investment . Purchaser is purchasing the Shares for Purchaser’s own account for investment purposes only and not with a view to, or for sale in connection with, a distribution of the Shares within the meaning of the Securities Act. Purchaser has no present intention of selling or otherwise disposing of all or any portion of the Shares and no one other than Purchaser has any beneficial ownership of any of the Shares.

3.3 Access to Information . Purchaser has had access to all information regarding the Company and its present and prospective business, assets, liabilities and financial condition that Purchaser reasonably considers important in making the decision to purchase the Shares, and Purchaser has had ample opportunity to ask questions of the Company’s representatives concerning such matters and this investment.

3.4 Understanding of Risks . Purchaser is fully aware of: (i) the highly speculative nature of the investment in the Shares; (ii) the financial hazards involved; (iii) the lack of liquidity of the Shares and the restrictions on transferability of the Shares (e.g., that Purchaser may not be able to sell or dispose of the Shares or use them as collateral for loans); (iv) the qualifications and backgrounds of the management of the Company; and (v) the tax consequences of investment in the Shares. Purchaser is capable of evaluating the merits and risks of this investment, has the ability to protect Purchaser’s own interests in this transaction and is financially capable of bearing a total loss of this investment.

 

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3.5 No General Solicitation . At no time was Purchaser presented with or solicited by any publicly issued or circulated newspaper, mail, radio, television or other form of general advertising or solicitation in connection with the offer, sale and purchase of the Shares.

4. Compliance with Securities Laws .

4.1 Compliance with U.S. Federal Securities Laws . Purchaser understands and acknowledges that the Shares have not been registered with the SEC under the Securities Act and that, notwithstanding any other provision of the Stock Option Agreement to the contrary, the exercise of any rights to purchase any Shares is expressly conditioned upon compliance with the Securities Act and all applicable state securities laws. Purchaser agrees to cooperate with the Company to ensure compliance with such laws.

4.2 Compliance with California Securities Laws . THE PLAN, THE STOCK OPTION AGREEMENT, AND THIS EXERCISE AGREEMENT ARE INTENDED TO COMPLY WITH SECTIONS 25102(o) AND/OR 25102(f) OF THE CALIFORNIA CORPORATIONS CODE AND ANY RULES (INCLUDING COMMISSIONER RULES, IF APPLICABLE) OR REGULATIONS PROMULGATED THEREUNDER BY THE CALIFORNIA DEPARTMENT OF CORPORATIONS (THE “ REGULATIONS ”). ANY PROVISION OF THIS EXERCISE AGREEMENT THAT IS INCONSISTENT WITH SECTIONS 25102(o) OR 25102(f) SHALL, WITHOUT FURTHER ACT OR AMENDMENT BY THE COMPANY OR THE BOARD, BE REFORMED TO COMPLY WITH THE REQUIREMENTS OF SECTIONS  25102(o) AND 25102(f) . THE SALE OF THE SECURITIES THAT ARE THE SUBJECT OF THIS EXERCISE AGREEMENT, IF NOT YET QUALIFIED WITH THE CALIFORNIA COMMISSIONER OF CORPORATIONS AND NOT EXEMPT FROM SUCH QUALIFICATION, IS SUBJECT TO SUCH QUALIFICATION, AND THE ISSUANCE OF SUCH SECURITIES, AND THE RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE IS EXEMPT. THE RIGHTS OF THE PARTIES TO THIS EXERCISE AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED OR AN EXEMPTION BEING AVAILABLE.

5. Restricted Securities .

5.1 No Transfer Unless Registered or Exempt . Purchaser understands that Purchaser may not transfer any Shares unless such Shares are registered under the Securities Act or qualified under applicable state securities laws or unless, in the opinion of counsel to the Company, exemptions from such registration and qualification requirements are available. Purchaser understands that only the Company may file a registration statement with the SEC and that the Company is under no obligation to do so with respect to the Shares. Purchaser has also been advised that exemptions from registration and qualification may not be available or may not permit Purchaser to transfer all or any of the Shares in the amounts or at the times proposed by Purchaser.

5.2 SEC Rule 144 . In addition, Purchaser has been advised that SEC Rule 144 promulgated under the Securities Act, which permits certain limited sales of unregistered securities, is not presently available with respect to the Shares and, in any event, requires that the Shares be held for a minimum of one (1) year, and in certain cases two (2) years, after they have been purchased and paid for (within the meaning of Rule 144). Purchaser understands that any Shares paid for with a promissory note may not be deemed to be fully “paid for” within the meaning of Rule 144 unless certain conditions are met and that, accordingly, the Rule 144 holding period of such Shares may not begin to run until such Shares are fully paid for within the

 

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meaning of Rule 144. Purchaser understands that Rule 144 may indefinitely restrict transfer of the Shares so long as Purchaser remains an “affiliate” of the Company or if “current public information” about the Company (as defined in Rule 144) is not publicly available.

6. Restrictions on Transfers .

6.1 Disposition of Shares . Purchaser hereby agrees that Purchaser shall make no disposition of the Shares (other than as permitted by this Exercise Agreement) unless and until:

 

  (a) Purchaser shall have notified the Company of the proposed disposition and provided a written summary of the terms and conditions of the proposed disposition;

 

  (b) Purchaser shall have complied with all requirements of this Exercise Agreement applicable to the disposition of the Shares;

 

  (c) Purchaser shall have provided the Company with written assurances, in form and substance satisfactory to counsel for the Company, that (i) the proposed disposition does not require registration of the Shares under the Securities Act or (ii) all appropriate actions necessary for compliance with the registration requirements of the Securities Act or of any exemption from registration available under the Securities Act (including Rule 144) have been taken; and

 

  (d) Purchaser shall have provided the Company with written assurances, in form and substance satisfactory to the Company, that the proposed disposition will not result in the contravention of any transfer restrictions applicable to the Shares pursuant to the provisions of the Regulations referred to in Section 4.2 hereof.

6.2 Restriction on Transfer . Purchaser shall not transfer, assign, grant a lien or security interest in, pledge, hypothecate, encumber or otherwise dispose of any of the Shares which are subject to the Company’s Repurchase Option or the Company’s Right of First Refusal described below, except as permitted by this Exercise Agreement.

6.3 Transferee Obligations . Each person (other than the Company) to whom the Shares are transferred by means of one of the permitted transfers specified in this Exercise Agreement must, as a condition precedent to the validity of such transfer, acknowledge in writing to the Company that such person is bound by the provisions of this Exercise Agreement and that the transferred Shares are subject to (i) both the Company’s Repurchase Option and the Company’s Right of First Refusal granted hereunder and (ii) the market stand-off provisions of Section 7 hereof, to the same extent such Shares would be so subject if retained by the Purchaser.

7. Market Standoff Agreement . Purchaser agrees in connection with any registration of the Company’s securities that, upon the request of the Company or the underwriters managing any public offering of the Company’s securities, Purchaser will not sell or otherwise dispose of any Shares without the prior written consent of the Company or such underwriters, as the case may be, for such period of time after the effective date of such

 

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registration requested by such managing underwriters and subject to all restrictions as the Company or the underwriters may specify. Purchaser further agrees to enter into any agreement reasonably required by the underwriters to implement the foregoing.

8. Company’s Repurchase Option for Unvested Shares . The Company, or its assignee, shall have the option to repurchase all or a portion of the Purchaser’s Unvested Shares on the terms and conditions set forth in this Section (the “ Repurchase Option ”) if Purchaser is Terminated for any reason, or no reason, including without limitation, Purchaser’s death, Disability, voluntary resignation or termination by the Company with or without Cause. Notwithstanding the foregoing, the Company shall retain the Repurchase Option for Unvested Shares only as to that number of Unvested Shares (whether or not exercised) that exceeds the number of Vested shares which remain unexercised.

8.1 Termination and Termination Date . In case of any dispute as to whether Purchaser is Terminated, the Committee shall have discretion to determine whether Purchaser has been Terminated and the effective date of such Termination (the “ Termination Date ”).

8.2 Exercise of Repurchase Option . At any time within ninety (90) days after the Purchaser’s Termination Date (or, in the case of securities issued upon exercise of an Option after the Purchaser’s Termination Date, within ninety (90) days after the date of such exercise), the Company, or its assignee, may elect to repurchase any or all the Purchaser’s Unvested Shares by giving Purchaser written notice of exercise of the Repurchase Option.

8.3 Calculation of Repurchase Price for Unvested Shares . The Company or its assignee shall have the option to repurchase from Purchaser (or from Purchaser’s personal representative as the case may be) the Unvested Shares at the Purchaser’s Exercise Price or, if the Purchaser paid for the Shares with a promissory note, at the then current fair market value as determined by the board, whichever is lower, proportionately adjusted for any stock split or similar change in the capital structure of the Company as set forth in Section 2.2 of the Plan (the “ Repurchase Price ”).

8.4 Payment of Repurchase Price . The Repurchase Price shall be payable, at the option of the Company or its assignee, by check or by cancellation of all or a portion of any outstanding purchase money indebtedness owed by Purchaser to the Company or such assignee, or by any combination thereof. The Repurchase Price shall be paid without interest within the term of the Repurchase Option as described in Section 8.2.

8.5 Right of Termination Unaffected . Nothing in this Exercise Agreement shall be construed to limit or otherwise affect in any manner whatsoever the right or power of the Company (or any Parent or Subsidiary of the Company) to terminate Purchaser’s employment or other relationship with Company (or the Parent or Subsidiary of the Company) at any time, for any reason.

9. Company’s Right of First Refusal . Unvested Shares may not be sold or otherwise transferred by Purchaser without the Company’s prior written consent. Before any Vested Shares held by Purchaser or any transferee of such Vested Shares (either sometimes referred to herein as the “ Holder ”) may be sold or otherwise transferred (including, without limitation, a transfer by gift or operation of law), the Company and/or its assignee(s) will have a right of first refusal to purchase the Vested Shares to be sold or transferred (the “ Offered Shares ”) on the terms and conditions set forth in this Section (the “ Right of First Refusal ”).

 

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9.1 Notice of Proposed Transfer . The Holder of the Offered Shares will deliver to the Company a written notice (the “ Notice ”) stating: (i) the Holder’s bona fide intention to sell or otherwise transfer the Offered Shares; (ii) the name and address of each proposed purchaser or other transferee (the “ Proposed Transferee ”); (iii) the number of Offered Shares to be transferred to each Proposed Transferee; (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the Offered Shares (the “ Offered Price ”); and (v) that the Holder acknowledges this Notice is an offer to sell the Offered Shares to the Company and/or its assignee(s) pursuant to the Company’s Right of First Refusal at the Offered Price as provided for in this Exercise Agreement.

9.2 Exercise of Right of First Refusal . At any time within thirty (30) days after the date of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all (or, with the consent of the Holder, less than all) the Offered Shares proposed to be transferred to any one or more of the Proposed Transferees named in the Notice, at the purchase price, determined as specified below.

9.3 Purchase Price . The purchase price for the Offered Shares purchased under this Section will be the Offered Price, provided that if the Offered Price consists of no legal consideration (as, for example, in the case of a transfer by gift) the purchase price will be the fair market value of the Offered Shares as determined in good faith by the Company’s Board of Directors. If the Offered Price includes consideration other than cash, then the value of the non-cash consideration, as determined in good faith by the Company’s Board of Directors, will conclusively be deemed to be the cash equivalent value of such non-cash consideration.

9.4 Payment . Payment of the purchase price for the Offered Shares will be payable, at the option of the Company and/or its assignee(s) (as applicable), by check or by cancellation of all or a portion of any outstanding purchase money indebtedness owed by the Holder to the Company (or to such assignee, in the case of a purchase of Offered Shares by such assignee) or by any combination thereof. The purchase price will be paid without interest within sixty (60) days after the Company’s receipt of the Notice, or, at the option of the Company and/or its assignee(s), in the manner and at the time(s) set forth in the Notice.

9.5 Holder’s Right to Transfer . If all of the Offered Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise transfer such Offered Shares to each Proposed Transferee at the Offered Price or at a higher price, provided that (i) such sale or other transfer is consummated within one hundred twenty (120) days after the date of the Notice, (ii) any such sale or other transfer is effected in compliance with all applicable securities laws, and (iii) each Proposed Transferee agrees in writing that the provisions of this Section will continue to apply to the Offered Shares in the hands of such Proposed Transferee. If the Offered Shares described in the Notice are not transferred to each Proposed Transferee within such one hundred twenty (120) day period, then a new Notice must be given to the Company pursuant to which the Company will again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred.

 

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9.6 Exempt Transfers . Notwithstanding anything to the contrary in this Section, the following transfers of Vested Shares will be exempt from the Right of First Refusal: (i) the transfer of any or all of the Vested Shares during Purchaser’s lifetime by gift or on Purchaser’s death by will or intestacy to Purchaser’s “Immediate Family” (as defined below) or to a trust for the benefit of Purchaser or Purchaser’s Immediate Family, provided that each transferee or other recipient agrees in a writing satisfactory to the Company that the provisions of this Section will continue to apply to the transferred Vested Shares in the hands of such transferee or other recipient; (ii) any transfer of Vested Shares made pursuant to a statutory merger or statutory consolidation of the Company with or into another corporation or corporations (except that the Right of First Refusal will continue to apply thereafter to such Vested Shares, in which case the surviving corporation of such merger or consolidation shall succeed to the rights of the Company under this Section unless the agreement of merger or consolidation expressly otherwise provides); or (iii) any transfer of Vested Shares pursuant to the winding up and dissolution of the Company. As used herein, the term “ Immediate Family ” will mean Purchaser’s spouse, the lineal descendant or antecedent, father, mother, brother or sister, child, adopted child, grandchild or adopted grandchild of the Purchaser or the Purchaser’s spouse, or the spouse of any of the above or Spousal Equivalent, as defined herein. As used herein, a person is deemed to be a “ Spousal Equivalent ” provided the following circumstances are true: (i) irrespective of whether or not the Purchaser and the Spousal Equivalent are the same sex, they are the sole spousal equivalent of the other for the last twelve (12) months, (ii) they intend to remain so indefinitely, (iii) neither are married to anyone else, (iv) both are at least 18 years of age and mentally competent to consent to contract, (v) they are not related by blood to a degree of closeness that which would prohibit legal marriage in the state in which they legally reside, (vi) they are jointly responsible for each other’s common welfare and financial obligations, and (vii) they reside together in the same residence for the last twelve (12) months and intend to do so indefinitely.

9.7 Termination of Right of First Refusal . The Right of First Refusal will terminate as to all Shares (i) on the effective date of the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the SEC under the 1933 Act (other than a registration statement relating solely to the issuance of Common Stock pursuant to a business combination or an employee incentive or benefit plan) or (ii) on any transfer or conversion of Shares made pursuant to a statutory merger or statutory consolidation of the Company with or into another corporation or corporations if the common stock of the surviving corporation or any direct or indirect parent corporation thereof is registered under the Securities Exchange Act of 1934, as amended.

9.8 Encumbrances on Vested Shares . Purchaser may grant a lien or security interest in, or pledge, hypothecate or encumber Vested Shares only if each party to whom such lien or security interest is granted, or to whom such pledge, hypothecation or other encumbrance is made, agrees in a writing satisfactory to the Company that: (i) such lien, security interest, pledge, hypothecation or encumbrance will not apply to such Vested Shares after they are acquired by the Company and/or its assignees under this Section; and (ii) the provisions of this Section will continue to apply to such Vested Shares in the hands of such party and any transferee of such party. Purchaser may not grant a lien or security interest in, or pledge, hypothecate or encumber, any Unvested Shares.

 

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10 . Rights as a Shareholder . Subject to the terms and conditions of this Exercise Agreement, Purchaser will have all of the rights of a shareholder of the Company with respect to the Shares from and after the date that Shares are issued to Purchaser until such time as Purchaser disposes of the Shares or the Company and/or its assignee(s) exercise(s) the Repurchase Option or Right of First Refusal. Upon an exercise of the Repurchase Option or Right of First Refusal, Purchaser will have no further rights as a holder of the Shares so purchased upon such exercise, other than the right to receive payment for the Shares so purchased in accordance with the provisions of this Exercise Agreement, and Purchaser will promptly surrender the stock certificate(s) evidencing the Shares so purchased to the Company for transfer or cancellation.

11 . Escrow . As security for Purchaser’s faithful performance of this Exercise Agreement, Purchaser agrees, immediately upon receipt of the stock certificate(s) evidencing the Shares, to deliver such certificate(s), together with the Stock Powers executed by Purchaser and by Purchaser’s spouse, if any (with the date and number of Shares left blank), to the Secretary of the Company or other designee of the Company (the “ Escrow Holder ”), who is hereby appointed to hold such certificate(s) and Stock Powers in escrow and to take all such actions and to effectuate all such transfers and/or releases of such Shares as are in accordance with the terms of this Exercise Agreement. Purchaser and the Company agree that Escrow Holder will not be liable to any party to this Exercise Agreement (or to any other party) for any actions or omissions unless Escrow Holder is grossly negligent or intentionally fraudulent in carrying out the duties of Escrow Holder under this Exercise Agreement. Escrow Holder may rely upon any letter, notice or other document executed with any signature purported to be genuine and may rely on the advice of counsel and obey any order of any court with respect to the transactions contemplated by this Exercise Agreement. The Shares will be released from escrow upon termination of both the Repurchase Option, if applicable, and the Right of First Refusal; provided , however , that, if applicable, the Shares will remain in escrow so long as they are subject to the Pledge Agreement.

12 . Restrictive Legends and Stop-Transfer Orders .

12.1 Legends . Purchaser understands and agrees that the Company will place the legends set forth below or similar legends on any stock certificate(s) evidencing the Shares, together with any other legends that may be required by state or U.S. Federal securities laws, the Company’s Articles of Incorporation or Bylaws, any other agreement between Purchaser and the Company or any agreement between Purchaser and any third party:

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON PUBLIC RESALE AND TRANSFER INCLUDING THE RIGHTS OF REPURCHASE AND FIRST REFUSAL HELD BY THE ISSUER AND/OR ITS ASSIGNEE(S) AS SET FORTH IN A STOCK OPTION EXERCISE AGREEMENT

 

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BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH PUBLIC SALE AND TRANSFER RESTRICTIONS INCLUDING THE RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES.

THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A LOCK-UP PERIOD OF 180 DAYS OR MORE AFTER THE EFFECTIVE DATE OF THE ISSUER’S REGISTRATION STATEMENT FILED UNDER THE ACT, AS AMENDED, AS SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE ORIGINAL HOLDER OF THESE SECURITIES, A COPY OF WHICH MAY BE OBTAINED AT THE ISSUER’S PRINCIPAL OFFICE. AS A RESULT OF SUCH AGREEMENT, THESE SHARES MAY NOT BE TRADED PRIOR TO 180 DAYS OR MORE AFTER THE EFFECTIVE DATE OF THE INITIAL PUBLIC OFFERING OF THE COMMON STOCK OF THE ISSUER HEREOF. SUCH LOCK-UP PERIOD IS BINDING ON TRANSFEREES OF THESE SHARES.

12.2 Stop-Transfer Instructions . Purchaser agrees that, to ensure compliance with the restrictions imposed by this Exercise Agreement, the Company may issue appropriate “stop-transfer” instructions to its transfer agent, if any, and if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.

12.3 Refusal to Transfer . The Company will not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Exercise Agreement or (ii) to treat as owner of such Shares, or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares have been so transferred.

13. Tax Consequences . PURCHASER UNDERSTANDS THAT PURCHASER MAY SUFFER ADVERSE TAX CONSEQUENCES AS A RESULT OF PURCHASER’S PURCHASE OR DISPOSITION OF THE SHARES. PURCHASER REPRESENTS: (i) THAT PURCHASER HAS CONSULTED WITH ANY TAX ADVISER THAT PURCHASER DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR DISPOSITION OF THE SHARES AND (ii) THAT PURCHASER IS NOT RELYING ON THE COMPANY FOR ANY TAX ADVICE. IN PARTICULAR, IF UNVESTED SHARES ARE SUBJECT TO REPURCHASE BY THE COMPANY, PURCHASER REPRESENTS THAT PURCHASER HAS CONSULTED WITH PURCHASER’S OWN TAX ADVISOR CONCERNING THE ADVISABILITY OF FILING AN 83(b) ELECTION WITH THE INTERNAL REVENUE SERVICE WHICH MUST BE FILED WITHIN THIRTY (30) DAYS OF THE PURCHASE OF THE SHARES TO BE EFFECTIVE. Set forth below is a brief summary as of the date the Plan was adopted by the Board of some of the U.S. Federal and California tax consequences of exercise of the Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. PURCHASER SHOULD CONSULT HIS OR HER OWN TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.

13.1 Exercise of Incentive Stock Option . If the Option qualifies as an ISO, there will be no regular U.S. Federal income tax liability or California income tax liability upon the exercise of the Option, although the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price will be treated as a tax preference item for U.S. Federal alternative minimum tax purposes and may subject Purchaser to the alternative minimum tax in the year of exercise.

 

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13.2 Exercise of Nonqualified Stock Option . If the Option does not qualify as an ISO, there may be a regular U.S. Federal income tax liability and a California income tax liability upon the exercise of the Option. Purchaser will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price. If Purchaser is or was an employee of the Company, the Company may be required to withhold from Purchaser’s compensation or collect from Purchaser and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income at the time of exercise.

13.3 Disposition of Shares . The following tax consequences may apply upon disposition of the Shares.

 

  (a) Incentive Stock Options . If the Shares are held for more than twelve (12) months after the date of the transfer of the Shares pursuant to the exercise of an ISO and are disposed of more than two (2) years after the Date of Grant, any gain realized on disposition of the Shares will be treated as long term capital gain for federal and California income tax purposes. If Shares purchased under an ISO are disposed of within the applicable one (1) year or two (2) year period, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price.

 

  (b) Nonqualified Stock Options . If the Shares are held for more than twelve (12) months after the date of the transfer of the Shares pursuant to the exercise of an NQSO, any gain realized on disposition of the Shares will be treated as long term capital gain.

 

  (c) Withholding . The Company may be required to withhold from the Purchaser’s compensation or collect from the Purchaser and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income.

13.4 Section 83(b) Election for Unvested Shares . With respect to Unvested Shares, which are subject to the Repurchase Option, unless an election is filed by the Purchaser with the Internal Revenue Service (and, if necessary, the proper state taxing authorities), within 30 days of the purchase of the Unvested Shares, electing pursuant to Section 83(b) of the Code (and similar state tax provisions, if applicable) to be taxed currently on any difference between the Exercise Price of the Unvested Shares and their Fair Market Value on the date of purchase, there may be a recognition of taxable income (including, where applicable, alternative minimum taxable income) to the Purchaser, measured by the excess, if any, of the Fair Market Value of the Unvested Shares at the time they cease to be Unvested Shares, over the Exercise Price of the Unvested Shares. A form of Election under Section 83(b) is attached hereto as Exhibit 5 for reference.

 

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14. Compliance with Laws and Regulations . The issuance and transfer of the Shares will be subject to and conditioned upon compliance by the Company and Purchaser with all applicable state and U.S. Federal laws and regulations and with all applicable requirements of any stock exchange or automated quotation system on which the Company’s Common Stock may be listed or quoted at the time of such issuance or transfer.

15. Successors and Assigns . The Company may assign any of its rights under this Exercise Agreement, including its rights to purchase Shares under the Repurchase Option and Right of First Refusal. No other party to this Exercise Agreement may assign, whether voluntarily or by operation of law, any of its rights and obligations under this Exercise Agreement, except with the prior written consent of the Company. This Exercise Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Exercise Agreement will be binding upon Purchaser and Purchaser’s heirs, executors, administrators, legal representatives, successors and assigns.

16. Governing Law . This Exercise Agreement shall be governed by and construed in accordance with the laws of the State of California, without giving effect to that body of laws pertaining to conflict of laws.

17. Notices . Any and all notices required or permitted to be given to a party pursuant to the provisions of this Exercise Agreement will be in writing and will be effective and deemed to provide such party sufficient notice under this Exercise Agreement on the earliest of the following: (i) at the time of personal delivery, if delivery is in person; (ii) at the time of transmission by facsimile, addressed to the other party at its facsimile number specified herein (or hereafter modified by subsequent notice to the parties hereto), with confirmation of receipt made by both telephone and printed confirmation sheet verifying successful transmission of the facsimile; (iii) one (1) business day after deposit with an express overnight courier for United States deliveries, or two (2) business days after such deposit for deliveries outside of the United States, with proof of delivery from the courier requested; or (iv) three (3) business days after deposit in the United States mail by certified mail (return receipt requested) for United States deliveries.

All notices for delivery outside the United States will be sent by facsimile or by express courier. All notices not delivered personally or by facsimile will be sent with postage and/or other charges prepaid and properly addressed to the party to be notified at the address or facsimile number set forth below the signature lines of this Exercise Agreement, or at such other address or facsimile number as such other party may designate by one of the indicated means of notice herein to the other parties hereto. Notices to the Company will be marked “Attention: President”. Notices by facsimile shall be machine verified as received.

18. Further Assurances . The parties agree to execute such further documents and instruments and to take such further actions as may be reasonably necessary to carry out the purposes and intent of this Exercise Agreement.

19. Titles and Headings . The titles, captions and headings of this Exercise Agreement are included for ease of reference only and will be disregarded in interpreting or construing this Exercise Agreement. Unless otherwise specifically stated, all references herein to “sections” and “exhibits” will mean “sections” and “exhibits” to this Exercise Agreement.

 

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20. Entire Agreement . The Plan, the Stock Option Agreement and this Exercise Agreement, together with all Exhibits thereto, constitute the entire agreement and understanding of the parties with respect to the subject matter of this Exercise Agreement, and supersede all prior understandings and agreements, whether oral or written, between or among the parties hereto with respect to the specific subject matter hereof.

21. Counterparts . This Exercise Agreement may be executed in any number of counterparts, each of which when so executed and delivered will be deemed an original, and all of which together shall constitute one and the same agreement.

22. Severability . If any provision of this Exercise Agreement is determined by any court or arbitrator of competent jurisdiction to be invalid, illegal or unenforceable in any respect, such provision will be enforced to the maximum extent possible given the intent of the parties hereto. If such clause or provision cannot be so enforced, such provision shall be stricken from this Exercise Agreement and the remainder of this Exercise Agreement shall be enforced as if such invalid, illegal or unenforceable clause or provision had (to the extent not enforceable) never been contained in this Exercise Agreement. Notwithstanding the forgoing, if the value of this Exercise Agreement based upon the substantial benefit of the bargain for any party is materially impaired, which determination as made by the presiding court or arbitrator of competent jurisdiction shall be binding, then both parties agree to substitute such provision(s) through good faith negotiations.

23. Facsimile Signatures . This Agreement may be executed and delivered by facsimile and upon such delivery the facsimile signature will be deemed to have the same effect as if the original signature had been delivered to the other party. The failure to deliver the original signature copy and/or the nonreceipt of the original signature copy shall have no effect upon the binding and enforceable nature of this Agreement.

[R EMAINDER OF P AGE I NTENTIONALLY L EFT B LANK .]

 

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IN WITNESS WHEREOF , the Company has caused this Exercise Agreement to be executed in triplicate by its duly authorized representative and Purchaser has executed this Exercise Agreement in triplicate as of the Effective Date, indicated above.

 

ADESTO TECHNOLOGIES

CORPORATION, INC.

PURCHASER
By:

 

 

Name:

 

(Signature of Purchaser)
Title:

 

 

(Print name of Purchaser)
Fax No.:

 

Address:

 

Tel No.:

 

 

 

Fax No.:

 

Tel No.:

 

List of Exhibits

 

Exhibit 1: Stock Power and Assignment Separate from Stock Certificate
Exhibit 2: Spouse Consent
Exhibit 3: Copy of Purchaser’s Check
Exhibit 4: Section 83(b) Election

[S IGNATURE P AGE TO A DESTO T ECHNOLOGIES C ORPORATION I NC .

S TOCK O PTION E XERCISE A GREEMENT ]

 

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EXHIBIT 1

STOCK POWER AND ASSIGNMENT

SEPARATE FROM STOCK CERTIFICATE


Stock Power and Assignment

Separate from Stock Certificate

FOR VALUE RECEIVED and pursuant to that certain Stock Option Exercise Agreement No.             dated as of                     ,         , (the “ Agreement ”), the undersigned hereby sells, assigns and transfers unto                     ,             shares of the Common Stock of Adesto Technologies Corporation, Inc., a California corporation (the “ Company ”), standing in the undersigned’s name on the books of the Company represented by Certificate No(s).             delivered herewith, and does hereby irrevocably constitute and appoint the Secretary of the Company as the undersigned’s attorney-in-fact, with full power of substitution, to transfer said stock on the books of the Company. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT AND ANY EXHIBITS THERETO.

Dated:             ,         

 

PURCHASER

 

(Signature)

 

(Please Print Name)

 

(Spouse’s Signature, if any)

 

(Please Print Spouse’s Name)

Instructions to Purchaser : Please do not fill in any blanks other than the signature line. The purpose of this Stock Power and Assignment is to enable the Company to acquire the shares upon a default under Purchaser’s promissory note, if applicable, and to exercise its “Repurchase Option” or “Right of First Refusal” set forth in the Exercise Agreement without requiring additional signatures on the part of the Purchaser or Purchaser’s Spouse.


EXHIBIT 2

SPOUSE CONSENT


Spouse Consent

The undersigned spouse of                                                          (the “ Purchaser ”) has read, understands, and hereby approves the Stock Option Exercise Agreement between Purchaser and the Company (the “ Agreement ”). In consideration of the Company’s granting my spouse the right to purchase the Shares as set forth in the Agreement, the undersigned hereby agrees to be irrevocably bound by the Agreement and further agrees that any community property interest I may have in the Shares shall similarly be bound by the Agreement. The undersigned hereby appoints Purchaser as my attorney-in-fact with respect to any amendment or exercise of any rights under the Agreement.

Date:                                                         

 

 

Print Name of Purchaser’s Spouse

 

Signature of Purchaser’s Spouse
Address:

 

 

 

¨   Please check here, and sign below, if you do not have a spouse.

Date:                                                         

 

 

Print Name of Purchaser

 

Signature of Purchaser


EXHIBIT 3

COPY OF PURCHASER’S CHECK


EXHIBIT 4

SECTION 83(B) ELECTION


ELECTION UNDER SECTION 83(B) OF THE INTERNAL REVENUE CODE

The undersigned Taxpayer hereby elects, pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended, to include the excess, if any, of the fair market value of the property described below at the time of purchase over the amount paid for such property, as compensation for services in the calculation of: (1) regular gross income; or (2) alternative minimum taxable income, as the case may be.

 

1.     TAXPAYER’S NAME:

 

TAXPAYER’S ADDRESS:

 

 

2. SOCIAL SECURITY NUMBER:

 

3. The property with respect to which the election is made is described as follows:                  shares of Common Stock of Adesto Technologies Corporation, Inc., a California corporation (the “ Company ”) which were purchased upon exercise of an option by Company, which is Taxpayer’s employer or the corporation for whom the Taxpayer performs services.
4. The date on which the shares were purchased pursuant to the exercise of the option was                     ,                  and this election is made for calendar year     .
5. The shares received upon exercise of the option are subject to the following restrictions: The Company may repurchase all or a portion of the shares at the Taxpayer’s original purchase price under certain conditions at the time of Taxpayer’s termination of employment or services.
6. The fair market value of the shares (without regard to restrictions other than restrictions which by their terms will never lapse) was $             per share at the time of exercise of the option.
7. The amount paid for such shares upon exercise of the option was $             per share.
8. The Taxpayer has submitted a copy of this statement to the Company.

THIS ELECTION MUST BE FILED WITH THE INTERNAL REVENUE SERVICE (“ IRS ”), AT THE OFFICE WHERE THE TAXPAYER FILES ANNUAL INCOME TAX RETURNS, WITHIN 30 DAYS AFTER THE DATE OF TRANSFER OF THE SHARES, AND MUST ALSO BE FILED WITH THE TAXPAYER’S INCOME TAX RETURNS FOR THE CALENDAR YEAR. THE ELECTION CANNOT BE REVOKED WITHOUT THE CONSENT OF THE IRS.

 

Dated:

 

Taxpayer’s Signature

Exhibit 10.05

STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE MODIFIED NET

1. Basic Provisions (“Basic Provision”).

1.1 Parties: This Lease (“ Lease” ), dated, May 3, 2011, is made by and between DeGuigne Ventures, LLC ( “Landlord” ) and Adesto Technologies, Inc., a California corporation ( “Tenant” ), (collectively the “ Parties ,” or individually a “ Party ”).

1.2(a) Premises: A portion of that certain building containing approximately 21,901 square feet, including all improvements therein or to be provided by Landlord under the terms of this Lease, commonly known by the street address of 1250 Borregas Ave, located in the City of Sunnyvale, County of Santa Clara, State of California , with zip code 94089 as outlined on Exhibit A attached hereto (“ Premises ”). The “ Building ” is that certain building containing the Premises and generally described as (describe briefly the nature of the Building): a multi-tenantR&D building.

In addition to Tenant’s rights to use and occupy the Premises as hereinafter specified, Tenant shall have non-exclusive rights to the Common Areas (as defined in Paragraph 2.7 below) as hereinafter specified, but shall not have any rights to the roof, exterior walls or utility raceways of the Building or to any other buildings in the Industrial Center. The Premises, the Building, the Common Areas, the land upon which they are located, along with all other buildings and improvements thereon, are herein collectively referred to as the “ Industrial Center .” (Also see Paragraph 2.)

1.2(b) Parking: 60 unreserved vehicle parking spaces (“ Unreserved Parking Spaces ”); and no reserved vehicle parking spaces (“ Reserved Parking Spaces ”). (Also, see Paragraph 2.6)

1.3 Term: : Three years and eight months (“ Original Term ”) commencing November 25, 2011 (“ Commencement Date ”) and ending July 11, 2015 (“ Expiration Date ”). (Also Paragraph 3.)

1.4 Early Possession : July 11, 2011 (“ Early Possession Date ”). Any delay in Early Possession Date will result in corresponding delay in Commencement Date and Expiration Date defined in Paragraph 1.3 (Also Paragraphs 3.2 and 3.3.)

1.5 Base rent : $26,281.00 per month (“ Base Rent ”), payable on the first day of each month commencing November 25, 2011 (Also see Paragraph 4. ) Base Rent to be adjusted as follows:

 

December 1, 2012

$ 27,376.00      per month   

December 1, 2013

$ 28,471.00      per month   

December 1, 2014

$ 29,566.00      per month   

1.6(a) Base Rent Paid Upon Execution : $ 31,537.2 as Base Rent for the period November 25- to December 31, 2011.

1.6(b) Tenant’s Share of Common Area Operating Expenses: 51.48 % (“ Tenant’s Share ”) as determined by prorata square footage of the Premises as compared to the total square footage of the Building. This expense shall not exceed $5257 per month calculated at $0.24 per Sq Ft during the first lease year and except for taxes, insurance and utilities shall not increase by an amount of 3% annually. Any increase in taxes due to change of ownership of the Premises shall not be passed on to the Tenant.

1.7 Security Deposit : $29,566.00 (“ Security Deposit ”). (Also see Paragraph 5)

Tenant has an Existing Security Deposit on account with Business Ventures, LLC for the premises at 1223 &1225 Innsbruck, Sunnyvale, CA in the amount of $19,485.00. As long as Tenant is not in default of lease with Business Ventures, LLC and does not owe any Rent or Damages at 1223 & 1225 Innsbruck, Sunnyvale, CA, the Existing Security Deposit shall be transferred to DeguigneVentuers and credited towards the above mentioned Security Deposit of $29,566.00. Upon Tenant’s signature of this lease, Tenant shall submit a balance of $10,081.00 for the remainder of the above mentioned Security Deposit. Should any Rent or Damages be deducted from the Existing Security Deposit, Tenant shall remit the remaining balance of the Security Deposit of this Lease within five (5) business day.

1.8 Permitted Use : office, R&D, manufacturing of electronic components and other legal uses (“ Permitted Use ”) (Also see Paragraph 5.)

1.9 Insuring Party . Landlord is the “ Insuring Party .” (Also see Paragraph 8)

1.10(a) Real Estate Brokers . The following real estate broker(s) (collectively, the “ Brokers ”) and brokerage relationships exist in this transaction and are consented to by the Parties (check applicable boxes):

 

x   NAIBT represents Landlord exclusively (“ Landlord’s Broker ”);
x   Cresa Partners represents Tenant exclusively (“ Tenant’s Broker ”); or
¨ represents both Landlord and Tenant (“ Dual Agency ”). (/also see Par. 15.)

 

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1.10(b) Payment to Brokers . Upon the execution of this Lease by both Parties, Landlord shall pay to said Broker(s) according to separate written agreement between Landlord and said Broker(s).

1.11 Guarantor . The obligations of the Tenant under this Lease are to be guaranteed by NONE (“ Guarantor ”). (Also see Paragraph 37.)

1.12 Addenda and Exhibits . Attached hereto is Exhibit A (Tenant Improvement) and Exhibit B (Tenant Improvement implementation and layout) which constitute a part of this Lease.

2. Premises, Parking and Common Areas.

2.1 Letting . Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Lease. The leaseable area is measured to the outside edge of the outside walls and drip lines to the centerline of any demising walls, including a pro rata share of the electrical room and other common spaces. Unless otherwise provided herein, any statement of square footage set forth in this Lease, or that may have been used in calculating rental and/or Common Area Operating Expenses, is an approximation which Landlord and Tenant agree is reasonable and the rental and Tenant’s Share (as defined in Paragraph 1.6(b) based thereon is not subject to revision whether or not the actual square footage is more or less.

2.2 Condition . Landlord shall deliver the Premises to Tenant clean and free of debris, professionally cleaned and freshly painted on the Commencement Date and warrants to Tenant that the existing plumbing, electrical systems, fire sprinkler system, lighting, air conditioning and heating systems and loading doors, if any, in the Premises, other than those constructed by Tenant, and including any improvements and modifications to the Premises agreed upon between Tenant and the Landlord as outlined in shall be in good operating condition on the Commencement Date. If a non-compliance with said warranty exists as of the Commencement Date, Landlord shall, except as otherwise provided in this Lease, promptly after receipt of written notice from Tenant setting forth with specificity the nature and extent of such non-compliance, rectify same at Landlord’s expense. If Tenant does not give Landlord written notice of a non-compliance with this warranty within ninety (90) days after the Commencement Date, correction of that non-compliance shall be the obligation of Tenant at Tenant’s sole cost and expense.

2.3 Warranties . To the best of Landlords’ knowledge, Landlord believes that upon the Commencement Date, the Premises is compliant with respect to all laws and regulation associated with electrical and fire sprinkler systems, security, environmental aspects, seismic and earthquake requirements and the Americans with Disabilities Act and all applicable zoning, municipal, county, state and federal laws, ordinances and regulations and any covenants or restrictions of record. Tenant acknowledges that neither landlord nor any of its agents made any representations or warranties respecting the project, the buildings, or the leased premises, upon which tenant relied in entering into this lease, which are not expressly set forth in this lease. Tenant further acknowledges that neither Landlord nor any of its agents made any representations as to (i) whether the leased premises may be used for tenant’s intended use under existing law or; (ii) the suitability of the leased premises for the conduct of tenant’s business or; (iii) the exact square footage of the leased premises; that tenant relied solely upon its own investigations respecting said premises (including but not limited to the electrical and fire sprinkler systems, security, environmental aspects, seismic and earthquake requirements, and compliance with the American with Disabilities Act and applicable zoning, municipal, county, state and federal laws, ordinances and regulations and any covenants or restrictions of record (collectively, “ Applicable Laws ”) and that upon its execution of this lease, accepts the leaseable area as specified herein. Tenant expressly waives any and all claims for damage by reason of any statement, representation, warranty, promise or other agreement of landlord or landlord’s agent(s), if any, not contained in this lease or in any addenda hereto.

2.4 Tenant as Prior Owner/Occupant . The warranties made by Landlord in this Paragraph 2.3 shall be of no force or effect if immediately prior to the date set forth in Paragraph 1.1 Tenant was the owner or occupant of the Premises. In such event, Tenant shall, at Tenant’s sole cost and expense, correct any non-compliance of the Premises with said warranties.

2.5 Vehicle Parking . Tenant shall be entitled to use the number of Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph 1.2(b) on those portions of the Common Areas designated from time to time by Landlord for parking. Tenant shall not use more parking spaces than said number. Said parking spaces shall be used for parking by vehicles no larger than full-size passenger automobiles or pick-up trucks, herein called “ Permitted Size Vehicles .” Vehicles other than Permitted Size Vehicles shall be parked and loaded or unloaded as directed by Landlord in the Rules and Regulations (as defined in Paragraph 40) issued by Landlord. (Also see Paragraph 2.9.)

(a) Tenant shall not permit or allow any vehicles that belong to or are controlled by Tenant or Tenant’s employees, suppliers, shippers, customers, contractors or invitees to be loaded, unloaded, or parked in areas other than those designated by Landlord for such activities.

(b) If Tenant permits or allows any of the prohibited activities described in this Paragraph 2.6, then Landlord shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove or tow away the vehicle involved and charge the cost to Tenant, which cost shall be immediately payable upon demand by Landlord.

(c) Landlord shall at the Commencement Date of this Lease, provide the parking facilities required by Applicable Law.

 

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2.6 Common Areas - Definition . The term “ Common Areas ” is defined as all areas and facilities outside the Premises and within the exterior boundary line of the Industrial Center and Interior utility raceways within the Premises that are provided and designated by the Landlord from time to time for the general non-exclusive use of Landlord, Tenant and other tenants of the Industrial Center and their respective employees, suppliers, shippers, customers, contractors and invitees, including parking areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways, parkways, driveways and landscaped areas. The compressor shed defined in Exhibit A shall not be part of common area.

2.7 Common Areas - Tenant’s Rights . Landlord hereby grants to Tenant, for the benefit of Tenant and its employees, suppliers, shippers, contractors, customers and invitees, during the term of this Lease, the non-exclusive right to use, in common with others entitled to such use, the Common Areas as they exist from time to time, subject to any rights, powers, and privileges reserved by Landlord under the terms hereof or under the terms of any rules and regulations or restrictions governing the use of the Industrial Center. Under no circumstances shall the right herein granted to use the Common Areas be deemed to include the right to store any property, temporarily or permanently, in the Common Areas. Any such storage shall be permitted only by the prior written consent of Landlord or Landlord’s designated agent, which consent may be revoked at any time. In the event that any unauthorized storage shall occur then Landlord shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove the property and charge the cost to Tenant, which cost shall be immediately payable upon demand by Landlord.

2.8 Common Areas - Rules and Regulations . Landlord or such other person(s) as Landlord may appoint shall have the exclusive control and management of the Common Areas and shall have the right, from time to time, to establish, modify, amend and enforce reasonable Rules and Regulations with respect thereto in accordance with Paragraph 40. Tenant agrees to abide by and conform to all such Rules and Regulations and to cause its employees, suppliers, shippers, customers, contractors and invitees to so abide and conform. Landlord shall not be responsible to Tenant for the non-compliance with said rules and regulations by other tenants of the Industrial Center.

2.9 Common Areas - Changes . Landlord shall have the right, in Landlord’s sole discretion, from time to time:

(a) To make changes to the Common Areas, including, without limitation, changes in the location, size, shape and number of driveways, entrances, parking spaces, parking areas, loading and unloading areas, ingress, egress, direction of traffic, landscaped areas, walkways and utility raceways;

(b) To close temporarily any of the Common Areas for maintenance purposes so long as reasonable access to the Premises remains available;

(c) To designate other land outside the boundaries of the Industrial Center to be a part of the Common Areas; as long as Tenant is not made responsible for any initial or ongoing costs associated with incorporation of the expanded Common Area

(d) To add additional buildings and improvements to the Common Areas as long as Tenant is not made responsible for any initial or ongoing costs associated with incorporation of the expanded Common Area

(e) To use the Common Areas while engaged in making additional improvements, repairs or alterations to the Industrial Center, or any portion thereof; and

(f) To do and perform such other acts and make such other changes in, to or with respect to the Common Areas and Industrial Center as Landlord may, in the exercise of sound business judgment, deem to be appropriate.

3. Term.

3.1 Term. The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3. The Commencement Date and Expiration Date shall be adjusted according to actual Commencement Date in section 3.3.

3.2 Early Possession. If an Early Possession Date is specified in Paragraph 1.4 and if Tenant totally or partially occupies the Premises after the Early Possession Date but prior to the Commencement Date, the obligation to pay Base Rent shall be abated for the period of such early occupancy. All other terms of this Lease, however, (including but not limited to the obligations to pay Tenant’s Share of Common Area Operating Expenses and to carry the insurance required by Paragraph 8) shall be in effect during such period. Any such early possession shall not affect nor advance the Expiration Date of the Original Term.

3.3 Delay in Possession. If for any reason Landlord cannot deliver possession of the Premises to Tenant by the Early Possession Date, if one is specified in Paragraph 1.4, or if no Early Possession Date is specified, by the Commencement Date, Landlord shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease, or the obligations of Tenant hereunder, or extend the term hereof, but in such case, Tenant shall not, except as otherwise provided herein, be obligated to pay rent or perform any other obligation of Tenant under the terms of this Lease until Landlord delivers possession of the Premises to Tenant. If possession of the Premises is not delivered to Tenant within sixty (60) days after the Commencement Date, Tenant may, at its option, by notice in writing to Landlord within ten (10) days after the end of sixty (60) day period, cancel this Lease, in which event the parties shall be discharged from all obligations hereunder; provided further, however, that if such written notice of Tenant is not received by Landlord within said ten (10) day period, Tenant’s right to cancel this Lease hereunder shall terminate and be of no further force or effect. The Actual Commencement date for the three years and eight months lease will be when Tenant is provided possession either on date specified in section 1.4 or later due to delay by Landlord

 

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4. Rent

4.1 Base Rent. Tenant shall pay Base Rent and other rent or charges, as the same may be adjusted from time to time, to Landlord in lawful money of the United States, without offset or deduction, on or before the 1 st day of each month. Base Rent and all other rent and charges for any period during the term hereof which is for less than one full month shall be prorated based upon the actual number of days of the month involved. Payment of Base Rent and other charges shall be made to Landlord at its address stated herein or to such other persons or at such other addresses as Landlord may from time to time designate in writing to Tenant.

4.2 Common Area Operating Expenses. Tenant shall pay to Landlord during the term hereof, in addition to the Base Rent, Tenant’s Share (as specified in Paragraph 1.6(b)) of all Common Area Operating Expenses, as hereinafter defined, during each calendar year of the term of this Lease, in accordance with the following provisions:

(a) “ Common Area Operating Expenses ” are defined, for purposes of this Lease, as all costs incurred by Landlord relating to the ownership and operation of the Industrial Center, including, but not limited to, the following:

(i) The operation, repair and maintenance, in neat, clean, good order and condition, of the following:

(aa) The Common Areas, including parking areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways, parkways, driveways, landscaped areas, striping, bumpers, irrigation systems, Common Area lighting facilities, fences and gates, elevators and roof.

(bb) Exterior signs and any tenant directories.

(cc) Fire detection and sprinkler systems.

(ii) The cost of water, gas, and electricity and telephone to service the Common Areas.

(iii) Trash disposal, property management fees of 3% of the gross monthly rental.

(iv) Reserves set aside for maintenance and repair of Common Areas.

(v) Real Property Taxes (as defined in Paragraph 10.2) to be paid by Landlord for the Building and the Common Areas under Paragraph 10 hereof.

(vi) The cost of the premiums for the insurance policies maintained by Landlord under Paragraph 8 hereof.

(vii) Any deductible portion of an insured loss concerning the building or the Common Areas.

(viii) Any other services to be provided by Landlord that are stated elsewhere in this Lease to be a Common Area Operating Expense.

(b) Any common Area Operating Expenses and Real Property Taxes that are specifically attributable to the Building or to any other building in the industrial Center or to the operation, repair and maintenance thereof, shall be allocated entirely to the Building or to such other building. However, any Common Area Operating Expenses and Real Property Taxes that are not specifically attributable to the Building or to any other building or to the operation, repair and maintenance thereof, shall be equitably allocated by Landlord to all buildings in the Industrial Center.

(c) The inclusion of the improvements, facilities and services set forth in subparagraph 4.2(a) shall not be deemed to impose an obligation upon Landlord to either have said improvements or facilities or to provide those services unless the Industrial Center already has the same, Landlord already provides the services, or Landlord has agreed elsewhere in this Lease to provide the same or some of them.

(d) Tenant’s Share of Common Area Operating Expenses shall be payable by Tenant within thirty (30) days after a reasonably detailed statement of actual expenses is presented to Tenant by Landlord. At Landlord’s option, however, an amount may be estimated by Landlord from time to time of Tenant’s Share of annual Common Area Operating Expenses and the same shall be payable monthly or quarterly, as Landlord shall designate, during each 12-month period of the Lease term, on the same day as the Base Rent is due hereunder. Landlord shall deliver to Tenant within sixty (60) days after the expiration of each calendar year a reasonably detailed statement showing Tenant’s Share of the actual Common Area Operating Expenses incurred during the preceding year. If Tenant’s payments under this Paragraph 4.2(d) during said preceding year exceed Tenant’s Share as indicated on said statement, Landlord shall be credited the amount of such over-payment against Tenant’s Share of Common Area Operating Expenses next becoming due. If Tenant’s payments under this Paragraph 4.2(d) during said preceding year were less than Tenant’s Share as indicated on said statement, Tenant shall pay to Landlord the amount of the deficiency within thirty (30) days after delivery by Landlord to Tenant of said statement.

 

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5. Security Deposit . Tenant shall deposit with Landlord upon Tenant’s execution hereof the Security Deposit set forth in Paragraph 1.7 as security for Tenant’s faithful performance of Tenant’s obligations under this Lease. If Tenant fails to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults under this Lease (as defined in Paragraph 13.1), Landlord may use, apply or retain all or any portion of said Security Deposit, Tenant shall within ten (10) days after written request therefore deposit monies with Landlord sufficient to restore said Security Deposit to the full amount required by this Lease. Landlord shall not be required to keep all or any part of the Security Deposit separate from its general accounts. Landlord shall, at the expiration or earlier termination of the term hereof and after Tenant has vacated the Premises, return to Tenant (or, at Landlord’s option, to the last assignee, if any, of Tenant’s interest herein), that portion of the Security Deposit not used or applied by Landlord. Unless otherwise expressly agreed in writing by Landlord, no part of the Security Deposit shall be considered to be held in trust, to bear interest or other increment for its use, or to be prepayment for any monies to be paid by Tenant under this Lease.

6. Use.

6.1 Permitted Use.

(a) Tenant shall use and occupy the Premises only for the Permitted Use set forth in Paragraph 1.8, or any other legal use which is reasonably comparable thereto, and for no other purpose. Tenant shall not use or permit the use of the Premises in a manner that is unlawful, creates waste or a nuisance, or that disturbs owners and/or occupants of, or causes damage to the Premises or neighboring premises or properties.

(b) Landlord hereby agrees to not unreasonably withhold or delay its consent to any written request by Tenant, Tenant’s assignees or subtenants, and by prospective assignees and subtenants of Tenant, its assignees and subtenants, for a modification of said Permitted Use, so long as the same will not impair the structural integrity of the improvements on the Premises or in the Building or the mechanical or electrical systems therein, does not conflict with uses by other Tenants, is not significantly more burdensome to the Premises or the Building and the improvements thereon, and is otherwise permissible pursuant to this Paragraph 6. If Landlord elects to withhold such consent, Landlord shall within five (5) business days after such request give a written notification of same, which notice shall include an explanation of Landlord’s reasonable objections to the change in use.

6.2 Hazardous Substances.

(a) Reportable Uses Require Consent. The term “Hazardous Substance” as used in this Lease shall mean any product, substance, chemical, material or waste whose presence, nature, quantity and/or intensity of existence, use, manufacture, disposal, transportation, spill, release or effect, either by itself or in combination with other materials expected to be on the Premises, is either: (i) potentially injurious to the public health, safety or welfare, the environment, or the Premises; (ii) regulated or monitored by any governmental authority; or (iii) a basis for potential liability of Landlord to any governmental agency or third party under any applicable statute or common law theory. Hazardous Substance shall include, but not be limited to, hydrocarbons, petroleum, gasoline, crude oil or any products or by-products thereof. Tenant shall not engage in any activity in or about the Premises which constitutes a Reportable Use (as hereinafter defined) of Hazardous Substances without the express prior written consent of Landlord and compliance in a timely manner (at Tenant’s sole cost and expense) with all Applicable Requirements (as defined in Paragraph 6.3). “ Reportable Use ” shall mean (i) the installation or use of any above or below ground storage tank, (ii) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance that requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority, and (iii) the presence in, on or about the Premises of a Hazardous Substance with respect to which any Applicable Laws require that a notice be given to persons entering or occupying the Premises or neighboring properties. Notwithstanding the foregoing, Tenant may, without Landlord’s prior consent, but upon notice to Landlord and in compliance with all Applicable requirements, use any ordinary and customary materials reasonably required to be used by Tenant in the normal course of the Permitted Use, so long as such use is not a Reportable Use and does not expose the Premises or neighboring properties to any meaningful risk of contamination or damage or expose Landlord to any liability therefor. In addition, Landlord may (but without any obligation to do so) condition its consent to any Reportable Use of any Hazardous Substance by Tenant upon Tenant’s giving Landlord such additional assurances as Landlord, in its reasonable discretion, deems necessary to protect itself, the public, the Premises and the environment against damage, contamination or injury and/or liability therefor, including but not limited to the installation (and, at Landlord’s option, removal on or before Lease expiration or earlier termination) of reasonably necessary protective modifications to the Premises (such as concrete encasements) and/or the deposit of an additional Security Deposit under Paragraph 5 hereof.

(b) Duty to Inform Landlord . If Tenant knows, or has reasonable cause to believe, that a Hazardous Substance has come to be located in, on, under or about the Premises or the Building, other than as previously consented to by Landlord, Tenant shall immediately give Landlord written notice thereof, together with a copy of any statement, report, notice, registration, application, permit, business plan, license, claim, action, or proceeding given to, or received from, any governmental authority or private party concerning the presence, spill, release, discharge of, or exposure to, such Hazardous Substance including but not limited to all such documents as may be involved in any Reportable Use involving the Premises. Tenant shall not cause or permit any Hazardous Substance to be spilled or released in, on, under or about the Premises (including, without limitation, through the prompting or sanitary sewer system).

(c) Indemnification . Tenant shall indemnify, protect, defend and hold Landlord, its agents, employees, lenders and ground lessor, if any, and the Premises, harmless 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 Hazardous Substance brought onto the Premises by or for Tenant or by anyone under Tenant’s control. Tenant’s obligations under this paragraph 6.2(c) shall include, but not be limited to, the effects of

 

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any contamination or injury to person, property or the environment created or permitted by Tenant, and the cost of investigation (including consultants’ and attorneys’ fees and testing), removal, remediation, restoration and/or abatement thereof, or of any contamination therein involved, and shall survive the expiration or earlier termination of this Lease. No termination, cancellation or release agreement entered into by Landlord and Tenant shall release Tenant from its obligations under this Lease with respect to Hazardous Substances, unless specifically so agreed by Landlord in writing at the time of such agreement.

6.3 Tenant’s Compliance with Requirements. Tenant shall, at Tenant’s sole cost and expense, fully, diligently and in a timely manner, comply with all “ Applicable Requirements ,” which term is used in this Lease to mean all laws, rules, regulations, ordinances, directives, covenants, easements and restrictions of record, permits, the requirements of any applicable fire insurance underwriter or rating bureau, and the recommendations of Landlord’s engineers and/or consultants, relating in any manner to the Premises (including but not limited to matters pertaining to (i) industrial hygiene, (ii) environmental conditions on, in, under or about the Premises, including soil and ground water conditions, and (iii) the use, generation, manufacture, production, installation, maintenance, removal, transportation, storage, spill, or release of any Hazardous Substance), now in effect or which may hereafter come into effect. Tenant shall, within ten (10) days after receipt of Landlord’s written request, provide Landlord with copies of all documents and information, including but not limited to permits, registrations, manifests, applications, reports and certificates, evidencing Tenant’s compliance with any applicable Requirements specified by Landlord, and shall immediately upon receipt, notify Landlord in writing (with copies of any documents involved) of any threatened or actual claim, notice, citation, warning, complaint or report pertaining to or involving failure by Tenant or the Premises to comply with any Applicable Requirements. Tenant will not be responsible for any violations and non-compliance with applicable requirements that existed on the Premises on the Commencement Date or with respect to any tenant improvements outlined in section 49 or Exhibit A which are completed after the Commencement Date

6.4 Inspection; Compliance with Law . Landlord, Landlord’s agents, employees, contractors and designated representatives, and the holders of any mortgages, deeds of trust or ground leases on the Premises (“ Lenders ”) shall have the right to enter the Premises at any time in the case of an emergency, and otherwise at reasonable times, for the purpose of inspecting the condition of the Premises and for verifying compliance by Tenant with this Lease and all Applicable Requirements (as defined in Paragraph 6.3), and Landlord shall be entitled to employ experts and/or consultants in connection therewith to advise Landlord with respect to Tenant’s activities, including but not limited to Tenant’s installation, operation, use, monitoring, maintenance, or removal of any Hazardous Substance on or from the Premises. The costs and expenses of any such inspections shall be paid by the party requesting same, unless a Default or Breach of this Lease by Tenant or a violation of Applicable Requirements or a contamination, caused or materially contributed to by Tenant, is found to exist or to be imminent, or unless the inspection is requested or ordered by a governmental authority as the result of any such existing or imminent violation or contamination. In such case, Tenant shall upon request reimburse Landlord or Landlord’s Lender, as the case may be, for the costs and expenses of such inspections.

7. Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations.

7.1 Tenant’s Obligations .

(a) Subject to the provision of Paragraphs 2.2 (Condition), 7.2 (Landlord’s Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Tenant shall, at Tenant’s sole cost and expense and at all times, keep the Premises and every part thereof in good order, condition and repair (whether or not such portion of the Premises requiring repair, or the means of repairing the same, are reasonably or readily accessible to Tenant, and whether or not the need for such repairs occurs as a result of Tenant’s use, any prior use, the elements or the age of such portion of the Premises), including, without limiting the generality of the foregoing, all equipment or facilities specifically serving the Premises, such as plumbing, heating, air conditioning, ventilating, electrical, lighting facilities, boilers, fired or unfired pressure vessels, fire hose connections if within the Premises, fire sprinkler systems, alarms smoke detectors, extinguishers, fixtures, interior walls, interior surfaces of exterior walls, ceilings (including its components such as tiles, t-bar grid), floors, floor coverings, windows, doors, plate glass, and skylights, but excluding any items which are the responsibility of Landlord pursuant to Paragraph 7.2 below. Tenant, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices. Tenant’s obligations shall include restorations, replacements or renewals when necessary to keep the Premises and all improvements thereon or a part thereof in good order, condition and state of repair.

Excepting misuse or negligence by Tenant, Landlord shall be responsible for REPLACEMENT of heating and air conditioning equipment, if required, and any plumbing, sewer, electrical or other building system replacement or repair that exceeds $500.00 per time at Landlord’s sole expense. Tenant total liability for such repairs will be limited to $1,500 per year.

(b) Tenant shall, at Tenant’s sole cost and expense, procure and maintain a contract, with copies to Landlord, in customary form and substance for and with a contractor specializing and experienced in the inspection, maintenance and service of the heating, air conditioning and ventilation system for the Premises. However, Landlord reserves the right, upon notice to Tenant, to procure and maintain the contract for the heating, air conditioning and ventilating systems, and if Landlord so elects, Tenant shall reimburse Landlord, upon demand, for the cost thereof.

(c) If Tenant fails to perform Tenant’s obligations under this Paragraph 7.1, Landlord may enter upon the Premises after a thirty (30) day right of cure period and then a ten (10) days’ prior written notice to Tenant (except in the case of an emergency, in which case no notice shall be required), perform such obligations on Tenant’s behalf, and put the Premises in good order, condition and repair, in accordance with Paragraph 13.2 below.

 

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7.2 Landlord’s Obligations . Subject to the provisions of Paragraphs 2.2 (Condition), 4.2 (Common Area Operating Expenses ), 7 (Use), 7.1 (Tenant’s Obligations), 9 (Damage or Destruction) and 14 (Condemnation), Landlord, subject to reimbursement pursuant to Paragraph 4.2 shall maintain the fire sprinkler and/or standpipe and hose (if located in the Common Areas) or other automatic fire extinguishing system including fire alarm and/or smoke detection systems and equipment, fire hydrants, parking lots, walkways, parkways, driveways, landscaping, fences, signs and utility systems serving the Common Areas and all parts thereof, as well as providing the services for which there is a Common Area Operating Expense pursuant to Paragraph 4.2. . Notwithstanding anything herein to the contrary, Landlord at its sole cost and expense and without possibility of reimbursement by Tenant excepting misuse or negligence by Tenant shall keep in good order, condition and repair the foundations, exterior walls, structural condition of interior bearing walls, and exterior roof, Landlord shall not be obligated to paint the exterior or interior surfaces of exterior walls nor shall Landlord be obligated to maintain, repair or replace windows, doors or plate glass of the Premises. Tenant expressly waives the benefit of any statute now or hereafter in effect which would otherwise afford Tenant the right to make repairs at Landlord’s expense or terminate this Lease because of Landlord’s failure to keep the Building, Industrial Center or Common Areas in good order, condition and repair.

7.3 Utility Installations, Trade Fixtures, Alterations.

(a) Definitions; Consent Required . The term “ Utility Installations ” is used in this Lease to refer to all air lines, power panels, electrical distribution, security, fire protections systems, communications systems, lighting fixtures, heating, ventilating and air conditioning equipment, plumbing, and fencing in, on or about the Premises. The term “ Trade Fixtures ” shall mean Tenant’s machinery and equipment which can be removed without doing material damage to the Premises. The term “ Alterations ” shall mean any modification of the improvements on the Premises which are provided by Landlord under the terms of this Lease, other than Utility Installations or Trade Fixtures. “ Tenant-Owned Alterations and/or Utility Installations ” are defined as Alterations and/or Utility Installations made by Tenant that are not yet owned by Landlord pursuant to Paragraph 7.4(a). Tenant shall not make nor cause to be made any Alterations or Utility Installations in, on, under or about the Premises without Landlord’s prior written consent. Tenant may, however, make non-structural Utility Installations to the interior of the Premises (excluding the roof) without Landlord’s consent but upon notice to Landlord, so long as they are not visible from the outside of the Premises, do not involve puncturing, relocating or removing the roof or any existing walls, or changing or interfering with the fire sprinkler or fire detection systems and the cumulative cost thereof during the term of this Lease as extended does not exceed $10,000.00.

(b) Consent . Any Alterations or Utility Installations that Tenant shall desire to make and which require the consent of the Landlord shall be presented to Landlord in written form with detailed plans. All consents given by Landlord, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent, shall be deemed conditioned upon: (i) Tenant’s acquiring all applicable permits required by governmental authorities; (ii) the furnishing of copies of such permits together with a copy of the plans and specifications for the Alteration or Utility Installation to Landlord prior to commencement of the work thereon; and (iii) the compliance by Tenant with all conditions of said permits in a prompt and expeditious manner. Any Alterations of Utility Installations by Tenant during the term of this Lease shall be done in a good and workmanlike manner, with good and sufficient materials, and be in compliance with all Applicable Requirements. Tenant shall promptly upon completion thereof furnish Landlord with as-built plans and specifications therefor. Landlord may (but without obligation to do so) condition its consent to any requested Alteration or Utility Installation that costs $10,000.00 or more upon Tenant’s providing Landlord with a lien and completion bond in an amount equal to one and one-half times the estimated cost of such Alteration or Utility Installation.

(c) Lien Protection . Tenant shall pay when due all claims for labor or materials furnished or alleged to have been furnished to or for Tenant at or for use on the Premises, which claims are or may be secured by any mechanic’s or materialmen’s lien against the Premises or any interest therein. Tenant shall give Landlord not less than ten (10) days’ notice prior to the commencement of any work in, on, or about the Premises, and Landlord shall have the right to post notices of non-responsibility in or on the Premises as provided by law. If Tenant shall, in good faith, contest the validity of any such lien, claim or demand, then Tenant shall, at its sole expense, defend and protect itself, Landlord and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof against the Landlord or the Premises

7.4 Ownership, Removal, Surrender, and Restoration.

(a) Ownership . Subject to Landlord’s right to require their removal and to cause Tenant to become the owner thereof as hereinafter provided in this Paragraph 7.4, all Alterations and Utility Installations made to the Premises by Tenant shall be the property of and owned by Tenant, but considered a part of the Premises. Landlord may, at any time and at its option, elect in writing to Tenant to be the owner of all or any specified part of the Tenant-Owned Alterations and Utility Installations. Unless otherwise instructed per Subparagraph 7.4(b) hereof, all Tenant-Owned Alterations and Utility Installations shall, at the expiration or earlier termination of this Lease, become the property of Landlord and remain upon the Premises and be surrendered with the Premises by Tenant.

(b) Removal . Unless otherwise agreed in writing, Landlord may require that any or all Tenant-Owned Alterations or Utility Installations be removed by the expiration or earlier termination of this Lease, notwithstanding that their installation may have been consented to by Landlord. Landlord may require the removal at any time of all or any part of any Alterations or Utility Installations made without the required consent of Landlord. This will not include Tenant Improvements in Exhibit A

(c) Surrender/Restoration . The voluntary or other surrender of this lease by Tenant, or a mutual cancellation thereof, shall not work a merger, and shall, at the option of Landlord, terminate all or any existing subleases or subtenancies, or may, at the option of Landlord, operate as an assignment to Landlord of any or all such

 

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subleases or subtenancies. Immediately prior to the expiration or sooner termination of this Lease, Tenant shall remove all of Tenant’s signs from the exterior of the Building and shall remove all of Tenant’s equipment, trade fixtures, furniture, supplies, wall decorations and other personal property from the Leased Premises, and shall vacate and surrender the Leased Premises to Landlord in the same condition, broom clean and freshly repainted, as existed at the Lease Commencement Date with the exception of ordinary wear and tear. Landlord, at Tenant’s expense shall retain a mechanical contractor to service all heating, ventilation and air conditioning equipment, and Tenant shall pay the cost to restore (or replace as required), said equipment to good working order. Tenant shall repair all damage to the Leased Premises caused by Tenant or by Tenant’s removal of Tenant’s property and all damage to the exterior of the Building caused by Tenant’s removal of Tenant’s signs. Tenant shall patch and refinish, to Landlord’s reasonable satisfaction, all penetrations made by Tenant or its employees to the floor, walls or ceiling of the Leased Premises, whether such penetrations were made with Landlord’s approval or not. Tenant shall replace all stained or damaged ceiling tiles and shall repair or replace, as necessary, all wall coverings and clean or replace, as may be required, floor coverings to the reasonable satisfaction of Landlord. Tenant shall replace all burned out light bulbs and damaged or stained light lenses. Excepting ordinary wear and tear, Tenant shall repair all damage caused by Tenant to the exterior surface of the Building and the paved surfaces of the outside areas adjoining the Leased Premises and, where necessary, replace or resurface same. Additionally, Tenant shall, prior to the expiration or sooner termination of this Lease, remove any improvements, constructed or installed by Tenant which Landlord requests be so removed by Tenant and repair all damage caused by such removal. If the Leased Premises are not surrendered to Landlord in the condition required by this Article at the expiration or sooner termination of this Lease, Landlord may, at Tenant’s expense, so remove Tenant’s signs, property and/or improvements not so removed and make such repairs and replacements not so made or hire, at Tenant’s expenses, independent contractors to perform such work. Tenant shall be liable to Landlord for all costs incurred by Landlord in returning the Leased Premises to the required condition and Tenant shall be deemed to have impermissibly held over until such time as such required work is completed. Tenant shall pay Base Monthly Rent and Additional Rent in accordance with the terms of the Holding Over paragraph until such work is completed.

8. Insurance; Indemnity.

8.1 Payment of Premiums. The cost of the premiums for the insurance policies maintained by Landlord under this Paragraph 8 shall be a Common Area Operating Expense pursuant to Paragraph 4.2 hereof. Premiums for policy periods commencing prior to, or extending beyond, the term of this Lease shall be prorated to coincide with the corresponding Commencement Date or Expiration Date.

8.2 Liability Insurance .

(a) Carried by Tenant . Tenant shall obtain and keep in force during the term of this Lease a Commercial General Liability policy of insurance protecting Tenant, Landlord and any Lender(s) whose names have been provided to Tenant in writing (as additional insured) against claims for bodily injury, personal injury and property damage based upon, involving or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $1,000,000 per occurrence with an “Additional Insured-Managers or Landlords of Premises: endorsement and contain the “Amendment of the Pollution Exclusion” endorsement for damage caused by heat, smoke or fumes from a hostile fire. The policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an “ insured contract ” for the performance of Tenant’s indemnity obligations under this Lease. The limits of said insurance required by this Lease or as carried by Tenant shall not, however, limit the liability of Tenant nor relieve Tenant of any obligation hereunder. All insurance to be required by this Lease or as carried by Tenant shall not, however, limit the liability of Tenant nor relieve Tenant of any obligation hereunder. All insurance to be carried by Tenant shall be primary to and not contributory with any similar insurance carried by Landlord, whose insurance shall be considered excess insurance only.

(b) Carried by Landlord . Landlord shall also maintain liability insurance described in Paragraph 8.2(a) above, in addition to and not in lieu of, the insurance required to be maintained by Tenant except coverage for pollution liability, premises pollution, on site and off site, including release of any pollutants, toxins, or contaminants, whether such release is sudden or prolonged or willful or accidental, shall only be carried solely by Tenant. Tenant shall not be named as an additional insured therein.

8.3 Property Insurance-Building, Improvements and Rental Value.

(a) Building and Improvements. Landlord shall obtain and keep in force during the term of this Lease a policy or policies in the name of Landlord, with loss payable to Landlord and to any Lender(s), insuring against loss or damage to the Premises. Such insurance shall be for full replacement cost, as the same shall exist from time to time, or the amount required by any Lender(s), but in no event more than the commercially reasonable and available insurable value thereof if, by reason of the unique nature or age of the improvements involved, such latter amount is less than full replacement cost. Tenant-Owned Alterations and Utility Installations, Trade Fixtures and Tenant’s personal property shall be insured by Tenant pursuant to Paragraph 8.4. If the coverage is available and commercially appropriate, Landlord’s policy or policies shall insure against all risks of direct physical loss or damage (and at Landlord’s option the perils of flood and/or earthquake), including coverage for any additional costs resulting from debris removal and reasonable amounts of coverage for the enforcement of any ordinance or law regulating the reconstruction or replacement of any undamaged sections of the Building required to be demolished or removed by reason of the enforcement of any building, zoning, safety or land use laws as the result of a covered loss, but not including plate glass insurance. Said policy or policies shall also contain an agreed valuation provision in lieu of any co-insurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to where the Premises are located.

 

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(b) Rental Value . Landlord shall also obtain and keep in force during the term of this Lease a policy or policies in the name of Landlord, with loss payable to Landlord and any Lender(s), insuring the loss of the full rental and other charges payable by all tenants of the Building to Landlord for at least one year (including all Real Property Taxes, insurance costs, all Common Area Operating Expenses and any scheduled rental increases). Said insurance may provide that in the event the Lease is terminated by reason of an insured loss, the period of indemnity for such coverage shall be extended beyond the date of the completion of repairs or replacement of the Premises, to provide for one full year’s loss of rental revenues from the date of any such loss. Said insurance shall contain an agreed valuation provision in lieu of any co-insurance clause, and the amount of coverage shall be adjusted annually to reflect the projected rental income, Real Property Taxes, insurance premium costs and other expenses, if any, otherwise payable, for the next 12-month period. Common Area Operating Expenses shall include any deductible amount in the event of such loss.

(c) Adjacent Premises . Tenant shall pay for any increase in the premiums for the property insurance of the Building and for the Common Areas or other buildings in the Industrial Center if said increase is caused by Tenant’s acts, omissions, use or occupancy of the Premises.

(d) Tenant’s Improvements . Since Landlord is the Insuring Party, Landlord shall not be required to insure Tenant-Owned Alterations and Utility Installations unless the item in question has become the property of Landlord under the terms of this Lease.

8.4 Tenant’s Property Insurance . Subject to the requirements of Paragraph 8.5, Tenant at its cost shall either by separate policy or, at Landlord’s option, by endorsement to a policy already carried, maintain insurance coverage on all of Tenant’s personal property, Trade Fixtures and Tenant-Owned Alterations and Utility Installations in, on, or about the Premises similar in coverage to that carried by Landlord as the Insuring Party under Paragraph 8.3(a). Such insurance shall be full replacement cost coverage with a deductible not to exceed $1,000 per occurrence. The proceeds from any such insurance shall be used by Tenant for the replacement of personal property and the restoration of Trade Fixtures and Tenant-Owned Alterations and Utility Installations. Upon request from Landlord, Tenant shall provide Landlord with written evidence that such insurance is in force.

8.5 Insurance Policies . Insurance required hereunder shall be in companies duly licensed to transact business in the state where the Premises are located, and maintaining during the policy term a “General Policyholders Rating” of at least A-VII, or such other rating as may be required by a Lender, as set forth in the most current issue of “Best’s Insurance Guide.” Tenant shall not do or permit to be done anything which shall invalidate the insurance policies referred to in this Paragraph 8. Tenant shall cause to be delivered to Landlord, within seven (7) days after the earlier of the Early Possession Date or the Commencement Date, certified copies of, or certificates evidencing the existence and amounts of, the insurance required under Paragraph 8.2(a) and 8.4. No such policy shall be cancelable or subject to modification except after thirty (30) days’ prior written notice to Landlord. Tenant shall at least thirty (30) days prior to the expiration of such policies, furnish Landlord with evidence of renewals or “insurance binders” evidencing renewal thereof, or Landlord may order such insurance and charge the cost thereof to Tenant, which amount shall be payable by Tenant to Landlord upon demand.

8.6 Waiver of Subrogation . Without affecting any other rights or remedies, Tenant and Landlord each hereby release and relieve the other, and waive their entire right to recover damages (whether in contract or in tort) against the other, for loss or damage to their property arising out of or incident to the perils required to be insured against under Paragraph 8. The effect of such releases and waivers of the right to recover damages shall not be limited by the amount of insurance carried or required, or by any deductibles applicable thereto. Landlord and Tenant agree to have their respective insurance companies issuing property damage insurance waive any right to subrogation that such companies may have against Landlord or Tenant, as the case may be, so long as the insurance is not invalidated thereby.

8.7 Indemnity . Tenant, shall, during the term of this lease, indemnify and save harmless Landlord and any agents of Landlord from any and all loss, damage, claims of damage, obligations, cause or causes of action, or liabilities of any kind or nature (including reasonable costs of attorney’s fees if Landlord is made a party to any action which Tenant’s indemnity runs hereunder) by reason of injury or death of any person or persons or damage to any property of any kind and to whomsoever belonging, including injury or death to the person or damage to the property of Tenant, Tenant’s officers, directors, employees, agents, guests, subtenants and assignees, concessionaires and licensees, and any other person, firm or corporation selling or manufacturing merchandise or services upon or from the demised premises, or any part thereof, from any cause or cause whatsoever which result from Tenant’s use or from any other activity done, permitted or suffered by Tenant. As a material part of the consideration to Landlord, Tenant hereby assumes all risk of damage to property or injury to persons in or about the Premises from any cause whatsoever (except that which is cause by the sole active negligence or willful misconduct by Landlord or its Agents or by the failure of Landlord to observe any of the terms and conditions of this lease, if such failure has persisted for an unreasonable period after written notice of such failure). . Tenant’s obligations under this paragraph shall survive the termination of this lease.

8.8 Exemption of Landlord from Liability . Except to the extend applicable to Landlord’s negligence or willful misconduct, Landlord shall not be liable for injury or damage which may be sustained by Tenant or to the person or goods, wares, merchandise or other property of Tenant, Tenant’s employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, earthquake, steam, electricity, gas, water or rain, which may leak or from or into any part of the premises or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, HVAC or lighting fixtures, or from any other cause, whether said injury or damage results from conditions arising upon the Premises or upon other portions of the Building of which the Premises are a part, from other sources or places, and

 

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regardless of whether the cause of such damage or injury or the means of preparing the same is accessible or not, except for damages caused by negligent or intentional acts of Landlord, and/or Landlord’s employees, contractors, agents, officers, directors, or any other person in or about the Premises on behalf of the Landlord. Landlord shall not be liable for any damages arising from any act or neglect of any other tenant of Landlord nor from the failure by Landlord to enforce the provisions of any other lease in the Industrial Center. Notwithstanding Landlord’s negligence or breach of this Lease, Landlord shall under no circumstances be liable for injury to Tenant’s business or for any loss of income or profit therefrom.

9. Damage or Destruction .

9.1 Definitions .

(a) “ Premises Partial Damage ” shall mean damage or destruction to the Premises, other than Tenant-Owned Alterations and Utility Installations, the repair cost of which damage or destruction is less than fifty percent (50%) of the then Replacement Cost (as defined in Paragraph 9.1(d) of the Premises (excluding the Tenant-Owned Alterations and Utility Installations and Trade Fixtures) immediately prior to such damage or destruction.

(b) “ Premises Total Destruction ” shall mean damage or destruction to the Premises, other than Tenant-Owned Alterations and Utility Installations, the repair cost of which damage or destruction is fifty percent (50%) or more of the then Replacement Cost of the Premises (excluding Tenant-Owned Alterations and Utility Installations and Trade Fixtures) immediately prior to such damage or destruction. In addition, damage or destruction to the Building, other than Tenant-Owned Alterations and Utility Installations and Trade Fixtures of any tenants of the Building, the cost of which damage or destruction is fifty percent (50%) or more of the then Replacement Cost (excluding Tenant-Owned Alterations and Utility Installations and Trade Fixtures of any Tenants of the Building) of the Building shall, at the option of Landlord, be deemed to be Premises total Destruction.

(c) “ Industrial Center Total Destruction ” shall mean damage or destruction to the Industrial Center or the Building in which the premises are located, regardless of the damage to the premises. The cost of which damage or destruction is fifty percent (50%) or more of the then Replacement Cost of the Industrial Center or the Building (excluding Tenant-Owned Alterations and Utility Installations and Trade Fixtures) immediately prior to such damage or destruction.

(c) “ Insured Loss ” shall mean damage or destruction to the Premises, other than Tenant-Owned Alterations and Utility Installations and Trade Fixtures, which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a) irrespective of any deductible amounts or coverage limits involved.

(d) “ Replacement Cost ” shall mean the cost to repair or rebuild the improvements owned by Landlord at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of applicable building codes, ordinances or laws, and without deduction for depreciation.

(e) “ Hazardous Substance Condition ” shall mean the occurrence or discovery of a condition involving the presence of, or a contamination by, a Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the Premises.

9.2 Premises Partial or Total Damage - Insured or Uninsured Loss . If Premises Partial or Total Damage that is an Insured or Uninsured Loss occurs, unless caused by a negligent or willful act of Tenant (in which event Tenant shall make the repairs at Tenant’s expense and this Lease shall continue in full force and effect), then Landlord shall, at Landlord’s expense, repair such damage (but not Tenant’s Trade Fixtures or Tenant-Owned Alterations and Utility Installations) as soon as reasonably possible, but only to the extent of the available insurance proceeds, if any, and this Lease shall continue in full force and effect. In the event, however, that there is a shortage of insurance proceeds and such shortage is due to any reason including the fact that some but not all of which may include the fact that, by reason of the unique nature of the improvements in the Premises, full replacement cost insurance coverage was not commercially reasonable and available, then Landlord shall have no obligation to pay for the shortage in insurance proceeds or to fully restore the unique aspects of the Premises unless Tenant provides Landlord with the funds to cover same, or adequate assurance thereof, within ten (10) days following receipt of written notice of such shortage and request therefor. If Landlord receives said funds or adequate assurance thereof within said ten (10) day period, Landlord shall complete them as soon as reasonably possible and this Lease shall remain in full force and effect. If Landlord does not receive such funds or assurance within said period, Landlord may nevertheless elect by written notice to Tenant within ten (10) days thereafter to make such restoration and repair as is commercially reasonable with Landlord paying any shortage in proceeds, in which case this Lease shall remain in full force and effect. If Landlord does not receive such funds or assurance within such ten (10) day period, and if Landlord does not so elect to restore and repair, then this Lease shall terminate sixty (60) days following the occurrence of the damage or destruction. Unless otherwise agreed, Tenant shall in no event have any right to reimbursement from Landlord for any funds contributed by Tenant to repair any such damage or destruction.

9.3 Intentionally Deleted .

9.4 Industrial Center Destruction . Notwithstanding any other provision hereof, if the Industrial Center in which the Premises are located suffers Total Destruction (including any destruction required by any authorized public authority), this Lease at Landlord’s option shall terminate sixty (60) days following the date of such Total Destruction, whether or not the damage or destruction affected the premises. In the event, however, that the damage or destruction was caused by Tenant, Landlord shall have the right to recover Landlord’s damages from Tenant except as released and waived in Paragraph 9.7.

 

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9.5 Damage Near End of Term . If at any time during the last six (6) months of the term of this Lease there is damage for which the cost to repair exceeds one month’s Base Rent, whether or not an Insured Loss, Landlord may, at Landlord’s option, terminate this Lease effective sixty (60) days following the date of occurrence of such damage by giving written notice to Tenant of Landlord’s election to do so within thirty (30) days after the date of occurrence of such damage. Provided, however, if Tenant at that time has an exercisable option to extend this Lease, then Tenant may preserve this Lease by (a) exercising such option, and (b) providing Landlord with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs on or before the earlier of (i) the date which is ten (10) days after Tenant’s receipt of Landlord’s written notice purporting to terminate this Lease, or (ii) the day prior to the date upon which such option expires. If Tenant duly exercises such option during such period and provides Landlord with funds (or adequate assurance thereof) to cover any shortage in insurance proceeds, Landlord shall, at Landlord’s expense repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect. If Tenant fails to exercise such option and provide such funds or assurance during such period, then this Lease shall terminate as of the date set forth in the first sentence of this Paragraph 9.5.

9.6 Abatement of Rent; Tenant’s Remedies .

(a) In the event of (i) Premises Partial Damage or (ii) Hazardous Substance Condition for which Tenant is not legally responsible, the Base Rent, any applicable Common Area Operating Expenses and other charges, if any, payable by Tenant hereunder for the period during which such damage or condition, its repair, remediation or restoration continues, shall be abated in proportion to the degree to which Tenant’s use of the Premises is impaired and until the date such that the possession of the affected area is tendered to Tenant with such impaired condition fully remedied Except for abatement of Base Rent, Common Area Operating Expenses and other charges, if any, as aforesaid, all other obligations of Tenant hereunder shall be performed by Tenant,

(b) If Landlord shall be obligated to repair or restore the Premises under the provisions of this Paragraph 9 and shall not commence, in a substantial and meaningful way, the repair or restoration of the Premises within ninety (90) days after such obligation shall accrue, Tenant may, at any time prior to the commencement of such repair or restoration, give written notice to Landlord and to any Lenders of which Tenant has actual notice of Tenant’s election to terminate this Lease on a date not less than sixty (60) days following the giving of such notice. If Tenant gives such notice to Landlord and such Lenders and such repair or restoration is not commenced within thirty (30) days after receipt of such notice, this Lease shall terminate as of the date specified in said notice. If Landlord or a Lender commences the repair or restoration of the Premises within thirty (30) days after the receipt of such notice, this Lease shall continue in full force and effect. “ Commence ” as used in this Paragraph 9.6 shall mean either the unconditional authorization of the preparation of the required plans, or the beginning of the actual work on the Premises, whichever occurs first.

9.7 Hazardous Substance Conditions . If a Hazardous Substance Condition occurs, unless Tenant is legally responsible therefor (in which case Tenant shall make the investigation and remediation thereof required by Applicable Requirements and this Lease shall continue in full force and effect, but subject to Landlord’s rights under Paragraph 6.2(c) and Paragraph 13), Landlord may at Landlord’s option either (i) investigate and remediate such Hazardous Substance Condition, if required, as soon as reasonably possible at Landlord’s expense, in which event this Lease shall continue in full force and effect, or (ii) if the estimated cost to investigate and remediate such condition exceeds twelve (12) times the then monthly Base Rent or $50,000, whichever is greater, give written notice to Tenant within thirty (30) days after receipt by Landlord of knowledge of the occurrence of such Hazardous Substance Condition of Landlord’s desire to terminate this Lease as of the date sixty (60) days following the date of such notice. In the event Landlord elects to give such notice of Landlord’s intention to terminate this Lease, Tenant shall have the right within ten (10) days after receipt of such notice to give written notice to Landlord of Tenant’s commitment to pay for the excess costs of (a) investigation and remediation of such Hazardous Substance Condition to the extent required by Applicable Requirements, over (B) an amount equal to twelve (12) times the then monthly Base Rent or $50,000 whichever is greater. Tenant shall provide Landlord with the funds required of Tenant or satisfactory assurance thereof within thirty (30) days following said commitment by Tenant. In such event this Lease shall continue in full force and effect, and Landlord shall proceed to make such investigation and remediation as soon as reasonably possible after the required funds are available. If Tenant does not give such notice and provide the required funds or assurance thereof within the time period specified above, this Lease shall terminate as of the date specified in Landlord’s notice of termination.

9.8 Termination - Advance Payments . Upon termination of this Lease pursuant to this Paragraph 9, Landlord shall return to Tenant any advance payment made by Tenant to Landlord and so much of Tenant’s Security Deposit as has not been, or is not then required to be, used by Landlord under the terms of this Lease.

9.9 Waiver of Statutes . Landlord and Tenant agree that the terms of this Lease shall govern the effect of any damage to or destruction of the Premises and the Building with respect to the termination of this Lease and hereby waive the provisions of any present or future statute to the extent it is inconsistent herewith.

10. Real Property Taxes .

10.1 Payment of Taxes . Landlord shall pay the Real Property Taxes, as defined in Paragraph 10.2, applicable to the Industrial Center, and except as otherwise provided in Paragraph 10.3, any such amounts shall be included in the calculation of Common Area Operating Expenses in accordance with the provisions of Paragraph 4.2.

10.2 Real Property Tax Definition . As used herein, the term “ Real Property Taxes ” shall include any form of real estate tax or assessment, general, special, ordinary or extraordinary, and any license fee, commercial rental tax, improvement bond or bonds, levy or tax (other than inheritance, personal income or estate taxes) imposed

 

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upon the Industrial Center by any authority having the direct or indirect power to tax, including any city, state or federal government, or any school, agricultural, sanitary, fire, street, drainage, or other improvement district thereof, levied against any legal or equitable interest of Landlord in the Industrial Center or any portion thereof, Landlord’s right to rent or other income therefrom, and/or Landlord’s business of leasing the Premises. The term “ Real Property Taxes ” shall also include any tax, fee, levy, assessment or charge, or any increase therein, imposed by reason of events occurring, or changes in Applicable Law taking effect, during the term of this Lease, including but not limited to a change in the ownership of the Industrial Center or in the improvements thereon, the execution of this Lease, or any modification, amendment or transfer thereof, and whether or not contemplated by the Parties. In calculating Real Property Taxes for any calendar year, the Real Property Taxes for any real estate tax year shall be included in the calculation of Real Property Taxes for such calendar year based upon the number of days which such calendar year and tax year have in common.

10.3 Additional Improvements . Tenant shall pay to Landlord the Common Area Operating Expenses as payable under Paragraph 4.2, the entirety of any increase in Real Property Taxes if assessed solely by reason of Alterations, Trade Fixtures or Utility Installations placed upon the Premises by Tenant or at Tenant’s request.

10.4 Joint Assessment . If the Building is not separately assessed, Real Property Taxes allocated to the Building shall be an equitable proportion of the Real Property Taxes for all of the land and improvements included within the tax parcel assessed or the industrial center, such proportion to be determined by Landlord from the respective valuations assigned in the assessor’s work sheets or such other information as may be reasonably available. Landlord’s reasonable determination thereof, in good faith, shall be conclusive.

10.5 Tenant’s Property Taxes . Tenant shall pay prior to delinquency all taxes assessed against and levied upon Tenant-Owned Alterations and Utility Installations, Trade Fixtures, furnishings, equipment and all personal property of Tenant contained in the Premises or stored within the Industrial Center. When possible, Tenant shall cause its Tenant-Owned Alterations and Utility Installations, Trade Fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Landlord. If any of Tenant’s said property shall be assessed with Landlord’s real property, Tenant shall pay Landlord the taxes attributable to Tenant’s property within ten (10) days after receipt of a written statement setting forth the taxes applicable to Tenant’s property.

11. Utilities . Tenant shall pay directly for all utilities and services supplied to the Premises, including but not limited to electricity, water, telephone, security, gas, sewer, trash removal and cleaning of the Premises, together with any taxes thereon. If any such utilities or services are not separately metered to the Premises or separately billed to the Premises, Tenant shall pay to Landlord a reasonable proportion to be determined by Landlord of all such charges jointly metered or billed with other premises in the Building, in the manner and within the time periods set forth in Paragraph 4.2(d). Landlord shall not be liable to Tenant for injury, damage, loss of Tenant’s business or profits, from any failure, interruption, rationing or other curtailment in the supply of electric, gas, water or other utilities from whatever cause. Tenant shall not consume water in excess of that usually furnished or supplied for reasonable and normal drinking and lavatory use in connection with an office environment (as determined by Landlord), without first procuring the written consent of Landlord, which Landlord may refuse, and in the event of consent, Landlord may have installed a water meter in the Premises to measure the amount of water consumed. The cost of any such meter and of its installation, maintenance and repair shall be paid for by the Tenant, and Tenant agrees to pay to Landlord promptly upon demand for all such water consumed as shown by said meters, at the rates charged for such services by the local public utility plus any additional expense incurred in keeping account of the water so consumed. If a separate meter is not installed, the excess cost for such water shall be established by an estimate made by a utility company or electrical engineer hired by Landlord at Tenant’s expense.

12 Assignment and Subletting .

12.1 Landlord’s Consent Required .

(a) Tenant shall not assign this lease, nor any right hereunder, nor sublet the premises, nor any part thereof, without the prior written consent of Landlord. Use of office and/or conference rooms of premise by Tenant’s investors, customers, business partners or board members will not be deemed as subletting. In exercising its reasonable discretion Landlord may consider all commercially relevant factors involved in the leasing of the premises including but not limited to the a) the creditworthiness and financial stability of the prospective assignee or subtenant; b) references of prior landlords; c) the past history of such subtenant, with respect to involvement in litigation and bankruptcy proceedings; d) the impact of said subtenant or assignee and proposed use of the premises on pedestrian and vehicular traffic, other tenants, and parking; e) the use, generation or disposal of hazardous materials. The presence of one negative factor enumerated above shall be deemed reasonable justification for Landlord’s withholding consent.

(b) A change in the control of Tenant shall constitute an assignment requiring Landlord’s consent. The transfer, on a cumulative basis, of twenty-five percent (25%) or more of the voting control of Tenant shall constitute a change in control for this purpose. For purpose of this paragraph, neither the private placement offering or public offering of tenant’s securities, nor the assignment of this lease to an Affiliate of Tenant shall be included in determining if a change of control requiring landlord’s consent has occurred. An “Affiliate” of Tenant is an entity, which controls Tenant, purchases all or substantially all of its assets, or results from a merger or consolidation with Tenant.

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transfer, leveraged buy-out or otherwise), whether or not a formal assignment or hypothecation of this Lease or Tenant’s assets occurs, which results or will result in a reduction of the Net Worth of Tenant, as hereinafter defined, by an amount equal to or greater than twenty-five percent (25%) of such Net Worth of Tenant as it was represented to Landlord at the time of full execution and delivery of this Lease or at the time of the most recent assignment to which Landlord has consented, or as it exists immediately prior to said transaction or transactions constituting such reduction, at whichever time said Net Worth of Tenant was or is greater, shall be considered an assignment of this Lease by Tenant to which Landlord may reasonably withhold its consent. “ Net Worth of Tenant ” for purposes of this Lease shall be the net worth of Tenant (excluding any Guarantors) established under generally accepted accounting principles consistently applied.

(d) An assignment or subletting of Tenant’s interest in this Lease without Landlord’s specific prior written consent shall, at Landlord’s option, be a Default curable after notice per Paragraph 13.1, or a non-curable Breach without the necessity of any notice and grace period. If Landlord elects to treat such unconsented to assignment or subletting as a non-curable Breach, Landlord shall have the right to either: (i) terminate this Lease, or (ii) upon thirty (30) days’ written notice (“ Landlord’s Notice ”), increase the monthly Base Rent for the Premises to the greater of the then fair market rental value of the Premises, as reasonably determined by Landlord, or one hundred ten percent (110%) of the Base Rent then in effect. Pending determination of the new fair market rental value, if disputed by Tenant, Tenant shall pay the amount set forth in Landlord’s Notice, with any overpayment credited against the next installment(s) of Base Rent coming due, and any underpayment for the period retroactively to the effective date of the adjustment being due and payable immediately upon the determination thereof. Further, in the event of such Breach and rental adjustment, (i) the purchase price of any option to purchase the Premises held by Tenant shall be subject to similar adjustment to the then fair market value as reasonably determined by Landlord (without the Lease being considered an encumbrance or any deduction for depreciation or obsolescence, and considering the Premises at its highest and best use and in good condition) or one hundred ten percent (110%) of the price previously in effect, (ii) any index-oriented rental or price adjustment formulas contained in this Lease shall be adjusted to require that the base index be determined with reference to the index applicable to the time of such adjustment, and (iii) any fixed rental adjustments scheduled during the remainder of the Lease term shall be increased in the same ratio as the new rental bears to the Base Rent in effect immediately prior to the adjustment specified in Landlord’s Notice.

(e) Tenant’s remedy for any breach of this Paragraph 12.1 by Landlord shall be limited to compensatory damages and/or injunctive relief.

12.2 Terms and Conditions Applicable to Assignment and Subletting .

(a) Regardless of Landlord’s consent, any assignment or subletting shall not (i) be effective without the express written assumption by such assignee or subtenant of the obligations of Tenant under this Lease, (ii) release Tenant of any obligations hereunder, nor (iii) alter the primary liability of Tenant for the payment of Base Rent and other sums due Landlord hereunder or for the performance of any other obligations to be performed by Tenant under this Lease.

(b) Landlord may accept any rent or performance of Tenant’s obligations from any person other than Tenant pending approval or disapproval of an assignment. Neither a delay in the approval or disapproval of such assignment nor the acceptance of any rent for performance shall constitute a waiver or estoppel of Landlord’s right to exercise its remedies for the Default or Breach by Tenant of any of the terms, covenants or conditions of this Lease.

(c) The consent of Landlord to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting by Tenant or to any subsequent or successive assignment or subletting by the assignee or subtenant. However, Landlord may consent to subsequent or successive assignment or subletting by the assignee or subtenant. However, Landlord may consent to subsequent sublettings and assignments of the sublease or any amendments or modifications thereto without notifying Tenant or anyone else liable under this Lease or the sublease and without obtaining their consent, and such action shall not relieve such persons from liability under this Lease or the sublease.

(d) In the event of any Default or Breach of Tenant’s obligation under this Lease, Landlord may proceed directly against Tenant, any guarantors or anyone else responsible for the performance of the Tenant’s obligations under this Lease, including any subtenant, without first exhausting Landlord’s remedies against any other person or entity responsible therefor to Landlord, or any security held by Landlord.

(e) Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Landlord’s determination as to the financial and operational responsibility and appropriateness of the proposed assignee or subtenant, including but not limited to the intended use and/or required modification of the Premises, if any, together with a non-refundable deposit of $1,000 or ten percent (10%) of the monthly Base Rent applicable to the portion of the Premises which is the subject of the proposed assignment or sublease, whichever is greater, as reasonable consideration for Landlord’s considering and processing the request for consent. Tenant agrees to provide Landlord with such other or additional information and/or documentation as may be reasonably requested by Landlord.

(f) Any assignee of, or subtenant under, this Lease shall, by reason of accepting such assignment or entering into such sublease, be deemed, for the benefit of Landlord, to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Tenant during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions of an assignment or sublease to which Landlord has specifically consented in writing.

 

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(g) If Tenant desires to Sublet or Assign the premises prior to the expiration of the term of the lease and obtains an acceptable subtenant or assignee, then the Landlord shall have the option prior to the execution of the sublease or assignment agreement to cancel this lease. Landlord, in Landlord’s sole discretion, may then enter into a new lease with any prospective subtenant as the substitute Tenant. If Landlord exercises this option, then this present lease shall be terminated by mutual agreement as of that time. The original Tenant agrees to pay all leasing commissions for the new lease payable to third party brokers according to their standard schedules of lease commissions for that period of time applicable to the remaining period of this lease at the present rental rate. Landlord shall pay all additional commissions for periods of time extending beyond this original lease.

(h) The occurrence of a transaction described in Paragraph 12.2(c) shall give Landlord the right (but not the obligation) to require that the Security Deposit be increased by an amount equal to six (6) times the then monthly Base Rent, and Landlord may make the actual receipt by Landlord of the Security Deposit increase a condition to Landlord’s consent to such transaction.

(i)

12.3 Additional Terms and Conditions Applicable to Assignment and Subletting . The following terms and conditions shall apply to any subletting or assignment by Tenant of all or any part of the Premises and shall be deemed included in all subleases and assignments under this Lease whether or not expressly incorporated therein:

(a) Tenant hereby assigns and transfers to Landlord all of Tenant’s interest in all rentals, income or other consideration arising from any sublease or assignment of all or a portion of the Premises heretofore or hereafter made by Tenant, and Landlord may collect such sums and apply same toward Tenant’s obligations under this Lease. Landlord shall not, by reason of the foregoing provision or any other assignment of such sublease to Landlord, nor by reason of the collection of the rents from a subtenant, be deemed liable to the subtenant for any failure of Tenant to perform and comply with any of Tenant’s obligations to such subtenant under such Sublease. Tenant hereby irrevocably authorizes and directs any such subtenant, upon receipt of a written notice from Landlord, to pay to Landlord the rents and other charges due and to become due under the sublease. Subtenant shall rely upon any such statement and request from Landlord and shall pay such rents and other charges to Landlord without any obligation or right to inquire as to whether any Breach exists and notwithstanding any notice from or claim from Tenant to the contrary. Tenant shall have no right or claim against such subtenant, or, until the Breach has been cured, against Landlord, for any such rents and other charges so paid by said subtenant to Landlord.

(b) In the event of a Breach by Tenant in the performance of its obligations under this Lease, Landlord, at its option and without any obligation to do so, may require any subtenant to attorn to Landlord, in which event Landlord shall undertake the obligations of the sub landlord under such sublease from the time of the exercise of said option to the expiration of such sublease; provided, however, Landlord shall not be liable for any prepaid rents or security deposit paid by such subtenant to such sub landlord or for any other prior defaults or breaches of such sub landlord under such sublease.

(c) Any matter or thing requiring the consent of the sub landlord under a sublease shall also require the consent of Landlord herein.

(d) No subtenant under a sublease or assignee approved by Landlord shall further assign or sublet all or any part of the Premises without Landlord’s prior written consent.

(e) Landlord shall deliver a copy of any notice of Default or Breach by Tenant to the subtenant, who shall have the right to cure the Default of Tenant within the grace period, if any, specified in such notice. The subtenant shall have a right of reimbursement and offset from and against Tenant for any such Defaults cured by the subtenant.

13. Default; Breach; Remedies .

13.1 Default; Breach . Landlord and Tenant agree that if any attorney is consulted by Landlord in connection with a Tenant Default or Breach (as hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence for legal services and costs in the preparation and service of a notice of Default, and that Landlord may include the cost of such services and costs in said notice as rent due and payable to cure said default. a “ Default ” by Tenant is defined as a failure by Tenant to observe, comply with or perform any of the terms, covenants, conditions or rules applicable to Tenant under this Lease. A “ Breach ” by Tenant is defined as the occurrence of any one or more of the following Defaults, and, where a grace period for cure after notice is specified herein, the failure by Tenant to cure such Default prior to the expiration of the applicable grace period, and shall entitle Landlord to pursue the remedies set forth in Paragraphs 13.2 and/or 13.3.

(a) The vacating of the Premises, or the abandonment of the Premises.

(b) Except as expressly otherwise provided in this Lease, the failure by Tenant to make any payment of Base Rent, Tenant’s Share of Common Area Operating Expenses, or any other monetary payment required to be made by Tenant hereunder[within five (5) business days after receipt of Landlord’s written notice that such amount is due], the failure by Tenant to provide Landlord with reasonable evidence of insurance or surety bond required under this Lease [within five (5) business days after receipt of Landlord’s written request therefore], or the failure of Tenant to fulfill any obligation under this Lease which endangers or threatens life or property, where such failure continues for a period of three (3) days following written notice thereof by or on behalf of Landlord to Tenant.

 

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(c) Except as expressly otherwise provided in this Lease, the failure by Tenant to provide Landlord with reasonable written evidence (in duly executed original form, if applicable) of (i) compliance with Applicable Requirements per Paragraph 6.3, [within five (5) business days after receipt of written notice to provide such evidence (iii) the rescission of an unauthorized assignment or subletting per Paragraph 12.1, (iv) a Tenancy Statement per Paragraphs 16 or 37, (v) the subordination or non-subordination of this Lease per Paragraph 30, (vi) the guaranty of the performance of Tenant’s obligations under this Lease if required under Paragraphs 1.11 and 37, (vii) the execution of any document requested under Paragraph 42 (easements), or (viii) any other documentation or information which Landlord may reasonably require of Tenant under the terms of this lease, where any such failure continues for a period of ten (10) business days following written notice by or on behalf of Landlord to Tenant.

(d) A Default by Tenant as to the terms covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof that are to be observed, complied with or performed by Tenant, other than those described in Subparagraphs 13.1(a), (b), or (c), above, where such Default continues for a period of thirty (30) days after written notice thereof by or on behalf of Landlord to Tenant; provided however, that if the nature of Tenant’s Default is such that more than thirty (30) business days are reasonably required for its cure, then it shall not be deemed to be a Breach of this Lease by Tenant if Tenant commences such cure within said thirty (30) day period and thereafter diligently prosecutes such cure to completion.

(e) The occurrence of any of the following events: (i) the making by Tenant of any general arrangement or assignment for the benefit of creditors; (ii) Tenant’s becoming a “debtor” as defined in 11 U.S. Code Section 101 or any successor statute thereto (unless, in the case of a petition filed against Tenant, the same is dismissed within sixty (60) days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Tenant’s assets located at the Premises or of Tenant’s interest in this Lease, where possession is not restored to Tenant within thirty (30) days; or (iv) the attachment, execution or other judicial seizure of substantially all of Tenant’s assets located at the Premises or of Tenant’s interest in this Lease, where such seizure is not discharged within thirty (30) days; provided, however, in the event that any provision of this Subparagraph 13.1(e) is contrary to any applicable law, such provision shall be of no force or effect, and shall not affect the validity of the remaining provisions.

(f) The discovery by Landlord that any financial statement of Tenant or of any Guarantor, given to Landlord by Tenant or any Guarantor, was materially false.

(g) If the performance of Tenant’s obligations under this Lease is guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor’s liability with respect to this Lease other than in accordance with the terms of such guaranty, (iii) a Guarantor’s becoming insolvent or the subject of a bankruptcy filing, (iv) a Guarantor’s refusal to honor the guaranty, or (v) a Guarantor’s breach of its guaranty obligation on an anticipatory breach basis, and Tenant’s failure, within sixty (60) days following written notice by or on behalf of Landlord to Tenant of any such event, to provide Landlord with written alternative assurances of security, which, when coupled with the then existing resources of Tenant, equals or exceeds the combined financial resources of Tenant and the Guarantors that existed at the time of the execution of this Lease.

13.2 Remedies . If Tenant fails to perform any affirmative duty or obligation of Tenant under this Lease, within thirty (30)days after written notice to Tenant (or in case of an emergency, without notice), Landlord may at its option (but without obligation to do so), perform such duty or obligation on Tenant’s behalf, including but not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals. The costs and expenses of any such performance by Landlord shall be due and payable by Tenant to Landlord upon invoice therefor. If any check given to Landlord by Tenant shall not be honored by the bank upon which it is drawn, Landlord, at its own option, may require all future payments to be made under this Lease by Tenant to be made only by cashier’s check. In the event of a Breach of this Lease by Tenant (as defined in Paragraph 13.1), with or without further notice or demand, and without limiting Landlord in the exercise of any right or remedy which Landlord may have by reason of such Breach, Landlord may:

(a) Terminate Tenant’s right to possession of the Premises by any lawful means, in which case this Lease and the term hereof shall terminate and Tenant shall immediately surrender possession of the Premises to Landlord. In such event Landlord shall be entitled to recover from Tenant: (i) the worth at the time of the 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 the 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 the Tenant proves could be reasonably avoided; and (iv) any other amount necessary to compensate Landlord for all the detriment proximately caused by the Tenant’s failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorneys’ fees, and that portion of any leasing commission paid by Landlord in connection with this Lease applicable to the unexpired term of this Lease. The worth at the time of award of the amount referred to in provision (iii) of the immediately preceding sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco or the Federal Reserve Bank District in which the Premises are located at the time of award plus one percent (1%). Efforts by Landlord to mitigate damages caused by Tenant’s Default or Breach of this Lease shall not waive Landlord’s right to recover damages under this Paragraph 13.2. If termination of this Lease is obtained through the provisional remedy of unlawful detainer, Landlord shall have the right to recover in such proceeding the unpaid rent and damages as are recoverable therein, or Landlord may reserve the right to recover all or any part thereof in a separate suit for such rent and/or damages. If a notice and grace period required under Subparagraph 13.1 (b), (c) or (d) was not previously given, a notice to pay rent or quit, or to perform or quit, as the case may be, given to Tenant under any statute authorizing the forfeiture of leases for

 

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unlawful detainer shall also constitute the applicable notice for grace period purposes required by Subparagraph 13.1 (b), (c) or (d). In such case, the applicable grace period under the unlawful detainer statue shall run concurrently after the one such statutory notice, and the failure of Tenant to cure the Default within the greater of the two (2) such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Landlord to the remedies provided for in this Lease and/or by said statute.

(b) Continue the Lease and Tenant’s right to possession in effect (in California under California Civil Code Section 1951.4) after Tenant’s Breach and recover the rent as it becomes due, provided Tenant has the right to sublet or assign, subject only to reasonably limitations. Landlord and Tenant agree that the limitations on assignment and subletting in this Lease are reasonable. Acts of maintenance or preservation, efforts to relet the Premises, or the appointment of a receiver to protect the Landlord’s interest under this Lease, shall not constitute a termination of the Tenant’s right to possession.

(c) Pursue any other remedy now or hereafter available to Landlord under the laws or judicial decisions of the state wherein the Premises are located.

(d) The expiration or termination of this Lease and/or the termination of Tenant’s right to possession shall not relieve Tenant from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Tenant’s occupancy of the Premises.

13.3 Inducement Recapture in Event of Breach . Any agreement by Landlord for free or abated rent or other charges applicable to the Premises, or for the giving or paying by Landlord to or for Tenant of any cash or other bonus, inducement or consideration for Tenant’s entering into this Lease, all of which concessions are hereinafter referred to as “ Inducement Provisions ” shall be deemed conditioned upon Tenant’s full and faithful performance of all of the terms, covenants and conditions of this Lease to be performed or observed by Tenant, any such Inducement Provision shall automatically be deemed deleted from this Lease and of no further force or effect, and any rent, other charge, bonus, inducement or consideration theretofore abated, given or paid by Landlord under such an Inducement Provision shall be immediately due and payable by Tenant to Landlord, and recoverable by Landlord, as additional rent due under this Lease, notwithstanding any subsequent cure of said Breach by Tenant. The acceptance by Landlord of rent or the cure of the Breach which initiated the operation of this Paragraph 13.3 shall not be deemed a waiver by Landlord of the provisions of this Paragraph 13.3 unless specifically so stated in writing by Landlord at the time of such acceptance.

13.4 Late Charges . Tenant hereby acknowledges that late payment by Tenant to Landlord of rent and other sums due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Landlord by the terms of any ground lease, mortgage or deed of trust covering the Premises. Accordingly, if any installment of rent or other sum due from Tenant shall not be received by Landlord or Landlord’s designee within five (5) days after such amount shall be due, then, without any requirement for notice to Tenant, Tenant shall pay to Landlord a late charge equal to ten percent (10%) of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of late payment by Tenant. Acceptance of such late charge be Landlord shall in no event constitute a waiver of Tenant’s Default or Breach with respect to such overdue amount, nor prevent Landlord from exercising any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for three (3) consecutive installments of Base Rent, then notwithstanding Paragraph 4.1 or any other provision of this Lease to the contrary, Base Rent shall, at Landlord’s option, become due and payable quarterly in advance.

13.5 Breach by Landlord . 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 13.5, a reasonable time shall in no event be less than thirty (30) days after receipt by Landlord, and by any Lender(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.

14. Condemnation . If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (all of which are herein called “condemnation”), this Lease shall terminate as to the part so taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than twenty five percent (25%) of the floor area of the Premises, or more than twenty-five percent (25%) of the portion of the Common Areas designated for Tenant’s parking, is taken by condemnation, Tenant may, at Tenant’s option, to be exercised in writing within ten (10) days after Landlord shall have given Tenant written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Tenant does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in the same proportion as the rentable floor area of the Premises taken bears to the total rentable floor area of the Premises. No reduction of the Base Rent shall occur if the condemnation does not apply to any portion of the Premises. Any award for the taking of all or any part of the Premises under the power of eminent domain or any payment made under threat of the exercise of such power shall be the property of Landlord, whether such award shall be made as compensation for diminution of value of the leasehold or for the taking of the fee, or as severance damages; provided, however, that Tenant shall be entitled to any compensation, separately awarded to Tenant for Tenant’s relocation expenses and/or loss of Tenant’s Trade Fixtures. In the event that this Lease is not terminated by reason of such condemnation, Landlord shall to the extent

 

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of its net severance damages received, over and above Tenant’s Share of the legal and other expenses incurred by Landlord in the condemnation matter, repair any damage to the Premises caused by such condemnation authority. Tenant shall be responsible for the payment of any amount in excess of such net severance damages required to complete such repair.

15. Broker’s Fees.

15.1 Procuring Cause . The Broker(s) named in Paragraph 1.10 is/are the procuring cause of this Lease.

15.2 Additional Terms . Unless Landlord and Broker(s) have otherwise agreed in writing, Landlord agrees that: (a) if Tenant exercises any Option (as defined in Paragraph 39.1) granted under this Lease or any Option subsequently granted, or (b) if Tenant acquires any rights to the Premises or other premises in which Landlord has an interest, or (c) if Tenant remains in possession of the Premises with the consent of Landlord after the expiration of the term of this Lease after having failed to exercise an Option, or (d) if said Brokers are the procuring cause of any other lease or sale entered into between the Parties pertaining to the Premises and/or any adjacent property in which Landlord has an interest, or (e) if Base Rent is increased, whether by agreement or operation of an escalation clause herein, then as to any of said transactions, Landlord shall not be liable to said Broker(s) to pay a fee.

15.3 Assumption of Obligations . Any buyer or transferee of Landlord’s interest in this Lease, whether such transfer is by agreement or by operation of law, shall be deemed to have assumed Landlord’s obligation under this Paragraph 15.

15.4 Representations and Warranties . Tenant and Landlord each represent and warrant to the other that it has had no dealings with any person, firm, broker or finder other than as named in Paragraph 1.10(a) in connection with the negotiation of this Lease and/or the consummation of the transaction contemplated hereby, and that no broker or other person, firm or entity other than said named Broker(s) is entitled to any commission or finder’s fee in connection with said transaction. Tenant and Landlord do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying Party, including any costs, expenses, and/or attorneys’ fees reasonably incurred with respect thereto.

16. Tenancy and Financial Statements.

16.1 Tenancy Statement . Each Party (as “ Responding Party ”) shall within ten (10) days after written notice from the other Party (the “ Requesting Party ”) execute, acknowledge and deliver to the Requesting Party a statement in writing in a form similar to the then most current “ Tenancy Statement ” form published by the American Industrial Real Estate Association, plus such additional information, confirmation and/or statements as may be reasonably requested by the Requesting Party.

16.2 Financial Statement . If Landlord desires to finance, refinance, or sell the Premises or the Building, or any part thereof, Tenant and all the Guarantors shall deliver to any potential lender or purchaser designated by Landlord such financial statements of Tenant and such Guarantors as may be reasonably required by such lender or purchaser, including but not limited to Tenant’s financial statements for the past three (3) years. All such financial statements shall be received by Landlord and such lender or purchaser in confidence and shall be used only for the purposes herein set forth.

17. Landlord’s Liability . The term “ Landlord ” as used herein shall mean the owner or owners at the time in question of the fee title to the Premises. In the event of a transfer of Landlord’s title or interest in the Premises or in this Lease, Landlord shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Landlord at the time of such transfer or assignment. Except as provided in Paragraph 15.3, upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Landlord shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by Landlord. Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Landlord shall be binding only upon the Landlord as herein above defined. Notwithstanding any other terms or provisions of this lease, Tenant agrees that in the event of any default or breach by Landlord with respect to any of the terms of the Lease to be observed and performed by Landlord (a) Tenant shall look solely to the estate and property (which is the subject of this lease) of Landlord or any successor in interest in the property and the Building, for the satisfaction of Tenant’s remedies for the collection of a judgment (or other judicial process) requiring the payment of money by Landlord; (b) no other property or assets of Landlord, its partners, members, shareholders, officers or any successor in interest shall be subject to levy, execution or other enforcement procedure for the satisfaction if Tenant’s remedies;(c) no personal liability shall at any time be asserted or enforceable against Landlord, it’s partner’s, members or successors in interest (except to the extent permitted in (a) above), and no judgment will be taken against any partner, member, shareholder, officer or director of Landlord. The provisions of this section shall apply only to the Landlord and the parties herein described, and shall not be for the benefit of any insurer nor any other third party.

18. Severability . The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof.

19. Interest on Past-Due Obligations . Any monetary payment due Landlord hereunder, other than late charges, not received by Landlord within ten (10) days following the date on which it was due, shall bear interest from the date due at the prime rate charged by the largest state chartered bank in the state in which the Premises are located plus four percent (4%) per annum, but not exceeding the maximum rate allowed by law, in addition to the potential late charge provided for in Paragraph 13.4.

 

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20. Time of Essence . Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease.

21. Rent Defined . All monetary obligations of Tenant to Landlord under the terms of this Lease are deemed to be rent.

22. No Prior or other Agreements; Broker Disclaimer . This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective. Landlord and Tenant each represents and warrants to the Brokers that it has made, and is relying solely upon, its own investigation as to the nature, quality, character and financial responsibility of the other Party to this Lease and as to the nature, quality and character of the Premises. Brokers have no responsibility with respect thereto or with respect to any default or breach hereof by either Party. Each Broker shall be an intended third party beneficiary of the provisions of this Paragraph 22.

23. Notices.

23.1 Notice Requirements . All notices required or permitted by this Lease shall be in writing and may be delivered in person (by hand or by messenger or courier service) or may be sent by regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile transmission during normal business hours, and shall be deemed sufficiently given if served in a manner specified in this Paragraph 23. The addresses noted adjacent to a Party’s signature on this Lease shall be that Party’s address for delivery or mailing of notice purposes. Either Party may by written notice to the other specify a different address for notice purposes, except that upon Tenant’s taking possession of the Premises, the Premises shall constitute Tenant’s address for the purpose of mailing or delivering notices to Tenant. A copy of all notices required or permitted to be given to Landlord hereunder shall be concurrently transmitted to such party or parties at such addresses as Landlord may from time to time hereafter designate by written notice to Tenant.

23.2 Date of Notice . Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon. If sent by regular mail, the notice shall be deemed given forty-eight (48) hours after the same is addressed as required herein and mailed with postage prepaid. Notices delivered by United States Express Mail or overnight courier that guarantees next day delivery shall be deemed given twenty-four (24) hours after delivery of the same to the United States Postal Service or courier. If any notice is transmitted by facsimile transmission or similar means, the same shall be deemed served or delivered upon telephone or facsimile confirmation of receipt of the transmission thereof, provided a copy is also delivered via delivery or mail. If notice is received on a Saturday or a Sunday or a legal holiday, it shall be deemed received on the next business day.

24. Waivers . No waiver by Landlord of the Default or Breach of any term covenant or condition hereof by Tenant, shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by Tenant of the same or any other term, covenant or condition hereof. Landlord’s consent to, or approval of, any such act shall not be deemed to render unnecessary the obtaining of Landlord’s consent to, or approval of, any subsequent or similar act by Tenant, or be construed as the basis of an estoppel to enforce the provision or provisions of this Lease requiring such consent. Regardless of Landlord’s knowledge of a Default or Breach at the time of accepting rent, the acceptance of rent by Landlord shall not be a waiver of any Default or Breach by Tenant of any provision hereof. Any payment given Landlord by Tenant may be accepted by Landlord on account of moneys or damages due Landlord, notwithstanding any qualifying statements or conditions made by Tenant in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Landlord at or before the time of deposit of such payment.

25. Recording . Either Landlord or Tenant shall, upon request of the other, execute, acknowledge and deliver to the other a short form memorandum of this Lease for recording purposes. The Party requesting recordation shall be responsible for payment of any fees or taxes applicable thereto.

26. No Right To Holdover . Tenant has no right to retain possession of the Premises or any part thereof beyond the expiration or earlier termination of this Lease. In the event that Tenant holds over in violation of this Paragraph 26 then the Base Rent payable from and after the time of the expiration or earlier termination of this Lease shall be increased to one hundred fifty (150%) of the Base Rent applicable during the month immediately preceding such expiration or earlier termination. Nothing contained herein shall be construed as a consent by Landlord to any holding over by Tenant.

27. Cumulative Remedies . No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity.

28. Covenants and Conditions . All provisions of this Lease to be observed or performed by Tenant are both covenants and conditions.

29. Binding Effect; Choice of Law . This Lease shall be binding upon the Parties, their personal representatives, successors and assigns and be governed by the laws of the State in which the Premises are located. Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Premises are located.

 

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30. Subordination; Attornment; Non-Disturbance.

30.1 Subordination . This Lease and any Option granted hereby shall be subject and subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively, “ Security Device ”), now or hereafter placed by Landlord upon the real property of which the Premises are a part, to any and all advances made on the security thereof, and to all renewals, modifications, consolidations, replacements and extensions thereof. Tenant agrees that the Lenders holding any such Security Device shall have no duty, liability or obligation to perform any of the obligations of Landlord under this Lease, but that in the event of Landlord’s default with respect to any such obligation, Tenant will give any Lender whose name and address have been furnished Tenant in writing for such purpose notice of Landlord’s default pursuant to Paragraph 13.5. If any Lender shall elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device and shall give written notice thereof to Tenant, this Lease and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the documentation or recordation thereof.

30.2 Attornment . Subject to the non-disturbance provisions of Paragraph 30.3, Tenant agrees to attorn to a Lender or any other party who acquires ownership of the Premises by reason of a foreclosure of a Security Device, and that in the event of such foreclosure, such new owner shall not: (i) be liable for any act or omission of any prior Landlord or with respect to events occurring prior to acquisition of ownership, (ii) be subject to any offsets or defenses which Tenant might have against any prior Landlord, or (iii) be bound by prepayment of more than one month’s rent.

30.3 Non-Disturbance . With respect to Security Devices entered into by Landlord after the execution of this lease, Tenant’s subordination of this Lease shall be subject to receiving assurance (a “non-disturbance agreement”) from the Lender that Tenant’s possession and this Lease, including any options to extend the term hereof, will not be disturbed so long as Tenant is not in Breach hereof and attorns to the record owner of the Premises.

30.4 Self-Executing . The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents; provided, however, that upon written request from Landlord or a Lender in connection with a sale, financing or refinancing of Premises, Tenant and Landlord shall execute such further writings as may be reasonably required to separately document any such subordination or non-subordination, attornment and/or non-disturbance agreement as is provided for herein.

31. Attorneys’ Fees . If any Party brings an action or proceeding to enforce the terms hereof or declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorneys’ fees, costs and expenses. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment. The term “ Prevailing Party ” shall include, without limitation, a Party who substantially obtains or defeats the relief sought, as the case may be whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense. The attorneys’ fee award shall not be computed in accordance with any court fee schedule, but shall be such as to full reimburse all attorneys fees, cost and expenses reasonably incurred. Landlord shall be entitled to attorneys’ fees, costs and expenses incurred in preparation and service of notices of Default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such Default or resulting Breach.

32. Landlord’s Access; Showing Premises; Repairs . Landlord and Landlord’s agents shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times for the purpose of showing the same to prospective purchasers, lenders, or tenants, and make such alterations, repairs, improvements or additions to the Premises or to the Building, as Landlord may reasonably deem necessary. In all other cases except for emergencies, Landlord must take all reasonable efforts to schedule such visits with the Tenant with at least 48 hours notice. Landlord may at any time place on or about the Premises or Building any ordinary “For Sale” signs and Landlord may at any time during the last one hundred eighty (180) days of the term hereof place on or about the Premises any ordinary “For Lease” signs. All such activities of Landlord shall be without abatement of rent or liability to Tenant.

33. Auctions . Tenant shall not conduct, nor permit to be conducted, either voluntarily or involuntarily, any auction upon the Premises without first having obtained Landlord’s prior written consent. Notwithstanding anything to the contrary in this Lease, Landlord shall not be obligated to exercise any standard of reasonableness in determining whether to grant such consent.

34. Signs . Tenant shall not place any sign upon the exterior of the Premises or the Building, except that Tenant may, with Landlord’s prior written consent, install (but not on the roof) such signs as are reasonably required to advertise Tenant’s own business so long as such signs are in a location designated by Landlord and comply with Applicable Requirements and the signage criteria established for the Industrial Center by Landlord. The installation of any sign on the Premises by or for Tenant shall be subject to the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations). Unless otherwise expressly agreed herein, Landlord reserves all rights to the use of the roof of the Building and the right to install advertising signs on the Building, including the roof, which do not unreasonably interfere with the conduct of Tenant’s business; Landlord shall be entitled to all revenues from such advertising signs.

35. Termination; Merger . Unless specifically stated otherwise in writing by Landlord, the voluntary or other surrender of this Lease by Tenant, the mutual termination or cancellation hereof, or a termination hereof by Landlord for Breach by Tenant, shall automatically terminate any sublease or lesser estate in the Premises; provided, however, Landlord shall, in the event of any such surrender, termination or cancellation, have the option to continue any one or all of any existing subtenancies. Landlord’s failure within ten (10) days of following any such event to make a written election to the contrary by written notice to the holder of any such lesser interest, shall constitute Landlord’s election to have such event constitute the termination of such interest.

 

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36. Consents.

(a) Except for Paragraph 12 (subleases) and Paragraph 33 (Auctions) or as otherwise provided herein, wherever in this Lease the consent of a Party is required to an act by or for the other Party, such consent shall not be unreasonably withheld or delayed. Landlord’s actual reasonable costs and expenses (including but not limited to architects’. attorneys’, engineers’ and other consultants’ fees) incurred in the consideration of, or response to, a request by Tenant for any Landlord consent pertaining to this Lease or the Premises, including but not limited to consents to an assignment a subletting or the presence or use of a Hazardous Substance, shall be paid by Tenant to Landlord upon receipt of an invoice and supporting documentation therefor. In addition to the deposit described in Paragraph 12.2(e), Landlord may, as condition to considering any such request by Tenant, require that Tenant deposit with Landlord an amount of money (in addition to the Security Deposit held under Paragraph 5) reasonably calculated by Landlord to represent the cost Landlord will incur in considering and responding to Tenant’s request. Any unused portion of said deposit shall be refunded to Tenant without interest. Landlord’s consent to any act, assignment of this Lease or subletting of the Premises by Tenant shall not constitute an acknowledgment that no Default or Breach by Tenant of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise specifically stated in writing by Landlord at the time of such consent.

(b) All conditions to Landlord’s consent authorized by this Lease are acknowledged by Tenant as being reasonable. The failure to specify herein any particular condition to Landlord’s consent shall not preclude the impositions by Landlord at the time of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given.

37. Guarantor.

37.1 Form of Guaranty . If there are to be any Guarantors of this Lease per Paragraph 1.11, the form of the guaranty to be executed by each such Guarantor shall be in the form most recently published by the American Industrial Real Estate Association, and each such Guarantor shall have the same obligations as Tenant under this lease, including but not limited to the obligation to provide the Tenancy Statement and information required in Paragraph 16.

37.2 Additional Obligations of Guarantor . It shall constitute a Default of the Tenant under this Lease if any such Guarantor fails or refuses, upon reasonable request by Landlord to give: (a) evidence of the due execution of the guaranty called for by this Lease, including the authority of the Guarantor (and of the party signing on Guarantor’s behalf) to obligate such Guarantor on said guaranty, and resolution of its board of directors authorizing the making of such guaranty, together with a certificate of incumbency showing the signatures of the persons authorized to sign on its behalf, (b) current financial statements of Guarantor as may from time to time be requested by Landlord, (c) a Tenancy Statement, or (d) written confirmation that the guaranty is still in effect.

38. Quiet Possession . Upon payment by Tenant of the rent for the Premises and the performance of all of the covenants, conditions and provisions on Tenant’s part to be observed and performed under this Lease, Tenant shall have quiet possession of the Premises for the entire term hereof subject to all of the provisions of this Lease.

39. Options.

39.1 Definition . As used in this Lease, the word “Option” has the following meaning: (a) the right to extend the term of this Lease or to renew this Lease or to extend or renew any lease that Tenant has on other property of Landlord.

39.2 Options Personal to Original Tenant . Each Option granted to Tenant in this Lease is personal to the original Tenant named in Paragraph 1.1 hereof, and cannot be voluntarily or involuntarily assigned or exercised by any person or entity other than said original Tenant while the original Tenant is in full and actual possession of the Premises and without the intention of thereafter assigning or subletting. The Options, if any, herein granted to Tenant are not assignable, either as a part of an assignment of this Lease or separately or apart therefrom, and no Option may be separated from this Lease in any manner, by reservation or otherwise.

39.3 Multiple Options . In the event that Tenant has any multiple Options to extend or renew this Lease, a later option cannot be exercised unless the prior Options to extend or renew this Lease have been validly exercised.

39.4 Effect of Default on Options .

(a) Tenant shall have no right to exercise an Option, notwithstanding any provision in the grant of Option to the contrary: (i) during the period commencing with the giving of any notice of Default under Paragraph 13.1 and continuing until the noticed Default is cured, or (ii) during the period of time any monetary obligation due Landlord from Tenant is unpaid (without regard to whether notice thereof is given Tenant), or (iii) during the time Tenant is in Breach of this Lease, or (iv) in the event that Landlord has given to Tenant three (3) or more notices of separate Defaults under Paragraph 13.1 during the twelve (12) month period immediately preceding the exercise of the Option, whether or not the Defaults are cured.

(b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Tenant’s inability to exercise an Option because of the provisions of Paragraph 39.4(a)

 

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(c) All rights of Tenant under the provisions of an Option shall terminate and be of no further force or effect, notwithstanding Tenant’s due and timely exercise of the Option, if, after such exercise and during the term of this Lease, (i) Tenant fails to pay to Landlord a monetary obligation of Tenant for a period of thirty (30) days after such obligation becomes due (without any necessity of Landlord to give notice thereof to Tenant), or (ii) Landlord gives to Tenant three (3) or more notices of separate Defaults under Paragraph 13.1 during any twelve (12) month period, whether or not the Defaults are cured, or (iii) if Tenant commits a Breach of this Lease.

40. Rules and Regulations . Tenant agrees that it will abide by, and keep and observe all reasonable rules and regulations (“Rules and Regulations”) which Landlord may make from time to time for the management, safety, care, and cleanliness of the grounds, the parking and unloading of vehicles and the preservation of good order, as well as for the convenience of other occupants or tenants of the Building and the Industrial Center and their invitees.

41. Security Measures . Tenant hereby acknowledges that the rental payable to Landlord hereunder does not include the cost of guard service or other security measures, and that Landlord shall have no obligation whatsoever to provide same. Tenant assumes all responsibility for the protection of the Premises, Tenant, its agents and invitees and their property from the acts of third parties.

42. Reservations . Landlord reserves the right, from time to time, to grant, without the consent or joinder of Tenant, such easements, rights of way, utility raceways, and dedications that Landlord deems necessary, and to cause the recordation of parcel maps and restrictions, so long as such easements, rights of way, utility raceways, dedications, maps and restrictions do not reasonably interfere with the use of the Premises by Tenant. Tenant agrees to sign any documents reasonably requested by Landlord to effectuate any such easement rights, dedication, map or restrictions.

43. Performance Under Protest . If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment “under protest” and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay under the provisions of this Lease.

44. Authority . If either Party hereto is a corporation, trust, limited liability company, or general or limited partnership, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on it’s behalf and that such entity is duly authorized and existing and qualified to do business in California and that Tenant has the full right and legal authority to enter into this lease.

45. Conflict . Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions.

46 . Offer . Preparation of this Lease by either Landlord or Tenant or Landlord’s agent or Tenant’s agent and submission of same to Tenant or Landlord shall not be deemed an offer to lease. This Lease is not intended to be binding until executed and delivered by all Parties hereto.

47. Amendments . This Lease may be modified only in writing, signed by the parties in interest at the time of the modification. The Parties shall amend this Lease from time to time to reflect any adjustments that are made to the Base Rent or other rent payable under this Lease. As long as they do not materially change Tenant’s obligations hereunder, Tenant agrees to make such reasonable non-monetary modification to this Lease as may be reasonably required by an institutional insurance company or pension plan Lender in connection with the obtaining of normal financing or refinancing of the property of which the Premises are a part.

 

48. Multiple Parties . Except as otherwise expressly provided herein, if more than one person or entity is named herein as either Landlord or Tenant, the obligations of such multiple parties shall be the joint and several responsibility of all persons or entities named herein as such Landlord or Tenant.

 

49. Tenant Improvements . Lessor, at Lessor’s sole cost and expense shall perform the Tenant Improvements as per the attached Exhibit A.

LANDLORD AND TENANT HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LANDLORD AND TENANT WITH RESPECT TO THE PREMISES.

 

THIS LEASE PREPARED FOR YOUR ATTORNEY’S REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO THE PRESENCE OF ASBESTOS, UNDERGROUND STORAGE TANKS OR

 

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HAZARDOUS SUBSTANCES. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKERS OR THEIR CONTRACTORS, AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY IS IN A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.

The parties hereto have executed this Lease at the place and on the dates specified above their respective signatures.

 

Executed at:

Redwood City, CA

Executed at:

Sunnyvale, CA

on:

May 9, 2011

on:

May 5, 2011

By Landlord: By Tenant:
DeGuigne Ventures, LLC

Adesto Technologies, Inc.,

a California corporation

 

By: David Dollinger Living Trust
Its: Sole Member
By:

/s/ David Dollinger

By:

/s/ Narbeh Derhacobian

David Dollinger, Trustee

 

Name Printed:

Narbeh Derhacobian

Title:

President & CEO

 

Address:
Telephone:(        )

 

Facsimile:(        )

 

 

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Exhibit A

1250 Borregas

TURNKEY TENANT IMPROVEMENTS:

Landlord shall provide the Tenant with turnkey tenant improvements. This includes all costs associated with constructing the Tenant Improvements, architectural fees, permitting fees and project management fees. Below is a breakdown of the tenant improvements the Tenant is requesting at the Landlords sole cost. Additional improvements beyond the listed would be the responsibility of the tenant.

 

  Lobby as shown

 

  Total of 13 offices to be built 12x12 with 3 feet of sidelight, 9’ birch door

 

  Total of 50 8x8 cubicles (existing)

 

  Power distribution and wiring for all cubicles, offices, and conference rooms

 

    Total of 8 conference rooms (With blinds, writable walls and an outlet for the projector)

 

    4 (200 sqft)

 

    3 (300 sqft)

 

    1 (450 sqft) – extended the current board room by adding neighboring conf room(as discussed on Friday)

 

    Take the conference rooms and offices walls above the T-bar so the voice doesn’t travel from one room to the next

 

  Total of 3 storage rooms (200 sqft each)

 

  The Break Room shall include VCT tile, a sink, lower cabinets, upper cabinets, dishwasher, appropriate power and electricity for a microwave, dishwasher, refrigerator, water cooler and coffee maker.

 

  Install power and data for printers and faxes per a mutually defined location and one analog phone line.

 

  Paint the walls in the suite to accent colors mutually determined by the tenant and landlord.

 

  Enclose the break room

 

  Provide double door entry - rear of the building for equipment move in

 

  Add exhaust Fan to eliminate kitchen odor from office area

 

  Exterior shall be power washed and cubicle panels shall be cleaned

 

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Lab Space, electrical and HVAC Requirement :

Total Power for Labs and server room (Equivalent 110V) – 800A

Total AC for Labs and server room – 11 Tons

 

  1. 2000 sq. ft. Total

 

  a. Two Separate Rooms: 1100 sq. ft (PE Lab) and 900 sq. ft. (Device Lab)

 

  b. Quote normal tiles

 

  c. Copper piping around for bringing in air/vacuum. Adesto has vacuum pumps and compressors that will require routing into the lab from their location outside the building. Piping Air &Vac to and inside the lab – 2” header with  3 4 ” drops for CDA.

 

  d. Double doors for both labs

 

  e. Block all windows to the lab area – windows need not be removed – dry wall should be sufficient

 

  2. HVAC:

 

  a. PE Lab HVAC: ~8 ton (separate control)

 

  b. Device Lab HVAC: ~3 ton (separate control)

 

  3. Electrical:

 

  a. 4 socket outlets around the lab approximately every 6 ft.

 

  b. Each socket group to include: Four 115V and one 208/220V

 

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Server Room :

Required size: 200 sq. ft. Move the door for IT room so that lab can come up on that wall.

 

  a) One 3-ton air unit dedicated for server room with full control at Server Room.

 

  b) Four 120V L6-30 sockets, each on a separate 30A breaker.

 

  c) Four 120V L5-20 sockets, each on a separate 20A breaker.

 

  d) Four 120V L5-15 sockets on two 30A breakers.

 

  e) Connections for (b-d) should all be on the same phase.

Tenant recommends that a 3-ton dedicated unit is installed and dump the excess cold air somewhere, with manual baffles to control airflow. They also require a filter on the supply register to keep dust off the servers.

Air Compressor/Vacuum Pump Shed:

 

  1. Adesto will need a shed outside with lock door and top covering to host this equipment. They would then need to pipe in to the labs from this housing. Power to the compressor shed480V 75A breaker. Also 110V 20A

 

  2. The current shed needs to be extended to the full concrete pad area and a proper roof provided to protect the compressor from rain

Parking Lot

Landlord to install additional wall packs on the building so that the parking lot is well illuminated.

 

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Exhibit 10.06

[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

Technology License Agreement Between

Axon Technologies Corporation

and

Adesto Technologies Corporation

Rev. 5

January 15, 2007


Revisions

   Date Released  

Comment

v4a

   July 12 th , 2006  

-Original agreement signed by Axon Technologies Corporation and Adesto Technologies Corporation.

v4b

   Oct 9 th , 2006  

-Modified Exhibit E (page 28).

-Changed the language in Section 7.2 to exclude “and offer services” language and limit the language to “products” only.

-Corrected typo in the Exhibit A, Section 2.2 where the word “embedded Memory Blocks” was replaced with “primarily Memory Blocks”.

v5

   Jan 15 th , 2007  

-Multiple changes are made pursuant to the legal clarification and other modifications done as a result of Adesto Round A financing term sheet and investor syndicate requirements.


TABLE OF CONTENT

 

Recitals

  p. 4   

Agreement

  p. 4   

1.   Definitions

  p. 4   

2.   Licenses

  p. 9   

3.   Investment Date and Exclusivity

  p. 9   

4.   Further Licenses

  p. 11   

5.   Technical Support and Research

  p. 12   

6.   Fees and Payments

  p. 14   

7.   Adesto Improvements

  p. 14   

8.   Silicon Data

  p. 15   

9.   Stock Purchase

  p. 15   

10. Confidential Information

  p. 17   

11. Terms and Termination

  p. 18   

12. Warranties and Representations

  p. 19   

13. Limitation of Liability

  p. 20   

14. Survival

  p. 20   

15. Dispute Resolution

  p. 20   

16. Change In Control

  p. 21   

17. Audit

  p. 21   

18. General

  p. 21   

Signature Page

  p. 24   

Exhibit A (Fees)

  p. 25   

Exhibit B (Excluded Companies)

  p. 27   

Exhibit C (Parital List of Licensed Patents)

  p. 28   

Exhibit D (Licensed Trade Secrets)

  p. 29   

Exhibit E (Non-Exclusive Companies)

  p. 30   

Exhibit F (Stock Purchase Agreement)

  p. 31   


T ECHNOLOGY L ICENSE A GREEMENT

T HIS IS A T ECHNOLOGY L ICENSE A GREEMENT (“Agreement”), entered into this 15 th day of January, 2007 (the “Effective Date”), by and between A XON T ECHNOLOGIES C ORPORATION (“Axon”), a Delaware corporation having its principal place of business at 7702 E. Doubletree Ranch Road, Suite 300, Scottsdale, AZ 85258, and A DESTO T ECHNOLOGIES C ORPORATION I NC . (“Adesto”), a California corporation having its principal place of business at 440 N. Wolfe Road, Sunnyvale, CA 94058.

R ECITALS

 

  A. Axon owns certain patents and trade secrets with respect to memory cell technology.

 

  B. Adesto is engaged in the business of designing, manufacturing and selling semiconductor memory integrated circuits, including by not limited to discrete memory devices, smart card integrated circuits, as well as design tools and intellectual property.

 

  C. Axon wishes to grant, and Adesto wishes to obtain, certain rights with respect to such Axon patents and trade secrets according to the terms of this Agreement.

N OW T HEREFORE , for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

A GREEMENT

 

1. D EFINITIONS .

Capitalized terms used in this Agreement shall have the following meanings:

“Adesto Improvements” shall mean any updates, corrections, improvements or enhancements of or to the Licensed Technology which are conceived or reduced to practice by or on behalf of Adesto and as to which any application or any issued patent, including any and all divisionals, continuations, re-examinations, renewals, provisionals, continuations-in-part, or re-issues, exists at any time.

“Authorized Fab” shall mean a Fab who has entered into a written license agreement with Axon or Adesto to permit such entity to manufacture Authorized Products or testchips for Adesto or other third parties, and who does so solely in accordance with such license agreement.

“Authorized Foundry” shall mean a Foundry who has entered into a written license agreement with Axon or Adesto to permit such entity to manufacture Authorized Products or testchips for Adesto or other third parties, and who does so solely in accordance with such license agreement.

 

4


“Authorized Manufacturer” shall mean a Foundry or Integrated Device Manufacturer who has entered into an appropriate written license agreement with Axon or Adesto to permit such entity to manufacture Authorized Products for Adesto or other third parties, and who does so solely in accordance with such license agreement.

“Authorized Product” shall mean any integrated circuit (including test chips) that: (i)  is manufactured by an Authorized Manufacturer and contains or is substantially manufactured using PMC Technology as Embedded Memory Blocks; or (ii)  is manufactured by an Integrated Device Manufacturer and contains or is substantially manufactured using PMC Technology as Embedded Memory Blocks; or (iii)  is manufactured by an Authorized Manufacturer and contains or is substantially manufactured using PMC Technology as Stand Alone Memory Blocks; or (iv)  is manufactured by an Integrated Device Manufacturer and contains or is substantially manufactured using PMC Technology as Stand Alone Memory Blocks.

“Authorized Product Tape-Out ” shall mean completion and final transmission of all necessary product specifications to an Authorized Fab for manufacture of a corresponding Authorized Product.

“Axon Improvements” shall mean any updates, corrections, improvements or enhancements of or to the Licensed Technology made by or on behalf of Axon which are owned by Axon or licensable by Axon without charge.

“Broad Licenses” shall have the meaning assigned to it in Subsection 4.2 (“Broad Licenses”).

“Change in Control” shall mean, with respect to either party, any time: (i)  such party shall engage in any merger, acquisition or consolidation and, as a result of such transaction, the voting securities of the party that are outstanding immediately prior to the consummation of such transaction do not represent, or are not converted into, securities of the surviving corporation of such transaction (or such surviving corporation’s parent corporation if the surviving corporation is owned by the parent corporation) that, immediately after the consummation of such transaction, together represent at least a majority of the total voting power of all securities of such surviving corporation (or its parent corporation, if applicable) that are outstanding immediately after the consummation of such transaction, provided that the transaction shall not be a Change in Control if the surviving corporation of such transaction or such surviving corporation’s parent corporation is an Excluded Company; or (ii) such party sells all or substantially all of such party’s assets to a third party who is not an Excluded Company; or (iii) there shall occur any direct or indirect sale or other transfer of fifty percent (50%) or more of the equity of such party to any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act” )), other than a trustee or other fiduciary holding securities of such party under an employee benefit plan of such party, or an Excluded Company, who thereby becomes the “beneficial owner” (as defined in Rule 13d-3 promulgated under the Exchange Act); but in no case shall a Change in Control include any equity financing or initial public offering.

“CMOS Integration” shall mean demonstration of a repeatable process for the fabrication of memory arrays, consisting of PMC memory elements, integrated with silicon wafers containing interconnected active and passive devices processed in an industry-standard CMOS manufacturing process.

 

5


“Confidential Information” shall have the meaning assigned to it in S ECTION  10 (“ C ONFIDENTIAL I NFORMATION ”).

“Disclosing Party” shall have the meaning assigned to it in S ECTION  10 (“ C ONFIDENTIAL I NFORMATION ”).

“Effective Date” shall have the meaning assigned to it in the first paragraph of this Agreement.

“Embedded Memory Blocks” shall mean a collection of addressable elements or cells which are capable of holding logical data and information in an integrated circuit.

“Excluded Companies” shall mean those companies described in E XHIBIT B (“E XCLUDED C OMPANIES ”).

“Fab” shall mean a semiconductor fabrication facility which may be used for the manufacture or processing of semiconductor integrated circuits.

“Fabless Companies” shall mean: (i)  any company which manufactures its products exclusively in any Fab that it does not own; or (ii)  an entity which does not own or control a Fab.

“Fees” shall mean License Fees, Product Royalties, Further License Royalties, Research Fees, IP Maintenance Fees, or any or all of the foregoing.

“Foundry” shall mean a Fab the fabrication services of which are made commercially available to Fabless Companies and/or Integrated Device Manufacturers for the manufacture of integrated circuits.

“Further License Royalties” shall mean those Fees described as such in E XHIBIT A (“F EES ”).

“Further Licenses” shall mean those licenses to be granted by Adesto and described as such in S ECTION  4 (“F URTHER L ICENSES ”).

“Gross Sales” shall mean all amounts owed or paid directly or indirectly to Adesto under any Project License or any Broad License, not including NRE.

“Integrated Device Manufacturer” shall mean an entity or company that owns or controls a Fab and which uses such Fab primarily for the manufacture of semiconductor integrated circuits such as microprocessors, memory and other computer hardware devices for itself.

“Investment Date” shall have the meaning assigned to it in Subsection 3.1 (“Investment Date”).

“IP Maintenance Fee” shall mean the Fee described as such in E XHIBIT A (“F EES ”).

 

6


“License Fees” shall mean those Fees described as such in E XHIBIT A (“F EES ”) .

“Licensed Patents” shall mean those patents, including any and all divisionals, continuations, re-examinations, renewals, provisionals, continuations-in-part, or re-issues regarding PMC Technology, which are owned and licensable by Axon and described as such in E XHIBIT C (“P AR T IAL L IST OF L ICENSED P ATENTS ) , and including all Axon Improvements.

“Licensed Technology” shall mean the Licensed Patents, Licensed Trade Secrets, either or both.

“Licensed Trade Secrets” shall mean all ideas, concepts, know-how, procedures, and Axon Confidential Information regarding PMC Technology, which are owned by Axon and described as such in E XHIBIT D (“L ICENSED T RADE S ECRETS ), and including all Axon Improvements.

“Net Sales” shall mean Gross Sales, less the following items, but only insofar as they actually pertain to the disposition of Authorized Products, they are included in such Gross Sales, and are separately billed: (i)  trade, quantity, strategic discounts or cash discounts; (ii)  amounts repaid or credited by reason of rejection or return; (iii)  taxes or other governmental charges levied on the production, sale, transportation, or delivery of an Authorized Product which are paid by or on behalf of Adesto; and (iv)  outbound transportation costs prepaid or allowed and costs of insurance in transit; provided, however, that where non-monetary consideration is owed or received for Authorized Products, Net Sales shall be calculated based on the fair market value of such consideration.

“Non-Exclusive Companies” shall mean those companies described as such in E XHIBIT E (“N ON -E XCLUSIVE C OMPANIES ), and their subsidiaries or affiliates.

“NRE” shall mean any amounts incurred by Adesto for non-recurring engineering expenses related to Further Licenses of PMC Technology to third parties, which amounts: [*].

“PMC Manufacturing Only License” shall have the meaning assigned to it in Subsection 4.3 (“PMC Manufacturing Only License”).

“PMC Technology” shall mean programmable metallization cell technology.

“Product Royalties” shall mean those Fees described as such in E XHIBIT A (“F EES ”).

“Production Wafer” shall mean a silicon wafer manufactured by an Authorized Manufacturer that contains Authorized Products for the purpose of resell by Adesto. “Project Licenses” shall have the meaning assigned to it in Subsection 4.1 (“Project Licenses”).

“Receiving Party” shall have the meaning assigned to it in S ECTION  10 (“C ONFIDENTIAL I NFORMATION ”).

“Research Fees” shall have the meaning assigned to it in E XHIBIT A (“F EES ”).

“Research Plan” shall mean those Fees described as such in Subsection 5.3 (“Research Plan”).

“RFIDIC” shall mean a radio frequency identification integrated circuit.

 

* Confidential Treatment Requested

 

7


“SCIC” shall mean a smart card integrated circuit .

“Silicon Data” shall have the meaning assigned to it in S ECTION  8 (“S ILICON D ATA ”).

“Stand-alone Memory Blocks” shall mean a collection of addressable elements or cells which are capable of holding logical data and information in an integrated circuit that is primarily used as discrete memory devices.

“Stock Purchase Agreement” shall mean a commercially reasonable form of stock purchase agreement, or as otherwise agreed to by the parties.

“Technical Support” shall have the meaning assigned to it in Subsection 5.1 (“Technical Support”).

“Technology Qualification” shall mean the reasonable satisfaction, based on verifiable statistically significant data, of an industry-standard set of requirements, which enables the use of PMC memory elements in integrated circuits. These requirements shall include at a minimum: (i)  performance characterization of memory arrays containing PMC memory elements such as programming speed, erase speed, read access time over appropriate temperature and operating voltage ranges; and (ii)  reliability characterization data of said arrays such as cycling endurance and data retention, over appropriate temperature and operating voltage ranges.

“Term” shall have the meaning assigned to it in S ECTION  11 (“T ERM AND T ERMINATION ”).

“Test Chip Characterization” shall mean creation by Adesto of statistical data for Silicon Data on a PMC Technology memory array test chip designed and fabricated using an industry-standard CMOS process, which array shall be of a density that either by itself or as an aggregate with other arrays on the same wafer or on several wafers would aggregate to [*].

 

* Confidential Treatment Requested

 

8


2. L ICENSES .

Subject to Adesto’s performance hereunder including without limitation the timely payment of all Fees, Axon hereby grants to Adesto the following licenses:

2.1 Licensed Patents. Subject to S ECTION  10 (“C ONFIDENTIAL I NFORMATION ”) and Subsection 2.4 (“Authorized Manufacturers and Integrated Device Manufacturers”), a worldwide, non-exclusive (subject to Subsection 3.2 (“Exclusivity”)), non-transferable, royalty-bearing license, without the right to grant further licenses except as expressly provided in S ECTION  4 (“F URTHER L ICENSES ”), to make, have made (solely by Authorized Foundries or Integrated Device Manufacturers), use, sell, lease, offer for sale, and import Authorized Products under the Licensed Patents.

2.2 Trade Secrets. Subject to S ECTION  10 (“C ONFIDENTIAL I NFORMATION ”) and Subsection 2.4 (“Authorized Manufacturers and Integrated Device Manufacturers”), a worldwide, non-exclusive (subject to Subsection 3.2 (“Exclusivity”)), non-transferable, royalty-free license, without the right to further licenses except as expressly provided in S ECTION  4 (“F URTHER L ICENSES ”), to make, have made (solely by Authorized Foundries and Integrated Device Manufacturers), use, sell, lease, offer for sale, and import Authorized Products under the Licensed Trade Secrets. The Licensed Trade Secrets shall be protected as Confidential Information of Axon for all purposes under this Agreement.

2.3 Authorized Foundries and Integrated Device Manufacturers. Notwithstanding anything to the contrary in this Agreement, in no event shall this Agreement be read as conveying any rights to Adesto to make or have made any Authorized Products at or by any third party which is not either: (a)  an Authorized Foundry; or (b)  an Integrated Device Manufacturer.

2.4 Marking Requirement. Adesto agrees that it shall cause to be affixed conspicuously on all Authorized Products themselves, or where not reasonably possible, on related packaging materials, or datasheets or licensing agreements a notice that the Authorized Products are Protected by the appropriate U.S. Patents listed in E XHIBIT C “L ICENSED P ATENTS and are used under license from Axon Technologies, Corp, and such other notices as Axon may from time to time reasonably require.

 

3. I NVESTMENT D ATE AND E XCLUSIVITY .

3.1 Investment Date. The date which shall occur, if ever, no later than March 31, 2007 and upon which all of the following shall apply shall be deemed the “Investment Date”:

A. Adesto has received in a legally-enforceable writing which neither implies nor states any further obligations of Axon other than specified in this Agreement, and subject only to commercially reasonable investor conditions, a commitment from third party investors to invest at least [*] in a “first round” equity transaction in Adesto (the “Initial Equity Investment”); and

 

* Confidential Treatment Requested

 

9


B. The timing of payments in such commitment shall provide for full payment of the foregoing [*] amount no later than [*] from the date of such commitment; and

C. Adesto shall have timely made all Fee payments under this Agreement and shall have at all times been in compliance herewith.

3.2 Exclusivity. Subject to Adesto’s performance hereunder including without limitation the timely payment of all Fees, and subject to the limitations described in Subsection 3.3 (“Limitations on Exclusivity”) and timely delivery of stock pursuant to S ECTION  9 (“S TOCK P URCHASE ”), Axon hereby agrees that commencing with the Investment Date and thereafter during the Term, Axon shall not grant licenses of Licensed Technology to any third party for use of Licensed Technology: [*] (such restrictions on Axon’s grant of licenses referred to as the “Axon License Restrictions”), as follows, and for the following time periods:

A. [*];

B. [*];

C. [*]; and

D. [*].

3.3 Limitations on Exclusivity; Extension of Exclusivity.

A. Overall Time Limitation. In no event shall the total cumulative period of license exclusivity described in Subsection 3.2(A), Subsection 3.2(B), Subsection 3.2(C), and Subsection 3.2(D) together exceed more than [*] from the Effective Date; provided, however, that solely as to any product type added to this Agreement pursuant to Subsection 3.4 (“Substitutions”), the total cumulative period of license exclusivity shall not exceed [*] from the Effective Date.

B. Other Limitations. The license exclusivity described in Subsection 3.2 (“Exclusivity”) shall at all times be subject to any prior agreements or arrangements entered into by Axon prior to the Investment Date. In addition, any agreements entered into by Axon with any of the Non-Exclusive Companies shall not be deemed in breach of the foregoing license exclusivity limitations.

C. Extension of Exclusivity . In addition to the license exclusivity described in Subsections 3.2 (“Exclusivity”) and 3.3A (Overall Time Limitation), subject to Adesto’s performance hereunder including without limitation the timely payment of all Fees, and subject to the limitations described in Subsection 3.3B (“Limitations on Exclusivity”) and timely delivery of equity securities pursuant to SECTION 9 (“STOCK PURCHASE”), Adesto may elect to continue the Axon License Restrictions by consecutive [*] periods if:

1. Adesto gives Axon written notice of its elections to continue the Axon License Restrictions and, at the time such written notice is given, the Axon License Restrictions have not terminated; and

 

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2. (i) During [*] period preceding the first such [*] continuance, [*] 8-inch diameter equivalent Production Wafers containing Authorized Products consisting primarily of Memory Blocks are manufactured by an Authorized Manufacturer and (ii) during the twelve month period preceding each subsequent one year continuance, [*] 8-inch diameter equivalent Production Wafers containing Authorized Products consisting primarily of Memory Blocks are manufactured by an Authorized Manufacturer; and

3. Adesto agrees to pay Fees to Axon respecting the manufacture of Authorized Products or Net Sales excluding NRE, in each case occurring during the [*] period of the applicable [*] continuance, as required by Section 6.1 (Fees), the alternative applicable amounts specified in Section 2.2 (Stand-alone Memory Blocks) of Exhibit A and Section 3 (FURTHER LICENSE ROYALTIES) of Exhibit A.

3.4 Substitutions. Adesto is entitled, within the first [*] of the Term, to request that the provisions of either Subsection 3.2(d) be deleted and replaced with a provision addressing another product type. The parties shall discuss such request in good faith and in light of changes to Adesto’s business plan and market opportunities. Any agreement between the parties with respect thereto shall be subject to any prior agreements or licenses then entered into by Axon, and shall be included as an amendment to this Agreement, signed by both parties.

 

4. F URTHER L ICENSES .

Subject to all provisions of this Agreement, including without limitation the timely payment of Fees, Adesto shall have the right to grant further licenses of no greater scope than the licenses granted to Adesto hereunder with respect to the Licensed Technology (and in no event to include any right to grant further licenses or sublicenses), but strictly subject to the terms of this S ECTION  4 (“F URTHER L ICENSES ”). All such licenses shall be in a commercially reasonable, written format, shall be no less protective of Axon than of Adesto, and in any event shall be no less protective of Axon than this Agreement, and shall include an immunity for the benefit of Axon and its direct and indirect customers and remarketers under all intellectual property (including without limitation all patents, including any and all divisionals, continuations, re-examinations, renewals, provisionals, continuations-in-part, or re-issues) directly or indirectly owned or licensable by the licensee.

4.1 Project Licenses. Subject to all provisions of this Agreement, including without limitation the timely payment of Fees and all the conditions hereinafter stated in this Subsection 4.1 (“Project Licenses”), Adesto shall have the right to grant further licenses to third parties under the Licensed Technology with the requirement to include identifiable and substantially valuable Adesto intellectual property related to PMC Technology in and with all such Authorized Products: (a)  with respect to Authorized Products which are only individual and specific memory blocks; and (b)  for manufacture of such individual and specific memory block Authorized Products solely by an Authorized Manufacturer. All licenses granted pursuant to this Subsection 4.1 (“Project Licenses”) shall be deemed “Project Licenses.”

 

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4.2 Broad Licenses. Subject to all provisions of this Agreement, including without limitation the timely payment of Fees and all the conditions hereinafter stated in this Subsection 4.2 (“Broad Licenses”), Adesto shall have the right to grant further licenses to third parties under the Licensed Technology without limitation to particular product lines, but with the requirement to include identifiable and substantially valuable Adesto intellectual property related to PMC Technology in and with all such Authorized Products: (a)  to licensees who are Fabless Companies or Integrated Device Manufacturers; and (b)  with respect to any and all Authorized Products; and (c)  for manufacture of such individual and specific memory blocks Authorized Products either by an Authorized Manufacturer or by such Integrated Device Manufacturer itself. All licenses granted pursuant to this Subsection 4.2 (“Broad Licenses”) shall be deemed “Broad Licenses.”

4.3 PMC Manufacturing Only Licenses. Subject to all provisions of this Agreement, including without limitation the timely payment of Fees and all the conditions hereinafter stated in this Subsection 4.3 (“PMC Manufacturing Only Licenses”), Adesto shall have the right to grant further licenses to third parties under the Licensed Technology: (a)  to licensees who have entered into an appropriate written license agreement with Axon or Adesto to permit them to manufacture Authorized Products or testchips solely for Adesto or Adesto licensees who have entered into Broad Licenses or Project Licenses and who do so solely in accordance with their corresponding license agreement. All licenses granted pursuant to this Subsection 4.3 (“PMC Manufacturing Only Licenses”) shall be deemed “PMC Manufacturing Only Licenses.”

 

5. T ECHNICAL S UPPORT AND R ESEARCH .

5.1 Technical Support. Axon shall provide to Adesto certain technical support consisting of at least the following (collectively, “Technical Support”):

A . A one (1) day “kick off” technical meeting at Axon’s offices to educate Adesto regarding the Licensed Technology;

B. Monthly update meetings by telephone between Adesto and Axon to discuss Adesto’s commercialization process; and

C. Quarterly face-to-face meetings between Adesto’s technical team and Axon’s CEO, Dr. Michael Kozicki, and the Axon technical team, at Axon’s offices to discuss Adesto’s commercialization progress.

5.2 Additional Support. Axon will agree to provide support in addition to Technical Support on a commercially reasonable basis, according to such terms and conditions as may be agreed to from time to time in writing by the parties.

5.3 Research Plan. Within ninety (90) days of the Investment Date, the parties shall develop and agree upon a plan for research and development by Axon of certain new enhancements and improvements of the Licensed Technology, including without limitation Axon

 

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Improvements (the “Research Plan”). Such Research Plan shall be executed by both parties, and shall be deemed an Exhibit to this Agreement, and may be modified from time to time upon the parties’ mutual written agreement. The parties shall use their respective commercially reasonable efforts to carry out all their obligations in such Research Plan. All Research Fees not otherwise described in E XHIBIT A (“F EES ”) shall be described in such Research Plan; provided, however, that all Research Fees described in E XHIBIT A (“F EES ”) shall be due and payable as described therein, regardless of whether, if ever, the parties agree upon the Research Plan.

5.4 Joint Development. The parties agree that they do not anticipate that any intellectual property will be jointly-developed or jointly-owned under this Agreement; provided, however, that in cases where the parties wish to create such jointly-developed intellectual property, the parties shall use their best efforts to enter into such written agreements beforehand which shall address the details of such development, including without limitation the scope, schedule, payments (if any), and ownership rights with respect thereto. Any other jointly developed intellectual property under this Agreement shall be owned by the parties, subject to applicable law.

5.5 IP Maintenance and Enforcement.

A. Axon shall use its commercially reasonable judgment to determine the manner and extent to which legal protections for the Licensed Technology are necessary and appropriate, including without limitation protections obtained through the filing, prosecution and maintenance of patent and copyright applications in the United States and elsewhere. Based upon Axon’s determination, Axon shall, at its expense, take all actions reasonably required to obtain such legal protections for the Licensed Technology.

B. Without limiting the provisions of Subsection 5.5 (A ), each party shall provide the other party of written notice if it becomes aware of any possible infringement or misappropriation of the Licensed Technology (such notice, an “Infringement Notice”). If Axon does not initiate action to cause the alleged infringement or misappropriation to terminate within thirty (30) days following receipt of an Infringement Notice from Adesto, then Adesto may, upon notice to Axon, initiate legal action against the alleged infringer (an “Enforcement Action”). If Adesto initiates an Enforcement Action, Axon shall provide such cooperation and assistance as reasonably requested by Adesto in connection therewith and Adesto shall bear the reasonable expenses incurred by Axon in providing such assistance and cooperation. Adesto may, at its expense, join or include Axon as a party to any Enforcement Action which Adesto believes is or could be material to Adesto and Axon hereby agrees to such joinder and to submit to the personal jurisdiction of, and venue in, any court or agency in which such action is pending. Any damages, settlements or recoveries resulting from an Enforcement Action initiated by Adesto will first be applied to reimburse Adesto for any and all unreimbursed fees, costs and expenses (including attorneys’ fees) (collectively “Litigation Costs”) incurred by Adesto in connection with such Enforcement action. Adesto will also have the right to retain the remainder of any such damages, settlements or recoveries.

 

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6. F EES AND P AYMENTS .

6.1 Fees. Adesto shall timely pay to Axon all Fees, accompanied by such written documentation as Axon may reasonably request to explain the amount and calculation of such Fees, as follows:

A. License Fees. Adesto shall timely pay to Axon all License Fees described as such in E XHIBIT A (“F EES ”);

B. Product Royalties. Adesto shall timely pay to Axon all Product Royalties described as such in E XHIBIT A (“F EES ”);

C. Further License Royalties. Adesto shall timely pay to Axon all Further License Royalties described as such in E XHIBIT A (“F EES ”);

D. Research Fees. Adesto shall timely pay to Axon all Research Fees described as such in E XHIBIT A (“F EES ”);

E. IP Maintenance Fees. Adesto shall timely pay to Axon all IP Maintenance Fees described as such in E XHIBIT A (“F EES ”)

6.2 Timing of Payments of Fees. Notwithstanding anything to the contrary in this Agreement, the parties understand and agree that where this Agreement calls for payment of Fees on the Investment Date such payment shall be deemed timely made if both: (a)  Adesto uses its diligent efforts to make such payment on the Investment Date or promptly thereafter; and also (b)  such payment is actually made within [*] after such Investment Date.

6.3 Payments. Any late payment of Fees shall bear interest at a rate of [*] for each month or partial month during which Fees were owed and unpaid, or the highest rate allowed by law, whichever is lower. Such late payment may also be deemed by Axon to be a material breach of this Agreement for purposes of S ECTION  11 (“T ERM AND T ERMINATION ”).

 

7. A DESTO I MPROVEMENTS .

7.1 Notice. Adesto shall give prompt, written notice to Axon of all Adesto Improvements. Such notice shall include a reasonably detailed description of the Adesto Improvements and such written documentation and other explanations as may be reasonably requested by Axon.

7.2 License. Adesto hereby agrees to negotiate in good faith the grant to Axon of a worldwide, non-exclusive, non-transferable (other than as pursuant to Subsection 18.9 (“Assignment”) ), royalty-bearing license, without the right to grant sublicenses, to make, have made, use, lease, sell, offer for sale, and import Permitted Products (defined herein) under the Adesto Improvements. For purposes hereof, “Permitted Products” mean all integrated circuit

 

* Confidential Treatment Requested

 

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products which are not being designed or are not manufactured by (or on behalf of), or are not under- development by, or are not part of future product roadmap of, Adesto that use PMC Technology. The terms and royalties under such license shall be negotiated between the parties, but such prices and terms shall in all cases be commercially reasonable and all royalties thereunder shall be no less favorable to Axon than Adesto may offer to its typical customers.

 

8. S ILICON D ATA .

8.1 Access. Adesto shall provide to Axon, upon request from time to time, such data and other statistically significant information including distribution data regarding certain PMC Technology parameters collected over appropriate operating temperature ranges, including: [*] (collectively, “Silicon Data”). Such Silicon Data shall be subject to the provisions of S ECTION  10 (“C ONFIDENTIAL I NFORMATION ”).

8.2 License. Adesto hereby grants to Axon a worldwide, non-exclusive, non-transferable (other than as pursuant to Subsection 18.9 (“Assignment”) ), royalty-free license, without the right to grant sublicenses, to use and disclose Silicon Data; provided, however, that any disclosure of Silicon Data shall be made solely pursuant to confidentiality terms substantially similar to those described in S ECTION  10 (“C ONFIDENTIAL I NFORMATION ”).

 

9. S TOCK P URCHASE .

9.1 Adesto Stock. In partial consideration for Axon’s performance hereunder, Adesto agrees to provide to Axon the following equity securities, or warrants therefor, of Adesto, according to the following schedule.

 

  A. On July 12, 2006, Adesto has issued to Axon [*] shares of Adesto’s common stock, the terms of which are governed by the Stock Purchase Agreement.

 

  B. On the date that Adesto consummates its first sale following the consummation of the Initial Equity Investment of equity stock in a single transaction or in a series of related transactions, for an aggregate gross purchase price paid to Adesto of no less than [*] (the “First Financing”), Adesto shall issue to Axon a warrant (in the form of the attached Warrant) to purchase a number of shares of Adesto’s common stock equal to the amount determined by dividing (i) the aggregate purchase price paid to Adesto in the First Financing divided by [*] (the “First Financing Amount”) by (ii) the price per share at which Adesto sells its equity stock in the First Financing. In the event that, following the date the warrant is issued, Adesto sells additional equity stock in a subsequent closing of the First Financing, then the warrant will be amended to be exercisable for a correspondingly greater number of shares of Adesto’s common stock. Notwithstanding anything to the contrary set forth in the preceding provisions of this paragraph, if the First Financing Amount is greater than [*], then the number of shares of Adesto’s common stock that shall be subject to the warrant shall instead equal the amount determined by dividing [*] by the price per share at

 

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  which Adesto sells its equity stock in the First Financing. For the sake of clarity, any equity stock issued by Adesto (including in a subsequent closing) pursuant to the terms of the definitive agreements entered by Adesto in connection with the Initial Equity Investment shall not be considered the First Financing.

 

  C. On the date following the First Financing that Adesto consummates its first sale of equity stock in a single transaction or in a series of related transactions, for an aggregate gross purchase price paid to Adesto of no less than [*] (the “Second Financing”), Adesto shall issue to Axon a second warrant (in the form of the attached Warrant) to purchase a number of shares of Adesto’s common stock equal to the amount determined by dividing (i) the aggregate purchase price paid to Adesto in the Second Financing divided by [*] (the “Second Financing Amount”) by (ii) the price per share at which Adesto sells its equity stock in the Second Financing. In the event that, following the date the warrant is issued, Adesto sells additional equity stock in a subsequent closing of the Second Financing, then the warrant will be amended to be exercisable for a correspondingly greater number of shares of Adesto’s common stock. Notwithstanding anything to the contrary set forth in the preceding provisions of this paragraph, if the Second Financing Amount is greater than $[*], then the number of shares of Adesto’s common stock that shall be subject to the warrant shall instead equal the amount determined by dividing $[*] by the price per share at which Adesto sells its equity stock in the Second Financing; provided, further, that if the sum of (i) the lesser of $[*] and the First Financing Amount plus (ii) the lesser of $[*] and the Second Financing Amount, is less than $[*] (the amount by which that sum is less than $[*] being referred to as the “Excess Amount”), then at the election of Axon, which election must be made in writing given to Adesto upon the completion of the Second Financing, Adesto shall issue to Axon a third warrant (in the form of the attached Warrant) either (A) upon the date of the completion of the Second Financing, to purchase a number of shares of Adesto’s common stock equal to the amount determined by dividing the Excess Amount by the price per share at which Adesto sells its equity stock in the Second Financing or (B) upon the initial closing of the Third Financing (defined below), to purchase a number of shares of Adesto’s common stock equal to the amount determined by dividing the Excess Amount by the price per share at which Adesto sells its equity stock in the Third Financing. The “Third Financing” means the first sale following the Second Financing by Adesto of equity stock in a single transaction or in a series of related transactions, for an aggregate gross purchase price paid to Adesto of no less than [*].

 

  D. Each warrant contemplated above will provide that the exercise price per share will equal the lesser of (1) the fair market value of Adesto’s common stock on the date the warrant is issued, as such fair market value is determined in good faith by Adesto’s board of directors or (2) $[*] for a warrant issued upon the First Financing or $[*] for a warrant issued upon the Second Financing. The exercise price per share for the warrant issued upon the Third Financing shall be the fair market value of Adesto’s common stock on the date that warrant is issued. The exercise price may be paid by Adesto through the use of a [*] full recourse promissory note in the form attached to the form of Warrant attached hereto,

 

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  accruing interest commencing on the date of exercise at the minimum amount required to avoid imputed interest and secured by the purchased shares. The term of each warrant will equal [*] following the date the warrant is issued, subject to earlier termination as provided in the attached form of Warrant.

9.2 Stock Purchase Agreement . The provisions of the stock purchase agreement (“Stock Purchase Agreement”) shall be described in an Exhibit F (“Stock Purchase Agreement”) and shall include all rights as apply to founders’ stock, and shall also apply to all common stock of Adesto acquired pursuant to Subsection 9.1 (“Adesto Stock”). The Parties agree to negotiate in good faith the final terms of the Stock Purchase Agreement which shall be incorporated into this Agreement based on the agreed upon term sheet.

9.3 Future Participation. Axon shall have the right, but not the obligation, to participate in all future equity funding rounds of Adesto, , to purchase shares of common stock in each such equity funding round up to [*] of the total outstanding shares of Adesto and at a price per share at which Adesto sells its capital stock in that equity funding. Axon shall provide written notice of whether it elects to participate in an equity financing round to Adesto within [*] following Adesto notifying Axon of the occurrence of the equity funding round. The foregoing right by Axon respecting any given contemplated investment is conditioned upon Axon being an “accredited investor” (as defined by Rule 501 of Regulation D promulgated under the Securities Action of 1933, as amended) on the date of that investment. The provisions of the Future Participation shall be described in Appendix F (“Stock Purchase Agreement”). Notwithstanding the foregoing, Axon shall not have the right to participate in the Initial Equity Investment (including subsequent closings thereof).

9.4 Termination . The provisions of Sections 9.1 and 9.3 shall terminate in full upon the earlier to occur of: (1) the closing of a firm-commitment underwritten public offering by Adesto of its common stock pursuant to an effective registration statement under the Securities Act of 1933, as amended, or (2) a Change in Control of Adesto (without regard to the exclusions from that definition respecting an Excluded Company).

 

10. C ONFIDENTIAL I NFORMATION .

10.1 Protection. Each party (the “Disclosing Party”) may from time to time during the Term of this Agreement disclose to the other party (the “Receiving Party”) non-public information regarding the Disclosing Party’s business, including technical, marketing, financial, personnel, planning, and other information (“Confidential Information”). The Disclosing Party shall mark all such Confidential Information in tangible form with the legend ‘confidential’, ‘proprietary’, or with similar legend. With respect to Confidential Information disclosed orally, The Disclosing Party shall describe such Confidential Information as such at the time of disclosure, and shall confirm such Confidential Information as such in writing [*] after the date of oral disclosure. Notwithstanding anything to the contrary herein, the parties understand and agree that all non-public information regarding the Licensed Trade Secrets (including without limitation the Licensed Trade Secrets themselves) shall be deemed the Confidential Information of the Disclosing Party regardless of whether so marked or confirmed.

 

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10.2 Protection of Confidential Information. Except as expressly permitted by this Agreement, the Receiving Party shall not disclose the Confidential Information of the Disclosing Party and shall not use the Confidential Information of the Disclosing Party for any purpose not expressly permitted by this Agreement. The Receiving Party shall limit the disclosure of the Confidential Information of the Disclosing Party to authorized employees, consultants or contractors of the Disclosing Party, who have a need to know such Confidential Information for purposes of this Agreement, and who are, with respect to the Confidential Information of the Disclosing Party, bound in writing by confidentiality terms no less restrictive than those contained herein.

10.3 Exceptions. Notwithstanding anything herein to the contrary, Confidential Information shall not be deemed to include any information which: (a)  was already lawfully known to the Receiving Party at the time of disclosure by the Disclosing Party as reflected in the written records of the Receiving Party; (b)  was or has been lawfully disclosed by the Disclosing Party to a third party without obligation of confidence; (c)  was or becomes lawfully known to the public without breach of this Agreement; (d)  is independently developed by the Receiving Party without access to, or use of, the Confidential Information; (e)  is approved in writing by the Disclosing Party for disclosure by the Receiving Party; or (f)  is required to be disclosed by law or by the order or a court or similar judicial or administrative body; provided, however, that the Receiving Party shall notify the Disclosing Party of such requirement immediately and in writing, and shall cooperate reasonably with the Disclosing Party, at the Disclosing Party’s expense, in obtaining a protective or similar order with respect thereto.

10.4 Return of Confidential Information. The Receiving Party shall return to the Disclosing Party, destroy or erase all Confidential Information of the Disclosing Party in tangible form (except such Confidential Information which is embedded in the Authorized Products which have already been sold) upon termination of this Agreement, and the Receiving Party shall certify promptly and in writing that it has done so. Except for the rights expressly described herein, the Receiving Party is not granted any rights to any Disclosing Party patents, copyrights, trade secrets, trade names, trademarks (whether or not registered), or any other rights, franchises or licenses.

 

11. T ERM AND T ERMINATION .

11.1 Term. The term of this Agreement (“Term”) shall commence on the Effective Date and continue until the expiration or invalidation of the last to expire Axon Patent, unless earlier terminated as hereinafter provided.

11.2 Termination for Material Breach. Either party may terminate this Agreement immediately upon written notice for the material breach of this agreement by the other party, which material breach has remained uncured for period of thirty (30) days from the date of delivery of written notice thereof to the breaching party.

 

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11.3 Termination for Failure to Fund or Bankruptcy. Axon may terminate this Agreement immediately upon written notice in the event that the Investment Date has not occurred by March 31, 2007, or in the event that (a) a receiver is appointed for any material part of the Adesto’s property, (b) Adesto makes a general assignment for the benefit of creditors, or (c) Adesto becomes a debtor or alleged debtor in a case under the U.S. Bankruptcy Code or becomes the subject of any other bankruptcy or similar proceeding for the general adjustment of its debts or for its liquidation, and such case or proceeding is not dismissed within 90 days. Notwithstanding the foregoing, however, Adesto’s obligations under this Agreement shall not be diminished due to Adesto’s insolvency.

11.4 Effect. In the event of any termination of this Agreement as provided in Subsection 11.2 (“Termination for Material Breach”) or as provided in Subsection 11.3 (“Termination for Failure to Fund or Insolvency”), the licenses granted by Axon under this Agreement shall immediately terminate, and the Receiving Party shall immediately return to the Disclosing Party all material belonging to the Disclosing Party, including without limitation all copies of Confidential Information, and shall promptly certify to the Disclosing Party in writing that the Receiving Party has done so.

 

12. W ARRANTIES AND R EPRESENTATIONS .

12.1 Axon hereby represents and warrants to Adesto that:

A. Axon is a corporation duly organized and validly existing under the laws of the State of Delaware, and has all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby;

B. This Agreement does not violate, contravene or constitute a default under any agreement, commitment, instrument or other arrangement to which Axon is a party;

C . Axon has all the rights to grant licenses to Adesto for intellectual property relating to PMC Technology that is owned by Arizona State University, or Axon, or Arizona State University and Axon jointly, and therefore all of the Licensed Technology is licensable by Axon; and

D. Axon has not granted to any person or entity an exclusive or sole license or equivalent right with respect to any of the Licensed Technology, or assigned or conveyed to any person or entity any ownership interest (including joint ownership rights) therein.

E. Axon has not granted any licenses respecting any Licensed Technology to any party other than to: (1) Adesto pursuant to this Agreement; (2) Micron Technology, Inc. pursuant to that certain Technology License Agreement dated March 22, 2000; and (3) Infineon Technologies AG pursuant to that certain Technology License Agreement dated July 1, 2004. The agreements set forth in the preceding sentence, and the ASU License, are the only agreements or arrangements entered into by Axon, or to which Axon is a party or bound, respecting any Licensed Technology.

12.2 Statement. Axon hereby warrants to Adesto that Axon is party to a certain “Technology Cooperation Agreement,” dated December 10, 1996, as amended prior to the Effective Date, with the Arizona Board of Regents acting on behalf of Arizona State University

 

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(the “ASU License”), pursuant to which Axon has been granted certain licenses to intellectual property owned by Arizona State University and which intellectual property is included in the Licensed Technology.

12.3 Disclaimer. OTHER THAN AS STATED IN SUBSECTION 12.1 AND 12.2 NEITHER PARTY MAKES ANY WARRANTIES, EXPRESS, IMPLIED, ARISING FROM COURSE OF DEALING OR USAGE OF TRADE, OR STATUTORY, AS TO THE DATA INFORMATION OR ANY MATTER WHATSOEVER. IN PARTICULAR, ANY AND ALL WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE AND NON-INFRINGEMENT ARE EXPRESSLY EXCLUDED.

 

13. L IMITATION OF L IABILITY .

13.1 Disclaimer. OTHER THAN FOR ANY BREACH OF SECTION 2 (“LICENSES AND DELIVERY”), SECTION 4 (“FURTHER LICENSES”), OR SECTION 10 (“CONFIDENTIAL INFORMATION”), NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY OR TO ANY THIRD PARTY FOR ANY LOSS OF USE, INTERRUPTION OF BUSINESS OR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE OR CONSEQUENTIAL DAMAGES OF ANY KIND (INCLUDING LOST PROFITS) REGARDLESS OF THE FORM OF ACTION WHETHER IN CONTRACT, TORT (EXCLUDING NEGLIGENCE), EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

13.2 Limitation. Other than for any breach of S ECTION  2 (“L ICENSES AND D ELIVERY ”), S ECTION  4 (“F URTHER L ICENSES ”), or S ECTION  10 (“C ONFIDENTIAL I NFORMATION ”), or for Fees otherwise payable, in no event shall either party’s total liability under this Agreement, regardless of the cause of action, in tort, contact, or otherwise, exceed the sum of [*].

 

14. S URVIVAL .

In the event of any expiration or termination of this Agreement, the provisions of S ECTION  1 (“D EFINITIONS ”), S ECTION  6 (“F EES AND P AYMENTS ”), S ECTION  7 (“A DESTO I MPROVEMENTS ”), S ECTION  8 (“S ILICON D ATA ”), S ECTION  9 (“S TOCK P URCHASE ”), S ECTION  10 (“C ONFIDENTIAL I NFORMATION ”), Subsection 11.4 (“Effect”), S ECTION  12 (“W ARRANTY D ISCLAIMER ”), S ECTION  13 (“L IMITATION OF L IABILITY ”), S ECTION  14 (“S URVIVAL ”), S ECTION  15 (“D ISPUTE R ESOLUTION ”), S ECTION  16 (“C HANGE IN C ONTROL ”), S ECTION  17 (“A UDIT ”) and S ECTION  18 (“G ENERAL ”) shall survive and shall continue to bind the parties.

 

15. D ISPUTE R ESOLUTION .

15.1 Governing Law. This Agreement shall be governed in all respects by the laws of the United States of America and the State of California without regard to conflicts of law principles, and the parties hereby consent the sole jurisdiction of the State and Federal Courts located in Maricopa County, in the State of Arizona, but subject to Subsection 15.2 (“Dispute Resolution”). The parties agree that the United Nations Convention on Contracts for the International Sale of Goods shall not apply to this Agreement.

 

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15.2 Dispute Resolution. Any dispute arising out of or relating to this Agreement shall be finally settled by arbitration administered by the American Arbitration Association under its Commercial Arbitration Rules before a single arbitrator in Phoenix, Arizona, and judgment on any award rendered by the arbitrator may be entered in any court having jurisdiction. The arbitration shall be kept confidential and that the existence of the proceeding and any element of it shall not be disclosed, except to the extent necessary to enforce either party’s rights hereunder.

 

16. C HANGE IN C ONTROL .

16.1 By Adesto. In the event of a Change in Control by Adesto, Adesto shall give prompt, written notice thereof to Axon. In addition, the following shall apply:

[*]

16.2 By Axon. In the event of a Change in Control by Axon, the terms of this Agreement shall continue as written and shall bind Adesto and Axon’s assignee or assignees.

 

17. A UDIT .

Adesto shall maintain a complete, clear, and accurate record of: [*]. Axon shall have the right to conduct an audit of all the relevant books and records of Adesto (through an independent third party auditor selected by Axon and reasonably approved by Adesto), and to obtain true and correct photocopies thereof, during regular business hours at Adesto’s offices and in such a manner as not to interfere unreasonably with Adesto’s normal business activities. In no event shall such audits be conducted hereunder more frequently than every [*]. If any such audit should disclose any underpayment of Fees, Adesto shall promptly pay Axon such underpaid amount, together with interest thereon at a rate of [*] per month or partial month during which each such amount was owed and unpaid, or the highest rate allowed by law, whichever is lower. If the amount of such underpayment exceeds [*] of amounts otherwise paid, then Adesto shall immediately reimburse Axon for Axon’s expenses associated with such audit. Axon may, at its option, deem such a failure to pay Fees a material breach of this Agreement for purposes of S ECTION  11 (“T ERM AND T ERMINATION ”).

 

18. G ENERAL .

18.1 Taxes. In addition to any other payments due under this Agreement, Adesto agrees to pay, and to indemnify and hold Axon harmless from, any sales, use, excise, import or export, value added or similar tax or duty not based on Axon’s net income, including any penalties and interest, as well as any costs associated with the collection or withholding thereof, and all governmental permit fees, license fees and customs and similar fees levied upon the delivery by Axon of the Data Information, which Axon may incur in respect of this Agreement.

 

* Confidential Treatment Requested

 

21


18.2 Injunctive Relief. It is understood and agreed that, notwithstanding any other provisions of this Agreement, breach of the provisions of this Agreement by either party shall cause the other party irreparable damage for which recovery of money damages would be inadequate, and that the non-breaching party shall therefore be entitled to obtain timely injunctive relief to protect such party’s rights under this Agreement in addition to any and all remedies available at law.

18.3 Notices. All notices or reports permitted or required under this Agreement shall be in writing and shall be delivered by personal delivery or by certified or registered mail, return receipt requested. Notices shall be sent to the parties at the addresses described on the first page of this Agreement or such other address as either party may designate for itself in writing.

18.4 No Agency. Nothing contained herein shall be construed as creating any agency, partnership, or other form of joint enterprise between the parties.

18.5 Force Majeure. Neither party shall be liable hereunder by reason of any failure or delay in the performance of its obligations hereunder (except for the payment of money) on account of strikes, riots, insurrection, fires, flood, storm, explosions, acts of God, war, governmental action, earthquakes, and material shortages.

18.6 Waiver. The failure of either party to require performance by the other party of any provision hereof shall not affect the full right to require such performance at any time thereafter; nor shall the waiver by either party of a breach of any provision hereof be taken or held to be a waiver of the provision itself.

18.7 Severability. In the event that any provision of this Agreement shall be unenforceable or invalid under any applicable law or be so held by applicable court decision, such non-enforceability or invalidity shall not render this Agreement unenforceable or invalid as a whole, and, in such event, such provision shall be changed and interpreted so as to best accomplish the objectives of such unenforceable or invalid provision within the limits of applicable law or applicable court decisions.

18.8 Headings. The section headings appearing in this Agreement are inserted only as a matter of convenience and in no way define, limit, construe, or describe the scope or extent of such section or in any way affect this Agreement.

18.9 Assignment. Neither this Agreement nor any rights or obligations of Adesto may be assigned in whole or in part, without the prior, written consent of Axon. Notwithstanding the foregoing, however, Adesto may assign this Agreement, in whole or in part, and Adesto’s rights and obligations hereunder, pursuant to a Change in Control if Adesto satisfies the provisions of Section 16.1 with respect to that Change in Control. Axon may, upon notice, assign this Agreement in whole or in part to a third party which purchases, merges with, is merged into or otherwise directly or directly acquires all or substantially all the assets or equity of Axon; provided, however, that in the event such third party is not, in Adesto’s reasonable judgment, technically competent to carry out the obligations of Axon as described in the then-current Research Plan, then in such case Adesto may, upon notice given within [*] after notice from

 

* Confidential Treatment Requested

 

22


Axon of such assignment, terminate this Agreement in part solely with respect to both parties’ future rights and obligations under Subsection 5.3 (“Research Plan”), including without limitation the obligation to carry out any work, or to pay any Fees, in connection therewith. Any rights or obligations of the parties existing prior to the date of such notice of termination by Adesto shall remain unaffected.

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

18.11 Entire Agreement. This Agreement together with the exhibits hereto completely and exclusively states the agreement of the parties regarding its subject matter, and supersedes and governs, all prior proposals, agreements, or other communications between the parties, oral or written, regarding such subject matter. This Agreement shall not be modified except by a subsequently dated written amendment or exhibit signed on behalf of Axon and Adesto by their duly authorized representatives. This Agreement amends and restates in its entirety that certain Technology License Agreement, dated as of July 12, 2006, between the parties hereto (the “Prior License”), which Prior License is terminated effective the Effective Date.

I N W ITNESS W HEREOF , the parties hereto have caused this Technology License Agreement to be executed by their duly authorized representatives

 

23


S IGNATURE P AGE

 

A XON T ECHNOLOGIES C ORPORATION
By:

/s/ Michael Kozicki

Dr. Michael Kozicki
Title:      Chairman and CTO
Date:

1/17/07

A DESTO T ECHNOLOGIES C ORP .
By:

/s/ Narbeh Derhacobian

Dr. Narbeh Derhacobian
Title:      President and CEO
Date:

1/17/07

 

24


E XHIBIT A

F EES

1. L ICENSE F EES . Adesto shall timely pay to Axon, [*] in advance, for the first [*] of the Term commencing with the Investment Date and thereafter on the anniversary of the Investment Date and within [*] of such a date, the following License Fees:

 

Y EAR    L ICENSE F EE

[*]

   [*]

2. P RODUCT R OYALTIES . Adesto shall timely pay to Axon, on a [*] in arrears, the following Product Royalties on all Authorized Products manufactured for Adesto at a Fab:

2.1 Embedded Memory Blocks. For each and every Authorized Product where such Authorized Product consists of Embedded Memory Blocks and is manufactured by an Authorized Manufacturer or is manufactured by an Integrated Device Manufacturer for Adesto, [*] of: (a)  all amounts owed or paid by Adesto directly or indirectly to such Authorized Manufacturer for the cost of Production Wafers containing such Authorized Products. and (b)  [*] of all amounts paid by Adesto direct or indirectly to such Integrated Device Manufacturer for production wafers containing such Authorized Products.

2.2 Stand-alone Memory Blocks. For each and every Authorized Product where such Authorized Product consists primarily of Memory Blocks and is manufactured by an Authorized Manufacturer or is manufactured by an Integrated Device Manufacturer for Adesto, [*] of: (a)  all amounts owed or paid by Adesto directly or indirectly to such Authorized Manufacturer for the cost of Production Wafers containing such Authorized Products. and (b)  [*] of all amounts paid by Adesto directly or indirectly to such Integrated Device Manufacturer for production wafers containing such Authorized Products.

Notwithstanding the foregoing, however, if Adesto elects to continue the Axon License Restrictions pursuant to the provisions of Section 3.3(C) (Extension of Exclusivity), then, during the period specified in those provisions, Adesto shall pay Fees required by Section 6.1 (Fees) with respect to this Section 2.2 (Stand-alone Memory Blocks) of Exhibit A as if the two references herein to [*] were instead [*].

3. F URTHER L ICENSE R OYALTIES . Adesto shall timely pay to Axon, on [*] in arrears, the following Additional License Fees as a percentage of Net Sales:

 

A UTHORIZED P RODUCTS    P ROJECT  L ICENSE  

B ROAD  L ICENSE  &

P MC  M ANUFACTURING

O NLY L ICENSE

For Authorized Products manufactured in an Authorized Manufacturer by a Fabless Company

   [*]   [*]

For Authorized Products manufactured in an Authorized Manufacturer by an Integrated Device Manufacturer

   [*]   [*]

For Authorized Products manufactured by an Integrated Device Manufacturer in its own Fab

   [*]   [*]

 

* Confidential Treatment Requested

 

25


Notwithstanding the foregoing, however, if Adesto elects to continue the Axon License Restrictions pursuant to the provisions of Section 3.3(C) (Extension of Exclusivity), then, during the period specified in those provisions, Adesto shall pay Fees required by Section 6.1 (Fees) with respect to this Section 3 (FURTHER LICENSE ROYALTIES) as if the three references herein to [*] were instead [*].

4. R ESEARCH F EES . Adesto shall timely pay to Axon, [*] in advance, for the first [*] of the Term commencing with the Investment Date and thereafter on the anniversary of the Investment Date and within [*] of such a date, the following Research Fees:

 

Y EAR    R ESEARCH  F EE

Upon Investment Date

   [*]

Second Year after Investment Date

   [*]

Third Year after Investment Date

   [*]

Fourth Year after Investment Date

   [*]

Fifth Year after Investment Date

   [*]

5. IP M AINTENANCE F EES . Adesto shall timely pay to Axon, [*] in advance, for the first [*] of the Term commencing with the Investment Date and thereafter on the anniversary of the Investment Date and within [*] of such a date, the following IP Maintenance Fees:

 

Y EAR    IP M AINTENANCE  F EE

Upon Investment Date

   [*]

Second Year after Investment Date

   [*]

Third Year after Investment Date

   [*]

Fourth Year after Investment Date

   [*]

Fifth Year after Investment Date

   [*]

 

* Confidential Treatment Requested

 

26


E XHIBIT B

E XCLUDED C OMPANIES

 

1. [*]

 

2. [*]

 

3. [*]

 

4. [*]

 

5. Such other companies whose principal business is, and the majority of whose annual revenues are derived from, licensing of integrated circuit memory manufacturing processes and which Axon shall reasonably determine to be competitors of Axon. Axon shall give Adesto written notice of any such determination promptly Axon makes such determination.

 

* Confidential Treatment Requested

 

27


E XHIBIT C

P ARTIAL L IST OF L ICENSED P ATENTS

 

US Patent Number

   Filing Date   Issue Date   Title

[*]

   [*]   [*]   [*]

[*]

   [*]   [*]   [*]

[*]

   [*]   [*]   [*]

[*]

   [*]   [*]   [*]

[*]

   [*]   [*]   [*]

[*]

   [*]   [*]   [*]

[*]

   [*]   [*]   [*]

[*]

   [*]   [*]   [*]

[*]

   [*]   [*]   [*]

[*]

   [*]   [*]   [*]

[*]

   [*]   [*]   [*]

[*]

   [*]   [*]   [*]

[*]

   [*]   [*]   [*]

[*]

   [*]   [*]   [*]

[*]

   [*]   [*]   [*]

[*]

   [*]   [*]   [*]

[*]

   [*]   [*]   [*]

[*]

   [*]   [*]   [*]

[*]

   [*]   [*]   [*]

[*]

   [*]   [*]   [*]
[*]       

 

* Confidential Treatment Requested

 

28


E XHIBIT D

L ICENSED T RADE S ECRETS

N ONE

 

29


E XHIBIT E

N ON -E XCLUSIVE C OMPANIES

 

1. [*]

 

2. [*]

 

3. Any other company or entity to which [*] or [*]. are explicitly entitled to provide a license pursuant to the terms of the contracts, in effect on the Effective Date, to which they are a party set forth in Section 12.1 E of the Agreement.

 

* Confidential Treatment Requested

 

30


E XHIBIT F

STOCK PURCHASE AGREEMENT

(to be amended based on term sheet agreement)

 

31


AMENDMENT NO. 1

TO

TECHNOLOGY LICENSE AGREEMENT

This Amendment No. 1 to Technology License Agreement (this “Amendment No. 1”), entered into this 1 st day of December 2010, by and between Axon Technologies Corporation (“Axon”), a Delaware corporation having its principal place of business at 7702 E. Doubletree Ranch Road, Suite 300, Scottsdale, AZ 85258 and Adesto Technologies Corporation Inc. (“Adesto”) a California corporation having its principal place of business at 1225 Innsbruck Drive, Sunnyvale, CA 94089.

RECITALS:

WHEREAS , Axon and Adesto entered into a Technology License Agreement (the “Agreement”), dated January 15, 2007 (the “Effective Date”); and

WHEREAS , Axon and Adesto desire to clarify portions of the original Agreement.

NOW, THEREFORE, in consideration of the premises and the mutual covenants and other good and valuable consideration hereinafter contained, the parties agree as follows:

 

1. The first paragraph of Section 4 is hereby superseded and replaced in its entirety with the following:

1.1

Subject to all provisions of this Agreement, including without limitation the timely payment of Fees, Adesto shall have the right to grant further licenses of no greater scope than the licenses granted to Adesto hereunder with respect to the Licensed Technology (and in no event to include any right to grant further licenses or sublicenses), but strictly subject to the terms of this SECTION 4 (“FURTHER LICENSES”). All such licenses shall be in a commercially reasonable, written format, shall be no less protective of Axon than of Adesto, and in any event shall be no less protective of Axon than this Agreement, and shall include an immunity for the benefit of Axon and its direct and indirect customers and remarketers against all damages and losses arising from Adesto’s licensee’s use of all intellectual property (including without limitation all patents, including any and all divisionals, continuations, re-examinations, renewals, provisionals, continuations-in-part, or re-issues) directly or indirectly owned or licensable by Adesto (but excluding damages and losses arising from Axon’s breach of the representations and warranties in Section 12 of this Agreement).

Adesto may fulfill its obligations to Axon under the preceding paragraph by inserting the following provision (or a provision that is at least equally protective of Axon) in the agreement between Adesto and Adesto’s licensee (referred to as “XXX” below):

“Immunity for Adesto Licensor. XXX hereby grants an immunity to Axon against all damages and losses arising from XXX’s use of all intellectual property (including without limitation all patents, including any and all divisionals, continuations, re-examinations, renewals,


provisionals, continuations-in-part, or re-issues) that is directly or indirectly owned or licensable by Adesto, but excluding damages and losses arising from: (a) Axon’s breach of the representations and warranties in Section 12 of the Adesto-Axon Technology License Agreement; and (b) any dispute between Adesto and Axon. XXX’s obligations under this Section will terminate upon any termination or expiration of the Adesto-Axon Technology License Agreement.”

 

2. Section 7.2 is hereby superseded and replaced in its entirety with the following:

7.2 License. Adesto hereby agrees to negotiate in good faith the grant to Axon of a worldwide, non-exclusive, non-transferable (other than as pursuant to Subsection 18.9 (“Assignment”) ), royalty-bearing license, without the right to grant sublicenses, to make, have made, use, lease, sell, offer for sale, and import Permitted Products (defined herein) under the Adesto Improvements (but only to the extent that the Adesto Improvements are solely owned by Adesto and freely licensable to Axon without obligations to a third party). For purposes hereof, “Permitted Products” mean all integrated circuit products which are not being designed or are not manufactured by (or on behalf of), or are not under- development by, or are not part of future product roadmap of, Adesto that use PMC Technology. The terms and royalties under such license shall be negotiated between the parties, but such prices and terms shall in all cases be commercially reasonable and all royalties thereunder shall be no less favorable to Axon than Adesto may offer to its typical customers.

 

3. Section 8.1 is hereby superseded and replaced in its entirety with the following:

8.1 Access. Adesto shall provide to Axon, upon request from time to time, such data and other statistically significant information including distribution data regarding certain PMC Technology parameters collected over appropriate operating temperature ranges, including: [*] (collectively, “Silicon Data”). Such Silicon Data shall be subject to the provisions of SECTION 10 (“CONFIDENTIAL INFORMATION”). Notwithstanding the foregoing, Silicon Data does not include, and Adesto is not required to provide to Axon, any data or information that is developed under a Joint Development Agreement between Adesto and a third party, which is subject to third party confidentiality restrictions.

 

4. In Section 1, the definition of “Axon Improvements” is hereby superseded and replaced in its entirety with the following:

“Axon Improvements” shall mean any updates, corrections, improvements or enhancements of or to the Licensed Technology made by or on behalf of Axon which are owned by Axon or licensable by Axon without charge. Notwithstanding the foregoing, Axon Improvements do not include such updates, corrections, improvements or enhancements to the extent that they are not solely owned by Axon and freely licensable to Adesto without obligations to a third party, unless they would fall within Adesto’s area of exclusivity described in Section 3.2. For example, any such updates, corrections,

 

* Confidential Treatment Requested


improvements or enhancements that could be used in serial non-volatile memory integrated circuit devices manufactured in a Foundry or in an Integrated Device Manufacturer (see Section 3.2(a)) would qualify as Axon Improvements.

 

5. Except as amended by this Amendment No. 1, the terms and conditions of the Agreement shall remain in full force and effect.

IN WITNESS WHEREOF, the Parties have executed this Amendment No. 1 on the date first set forth above.

 

Axon Technologies Corporation

By:

  /s/ Victor Lyn

Name:

Victor Lyn

Title:

Executive Vice President
Adesto Technologies Corporation Inc.

By:

  /s/Narbeh Derhacobian

Name:

Narbeh Derhacobian

Title:

President & CEO


AMENDMENT No. 2 TO AXON-ADESTO TECHNOLOGY

LICENSE AGREEMENT

Axon Technologies Corporation (“Axon”) and Adesto Technologies Corporation (“Adesto”) hereby amend (“Amendment No. 2”) the Technology License Agreement, dated January 15, 2007, between Axon and Adesto, as amended (“Axon Agreement”). Any capitalized terms not otherwise defined in the Axon Agreement or this Amendment No. 2 shall have the meanings ascribed to such terms in the Technology and Intellectual Property License and Joint Development Agreement, dated as of August 6, 2012 (“Altera Agreement”) by and between Adesto and Altera Corporation (“Altera”).

Axon hereby represents and warrants that it has reviewed the Altera Agreement and hereby acknowledges, accepts, and confirms that, subject to the conditions set forth in the Axon Agreement, which is hereby amended as expressly set forth herein and solely for the purpose of the Altera Agreement, Adesto is authorized to grant all of the rights, and delegate all of the obligations, to Altera and its Subsidiaries as set forth in the Altera Agreement, including without limitation the following:

1. Non-Exclusive Rights . Axon hereby acknowledges, accepts, and confirms that Adesto is authorized to grant to Altera and its Subsidiaries the non-exclusive licenses to the Licensed Technology (as defined in the Axon Agreement) set forth in Sections 2.2, 2.3, 2.4 and 2.5 of the Altera Agreement.

2. Switch Definition . Axon hereby acknowledges, accepts, and confirms that the definition of “Switch” in the Altera Agreement is included within the definition of “Embedded Memory Blocks” in the Axon Agreement.

3. Licensed Products . For the purpose of granting a Further License under Section 4.2 of the Axon Agreement, Axon hereby acknowledges and agrees that the requirement “to include identifiable and substantially valuable Adesto IP related to PMC Technology in and with all such Authorized Product” has been met for Licensed Products as defined in the Altera Agreement.

4. Immunity . Axon hereby acknowledges, accepts, and confirms that the following provision in the Altera Agreement fulfills Adesto’s obligations to Axon under Section 4 of the Axon Agreement (as amended by Section 1 of Amendment No. 1 to the Axon Agreement):

Immunity for Adesto Licensor . Altera agrees to defend Axon, and pay damages and losses finally awarded by a court of competent jurisdiction against Axon, in a claim, action, or proceeding (“Proceeding”) alleging that Altera’s use of any Licensed Technology (as defined in the Altera Agreement) relating to Altera and Joint Foreground IP (as defined in the Altera Agreement) infringes a third party’s intellectual property rights. Altera’s obligations under this Section are conditioned on (a) Axon notifying Altera promptly of any such Proceeding; (b) Axon giving Altera total and sole control over the defense, negotiations, and/or settlement of such Proceeding: and (c) Axon reasonably cooperating at Altera’s


expense in the defense or settlement of such Proceeding. Altera shall have no obligations under this Section with respect to damages and losses arising from: (i) Axon’s breach of the representations and warranties in Section 12 of the Axon Technology Agreement; and (ii) any disputes between Adesto and Axon.

5. Continuing Rights . Axon hereby acknowledges, accepts and confirms that Altera’s rights as set forth in the Altera Agreement with respect to the Licensed Technology (as defined in the Axon Agreement) shall survive any termination of Adesto’s license under the Axon Agreement, provided that Altera pays the applicable License Fees (as defined in the Altera Agreement) and Royalties (as defined in the Altera Agreement) as per the terms of the Altera Agreement and provided that Adesto remits all payments due for Altera’s continuing rights to Axon as per the Axon Agreement. In the event that Adesto fails to make such payments to Axon for Altera’s continuing rights and upon [*] written notice by Axon to Altera with a copy to Adesto, Altera shall make payment of Further License Royalties (as defined in the Axon Agreement) that become due after such notification date directly to Axon by treating License Fees (as defined in the Altera Agreement) and Royalties (as defined in the Altera Agreement) as Net Sales (as defined in the Axon Agreement) and calculating Further License Royalties in accordance with Exhibit A Section 3 of the Axon Agreement. Altera shall deduct such Further License Royalties from any payment obligations to Adesto under the Altera Agreement.

6. Marking Requirement . Axon hereby acknowledges, accepts, and confirms that the following provision in the Altera Agreement fulfills Adesto’s obligations under Section 2.4 of the Axon Agreement:

Altera agrees that it shall include the following statement in its datasheets for any Licensed Products: “Portions of this product are provided under a patent license from Axon Technologies, Corporation. See www.axontc.com.

Nothing in this Amendment alters or amends any Adesto obligation or any condition, except as expressly amended herein. Axon shall not be bound by any amendments to the Altera Agreement that Adesto and Altera agree to subsequent to the execution of this Amendment. Axon’s representations, warranties, acceptances, confirmations, agreements, and acknowledgements set forth in this Amendment do not apply to any modifications to or changes in scope of the Altera Agreement that arise under Section 3.2 of the Altera Agreement.

 

* Confidential Treatment Requested


IN WITNESS WHEREOF, Axon and Adesto have executed this Amendment on the date first set forth above.

 

Axon Technologies Corporation
By:  

/s/ Victor Lyn

Name:   Victor Lyn
Title:   Executive Vice President
Date:   8/6/2012
Adesto Technologies Corporation
By:  

/s/ Narbeh Derhacobian

Name:   Narbeh Derhacobian
Title:   CEO
Date:   8/6/2012


AMENDMENT NO. 2

TO

TECHNOLOGY LICENSE AGREEMENT

This Amendment No. 2 to Technology License Agreement (this “Amendment No. 2”), entered into this 18 th day of April 2013, by and between Axon Technologies Corporation (“Axon”), a Delaware corporation having its principal place of business at 7702 E. Doubletree Ranch Road, Suite 300, Scottsdale, AZ 85258 and Adesto Technologies Corporation (“Adesto”), a California corporation having its principal place of business at 1250 Borregas Avenue, Sunnyvale, CA 94089. Capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in the Agreement (as defined below).

RECITALS:

WHEREAS , Axon and Adesto entered into a Technology License Agreement, dated January 15, 2007, as amended on December 1, 2012 (the “Agreement”); and

WHEREAS , Axon and Adesto desire to clarify portions of the Agreement and enter into additional agreements.

NOW, THEREFORE, in consideration of the premises and the mutual covenants and other good and valuable consideration hereinafter contained, the parties agree as follows:

 

1. Extension of Exclusivity . Axon agrees that, notwithstanding Section 3.3C (Extension and Exclusivity) of the Agreement, the Axon License Restrictions shall be continued for a five (5) year period commencing on [the date of this Amendment No. 2] (the “Exclusivity Extension Period”), in exchange for a [*] royalty payment of [*] made by Adesto to Axon in [*] following the date of this Amendment No. 2. Such one-time royalty payment is based on a yearly minimum of [*] inch diameter equivalent Production Wafers containing Authorized Products consisting primarily of Memory Blocks manufactured by an Authorized Manufacturer (the “Minimum Wafer Requirement”) and calculated pursuant to Section 2.2 (Stand-alone Memory Blocks) of Exhibit A to the Agreement. Adesto agrees that it shall pay Fees to Axon as required by Section 6.1 (Fees) of the Agreement and pursuant to Section 2.2 (Stand-alone Memory Blocks) of Exhibit A to the Agreement for any number of additional [*] inch diameter equivalent Production Wafers containing Authorized Products consisting primarily of Memory Blocks manufactured by an Authorized Manufacturer that exceeds the Minimum Wafer Requirement in any year during the Exclusivity Extension Period.

 

2. Advancement of Fees . Notwithstanding the calculation of Fees set forth in Exhibit A to the Agreement, Axon agrees that Adesto shall pay to Axon [*].

 

3. Right of First Refusal .

(a) Third-Party License . In the event that Axon receives a bona fide offer (a “License Offer”) from a third-party to license the Licensed Technology for use in a manner that does not violate the Axon License Restrictions as set forth in Section 3.2 (Exclusivity) of the Agreement, then Axon shall, prior to accepting such offer, [*].

 

* Confidential Treatment Requested


(b) Asset Purchase . In the event that Axon receives a bona fide offer (an “Asset Purchase Offer”) from a third-party to acquire any or all of Axon’s assets, then Axon shall, prior to accepting such offer, [*].

 

4. Except as amended by this Amendment No. 2, the terms and conditions of the Agreement shall remain in full force and effect.

[Signature page follows]

 

* Confidential Treatment Requested

 

2


IN WITNESS WHEREOF , the Parties have executed this Amendment No. 2 on the date first set forth above.

 

Axon Technologies Corporation
By:

  /s/ Victor Lyn

Name: Victor Lyn
Title: Executive Vice President
Adesto Technologies Corporation
By:

  /s/ Narbeh Derhacobian

Name: Narbeh Derhacobian
Title: President and Chief Executive Officer

Exhibit 10.07

[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

Manufacturing Agreement

BETWEEN:

ADESTO TECHNOLOGIES CORPORATION, a company incorporated under the laws of United States, having its registered office at 1250 Borregas Ave, Sunnyvale, CA 94089.

Hereinafter referred to as “ADESTO”

On the one hand,

AND:

ALTIS SEMICONDUCTOR, a company incorporated under the laws of France, having its registered office at 91, rue du Faubourg Saint Honoré - 75008 Paris - France.

Hereinafter referred to as “ALTIS”

On the other hand.

ALTIS and ADESTO are individually referred to as a “PARTY” and collectively as the “PARTIES”.

This agreement is not binding on any PARTY until signature by an authorised signatory of each PARTY.

This document and any attachment contain confidential information. It is prohibited to distribute this document and any attachment in any form, including in print, in copy electronically or verbally, to a third party, except that neither PARTY is prohibited from disclosing the terms of this Agreement to an actual or potential investor or bonafide acquirer of such PARTY or a purchaser of all or substantially all of such PARTY’s assets or to such PARTY’s lawyers and accountants, provided that such disclosure is subject to confidentiality provisions at least as protective as set forth herein.

PREAMBLE

ADESTO and ALTIS entered into a non-binding Memorandum of Understanding (“MOU”) as of January 18, 2011, pursuant to which they proposed to combine their collective knowledge and efforts to develop CBRAM memory technology in order to manufacture CBRAM memory products designed by ADESTO at ALTIS facility initially using ALTIS 130 nm copper technology. The MOU provides, amongst others, for the entering into this agreement.

As provided for in the MOU, the manufacturing relationship between ADESTO and ALTIS are described hereunder.


DEFINITIONS

ADESTO ” shall mean ADESTO itself and its majority-owned subsidiaries.

ALTIS ” shall mean ALTIS itself and its majority-owned subsidiaries.

ACCEPTANCE CRITERIA ” shall mean a list of criteria mutually agreed by both PARTIES (e.g. but not limited to visual inspection criteria, limits of inline parameters, limits of electrical parameters, reliability criteria, minimum yield and binning criteria, quality requirements) for acceptance by ADESTO of PRODUCTION WAFERS or a LOT manufactured by ALTIS

ALTIS PROCESS ” means ALTIS’ technology nodes from 130nm down o 90nm, using 200 mm diameter wafers.

CBRAM ” means resistive random access memory (ReRAM) technology based on Programmable Metallization Cell (PMC) non-volatile memory technology, initially invented by Michael Kozicki at Arizona State University.

DATA SHEET ” means the functional, environmental, manufacturing and other specifications that ADESTO provides for a chip product.

CONTRACT PRODUCTS ” shall mean CBRAM semiconductor products designed by ADESTO with ALTIS PROCESS for release to the market, manufactured and/or tested by ALTIS at the manufacturing facility in Corbeil-Essonnes and sold by ALTIS to ADESTO pursuant to this AGREEMENT.

[*]

EARLY PRODUCTION ” of a CONTRACT PRODUCT means those CONTRACT PRODUCTS where the WAFERS were among the first 500 WAFERS fabricated after completion of QUALIFICATION of the CONTRACT PRODUCT.

GOOD DIE ” means die that is manufactured and performs in conformance with ADESTO’s applicable DATA SHEET.

JDA ” means that certain Joint Development Agreement entered into by ADESTO Technologies France and ALTIS on Jan. 19, 2011.

LEAD TIME ” shall mean the time in calendar days from the date of ALTIS’ issuance of an order acknowledgement to ADESTO, to the date of shipment of WAFERS to ADESTO.

LOT ” shall mean a batch of WAFERS, which are or have been processed with an identical production identification number. The standard size for a LOT is a batch of 25 wafers.

NON-[*] WAFERS ” means all WAFERS other than [*].

 

* Confidential Treatment Requested

 

2


ORIGINAL SCHEDULE DATE ” shall mean the date on which ALTIS commits to make WAFERS available for delivery as specified in the first order acknowledgement.

PRODUCT TECHNOLOGY ” means ALTIS or ADESTO’s WAFER fabrication technology as applied for CONTRACT PRODUCTS.

PRODUCTION ” of a CONTRACT PRODUCT means those CONTRACT PRODUCTS where the WAFERS were fabricated after the end of EARLY PRODUCTION (i.e., the 501 st and later WAFERS after completion of QUALIFICATION of the CONTRACT PRODUCT).

PROTOTYPE ” of a CONTRACT PRODUCT shall mean those CONTRACT PRODUCTS where the WAFERS are fabricated before EARLY PRODUCTION begins, such as for product validation, qualifications, or delivery of first samples of a CONTRACT PRODUCT.

QUALIFICATION ” is the process described to ensure compliance of a CONTRACT PRODUCT with its specifications. Such specifications are defined mutually by the PARTIES before EARLY PRODUCTION begins.

RELEASE ” of a CONTRACT PRODUCT shall mean the completion of the QUALIFICATION, allowing the CONTRACT PRODUCT to be released for EARLY PRODUCTION.

RELEASE DATE ” means the earliest date on which all three of the following conditions have been met: (1) The ALTIS CBRAM production process has completed QUALIFICATIONS by ADESTO, (2) ADESTO has taped out the commercial release version of a CBRAM memory product to be manufactured by the qualified ALTIS CBRAM production process, and (3) ADESTO is sampling the CBRAM product with customers. The PARTIES will document the RELEASE DATE in writing.

RISK START ” shall mean production of WAFERS before the RELEASE has been completed.

TEST PACKAGE ” shall mean the whole set of information, machine readable information, physical hardware required to perform the testing, in the manufacturing environment, of EARLY PRODUCTION, PRODUCTION, and PROTOTYPE WAFERS in manufacturing conditions.

TESTING SERVICES ” shall be CONTRACT PRODUCT production and/or engineering tests and test related services to be provided under this AGREEMENT.

WAFERS ” means semiconductor wafers containing CBRAM technology manufactured and delivered by ALTIS under this agreement.

WORKING DAY ” shall mean any day other than a Saturday, Sunday or a day on which commercial banks are required or authorised by law to close in France.

YIELD ” means the percentage of die on a WAFER that qualify as GOOD DIE. This excludes the module yield relating to packaging and final test.

 

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ARTICLE 1 - PURPOSE

The purpose of this agreement, hereinafter also referred to as the “AGREEMENT”, is to define the relationship between ADESTO and ALTIS for the manufacturing at the ALTIS facility of memory products for ADESTO, where the memory products employ CBRAM technology designed by ADESTO.

ARTICLE 2 - MANUFACTURING

 

A. ALTIS Manufacturing Commitment

ALTIS will at all times maintain sufficient manufacturing capacity and commit sufficient resources to meet [*] of the current quarter of ADESTO’s orders and [*] of ADESTO’s forecasts for WAFERS provided by ADESTO as set forth in Exhibit 1 (section C). If ALTIS at any time believes there is any possibility that it will not be able to meet this capacity requirement, including at any time in the future, ALTIS will immediately notify ADESTO and, at ADESTO’s request, cooperate with ADESTO to mitigate any possible shortfall in capacity. ALTIS’ operational excellence, including YIELD, cycle time, defect management, delivery schedule and other manufacturing parameters will be as set out in Exhibit 1.

ALTIS will manufacture and deliver to ADESTO (a) all EARLY PRODUCTION WAFERS ordered by ADESTO during the term of this agreement, and (b) PRODUCTION WAFERS ordered by ADESTO during the term of this agreement in quantities consistent with ALTIS’ manufacturing commitment above.

The terms and conditions for the manufacture and delivery of such WAFERS are set forth in Exhibit 1 (Altis Wafer Supply Operational Terms & Conditions).

Discontinuation of Fab Process at ALTIS. If ALTIS decides to discontinue or change any fab process used to manufacture CONTRACT PRODUCTS, ALTIS will provide [*]’ prior written notice to ADESTO. During the [*] notice period, ADESTO may place additional orders for the affected CONTRACT PRODUCTS. In addition, on ADESTO’s request, ALTIS will build inventory of WAFERS to support up to [*] of ADESTO’s run rate after the process is discontinued.

 

B. ADESTO Purchase Commitment

ADESTO agrees to the following purchase commitments for WAFERS:

(1) ADESTO will order from ALTIS at least the percentage shown in the table below of ADESTO’s total volume for PRODUCTION NON-[*] WAFERS ordered by ADESTO during the [*] period beginning on the effective date of this agreement.

 

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For each calendar year, if
the average number of
NON-[*] WAFERS
ordered by ADESTO, per
month is...

   Then ADESTO will order at
least the following
percentage from ALTIS

[*]

   [*]%

[*]

   [*]%

[*]

   [*]%

[*]

   [*]%

[*]

   [*]%

For example, if ADESTO averages [*] PRODUCTION NON -[*] WAFERS per month over a calendar year, then ADESTO commits to order at least [*] of the corresponding number of WAFERS from ALTIS during that calendar year.

(2) ADESTO will order from ALTIS at least [*] of ADESTO’s total volume for PRODUCTION [*] WAFERS which are ordered by ADESTO prior to [*]. After such date, ADESTO’s purchasing commitment for PRODUCTION [*] WAFERS will be as set out in the table in above.

(3) Each of the purchase commitments described above applies only to WAFERS based on CBRAM technology developed with the ALTIS PROCESS and will be evaluated on a calendar year basis, separately for (a) all PRODUCTION [*] WAFERS in the aggregate, and (b) all PRODUCTION NON [*] WAFERS in the aggregate.

ADESTO’s purchase commitment described above is conditioned upon ALTIS meeting and remaining fully in compliance with all of the following conditions:

(a) ALTIS is in full compliance with its commitments and pricing set forth in Article 2A and Article 2D.

(b) WAFERS provided by ALTIS are commercially marketable (as defined by ADESTO product specification and DATA SHEETS) and of a quality consistent with industry standards. This only relates to the manufacturing and/or testing of the WAFERS, but excludes any packaging and final test induced defects.

(c) ALTIS delivers the WAFERS in a timely manner according to the agreed schedule.

(d) ALTIS has not otherwise materially breached the terms and conditions of its manufacture and delivery of WAFERS to ADESTO.

If ALTIS breaches any of the above conditions, ADESTO may send written notice to ALTIS. ADESTO’s commitments under this Article 2B will then terminate automatically after [*], if ALTIS has not cured the breach during the [*] period.

ADESTO shall not be in breach of its purchase commitment described above in the following situations:

 

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(x) If ALTIS does not have sufficient capacity to meet ADESTO’s demands, then ADESTO may use third party manufacturers to meet ADESTO’s excess demands. For example, if ADESTO’s purchasing commitment and requirement is 1000 NON [*] WAFERS per month and ALTIS can only supply 600, then ADESTO may use third party manufacturers to supply the other 400 without breaching its purchasing commitment, for the period which Altis has indicated that it will not be available to provide the capacity.

(y) If ALTIS does not have the technology node or process requirements requested by ADESTO. For example, if ADESTO requests 90 nm CMOS memory process for a CONTRACT PRODUCT, and ALTIS does not have that process with substantially the same features, such as cell size, etc., then ADESTO may use a third party for that CONTRACT PRODUCT.

(z) If ALTIS cannot offer the prices as set out in Article 2D.

If ADESTO reasonably believes one of the above situations may occur in the future, ADESTO may engage with a third party manufacturer sufficiently far in advance to avoid any delay in ADESTO’s product plans.

 

C. Third Party Manufacturer.

Once ADESTO has engaged with a third party manufacturer as permitted above, ADESTO may develop that relationship in a manner that ADESTO deems to be commercially reasonable and WAFERS ordered under that relationship will be excluded from the calculation to determine whether ADESTO has met its purchase commitment. ADESTO is not obligated to revert back to ALTIS even if ALTIS later remedies the original condition that permitted ADESTO to engage with the third party manufacturer, except for a capacity shortfall that is remedied by ALTIS within [*].

 

D. Pricing

Pricing for PROTOTYPE LOT and EARLY PRODUCTION WAFERS will be determined by the JDA.

For all PRODUCTION NON [*] WAFERS, ALTIS will offer to ADESTO pricing that corresponds to the market conditions for the applicable product and that will be no greater than [*]% higher than the INDUSTRY AVERAGE PRICE. “INDUSTRY AVERAGE PRICE” for a WAFER is determined as follows. If ADESTO has purchased or is purchasing the same or similarly complex WAFERS in similar volumes and quality standards from other leading third party manufacturers during the same calendar quarter, then the INDUSTRY AVERAGE PRICE will be the average of the actual prices for the orders placed by ADESTO during the calendar quarter. If not, but ADESTO has received price quotations for the same or similarly complex WAFERS in similar volumes and quality standards from other leading third party manufacturers during the same calendar quarter, then the INDUSTRY AVERAGE PRICE will be the average of the price quotations received during the calendar quarter. For the avoidance of doubt, other leading third party manufacturers are TSMC, UMC, Global Foundries, Tower/Jazz and like foundries in terms of quality, yield, defect density and pricing. If not, then the PARTIES will cooperate in good faith to estimate an INDUSTRY AVERAGE PRICE based on available

 

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information, including for example data from market analysts for TSMC, UMC, Global Foundries, Tower/Jazz and like foundries price quotations. Third party prices and price quotations will not be increased to account for ALTIS special processes, know-how. IP contributions or CBRAM processing capabilities. In terms of schedule, for NON [*] WAFERS, prices are negotiated one quarter prior to the PRODUCTION WAFER starts and defined as annual prices according to the yearly forecasted volume. In order to access to a specific yearly volume price, a Minimum Order Quantity (MOQ) per order shall apply. On a quarterly basis. ADESTO and ALTIS will review the actual ordered quantities versus the expected yearly forecast. In case of deviation greater than [*]%, ALTIS reserves the right to revisit the prices for current and future PRODUCTION WAFERS.

[*].

Pricing for WAFER test (if any) are described in Appendix 2.

All prices are quoted in US dollars.

Cancellation Fees. If the production or delivery of WAFERS is cancelled by ADESTO within the manufacturing cycle, a cancellation fee will be payable by ADESTO. [*]:

[*].

ARTICLE 3 - R&D COMPENSATION

ADESTO will pay to ALTIS an [*] non-recurring engineering fee for each year through [*] (the “NON-RECURRING ENGINEERING FEE”) as consideration for research and development expenses incurred by ALTIS. The NON-RECURRING ENGINEERING FEE will be [*].

ARTICLE 4 - PAYMENT TERMS

The prices set forth in this agreement are net of any and all taxes. The PARTY with the payment obligation (“PAYING PARTY”) shall pay or, if the PARTY with the right to receive payment (“PAYEE”) so requires, shall reimburse PAYEE for all taxes in connection with the PAYING PARTY’s payment obligation. If any withholding or similar tax must be paid under the laws of any country outside of the U.S. based on the payments to PAYEE in this agreement, then PAYING PARTY will pay such taxes and such taxes shall not be deducted from the payments to PAYEE hereunder. The amounts shown in this agreement are the net amounts to be received by PAYEE, after the payment of any such taxes. All invoices shall be due and payable [*] [to be discussed] net after the date of reception of invoice by wire transfer to the account designated on the invoice. In case of late payment, the PAYEE may charge [*]% interest per month or the maximum delay interest allowed by law, whichever is lower.

ARTICLE 5 - REPRESENTATIONS AND WARRANTIES

Each PARTY represents and warrants to the other PARTY that (i) it has full corporate power to enter this agreement and to carry out its obligations hereunder; and (ii) any and all services provided by it hereunder, including but not limited to any and all services, support, training, and maintenance services, shall be provided in a professional and workmanlike manner, such manner to equal or exceed the industry standard.

 

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THE FOREGOING WARRANTY AND THE WARRANTIES IN ARTICLE 7-9 ARE IN LIEU OF, AND EACH PARTY DISCLAIMS, ALL OTHER WARRANTIES REPRESENTATIONS OR CONDITIONS EXPRESS OR IMPLIED INCLUDING, WITHOUT LIMITATION, THOSE OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR NON-INFRINGEMENT.

ARTICLE 6 - LIABILITY AND EXCLUSIONS

EXCLUSION OF DAMAGES. EXCEPT FOR BREACHES OF ARTICLE 2 (MANUFACTURING) OR ARTICLE 10 (CONFIDENTIALITY), IN NO EVENT WILL EITHER PARTY BE LIABLE WITH RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT UNDER ANY CONTRACT, STRICT LIABILITY, NEGLIGENCE OR OTHER LEGAL OR EQUITABLE THEORY FOR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES OR LOST PROFITS, OR COST OF PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES, EVEN IF INFORMED IN ADVANCE OF THE POSSIBILITY OF SUCH DAMAGES.

BASIS OF BARGAIN. THE LIMITATIONS OF LIABILITY SET FORTH IN THIS ARTICLE ARE AN EXPRESS PART OF THE BARGAIN BETWEEN THE PARTIES AND THE BASIS FOR THE DETERMINATION OF THE FEES SET FORTH HEREIN.

ARTICLE 7 - PRODUCT WARRANTY

 

A. Prohibited Uses

CONTRACT PRODUCTS cannot be used for the following purposes: (a) exclusively military applications; (b) nuclear technology; and (c) weapons of mass destruction (nuclear, biological, and chemical). Furthermore, given the restrictive conditions applicable to the use of the CONTRACT PRODUCTS in the field of aerospace, automotive or medically related functions. ADESTO shall use the CONTRACT PRODUCTS for the foregoing purposes under its entire responsibility and shall, at its own expense, indemnify and hold ALTIS free and harmless from any liability, damage or expenses, including attorney’s fees, arising from any claim resulting from the use of the CONTRACT PRODUCTS in the field of aerospace, automotive or medically related functions.

 

B. Product Warranty

ALTIS warrants that the CONTRACT PRODUCTS delivered hereunder shall conform to the specifications and DATA SHEETS as agreed to by the PARTIES and shall be free from defects in material and workmanship under normal use for a period of [*] from the date of delivery. This only relates to the manufacturing and/or testing of the WAFERS, but excludes any packaging and final test induced defects. If during the [*] period, (a) ALTIS is notified promptly in writing of a detailed description of the alleged defects upon discovery of any defects in the CONTRACT PRODUCTS, (b) such CONTRACT PRODUCTS are returned to ALTIS in accordance with documented RMA (“Returned Materials Authorization”) process provided to ADESTO, freight

 

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prepaid, and (c) ALTIS’ reasonable conclusion after promptly examining such returned CONTRACT PRODUCTS reveals that such CONTRACT PRODUCTS are indeed defective (i.e., they do not pass the test program applicable at time of manufacture) and defects are not caused by accident, abuse, misuse, neglect, improper installation or assembly, repair or alteration by someone not authorized by ALTIS, or improper testing or use contrary to instructions given by ALTIS, then ALTIS will, at its option, either (x) repair, (y) replace, or (z) credit ADESTO for such defective CONTRACT PRODUCTS if repair or replacement are not commercially and reasonably available. ALTIS shall return any CONTRACT PRODUCTS repaired or replaced under this warranty to ADESTO, transportation prepaid, and shall reimburse ADESTO for the transportation charges paid by ADESTO for returning such defective CONTRACT PRODUCTS to ALTIS. This warranty shall not extend to repaired or replaced CONTRACT PRODUCTS returned by ADESTO after the above [*] warranty period. Notwithstanding the above, prior to any return of allegedly defective CONTRACT PRODUCTS by ADESTO pursuant to this section. ADESTO shall first offer ALTIS the opportunity to inspect the CONTRACT PRODUCTS at ADESTO’s facilities. In the event that [*] or more of any single LOT of CONTRACT PRODUCTS are eligible for warranty return under this Article. ADESTO may return all or any portion of the entire LOT as eligible for warranty after consultation with ALTIS on the root cause analysis and the acceptable criteria for that LOT.

 

C. Epidemic Failure

In the event that [*] or more of any LOT, batch or other separately distinguishable manufacturing run of CONTRACT PRODUCTS is found to be defective with the same or similar defects within [*] for consumer / industrial products or [*] for automobile products, following ALTIS’ delivery of such CONTRACT PRODUCTS to ADESTO. ALTIS will promptly: (a) dedicate sufficient resources to thoroughly investigate the cause of the defect; (b) perform root cause analysis; and (c) implement corrective action. If ALTIS’ reasonable conclusion after promptly examining such returned CONTRACT PRODUCTS reveals that such CONTRACT PRODUCTS are indeed defective and defects are not caused by accident, abuse, misuse, neglect, improper installation or assembly, repair or alteration by someone not authorized by

ALTIS, or improper testing or use contrary to instructions given by ALTIS, then ALTIS will, at its option, either (x) repair, (y) replace, or (z) credit ADESTO for such defective CONTRACT PRODUCTS if repair or replacement are not commercially and reasonably available. ALTIS shall return any CONTRACT PRODUCTS repaired or replaced under this warranty to ADESTO, transportation prepaid, and shall reimburse ADESTO for the transportation charges paid by ADESTO for returning such defective CONTRACT PRODUCTS to ALTIS. This warranty shall not extend to repaired or replaced CONTRACT PRODUCTS returned by ADESTO after the above [*] warranty period for consumer / industrial products or [*] for automobile products.

 

D. Warranty Disclaimer

This warranty is to the sole benefit of ADESTO and is not transferable. THE FOREGOING WARRANTY CONSTITUTES ALTIS’ EXCLUSIVE LIABILITY AND ADESTO’S EXCLUSIVE REMEDY FOR ANY NON-CONFORMITY OF THE CONTRACT PRODUCTS OR FOR ANY DEFECTS OF THE CONTRACT PRODUCTS HEREUNDER. THE

 

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FOREGOING WARRANTY SHALL BE IN LIEU OF ANY AND ALL OTHER WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, INCLUDING BUT NOT LIMITED TO, THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, ALL OF WHICH ARE HEREBY EXPRESSLY DISCLAIMED.

ARTICLE 8 - LIMITATION OF PRODUCT LIABILITY

Notwithstanding anything contained in this AGREEMENT, ALTIS’ aggregate liability to ADESTO for any damages arising from or in connection with any defects delivered PRODUCT shall not exceed [*] of the total price paid to ALTIS by ADESTO for the CONTRACT PRODUCTS delivered to ADESTO during the [*] period preceding the notification by ADESTO to ALTIS of defective products.

ALTIS shall not be liable for and ADESTO undertakes to indemnify and hold ALTIS harmless from any product related liability claims by any third party pertaining to CONTRACT PRODUCTS supplied by ALTIS to ADESTO.

ARTICLE 9 - INTELLECTUAL PROPERTY INDEMNIFICATION

Each PARTY shall defend or otherwise solve at its expense any dispute arising from a third party claim that (i) the specifications, technical parameters, designs, criteria, process technology or any other information or materials provided for the purpose of this AGREEMENT is conceived, created, developed, reduced to practice or acquired by the PARTY who provides such information or materials, by infringing the patent, copyright, trade secret or any other intellectual property rights of any third party, and (ii) in the event that a PARTY believes that the information or materials it provided to the other are likely to be infringing upon the patent, copyright, trade secret or any other intellectual property rights of any third party, or any ownership right of any third party, the PARTY shall, at its option and expense, take measures to ensure that the other PARTY may continue to legally use such information and materials for the performance of this AGREEMENT, including, but not limited to obtaining the authorization or license from the owner of the intellectual property right or replacing the information or materials with a non-infringing substitute.

ADESTO shall indemnify and hold ALTIS harmless from any loss (including reasonable legal fees) resulting from a third party claim against ALTIS for infringement of a third party’s patent, trademark, copyright, mask work rights, trade secret or other intellectual property rights (“PROTECTIVE RIGHTS”) by a CONTRACT PRODUCT to the extent based on ADESTO proprietary information and materials (including, but not limited to, ADESTO PRODUCT TECHNOLOGY, materials and designs), which is provided by ADESTO to ALTIS and used by ALTIS for manufacturing CONTRACT PRODUCTS for ADESTO (such information and materials together the “ADESTO WARRANTED RIGHTS”). In such case, ALTIS shall also have the right to stop the manufacturing of such CONTRACT PRODUCTS if such manufacture is enjoined. For the avoidance of doubt, in the event that ALTIS so stops manufacturing of CONTRACT PRODUCTS, ADESTO shall be responsible for the costs incurred by ALTIS that are directly related to the manufacturing of such CONTRACT PRODUCTS and shall pay ALTIS for the manufactured CONTRACT PRODUCTS.

 

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ALTIS shall indemnify and hold ADESTO harmless from any loss (including reasonable legal fees) resulting from a third party claim against ADESTO for infringement of PROTECTIVE RIGHTS by any CONTRACT PRODUCT to the extent based on ALTIS PRODUCT TECHNOLOGY, materials and designs used to manufacture CONTRACT PRODUCTS for ADESTO (“ALTIS WARRANTED RIGHTS”). Notwithstanding the foregoing. ALTIS will, at its own cost, procure for ADESTO a right to use the WAFERS already purchased by ADESTO and to sell the CONTRACT PRODUCTS.

Each PARTY’s obligations under this Article 9 are conditioned upon the other PARTY (a) providing notice within [*] of learning of the claim, (b) granting sole and exclusive control of the defense and settlement of the claim, (c) cooperating reasonably in its defense and settlement of the claim; and (d) taking reasonable actions to mitigate damages under the claim.

Each PARTY will have no obligation under this Article 9 for claims that (a) are based on combinations or modifications of such ADESTO or ALTIS WARRANTED RIGHTS not made by, or in agreement with, the indemnifying PARTY, (b) result from the use of CONTRACT PRODUCT in other than their intended operating environment or the combination, operation or use of the CONTRACT PRODUCT with other products, (c) could have been avoided by the other PARTY’s use of non-infringing alternatives or substitutes provided by the PARTY, or (d) result from the other PARTY’s use of such ADESTO or ALTIS WARRANTED RIGHTS other than as specified or agreed by the indemnifying PARTY.

The above liability and indemnity shall be the sole and exclusive remedies between the PARTIES with respect to intellectual property rights infringements or misappropriations.

ARTICLE 10 - INSURANCE

ALTIS shall establish and maintain in force insurance policies with reputable insurers sufficient in coverage and amounts to secure its obligations and potential liabilities under this AGREEMENT.

ALTIS shall furnish upon request certificates or adequate proof of the foregoing insurances. ADESTO shall be notified in writing at least [*] prior to cancellation of or any. significant charge in the policy.

ARTICLE 11 - EXPORT REGULATIONS

Each PARTY shall comply with all applicable laws and regulations related to export control, including but not limited to those of U.S. and the EU. In particular, Each PARTY shall not export, re-export or transfer any of the other PARTY’s products, information, software or technologies developed with or utilizing the other PARTY’s technology, in violation of any applicable laws or regulations of the countries named above or any other country or regulatory regime having jurisdiction over an export or re-export of such products, information, software or technologies. Each PARTY shall implement effective measures to ensure compliance with applicable anti-terrorism regulations, including but not limited to those of EU and U.S. as well as with any applicable official blacklists of any country. Each PARTY will keep the other PARTY fully harmless from all damages, costs and expenses arising out of or in connection with any violation. Upon request, each PARTY shall also provide all exportation information and documentation as reasonably requested by the other PARTY. For the avoidance of doubt, the exporting party under this AGREEMENT is ADESTO.

 

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ARTICLE 12 - FORCE MAJEURE

Neither PARTY shall be liable for any failure to perform its obligations if it is prevented from or delayed in the carrying on of its business due to circumstances beyond its reasonable control, including, without limitation, acts of God, governmental actions, war or national emergency, riot, civil commotion, fire, explosion, flood, epidemic, lock-outs, or restraints or delays affecting carriers or inability (“Force Majeure Event”). Provided that each PARTY shall be entitled to give notice in writing to the other to terminate the agreement if the Force Majeure Event continues for a continuous period in excess of [*] after the notice.

ARTICLE 13 - CONFIDENTIALITY

Confidentiality agreement (NDA effective since October 9th, 2009 and for a period of three (3) years) remains fully applicable and its term is extended to match the term of this agreement.

ARTICLE 14 - TERM

This AGREEMENT shall be effective from on the date of signing by an authorized signatory of both PARTIES and, unless terminated earlier pursuant to the terms of this agreement, shall remain in force for ten (10) years.

ARTICLE 15 - TERMINATION

Either PARTY may terminate this AGREEMENT immediately upon written notice to the other PARTY, if (i) the other PARTY materially breaches this AGREEMENT and fails to cure that breach within sixty (60) days after receiving written notice of the breach or (ii) the other PARTY becomes the subject of a voluntary petition in bankruptcy or any voluntary proceeding relating to insolvency, receivership, liquidation, or composition for the benefit of creditors; or (iii) the other PARTY becomes the subject of an involuntary petition in bankruptcy or any involuntary proceeding relating to insolvency, receivership, liquidation, or composition for the benefit of creditors, if such petition or proceeding is not dismissed within sixty (60) days of filing.

Termination of this AGREEMENT by either PARTY will be a nonexclusive remedy for breach and will be without prejudice to any other right or remedy of such PARTY.

Neither PARTY will be liable to the other for damages of any type solely as a result of terminating this AGREEMENT in accordance with its terms.

ARTICLE 16 - DISPUTES

The PARTIES shall attempt in good faith to resolve any dispute arising in connection with this agreement on a friendly basis. In the event of continuing disagreement and for any dispute, controversy or claim relating to this agreement shall be submitted to the exclusive jurisdiction of the courts of London, England. This agreement shall be governed and interpreted in accordance with the laws of England without regard to conflicts of laws. The application of the United Nations Convention on Contracts for the International Sale of Goods of April 11, 1980 shall be excluded.

 

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ARTICLE 17 - ASSIGNMENT AND/OR TRANSFER

ALTIS shall not assign, transfer or delegate its rights or obligations under this agreement to any third party without the prior written consent of ADESTO, which consent shall not be unreasonably withheld or delayed. ADESTO shall not assign, transfer or delegate its rights or obligations under this agreement to any third party without the prior written consent of ALTIS, which consent shall not be unreasonably withheld or delayed.

ARTICLE 18 - COMMUNICATIONS

All communications between the PARTIES regarding this agreement will be conducted through the PARTIES’ representatives as specified below:

If to ALTIS:

ALTIS Semiconductor

Attention:

224. Boulevard John Kennedy

91105 Corbeil-Essonnes Cedex

France

If to ADESTO :

ADESTO

Attention:

1250 Borregas Ave,

Sunnyvale, CA 94089 USA

ARTICLE 19 - NO SOLICITATION OF EMPLOYEES

During the term of this agreement, and for a period of [*] following expiration or termination, neither ALTIS nor ADESTO shall solicit any employee of the other with the exception of a mutual and written agreement.

ARTICLE 20 - SURVIVAL

The provisions set forth in Articles 6-14 of this agreement shall survive termination or expiration of this AGREEMENT.

ARTICLE 21 - MISCELLANEOUS

Terms and Conditions of this AGREEMENT shall prevail to any other documents concerning the same subject matter, including in particular the terms of the MOU relating to supply. This

 

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AGREEMENT does not modify or amend the JDA. Notwithstanding the foregoing, the terms and conditions for the supply of WAFERS set out in Exhibit 1 shall prevail over the main body of this AGREEMENT with respect to the ordering and purchase of WAFERS. Except as otherwise expressly provided herein, each PARTY shall bear any and all costs and expenses incurred by it in connection with the preparation, execution and performance of this AGREEMENT.

A person who is not a PARTY to this AGREEMENT shall have no right under the Contracts (Rights of Third Parties) Act 1999 to enforce any of its terms.

Nothing in this AGREEMENT is deemed to constitute a partnership between the PARTIES nor constitute any PARTY the agent of the other PARTY for any purpose.

No modification, alternation or amendment shall be effective unless in writing and signed by both PARTIES. No waiver of any breach shall be held to be a waiver of any other or subsequent breach.

If any provision of this AGREEMENT is held to be invalid, illegal or unenforceable under applicable law the remaining provisions shall continue to be in full force and effect. The PARTIES undertake to replace the invalid provision or parts thereof by a new provision which will meet as closely as possible the economic effect intended by the PARTIES at the time of execution of this AGREEMENT.

Should any part or provision of this AGREEMENT be held unenforceable or in conflict with the applicable law, or if such law alters the express meaning of any material term of this AGREEMENT and/or adversely impairs or affects the rights, responsibilities and/or benefits of either PARTY, the validity of the remaining parts or provisions shall not be affected by such holding, unless such unenforceability materially impairs the benefit of the remaining portion of the AGREEMENT. The unenforceable or conflicting provisions shall be reformed to the extent legally practical to accomplish as most nearly as possible the PARTIES’ intent in entering into this AGREEMENT and such reformed provision shall be deemed a provision of this AGREEMENT as if originally included herein.

 

2


Accepted and Agreed To:

 

Company: ADESTO Company: ALTIS
Name:

Narbeh Derhacobian

Name:

Jean-Paul Beisson

By:

/s/ Narbeh Derhacobian

By:

/s/ Jean-Paul Beisson

Signature:

 

Signature:

 

Date:

September 28, 2012

Date:

September 27, 2012

 

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Exhibit 1 – Wafer Purchase/Supply Operational Terms & Conditions

 

A. PRODUCTION

ADESTO will provide ALTIS with masks for the CONTRACT PRODUCTS, or will pay for ALTIS to make masks for the CONTRACT PRODUCTS.

ADESTO may request ALTIS to hold production of WAFERS for any or all CONTRACT PRODUCTS by giving written notice to ALTIS. ALTIS will hold production following completion of the process step at which the WAFER(s) reside(s) at the time of ALTIS’s receipt of written notification. The hold Process should be technically justified and should not last more than [*]. If the hold Process lasts for more than [*] for reasons not due to ALTIS, the parties will mutually agree on the handling of the WAFERS, i.e. either scrap the WAFERS or continue with the standard manufacturing.

ADESTO may request ALTIS to definitively stop production of WAFERS for any or all CONTRACT PRODUCTS by giving written notice to ALTIS. ALTIS will stop production following completion of the process step at which the WAFER resides at the time of ALTIS’s receipt of written notification. If such ADESTO request is due to reasons solely caused by ADESTO, then ADESTO will pay as described in Article 2 of the AGREEMENT and ALTIS will scrap such WAFERS. If such request is due to reasons solely caused by ALTIS. ALTIS will scrap such WAFERS and replace them free of charge.

 

B. PRODUCTION RELATED DATA

For the duration of the AGREEMENT. ALTIS will provide ADESTO with the following production related data (all in standard format, via electronic transfer and at WAFERS shipment):

 

    Ship alert

 

    PCM (Parametric Chip Measurements) results

 

    Line Yield Data

 

    Wafer sort results (if applicable) using results files as generated by the tester (aka raw tester file)

 

    Electronic maps (emap) for each wafer indicating pass and fails chips according to agreed ACCEPTANCE CRITERIA

 

C. FORECASTS

ADESTO will provide ALTIS [*] with a non-binding, written rolling forecast of ADESTO’s demand for. WAFERS, detailing the loading for the next [*] for each CONTRACT PRODUCT specified as quantity of WAFERS to be delivered by ALTIS to ADESTO. The detailed format will be agreed upon by the PARTIES.

 

* Confidential Treatment Requested

 

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D. ORDERING

Each quarter ADESTO shall issue one written Purchase Order per CONTRACT PRODUCT specifying as a minimum the Purchase Order number, the part-number(s) and the price of the product pursuant to Article 2 of the AGREEMENT. ALTIS shall confirm such Purchase Orders in writing within [*] of receipt by ALTIS.

[*], ADESTO shall issue to ALTIS written binding (non-cancellable) delivery instruction(s) per part-number, specifying as a minimum the part-number, the quantity ordered, the requested delivery date, the destination and the valid Purchase Order number for such part-number(s). Requested delivery date cannot be shorter than the LEAD TIME for the CONTRACT PRODUCT plus [*] (frozen zone). ALTIS shall confirm such delivery instructions and provide a binding target delivery date (ORIGINAL SCHEDULE DATE) for the quantity ordered. ALTIS shall also provide to ADESTO, the ALTIS Fab lot numbers assigned to the above delivery instructions.

ALTIS shall provide web-based access to ADESTO to enable ADESTO to check status of its fab lots. In case web-based access is not available, ALTIS will provide ADESTO a [*] status report by ALTIS fab lot at minimum detailing quantity of WAFERS, current manufacturing step, ORIGINAL SCHEDULE DATE and Forecasted Ship Date.

For a EARLY PRODUCTION and PRODUCTION purchase orders, the ORIGINAL SCHEDULE DATE will be identified by [*]. For a PROTOYPE purchase order, ORIGINAL SCHEDULE DATE will be identified by [*].

Accepted purchase orders shall be governed by the terms of this AGREEMENT.

 

E. LEAD TIMES

Altis will continuously improve the LEAD TIME for CONTRACT PRODUCT(s). Within first [*] of the beginning of every [*], ALTIS will provide ADESTO with the estimated LEAD TIMES and plans for improvements to LEAD TIMES for each CONTRACT PRODUCT for [*] of the then current forecast provided by ADESTO. ADESTO and ALTIS will agree on LEAD TIMES within the [*] of every Quarter and ADESTO will place orders accordingly.

 

F. DELIVERY, SHIPPING AND INVOICING

ADESTO will pay on a per actually delivered WAFER basis. This includes PROTOTYPE LOTS, RISK START WAFERS, EARLY PRODUCTION WAFERS and PRODUCTION WAFERS. ALTIS shall invoice accordingly.

ALTIS shall use commercially reasonable efforts to deliver the exact quantity of WAFERS stipulated in the relevant delivery instructions. Nevertheless and on a [*] basis, quantities of WAFERS may be rounded to the next LOT size actually available. Fab LOTS shall never be combined. If any fab LOT has less than [*]% YIELD of WAFERS, ALTIS will inform ADESTO of the technical reasons for the low YIELD. ADESTO and ALTIS will then discuss acceptance criteria for that LOT.

 

* Confidential Treatment Requested

 

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All deliveries are FCA (Free carrier, on ALTIS’ premises, dock B2) as defined by INCOTERMS 2010. Title and risk shall pass to ADESTO at the delivery point. The date of loading of the CONTRACT PRODUCTS at ALTIS’ premises or other receipts issued by the carrier shall be conclusive proof of the date of delivery of the CONTRACT PRODUCTS. Any customs fees will be borne by ADESTO.

ALTIS shall use commercially reasonable efforts to make WAFERS available for collection on the ORIGINAL SCHEDULE DATE. However, delivery of WAFERS within [*] before the ORIGINAL SCHEDULE DATE shall constitute compliance with ADESTO’s purchase order and ADESTO agrees to accept such delivery.

If any circumstances should arise which are reasonably likely to result in a delayed delivery to ADESTO, ALTIS shall promptly notify ADESTO in writing (early warning). ALTIS shall make all reasonable efforts to make up for such delays.

WAFERS will be shipped according to ALTIS standard procedures using Entegris 200mm Crystalpak ® Wafer Carrier Boxes. Boxes will be simple vacuum packed in moisture barrier bag. Empty Wafer Carrier Boxes shall be returned to ALTIS, at ADESTO’s expense, for cleaning and further use. ALTIS reserves the right to invoice unreturned boxes.

All WAFERS shall be delivered according to ALTIS standard packing specifications. ADESTO and ALTIS will discuss and agree on labeling requirements for Wafer Carrier Boxes and shipping labels to meet requirements of its testing and/or packaging subcontractors

ALTIS shall ship the WAFERS according to the location specified in ADESTO’S delivery instructions.

The date of loading of the Wafers at ALTIS premises or other receipts issued by carrier shall be conclusive proof of the date of delivery.

ADESTO shall perform incoming inspection of the CONTRACT PRODUCTS and acknowledge receipt, or shall report in writing any obvious deficiencies to ALTIS within [*] from taking delivery of the CONTRACT PRODUCTS.

Unless ALTIS has received from ADESTO in writing a notice of rejection within [*] following the delivery of any CONTRACT PRODUCTS, the delivered CONTRACT PRODUCTS shall be deemed accepted (but still subject to warranty claims). Such notice of rejection, if any, must specify in meaningful detail the non-conformities of the CONTRACT PRODUCTS with applicable ACCEPTANCE CRITERIA,

Promptly after shipment of WAFERS to ADESTO, ALTIS shall issue an invoice and send it to the address as given by ADESTO.

 

* Confidential Treatment Requested

 

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G. MASKS

For each new CONTRACT PRODUCT or redesigned mask layers of an existing CONTRACT PRODUCT; ADESTO will provide to ALTIS the information listed below:

 

    ADESTO’s product names and part numbers

 

    Design data in GDSII format.

 

    Mask change notice.

 

    Additional information for data handling and CAD operations.

 

    CAD data base MT information.

 

    Purchase Order for the considered Mask Set (including detailed specifications and prices as quoted by ALTIS on a case by case basis).

ALTIS shall procure at its own cost all further masks necessary to produce CONTRACT PRODUCTS. Except for ALTIS’ or a third party’s intellectual property rights embodied in the masks, the masks generated by ALTIS from ADESTO’s database tapes shall be the property of ADESTO, and will be shipped to ADESTO or destroyed by ALTIS upon ADESTO’s request. In the event a mask is held at ALTIS for more than [*] after manufacture of the CONTRACT PRODUCT, ALTIS shall, at ADESTO’s cost and risk, either ship the mask to ADESTO at ADESTO’s last known address upon [*] written notice or keep it in ALTIS’ premises.

 

H. TEST - WAFER PROBING SERVICES

ALTIS will provide wafer probe test and related services in case ADESTO wishes to perform wafer sort or final test of CONTRACT PRODUCTS manufactured by ALTIS, provided that there is availability of ADESTO tester platform and test capacity at ALTIS.

For the purpose of testing CONTRACT PRODUCT, ADESTO will provide ALTIS with (or bear the cost of the TEST PACKAGE for the CONTRACT PRODUCT.

Procurement and consignment of test hardware such as probe cards, sockets, board will be performed by ADESTO based on a spare policy to be agreed between both PARTIES.

Maintenance for test Hardware that can be performed by ALTIS internally will be done without any charge to ADESTO.

Order of Probe Hardware Replacements, Rebuilds and Repairs, if damage is not caused by ALTIS’ mishandling, will be executed by ADESTO without charging to ALTIS.

Decision on spare test hardware will be aligned between ADESTO and ALTIS according to actual or forecasted production needs.

 

* Confidential Treatment Requested

 

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The pricing of the Testing Service (including Test Time), the applicable LEAD TIMES, the additional ACCEPTANCE CRITERIA and other Testing Service relevant regulations will be agreed by the PARTIES on a per CONTRACT PRODUCT basis.

Changes of a Testing Service or a part thereof may only be carried out through relevant quality documentation. The PARTIES will negotiate adjustments to the price and delivery schedules in advance if prices or delivery schedules are materially affected by such changes.

 

I. SUBCONTRACTING

ADESTO agrees that ALTIS has the right to subcontract to mask vendors (including data prep) of its choice. Prior to any subcontracting ALTIS shall have concluded a written agreement with its subcontractor stipulating confidentiality obligations no less restrictive to how ALTIS protects its confidential information of like importance but not less than reasonable protection.

 

J. QUALITY

ALTIS shall manufacture the WAFERS to conform to the ACCEPTANCE CRITERIA. WAFERS or LOTS not passing the ACCEPTANCE CRITERIA may not be delivered to ADESTO, unless waived by ADESTO in writing. If changes to the ACCEPTANCE CRITERIA are made other than to correct any defects in the manufacturing of the WAFERS, the PARTIES shall in good faith re-negotiate any existing terms and conditions of purchase (including pricing and delivery commitments) which require amendment as a result of such changes.

Within [*] of the execution of this AGREEMENT, the PARTIES will mutually agree on the applicable ACCEPTANCE CRITERIA. Each Party will provide the other Party with a copy of its standard quality requirements and specifications upon request.

ACCEPTANCE CRITERIA shall include:

 

    ILT limits of electrical parameters (PCM).

 

    Final visual inspection criteria.

 

    Wafer Probe Test YIELD criteria

ALTIS shall fully cooperate with ADESTO in order to continuously maintain or improve the outgoing quality by quality improvement programs agreed by both PARTIES. In case of product reliability problems and ADESTO returns to ALTIS of WAFERS delivered by ALTIS, ALTIS will fully support ADESTO in root cause analysis, and ALTIS will conduct, at its own cost, all measures necessary to solve any reliability problem attributable to ALTIS.

ALTIS shall maintain a quality management system which meets the requirements of latest applicable ISO standards. ALTIS shall also maintain an environment management system which meets the latest applicable ISO standards. These management systems shall be certified by third-party registrars.

The following ALTIS quality control reports have to be provided by ALTIS to ADESTO:

 

* Confidential Treatment Requested

 

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    Monthly Cp/Cpk values for Wafers ACCEPTANCE CRITERIA and key in-line parameters (KIP).

 

    Improvement roadmap is required if Cpk fails to reach the Cpk goal of 1.50.

 

    Corrective action is required if Cpk is less than 1.33. These rules apply for volumes above 250 WAFERS/month for WAC and 30 WAFERS/month for KIP for a given technology.

The YIELD and defect density targets should be agreed by ADESTO and ALTIS in advance. ALTIS shall analyze the root causes of the top five YIELD detractors and propose improvement actions.

ALTIS is entitled to technically change the manufacturing process of the CONTRACT PRODUCTS. ALTIS will handle such changes according to JESD46C standard procedure. If these technical changes affect form, fit or function of the CONTRACT PRODUCTS (major changes), ALTIS shall inform ADESTO about these major changes in writing by sending a process change notification (PCN). If ADESTO has acknowledged the PCN within [*] after the PCN submission, ADESTO may object to such PCN within [*] after the PCN submission. Lack of acknowledgement or objection in a timely manner constitutes acceptance of the technical change. In case of objection in a timely manner, the PARTIES shall meet to negotiate in good faith the applicable terms and conditions of the proposed change.

ADESTO Complaints and Corrective Action Request (CAR) will be managed as follow:

 

    For ALTIS’ CAR due to ADESTO’s complaint, it can be considered “closed” only when ADESTO expresses so in writing.

 

    CAR Report shall follow the 8D problem solving methodology. ALTIS shall update the interim 8D report at least every week. 8D report should be under version control.

 

    CAR turn around time starts after ADESTO notification or ALTIS’ receipt of returned samples (when failure analysis is necessary):

 

    Containment (up to D3) within [*].

 

    Problem verification within [*].

 

    Root cause identification and a corrective action implementation plan (up to D5) within [*].

Wafer quality or YIELD problems will be managed according to JESD671A standards; ALTIS shall promptly inform ADESTO and provide ADESTO with all relevant information. ALTIS will allow ADESTO to efficiently support ALTIS. ADESTO will make good faith efforts to assist ALTIS to a reasonable extent in solving the above mentioned problems.

Both PARTIES shall immediately advise one another whenever they have reason to believe that WAFERS may not conform to the applicable specifications.

 

* Confidential Treatment Requested

 

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K. ELECTRONIC INDUSTRY CODE OF CONDUCT

ALTIS hereby agrees to comply with the Electronic Indust Code of Conduct (“Code of Conduct”) available at http://www.eicc.info/, as in effect on the Effective Date.

ALTIS warrants that it has reviewed the Code of Conduct and understood it. ALTIS also agrees that ALTIS will be responsible for reviewing any future modifications to the Code of Conduct on an on-going basis,

 

L. ON-SITE MANUFACTURING AUDIT

No more than once per calendar year, and upon at least [*] prior written notice by ADESTO, ALTIS shall allow ADESTO, to perform, during normal business hours and without disruption of the normal production process, an audit of ALTIS’s production site and quality system for WAFERS in accordance with the applicable ISO standards. The documents which ADESTO reasonably determines to be necessary to perform such audits shall be made available to ADESTO.

As a prerequisite accessing the manufacturing facility or reviewing documents, each such person, shall execute a confidentiality agreement with respect to any confidential or proprietary information of ALTIS that may become available to such persons in the course of his or her visit to the manufacturing facility and of any such audit on terms reasonably acceptable to ALTIS.

 

M. VERIFICATION AND QUALIFICATION OF CONTRACT PRODUCTS

For any new CONTRACT PRODUCTS, the following procedures shall apply:

 

    For the purpose of verification of the design of a CONTRACT PRODUCT and for the purpose of verifying that WAFERS can be manufactured using the PRODUCT TECHNOLOGY, ADESTO may issue a Purchase Order to ALTIS for a PROTOTYPE LOT. The PARTIES will agree on a reduced set of ACCEPTANCE CRITERIA applicable for such PROTOTYPE LOT. Upon agreement on such reduced set of ACCEPTANCE CRITERIA and receipt of ADESTO’s purchase order for such PROTOTYPE LOT, ALTIS will manufacture such PROTOTYPE LOT WAFERS.

 

    Electrical YIELD results are not committed for these WAFERS and no warranty would apply.

 

    ALTIS will provide technical parameters agreed in ACCEPTANCE CRITERIA and other related information of the Product to ADESTO once the manufacture of the PROTOTYPE LOT WAFERS is completed.

 

    ADESTO will qualify the PROTOTYPE LOT WAFERS manufactured by ALTIS and provide the related written analysis report to ALTIS.

 

    Prior to Release, ADESTO may send ALTIS a written request that ALTIS provide RISK START WAFERS. Following such RISK START request, the PARTIES will agree on a reduced set of ACCEPTANCE CRITERIA applicable for such RISK STARTS. Upon

 

* Confidential Treatment Requested

 

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agreement on such reduced set of ACCEPTANCE CRITERIA and receipt of ADESTO’s purchase order for such RISK STARTS, ALTIS will manufacture such RISK START WAFERS.

 

    Prior to Release, ADESTO may stop production of WAFERS for any or all CONTRACT PRODUCTS under verification by giving written notice to ALTIS. ALTIS will stop production at suitable production steps following completion of the process step at which the WAFERS reside at the time of ALTIS’ receipt of such notification. If ADESTO requests in writing, that such WAFERS have to be scrapped, ALTIS shall invoice and ADESTO shall pay price for WAFERS as defined in Article 2 of the AGREEMENT

 

    The completion of the QUALIFICATION by ADESTO for each individual CONTRACT PRODUCT manufactured by ALTIS is a prerequisite for ordering and delivery of EARLY PRODUCTION and PRODUCTION WAFERS.

 

N. INFORMATION EXCHANGE AND CONSULTING

Information Rights

ALTIS acknowledges that ADESTO relies on timely high-quality supply of CONTRACT PRODUCTS by ALTIS and that any material change regarding the technical or financial status of ALTIS may substantially affect ADESTO. Therefore, ALTIS undertakes to inform ADESTO of any matter that may potentially in its reasonable judgment affect ALTIS’ ability to supply ADESTO with CONTRACT PRODUCTS in line with ADESTO’s then-current forecast.

[*] Operations Call

On a [*] basis, the PARTIES’ representatives shall discuss e.g. but not limited to the development of YIELD, supply issues, quality and other similar issues affecting the quality and quantity of CONTRACT PRODUCTS as well as issues related to mutual services.

[*] Business Review

On a [*] basis. ALTIS and ADESTO management will meet to discuss the business situation, new business opportunities, project status and fab performance.

 

* Confidential Treatment Requested

 

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Appendix 1 – List of CONTRACT PRODUCTS

The 64kbit/128kbit/256kbit/512kbit/1Mbit [*] products (Apollo or Explorer) as released to the market by ADESTO.

From time to time, this list will be updated for new CONTRACT PRODUCTS.

 

* Confidential Treatment Requested

 

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Appendix 2 – Pricing for Test

Upon request from ADESTO, ALTIS will provide the quotation for the pricing of the TESTING SERVICES, based on the required test times, lead times, acceptance criteria and other relevant TESTING SERVICES requirements as agreed to by the PARTIES on a per CONTRACT PRODUCT basis.

 

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Exhibit 2 - Pricing Exhibit ([*] WAFERS)

The initial estimated DIE PRICE is based on the following assumed YIELDS:

 

WAFERS ordered in Year

   Assumed Die Yield

[*]

   [*]

[*]

   [*]

[*]

   [*]

This DIE PRICE pricing scheme will have flexibility to adjust to actual for end product market pricing, packaging / test costs and other relevant parameters to be agreed to.

Below is an example calculation determining DIE PRICE for years 2012-2015, using the assumed YIELD above.

 

* Confidential Treatment Requested

 

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ALTIS

 
           2013     2014     2015     Total  
           Q1     Q2     Q3     Q4        

[*]

     [*     [*     [*     [*     [*     [*     [*     [*

 

ADESTO

 
           2013     2014     2015     Total  
           Q1     Q2     Q3     Q4        

[*]

     [*     [*     [*     [*     [*     [*     [*     [*

 

* Confidential Treatment Requested

 

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Exhibit 10.08

ADESTO TECHNOLOGIES CORPORATION

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

This Amended and Restated Employment Agreement (this “ Agreement ”) is entered into as of August 16, 2013 by and between Adesto Technologies Corporation, a California corporation (the “ Company ”), and Narbeh Derhacobian (“ Employee ” or “ you ”).

RECITALS

WHEREAS , the Company and Employee are parties to that certain Employment Agreement dated February 21, 2007 (the “ Prior Agreement ”); and

WHEREAS , the Company and Employee desire to amend, restate and replace Employee’s terms of employment under the Prior Agreement with the terms of Employment set forth in this Agreement.

NOW, THEREFORE , in consideration of the foregoing and the mutual promises contained herein, the Company and Employee hereby agree as follows:

1. Position . You will serve as President and Chief Executive Officer of the Company and shall perform the duties and responsibilities customary for such position and such other related duties. You agree to devote substantially all of your professional time, attention and efforts to the performance of your duties as the Company’s President and Chief Executive Officer, and shall not render services to any other business without the prior approval of the Company’s Board of Directors (the “ Board ”). The foregoing shall not, however, preclude you (a) from engaging in appropriate civic, charitable or religious activities, (b) from devoting a reasonable amount of time to private investments, (c) from serving on the boards of directors of other entities, or (d) from providing incidental assistance to family members on matters of family business, so long as the foregoing activities and service do not conflict with your responsibilities to the Company.

2. Cash Compensation and Benefits .

(a) Base Salary . Your salary will be at an annualized rate of $300,000 per year, payable in accordance with the Company’s standard payroll schedule. Your salary, as well as any other cash amounts payable under this offer letter, will be subject to applicable tax withholdings and shall be reviewed by the Board for possible increases prior to the start of each fiscal year, effective at the beginning of such fiscal year.

(b) Annual Bonus . You will have the opportunity to earn an annual cash bonus of up to twenty percent (20%) of your base salary for each fiscal year based on the achievement of certain objectives, which you and the Board will mutually establish. Such bonus payment is subject to your continued employment through and until the date of payment. The bonus will be paid no later than March 15 of the year following the year in which such bonus was earned.


(c) Benefits . In addition, you will be eligible to participate in regular health insurance, including medical, dental and vision as well as other employee benefit plans established by the Company for its employees from time to time. You will be entitled to 120 hours of PTO during every calendar year for the first five years of employment and earn an additional 8 hours PTO for each subsequent year of employment, up to a maximum of 160 hours. The amount of PTO available to you can be accrued and carried over from one year to the next, but in no circumstance shall it exceed 200 hours unless determined otherwise by the Company Compensation Committee.

3. At Will Employment . While we look forward to a long and profitable relationship, should you decide to accept our offer, you will be an at-will employee of the Company, which means the employment relationship can be terminated by either you or the Company for any reason, at any time, with or without prior notice and with or without cause. Any statements or representations to the contrary (and, indeed, any statements contradicting any provision in this letter) should be regarded by you as ineffective. Further, your participation in any stock option or benefit program is not to be regarded as assuring you of continuing employment for any particular period of time. Any modification or change in your at-will employment status may only occur by way of a written agreement signed by you and an officer of the Company.

4. Change in Control Benefits . In the event that there is a Change in Control (as defined below) of the Company, then immediately prior to the closing of such Change in Control, you will receive acceleration of the vesting and exercisability of fifty percent (50%) of all unvested options, and unvested shares subject to all options, to purchase shares of the Company’s Common Stock then held by you.

5. Termination Benefits .

(a) Following a Change in Control and For Other Than Cause or Good Reason . In the event that there is a Change in Control of the Company and the Company or its successor terminates your employment other than for Cause, or you terminate your employment for Good Reason, in either case upon or within twelve (12) months following the Change in Control, then you will be entitled to receive: (i) a lump sum payment equal to the sum of (a) twelve (12) months of your then-current base salary, (b) 100% of your target bonus for that fiscal year, and (c) reimbursement of twelve (12) months of your COBRA premiums; and (ii) acceleration of the vesting and exercisability of one hundred percent (100%) of all options, and unvested shares subject to all options, to purchase shares of the Company’s Common Stock then held by you (the “ Change in Control Severance Benefits ”). You agree that you will not resign for Good Reason without first providing the Company, or its successor as applicable, with written notice addressed to the Board of the acts or omissions constituting the grounds for Good Reason within sixty (60) days of the initial existence of the grounds for Good Reason, with a reasonable cure period of not less than fifteen (15) days following delivery of such notice to the Company. In addition, you must terminate your employment within thirty (30) days following expiration of such cure period for your resignation to qualify as a resignation for Good Reason. Your entitlement to the Change in Control Severance Benefits is subject to your executing and not revoking an industry standard release and waiver of claims in favor of the Company (or its successor, as applicable).

 

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(b) Other Termination . In the event that your employment is terminated other than for Cause at any time other than upon or within twelve (12) months following a Change in Control, then you will receive a lump sum payment equal to the sum of (a) six (6) months of your then-current base salary and (b) reimbursement of six (6) months of your COBRA premiums (the “ Other Termination Severance Benefits ”). Your entitlement to the Other Termination Severance Benefits is subject to your executing and not revoking an industry standard release and waiver of claims in favor of the Company (or its successor, as applicable).

(c) Form and Timing of Payment . The Company will pay you any lump sum amounts as provided for in this Section 5 on the thirtieth (30 th ) day following your termination of employment, provided that prior to such date the release described above is effective at such time.

(d) Definitions .

(i) For purposes of this Section 5, “ Cause ” shall mean: (i) any willful act or acts of dishonesty undertaken by you and resulting in substantial gain or personal enrichment of you at the expense of the Company; (ii) any willful act of misconduct by you which is materially and demonstrably injurious to the Company; (iii) willful and repeated failure or refusal to comply in any respect with the terms of the Company’s standard Employee Invention Assignment and Confidentiality Agreement, or any other policies of the Company applicable to you where non-compliance would be materially detrimental to the Company; or (iv) conviction of, or plea of guilty to or no contest to, a felony. No act, or failure to act, by you shall be considered “willful” if done, or omitted to be done, by you in good faith and in the reasonable belief that your act or omission was in the best interest of the Company and/or required by applicable law.

(ii) For purposes of this Section 5, “ Good Reason ” shall mean: (i) a material reduction in your total annual compensation not agreed to by you, except in the case of a reduction in the total annual compensation applicable to all executive-level Company employees; (ii) a material reduction in your authority, status, obligations or responsibilities, provided that following a Change in Control, a change in title alone (not accompanied by a change in authority, status, obligations or responsibilities), or the Company being operated as a division or a subsidiary of a successor entity, shall not constitute a material reduction; (iii) the Company’s failure to comply in any material respect with any material term of this offer letter that is not cured within thirty (30) days; or (iv) a requirement that you relocate to an office that would increase your one-way commute distance by more than the greater of 50% or 15 miles.

(iii) For purposes of Section 4 and this Section 5, “ Change in Control ” shall mean any of the following events: (i) a merger or consolidation in which (1) the Company is a constituent party; or (2) a subsidiary of the Company is a constituent party and the Company issues shares of its capital stock pursuant to such merger or consolidation, except any such merger or consolidation involving the Company or a subsidiary in which the shares of capital stock of the Company outstanding immediately prior to such merger or consolidation continue to represent, or are converted or exchanged for shares of capital stock which represent, immediately following such merger or consolidation at least a majority, by voting power, of the capital stock of (A) the surviving or resulting corporation or (B) if the surviving or resulting corporation is a

 

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wholly owned subsidiary of another corporation immediately following such merger or consolidation, the parent corporation of such surviving or resulting corporation; (ii) a transaction to which the Company is a party and pursuant to which any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”)), other than a trustee or other fiduciary holding securities of the Company under an employee benefit plan of the Company, becomes the “beneficial owner” (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of the Company representing more than 50% of the combined voting power of the Company’s then-outstanding securities, excluding, for purposes of this subsection (ii), any transaction constituting an equity financing in which the Company is the surviving corporation; or (iii) the sale, lease, transfer or other disposition (including by way of an exclusive license), in a single transaction or series of related transactions, by the Company or any subsidiary of the Company of all or substantially all the assets of the Company and its subsidiaries taken as a whole, except where such sale, lease, transfer or other disposition is to a wholly owned subsidiary of the Company.

6. Section 280G . If any payments and other benefits provided for in this offer letter or otherwise constitute “parachute payments” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “ Code ”) and, but for this Section 6, would be subject to the excise tax imposed by Section 4999 of the Code, then payments and other benefits will be payable to you, at your election, either in full or in such lesser amounts as would result, after taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999, on your receipt on an after-tax basis of the greatest amount of payments and other benefits, by first reducing the cash payments and then reducing the equity grants, in each case, pro rata between amounts subject to Section 409A of the Code and amounts not subject to Section 409A of the Code.

7. Section 409A . For purposes of this offer letter, a termination of employment will be determined consistent with the rules relating to a “separation from service” as defined in Section 409A of the Code and the regulations thereunder (“ Section 409A ”). Notwithstanding anything else provided herein, to the extent any payments provided under this offer letter in connection with your termination of employment constitute deferred compensation subject to Section 409A, and you are deemed at the time of such termination of employment to be a “specified employee” under Section 409A, then such payment shall not be made or commence until the earlier of (i) the expiration of the six (6)-month period measured from your separation from service from the Company or (ii) the date of your death following such a separation from service; provided, however, that such deferral shall only be effected to the extent required to avoid adverse tax treatment to you including, without limitation, the additional tax for which you would otherwise be liable under Section 409A(a)(1)(B) in the absence of such a deferral. The first payment thereof will include a catch-up payment covering the amount that would have otherwise been paid during the period between your termination of employment and the first payment date but for the application of this provision, and the balance of the installments (if any) will be payable in accordance with their original schedule. To the extent that any provision of this offer letter is ambiguous as to its compliance with Section 409A, the provision will be read in such a manner so that all payments hereunder comply with Section 409A. To the extent any payment under this offer letter may be classified as a “short-term deferral” within the meaning of Section 409A, such payment shall be deemed a short-term deferral, even if it may also qualify

 

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for an exemption from Section 409A under another provision of Section 409A. Payments pursuant to this offer letter are intended to constitute separate payments for purposes of Section 1.409A-2(b)(2) of the Treasury Regulations.

8. Confidentiality; Compliance with Policies . As an employee of the Company, you will have access to certain confidential information of the Company and you may, during the course of your employment, develop certain information or inventions that will be the property of the Company. To protect the interests of the Company, you have signed the Company’s standard “Employee Invention Assignment and Confidentiality Agreement” as a condition of your employment. We wish to impress upon you that we do not want you to, and we hereby direct you not to, bring with you any confidential or proprietary material of any former employer or to violate any other obligations you may have to any former employer. During the period that you render services to the Company, you agree to not engage in any employment, business or activity that is in any way competitive with the business or proposed business of the Company. You will disclose to the Company in writing any other gainful employment, business or activity that you are currently associated with or participate in that competes with the Company. You will not assist any other person or organization in competing with the Company or in preparing to engage in competition with the business or proposed business of the Company. You represent that your signing of this offer letter, agreement(s) concerning stock options granted to you, if any, under the Company’s 2007 Equity Incentive Plan (the “ Plan ”) and the Company’s Employee Invention Assignment and Confidentiality Agreement and your continued employment with the Company will not violate any agreement currently in place between yourself and current or past employers.

9. Employment with TriNet . Our benefits, payroll, and other human resource management services are provided through TriNet Employer Group, Inc., a professional employer organization. As a result of the Company’s arrangement with TriNet, TriNet will be considered your employer of record for these purposes.

10. Arbitration . You and the Company agree to submit to mandatory binding arbitration any and all claims arising out of or related to your employment with the Company and the termination thereof, including but not limited to, claims for unpaid wages, wrongful termination, torts, stock or stock options or other ownership interest in the Company, and/ or discrimination (including harassment) based upon any federal, state or local ordinance, statute, regulation or constitutional provision except that each party may, at each party’s option, seek injunctive relief in court related to the improper use, disclosure or misappropriation of a party’s proprietary, confidential or trade secret information. All arbitration hearings shall be conducted in Santa Clara County, California. THE PARTIES HEREBY WAIVE ANY RIGHTS THEY MAY HAVE TO TRIAL BY JURY IN REGARD TO SUCH CLAIMS. This offer letter does not restrict your right to file administrative claims you may bring before any government agency where, as a matter of law, the parties may not restrict the employee’s ability to file such claims (including, but not limited to, the National Labor Relations Board, the Equal Employment Opportunity Commission and the Department of Labor). However, the parties agree that, to the fullest extent permitted by law, arbitration shall be the exclusive remedy for the subject matter of such administrative claims. The arbitration shall be conducted through JAMS before a single neutral arbitrator, in accordance with the JAMS employment arbitration rules then in effect. The

 

4


JAMS rules may be found and reviewed at http://jamsadr.com/rules-employment-arbitration . If you are unable to access these rules, please let me know and I will provide you with a hardcopy. The arbitrator shall issue a written decision that contains the essential findings and conclusions on which the decision is based.

11. Miscellaneous .

(a) Personal . This offer letter is personal to you and therefore you may not assign any of your rights and responsibilities hereunder.

(b) Successors . This offer letter shall inure to the benefit of and be binding upon (a) the Company and any of its successors, and (b) you and your heirs, executors and representatives in the event of your death. Any successor to Adesto Technologies Corporation shall be deemed substituted for the Company and Adesto Technologies Corporation under the terms of this offer letter for all purposes. In the event of a Change in Control, the Company agrees to obtain assumption of this offer letter by its successor.

(c) Modification . This offer letter, including, but not limited to the at-will provision above, may not be amended or modified other than by a written agreement designated as an amendment and executed by you and an officer of the Company, following approval of the Board, although the Company reserves the right to unilaterally modify your compensation, benefits, job title and duties (subject to any express limitations set forth above).

(d) Severability . If any provision of this offer letter or the application thereof is held invalid, the invalidity shall not affect other provisions or applications of this offer letter that can be given effect without the invalid provisions or applications and to this end the provisions of this offer letter are declared to be severable.

(e) Complete Agreement . This offer letter (together with the Employee Invention Assignment and Confidentiality Agreement and the Plan) represents the entire agreement between you and the Company with respect to the material terms and conditions of your employment, and supersedes and replaces all prior discussions, negotiations and agreements, including, without limitation, the Prior Agreement.

(f) Counterparts . This offer letter may be executed (i) in counterparts, each of which shall be an original, with same effect as if the signatures hereto were on the same instrument; and (ii) by facsimile or pdf. The parties agree that such facsimile or pdf signatures shall be deemed original signatures for all purposes.

[Signature page follows]

 

5


IN WITNESS WHEREOF, the Company and Employee have executed this Amended and Restated Employment Agreement as of the date first above written.

 

Adesto Technologies Corporation Employee

/s/ Ron Shelton

/s/ Narbeh Derhacobian

By: Ron Shelton, Chief Financial Officer Narbeh Derhacobian

[Signature Page to Narbeh Derhacobian Amended and Restated Employment Agreement]

Exhibit 10.09

 

LOGO

May 30, 2013

 

  Re: Offer of Employment

Dear Ron:

On behalf of Adesto Technologies Corporation (the “ Company ”), I am pleased to offer you employment with the Company as Chief Financial Officer on the terms below.

1. Position . You will serve as Chief Financial Officer (the “ CFO ”) of the Company. You will report to the President and Chief Executive Officer (the “ CEO ”) and shall perform the duties and responsibilities customary for such position and such other related duties as are assigned by the President and CEO. You agree to devote substantially all of your professional time, attention and efforts to the performance of your duties as the Company’s CFO, and shall not render services to any other business without the prior approval of the President and CEO. The foregoing shall not, however, preclude you (a) from engaging in appropriate civic, charitable or religious activities, (b) from devoting a reasonable amount of time to private investments, (c) from serving on the boards of directors of other entities, or (d) from providing incidental assistance to family members on matters of family business, so long as the foregoing activities and service do not conflict with your responsibilities to the Company.

2. Cash Compensation and Benefits .

(a) Base Salary . Your salary will be at an annualized rate of $275,000 per year, payable in accordance with the Company’s standard payroll schedule. Your salary, as well as any other cash amounts payable under this offer letter, will be subject to applicable tax withholdings and shall be reviewed by the Company’s Board of Directors (the “ Board ”) for possible increases prior to the start of each fiscal year, effective at the beginning of such fiscal year.

(b) Annual Bonus . You will have the opportunity to earn an annual cash bonus of up to twenty-five percent (25%) of your base salary for each fiscal year based on the achievement of certain objectives, which you and the Board will mutually establish. Such bonus payment is subject to your continued employment through and until the date of payment. The bonus will be paid no later than March 15 of the year following the year in which such bonus was earned.

(c) Stock Options . Adesto’s Compensation Committee has approved and granted to you the opportunity to purchase up to 2,985,000 shares of Common Stock of the Company at the fair market value of the Company’s Common Stock, as determined by the Board of Directors as of May 31, 2013. The shares you will be given the opportunity to purchase will vest according to the following schedule: 808,437 shares vested immediately as of June 1, 2013; and then at the remainder of shares will vest at a rate of two and one twelfth of a percent (2.0833%) per month thereafter, so long as you remain employed by the Company. The option grant under this Section 2 is subject to terms outlined in Section 4 (Change in Control Benefits) and Section 5 (Termination Benefits) of this employment agreement.


(d) Benefits . In addition, you will be eligible to participate in regular health insurance, including medical, dental and vision as well as other employee benefit plans established by the Company for its employees from time to time. You will be entitled to 120 hours of PTO during every calendar year for the first five years of employment and earn an additional 8 hours PTO for each subsequent year of employment, up to a maximum of 160 hours. The amount of PTO available to you can be accrued and carried over from one year to the next, but in no circumstance shall it exceed 200 hours unless determined otherwise by the Company Compensation Committee.

3. At Will Employment . While we look forward to a long and profitable relationship, should you decide to accept our offer, you will be an at-will employee of the Company, which means the employment relationship can be terminated by either you or the Company for any reason, at any time, with or without prior notice and with or without cause. Any statements or representations to the contrary (and, indeed, any statements contradicting any provision in this letter) should be regarded by you as ineffective. Further, your participation in any stock option or benefit program is not to be regarded as assuring you of continuing employment for any particular period of time. Any modification or change in your at-will employment status may only occur by way of a written agreement signed by you and the CEO.

4. Change in Control Benefits . In the event that there is a Change in Control (as defined below) of the Company, then immediately prior to the closing of such Change in Control, you will receive acceleration of the vesting and exercisability of fifty percent (50%) of all unvested options, and unvested shares subject to all options, to purchase shares of the Company’s Common Stock then held by you.

5. Termination Benefits.

(a) Following a Change in Control and For Other Than Cause or Good Reason . In the event that there is a Change in Control of the Company and the Company or its successor terminates your employment other than for Cause, or you terminate your employment for Good Reason, in either case upon or within twelve (12) months following the Change in Control, then you will be entitled to receive: (i) a lump sum payment equal to the sum of (a) twelve (12) months of your then-current base salary, (b) 100% of your target bonus for that fiscal year, and (c) reimbursement of twelve (12) months of your COBRA premiums; and (ii) acceleration of the vesting and exercisability of one hundred percent (100%) of all options, and unvested shares subject to all options, to purchase shares of the Company’s Common Stock then held by you (the “ Change in Control Severance Benefits ”). You agree that you will not resign for Good Reason without first providing the Company, or its successor as applicable, with written notice addressed to the CEO of the acts or omissions constituting the grounds for Good Reason within sixty (60) days of the initial existence of the grounds for Good Reason, with a reasonable cure period of not less than fifteen (15) days following delivery of such notice to the Company. In addition, you must terminate your employment within thirty (30) days following expiration of such cure period for your resignation to qualify as a resignation for Good Reason. Your entitlement to the Change in Control Severance Benefits is subject to your executing and not revoking an industry standard release and waiver of claims in favor of the Company (or its successor, as applicable).


(b) Other Termination . In the event that your employment is terminated other than for Cause at any time other than upon or within twelve (12) months following a Change in Control, then you will receive a lump sum payment equal to the sum of (a) six (6) months of your then-current base salary and (b) reimbursement of six (6) months of your COBRA premiums (the “ Other Termination Severance Benefits ”). Your entitlement to the Other Termination Severance Benefits is subject to your executing and not revoking an industry standard release and waiver of claims in favor of the Company (or its successor, as applicable).

(c) Form and Timing of Payment . The Company will pay you any lump sum amounts as provided for in this Section 5 on the thirtieth (30 th ) day following your termination of employment, provided that prior to such date the release described above is effective at such time.

(d) Definitions .

(i) For purposes of this Section 5, “ Cause ” shall mean: (i) any willful act or acts of dishonesty undertaken by you and resulting in substantial gain or personal enrichment of you at the expense of the Company; (ii) any willful act of misconduct by you which is materially and demonstrably injurious to the Company; (iii) willful and repeated failure or refusal to comply in any respect with the terms of the Company’s standard Employee Invention Assignment and Confidentiality Agreement, or any other policies of the Company applicable to you where non-compliance would be materially detrimental to the Company; or (iv) conviction of, or plea of guilty to or no contest to, a felony. No act, or failure to act, by you shall be considered “willful” if done, or omitted to be done, by you in good faith and in the reasonable belief that your act or omission was in the best interest of the Company and/or required by applicable law.

(ii) For purposes of this Section 5, “ Good Reason ” shall mean: (i) a material reduction in your total annual compensation not agreed to by you, except in the case of a reduction in the total annual compensation applicable to all executive-level Company employees; (ii) a material reduction in your authority, status, obligations or responsibilities, provided that following a Change in Control, a change in title alone (not accompanied by a change in authority, status, obligations or responsibilities), or the Company being operated as a division or a subsidiary of a successor entity, shall not constitute a material reduction; (iii) the Company’s failure to comply in any material respect with any material term of this offer letter that is not cured within thirty (30) days; or (iv) a requirement that you relocate to an office that would increase your one-way commute distance by more than the greater of 50% or 15 miles.

(iii) For purposes of Section 4 and this Section 5, “ Change in Control ” shall mean any of the following events: (i) a merger or consolidation in which (1) the Company is a constituent party; or (2) a subsidiary of the Company is a constituent party and the Company issues shares of its capital stock pursuant to such merger or consolidation, except any such merger or consolidation involving the Company or a subsidiary in which the shares of capital stock of the Company outstanding immediately prior to such merger or consolidation continue to represent, or are converted or exchanged for shares of capital stock which represent, immediately following such merger or consolidation at least a majority, by voting power, of the capital stock of (A) the surviving or resulting corporation or (B) if the surviving or resulting corporation is a


wholly owned subsidiary of another corporation immediately following such merger or consolidation, the parent corporation of such surviving or resulting corporation; (ii) a transaction to which the Company is a party and pursuant to which any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”)), other than a trustee or other fiduciary holding securities of the Company under an employee benefit plan of the Company, becomes the “beneficial owner” (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of the Company representing more than 50% of the combined voting power of the Company’s then-outstanding securities, excluding, for purposes of this subsection (ii), any transaction constituting an equity financing in which the Company is the surviving corporation; or (iii) the sale, lease, transfer or other disposition (including by way of an exclusive license), in a single transaction or series of related transactions, by the Company or any subsidiary of the Company of all or substantially all the assets of the Company and its subsidiaries taken as a whole, except where such sale, lease, transfer or other disposition is to a wholly owned subsidiary of the Company.

6. Section 280G . If any payments and other benefits provided for in this offer letter or otherwise constitute “parachute payments” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “ Code ”) and, but for this Section 6, would be subject to the excise tax imposed by Section 4999 of the Code, then payments and other benefits will be payable to you, at your election, either in full or in such lesser amounts as would result, after taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999, on your receipt on an after-tax basis of the greatest amount of payments and other benefits, by first reducing the cash payments and then reducing the equity grants, in each case, pro rata between amounts subject to Section 409A of the Code and amounts not subject to Section 409A of the Code.

7. Section 409A . For purposes of this offer letter, a termination of employment will be determined consistent with the rules relating to a “separation from service” as defined in Section 409A of the Code and the regulations thereunder (“ Section 409A ”). Notwithstanding anything else provided herein, to the extent any payments provided under this offer letter in connection with your termination of employment constitute deferred compensation subject to Section 409A, and you are deemed at the time of such termination of employment to be a “specified employee” under Section 409A, then such payment shall not be made or commence until the earlier of (i) the expiration of the six (6)-month period measured from your separation from service from the Company or (ii) the date of your death following such a separation from service; provided, however, that such deferral shall only be effected to the extent required to avoid adverse tax treatment to you including, without limitation, the additional tax for which you would otherwise be liable under Section 409A(a)(1)(B) in the absence of such a deferral. The first payment thereof will include a catch-up payment covering the amount that would have otherwise been paid during the period between your termination of employment and the first payment date but for the application of this provision, and the balance of the installments (if any) will be payable in accordance with their original schedule. To the extent that any provision of this offer letter is ambiguous as to its compliance with Section 409A, the provision will be read in such a manner so that all payments hereunder comply with Section 409A. To the extent any payment under this offer letter may be classified as a “short-term deferral” within the meaning of Section 409A, such payment shall be deemed a short-term deferral, even if it may also qualify for an exemption from Section 409A under another provision of Section 409A. Payments pursuant to this offer letter are intended to constitute separate payments for purposes of Section 1.409A-2(b)(2) of the Treasury Regulations.


8. Confidentiality; Compliance with Policies . As an employee of the Company, you will have access to certain confidential information of the Company and you may, during the course of your employment, develop certain information or inventions that will be the property of the Company. To protect the interests of the Company, you will need to sign the Company’s standard “Employee Invention Assignment and Confidentiality Agreement” as a condition of your employment. We wish to impress upon you that we do not want you to, and we hereby direct you not to, bring with you any confidential or proprietary material of any former employer or to violate any other obligations you may have to any former employer. During the period that you render services to the Company, you agree to not engage in any employment, business or activity that is in any way competitive with the business or proposed business of the Company. You will disclose to the Company in writing any other gainful employment, business or activity that you are currently associated with or participate in that competes with the Company. You will not assist any other person or organization in competing with the Company or in preparing to engage in competition with the business or proposed business of the Company. You represent that your signing of this offer letter, agreement(s) concerning stock options granted to you, if any, under the Company’s 2007 Equity Incentive Plan (the “ Plan ”) and the Company’s Employee Invention Assignment and Confidentiality Agreement and your commencement of employment with the Company will not violate any agreement currently in place between yourself and current or past employers.

9. Employment with TriNet . Our benefits, payroll, and other human resource management services are provided through TriNet Employer Group, Inc., a professional employer organization. As a result of the Company’s arrangement with TriNet, TriNet will be considered your employer of record for these purposes and the CEO will be responsible for directing your work, reviewing your performance, setting your schedule, and otherwise directing your work at the Company.

10. Authorization to Work . Please note that because of employer regulations adopted in the Immigration Reform and Control Act of 1986, within three (3) business days of starting your new position you will need to present documentation demonstrating that you have authorization to work in the United States. If you have questions about this requirement, which applies to U.S. citizens and non-U.S. citizens alike, you may contact our personnel office.

11. Arbitration . You and the Company agree to submit to mandatory binding arbitration any and all claims arising out of or related to your employment with the Company and the termination thereof, including but not limited to, claims for unpaid wages, wrongful termination, torts, stock or stock options or other ownership interest in the Company, and/ or discrimination (including harassment) based upon any federal, state or local ordinance, statute, regulation or constitutional provision except that each party may, at each party’s option, seek injunctive relief in court related to the improper use, disclosure or misappropriation of a party’s proprietary, confidential or trade secret information. All arbitration hearings shall be conducted in Santa Clara County, California. THE PARTIES HEREBY WAIVE ANY RIGHTS THEY MAY HAVE TO TRIAL BY JURY IN REGARD TO SUCH CLAIMS. This offer letter does not restrict your right to file administrative claims you may bring before any government agency where, as a matter of law, the parties may not restrict the employee’s ability to file such claims (including, but not limited to, the National Labor Relations Board, the Equal Employment Opportunity Commission and the Department of Labor). However, the parties agree that, to the fullest extent permitted by law, arbitration shall be the exclusive remedy for the subject matter of such administrative claims. The arbitration shall be conducted through JAMS before a single neutral arbitrator, in accordance with the JAMS employment arbitration rules then in effect. The


JAMS rules may be found and reviewed at http://jamsadr.com/rules-employment-arbitration . If you are unable to access these rules, please let me know and I will provide you with a hardcopy. The arbitrator shall issue a written decision that contains the essential findings and conclusions on which the decision is based.

12. Miscellaneous .

(a) Personal . This offer letter is personal to you and therefore you may not assign any of your rights and responsibilities hereunder.

(b) Successors . This offer letter shall inure to the benefit of and be binding upon (a) the Company and any of its successors, and (b) you and your heirs, executors and representatives in the event of your death. Any successor to Adesto Technologies Corporation shall be deemed substituted for the Company and Adesto Technologies Corporation under the terms of this offer letter for all purposes. In the event of a Change in Control, the Company agrees to obtain assumption of this offer letter by its successor.

(c) Modification . This offer letter, including, but not limited to the at-will provision above, may not be amended or modified other than by a written agreement designated as an amendment and executed by you and the CEO, following approval of the Board, although the Company reserves the right to unilaterally modify your compensation, benefits, job title and duties (subject to any express limitations set forth above).

(d) Severability . If any provision of this offer letter or the application thereof is held invalid, the invalidity shall not affect other provisions or applications of this offer letter that can be given effect without the invalid provisions or applications and to this end the provisions of this offer letter are declared to be severable.

(e) Complete Agreement . This offer letter (together with the Employee Invention Assignment and Confidentiality Agreement and the Plan) represents the entire agreement between you and the Company with respect to the material terms and conditions of your employment, and supersedes and replaces all prior discussions, negotiations and agreements.

(f) Counterparts . This offer letter may be executed (i) in counterparts, each of which shall be an original, with same effect as if the signatures hereto were on the same instrument; and (ii) by facsimile or pdf. The parties agree that such facsimile or pdf signatures shall be deemed original signatures for all purposes.

[Signature page follows]


We are extremely excited about you joining Adesto Technologies Corporation.

Please indicate your acceptance of this offer letter, and confirmation that it contains our complete agreement regarding the terms and conditions of your employment, by signing the bottom portion of this letter and returning a copy to me.

 

Very truly yours,

/s/ Narbeh Derhacobian

Narbeh Derhacobian, President and CEO
Agreed to and accepted:

/s/ Ron Shelton

Ron Shelton

Date:

5/30/2013

 

Exhibit 10.10

 

LOGO

August 16, 2013

Shane Hollmer

 

  Re: Amended and Restated Offer of Employment by Adesto Technologies Corporation

Dear Shane:

This offer letter serves to amend and restate your prior offer letter dated February 21, 2007 with Adesto Technologies Corporation (the “ Company ”) pertaining to the terms of your employment as the Company’s Vice President of Engineering. The amended and restated terms of your employment are as follows:

1. Position . You will serve as Vice President of Engineering of the Company. You will report to the President and Chief Executive Officer (the “ CEO ”) and shall perform the duties and responsibilities customary for such position and such other related duties as are assigned by the President and CEO. You agree to devote substantially all of your professional time, attention and efforts to the performance of your duties as the Company’s Vice President of Engineering, and shall not render services to any other business without the prior approval of the CEO. The foregoing shall not, however, preclude you (a) from engaging in appropriate civic, charitable or religious activities, (b) from devoting a reasonable amount of time to private investments, (c) from serving on the boards of directors of other entities, or (d) from providing incidental assistance to family members on matters of family business, so long as the foregoing activities and service do not conflict with your responsibilities to the Company.

2. Cash Compensation and Benefits .

(a) Base Salary . Your salary will be at an annualized rate of $248,000 per year, payable in accordance with the Company’s standard payroll schedule. Your salary, as well as any other cash amounts payable under this offer letter, will be subject to applicable tax withholdings and shall be reviewed by the Company’s Board of Directors (the “ Board ”) for possible increases prior to the start of each fiscal year, effective at the beginning of such fiscal year.

(b) Annual Bonus . You will have the opportunity to earn an annual cash bonus of up to thirty percent (30%) of your base salary for each fiscal year based on the achievement of certain objectives, which you and the Board will mutually establish. Such bonus payment is subject to your continued employment through and until the date of payment. The bonus will be paid no later than March 15 of the year following the year in which such bonus was earned.

(c) Benefits . In addition, you will be eligible to participate in regular health insurance, including medical, dental and vision as well as other employee benefit plans established by the Company for its employees from time to time. You will be entitled to 120


hours of PTO during every calendar year for the first five years of employment and earn an additional 8 hours PTO for each subsequent year of employment, up to a maximum of 160 hours. The amount of PTO available to you can be accrued and carried over from one year to the next, but in no circumstance shall it exceed 200 hours unless determined otherwise by the Company Compensation Committee.

3. At Will Employment . While we look forward to a long and profitable relationship, should you decide to accept our offer, you will be an at-will employee of the Company, which means the employment relationship can be terminated by either you or the Company for any reason, at any time, with or without prior notice and with or without cause. Any statements or representations to the contrary (and, indeed, any statements contradicting any provision in this letter) should be regarded by you as ineffective. Further, your participation in any stock option or benefit program is not to be regarded as assuring you of continuing employment for any particular period of time. Any modification or change in your at-will employment status may only occur by way of a written agreement signed by you and the CEO.

4. Termination Benefits .

(a) Following a Change in Control and For Other Than Cause or Good Reason . In the event that there is a Change in Control of the Company and the Company or its successor terminates your employment other than for Cause, or you terminate your employment for Good Reason, in either case upon or within twelve (12) months following the Change in Control, then you will be entitled to receive: (i) a lump sum payment equal to the sum of (a) six (6) months of your then-current base salary, (b) 100% of your target bonus for that fiscal year, and (c) reimbursement of six (6) months of your COBRA premiums; and (ii) acceleration of the vesting and exercisability of one hundred percent (100%) of all options, and unvested shares subject to all options, to purchase shares of the Company’s Common Stock then held by you (the “ Change in Control Severance Benefits ”). You agree that you will not resign for Good Reason without first providing the Company, or its successor as applicable, with written notice addressed to the CEO of the acts or omissions constituting the grounds for Good Reason within sixty (60) days of the initial existence of the grounds for Good Reason, with a reasonable cure period of not less than fifteen (15) days following delivery of such notice to the Company. In addition, you must terminate your employment within thirty (30) days following expiration of such cure period for your resignation to qualify as a resignation for Good Reason. Your entitlement to the Change in Control Severance Benefits is subject to your executing and not revoking an industry standard release and waiver of claims in favor of the Company (or its successor, as applicable).

(b) Form and Timing of Payment . The Company will pay you any lump sum amounts as provided for in this Section 4 on the thirtieth (30 th ) day following your termination of employment, provided that prior to such date the release described above is effective at such time.

(c) Definitions .

(i) For purposes of this Section 4, “ Cause ” shall mean: (i) any willful act or acts of dishonesty undertaken by you and resulting in substantial gain or personal enrichment of you at the expense of the Company; (ii) any willful act of misconduct by you which is materially and demonstrably injurious to the Company; (iii) willful and repeated failure


or refusal to comply in any respect with the terms of the Company’s standard Employee Invention Assignment and Confidentiality Agreement, or any other policies of the Company applicable to you where non-compliance would be materially detrimental to the Company; or (iv) conviction of, or plea of guilty to or no contest to, a felony. No act, or failure to act, by you shall be considered “willful” if done, or omitted to be done, by you in good faith and in the reasonable belief that your act or omission was in the best interest of the Company and/or required by applicable law.

(ii) For purposes of this Section 4, “ Good Reason ” shall mean: (i) a material reduction in your total annual compensation not agreed to by you, except in the case of a reduction in the total annual compensation applicable to all executive-level Company employees; (ii) a material reduction in your authority, status, obligations or responsibilities, provided that following a Change in Control, a change in title alone (not accompanied by a change in authority, status, obligations or responsibilities), or the Company being operated as a division or a subsidiary of a successor entity, shall not constitute a material reduction; (iii) the Company’s failure to comply in any material respect with any material term of this offer letter that is not cured within thirty (30) days; or (iv) a requirement that you relocate to an office that would increase your one-way commute distance by more than the greater of 50% or 15 miles.

(iii) For purposes of this Section 4, “ Change in Control ” shall mean any of the following events: (i) a merger or consolidation in which (1) the Company is a constituent party; or (2) a subsidiary of the Company is a constituent party and the Company issues shares of its capital stock pursuant to such merger or consolidation, except any such merger or consolidation involving the Company or a subsidiary in which the shares of capital stock of the Company outstanding immediately prior to such merger or consolidation continue to represent, or are converted or exchanged for shares of capital stock which represent, immediately following such merger or consolidation at least a majority, by voting power, of the capital stock of (A) the surviving or resulting corporation or (B) if the surviving or resulting corporation is a wholly owned subsidiary of another corporation immediately following such merger or consolidation, the parent corporation of such surviving or resulting corporation; (ii) a transaction to which the Company is a party and pursuant to which any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”)), other than a trustee or other fiduciary holding securities of the Company under an employee benefit plan of the Company, becomes the “beneficial owner” (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of the Company representing more than 50% of the combined voting power of the Company’s then-outstanding securities, excluding, for purposes of this subsection (ii), any transaction constituting an equity financing in which the Company is the surviving corporation; or (iii) the sale, lease, transfer or other disposition (including by way of an exclusive license), in a single transaction or series of related transactions, by the Company or any subsidiary of the Company of all or substantially all the assets of the Company and its subsidiaries taken as a whole, except where such sale, lease, transfer or other disposition is to a wholly owned subsidiary of the Company.

5. Section 280G . If any payments and other benefits provided for in this offer letter or otherwise constitute “parachute payments” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “ Code ”) and, but for this Section 5, would be subject to the excise tax imposed by Section 4999 of the Code, then payments and other benefits will be payable to you, at your election, either in full or in such lesser amounts as would result, after taking into account the applicable federal, state and local income taxes and the excise tax


imposed by Section 4999, on your receipt on an after-tax basis of the greatest amount of payments and other benefits, by first reducing the cash payments and then reducing the equity grants, in each case, pro rata between amounts subject to Section 409A of the Code and amounts not subject to Section 409A of the Code.

6. Section 409A . For purposes of this offer letter, a termination of employment will be determined consistent with the rules relating to a “separation from service” as defined in Section 409A of the Code and the regulations thereunder (“ Section 409A ”). Notwithstanding anything else provided herein, to the extent any payments provided under this offer letter in connection with your termination of employment constitute deferred compensation subject to Section 409A, and you are deemed at the time of such termination of employment to be a “specified employee” under Section 409A, then such payment shall not be made or commence until the earlier of (i) the expiration of the six (6)-month period measured from your separation from service from the Company or (ii) the date of your death following such a separation from service; provided, however, that such deferral shall only be effected to the extent required to avoid adverse tax treatment to you including, without limitation, the additional tax for which you would otherwise be liable under Section 409A(a)(1)(B) in the absence of such a deferral. The first payment thereof will include a catch-up payment covering the amount that would have otherwise been paid during the period between your termination of employment and the first payment date but for the application of this provision, and the balance of the installments (if any) will be payable in accordance with their original schedule. To the extent that any provision of this offer letter is ambiguous as to its compliance with Section 409A, the provision will be read in such a manner so that all payments hereunder comply with Section 409A. To the extent any payment under this offer letter may be classified as a “short-term deferral” within the meaning of Section 409A, such payment shall be deemed a short-term deferral, even if it may also qualify for an exemption from Section 409A under another provision of Section 409A. Payments pursuant to this offer letter are intended to constitute separate payments for purposes of Section 1.409A-2(b)(2) of the Treasury Regulations.

7. Confidentiality; Compliance with Policies . As an employee of the Company, you will have access to certain confidential information of the Company and you may, during the course of your employment, develop certain information or inventions that will be the property of the Company. To protect the interests of the Company, you have signed the Company’s standard “Employee Invention Assignment and Confidentiality Agreement” as a condition of your employment. We wish to impress upon you that we do not want you to, and we hereby direct you not to, bring with you any confidential or proprietary material of any former employer or to violate any other obligations you may have to any former employer. During the period that you render services to the Company, you agree to not engage in any employment, business or activity that is in any way competitive with the business or proposed business of the Company. You will disclose to the Company in writing any other gainful employment, business or activity that you are currently associated with or participate in that competes with the Company. You will not assist any other person or organization in competing with the Company or in preparing to engage in competition with the business or proposed business of the Company. You represent that your signing of this offer letter, agreement(s) concerning stock options granted to you, if any, under the Company’s 2007 Equity Incentive Plan (the “ Plan ”) and the Company’s Employee Invention Assignment and Confidentiality Agreement and your continued employment with the Company will not violate any agreement currently in place between yourself and current or past employers.


8. Employment with TriNet . Our benefits, payroll, and other human resource management services are provided through TriNet Employer Group, Inc., a professional employer organization. As a result of the Company’s arrangement with TriNet, TriNet will be considered your employer of record for these purposes and the CEO will be responsible for directing your work, reviewing your performance, setting your schedule, and otherwise directing your work at the Company.

9. Arbitration . You and the Company agree to submit to mandatory binding arbitration any and all claims arising out of or related to your employment with the Company and the termination thereof, including but not limited to, claims for unpaid wages, wrongful termination, torts, stock or stock options or other ownership interest in the Company, and/ or discrimination (including harassment) based upon any federal, state or local ordinance, statute, regulation or constitutional provision except that each party may, at each party’s option, seek injunctive relief in court related to the improper use, disclosure or misappropriation of a party’s proprietary, confidential or trade secret information. All arbitration hearings shall be conducted in Santa Clara County, California. THE PARTIES HEREBY WAIVE ANY RIGHTS THEY MAY HAVE TO TRIAL BY JURY IN REGARD TO SUCH CLAIMS. This offer letter does not restrict your right to file administrative claims you may bring before any government agency where, as a matter of law, the parties may not restrict the employee’s ability to file such claims (including, but not limited to, the National Labor Relations Board, the Equal Employment Opportunity Commission and the Department of Labor). However, the parties agree that, to the fullest extent permitted by law, arbitration shall be the exclusive remedy for the subject matter of such administrative claims. The arbitration shall be conducted through JAMS before a single neutral arbitrator, in accordance with the JAMS employment arbitration rules then in effect. The JAMS rules may be found and reviewed at http://jamsadr.com/rules-employment-arbitration . If you are unable to access these rules, please let me know and I will provide you with a hardcopy. The arbitrator shall issue a written decision that contains the essential findings and conclusions on which the decision is based.

10. Miscellaneous .

(a) Personal . This offer letter is personal to you and therefore you may not assign any of your rights and responsibilities hereunder.

(b) Successors . This offer letter shall inure to the benefit of and be binding upon (a) the Company and any of its successors, and (b) you and your heirs, executors and representatives in the event of your death. Any successor to Adesto Technologies Corporation shall be deemed substituted for the Company and Adesto Technologies Corporation under the terms of this offer letter for all purposes. In the event of a Change in Control, the Company agrees to obtain assumption of this offer letter by its successor.

(c) Modification . This offer letter, including, but not limited to the at-will provision above, may not be amended or modified other than by a written agreement designated as an amendment and executed by you and the CEO, following approval of the Board, although the Company reserves the right to unilaterally modify your compensation, benefits, job title and duties (subject to any express limitations set forth above).

(d) Severability . If any provision of this offer letter or the application thereof is held invalid, the invalidity shall not affect other provisions or applications of this offer letter that can be given effect without the invalid provisions or applications and to this end the provisions of this offer letter are declared to be severable.


(e) Complete Agreement . This offer letter (together with the Employee Invention Assignment and Confidentiality Agreement and the Plan) represents the entire agreement between you and the Company with respect to the material terms and conditions of your employment, and supersedes and replaces all prior discussions, negotiations and agreements, including, without limitation, your prior offer letter with the Company dated February 21, 2007.

(f) Counterparts . This offer letter may be executed (i) in counterparts, each of which shall be an original, with same effect as if the signatures hereto were on the same instrument; and (ii) by facsimile or pdf. The parties agree that such facsimile or pdf signatures shall be deemed original signatures for all purposes.

[Signature page follows]


We are extremely excited about your continued employment with Adesto Technologies Corporation.

Please indicate your acceptance of this amended and restated offer letter, and confirmation that it contains our complete agreement regarding the terms and conditions of your employment, by signing the bottom portion of this letter and returning a copy to me.

 

Very truly yours,

/s/ Narbeh Derhacobian

Narbeh Derhacobian, President and CEO
Agreed to and accepted:

/s/ Shane Hollmer

Shane Hollmer
Date:

February 26, 2015

Exhibit 10.11

[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

E XECUTION V ERSION

 

 

 

C REDIT A GREEMENT

among

A DESTO T ECHNOLOGIES C ORPORATION

and

A RTEMIS A CQUISITION LLC,

as the Borrowers

and

O PUS B ANK

as Lender

$15,000,000 Term Loan Facility

 

 

 

Dated as of April 30, 2015

 

 

 


TABLE OF CONTENTS

 

          Page  

SECTION 1

  

DEFINITIONS AND ACCOUNTING TERMS

     1   

1.01.

  

Defined Terms

     1   

1.02.

  

Use of Certain Terms

     22   

1.03.

  

Accounting Terms

     22   

1.04.

  

Rounding

     23   

1.05.

  

Exhibits and Schedules

     23   

1.06.

  

References to Agreements and Laws

     23   

SECTION 2

  

EXTENSION OF CREDIT

     23   

2.01.

  

Loans; Maximum Amounts

     23   

2.02.

  

Prepayments

     24   

2.03.

  

Principal and Interest

     25   

2.04.

  

Commitment Fee

     26   

2.05.

  

Computation of Interest and Fees

     26   

2.06.

  

Making Payments

     26   

2.07.

  

Funding Sources

     26   

2.08.

  

Collateral

     26   

2.09.

  

Joint and Several

     26   

SECTION 3

  

TAXES, YIELD PROTECTION AND ILLEGALITY

     29   

3.01.

  

Taxes

     29   

3.02.

  

Increased Cost and Reduced Return; Capital Adequacy

     32   

3.03.

  

Matters Applicable to all Requests for Compensation

     32   

3.04.

  

Survival

     32   

SECTION 4

  

CONDITIONS PRECEDENT TO EXTENSION OF CREDIT

     33   

4.01.

  

Conditions of Extension of Credit

     33   

SECTION 5

  

REPRESENTATIONS AND WARRANTIES

     35   

5.01.

  

Existence and Qualification; Power; Compliance with Laws

     35   

5.02.

  

Power; Authorization; Enforceable Obligations

     35   

5.03.

  

No Legal Bar

     36   

5.04.

  

Financial Statements; No Material Adverse Effect; Solvency

     36   

5.05.

  

Litigation

     36   

 

-i-


TABLE OF CONTENTS

(continued)

 

          Page  

5.06.

  

No Default

     37   

5.07.

  

Ownership of Property; Liens

     37   

5.08.

  

Taxes

     37   

5.09.

  

Margin Regulations; Investment Company Act

     37   

5.10.

  

ERISA Compliance

     37   

5.11.

  

Intangible Assets

     38   

5.12.

  

Compliance With Laws

     38   

5.13.

  

Environmental Compliance

     38   

5.14.

  

Insurance

     38   

5.15.

  

Disclosure

     38   

5.16.

  

[Reserved]

     39   

5.17.

  

USA PATRIOT Act, Foreign Assets Control Regulations, Etc

     39   

SECTION 6

   AFFIRMATIVE COVENANTS      41   

6.01.

  

Financial Statements

     41   

6.02.

  

Certificates, Notices and Other Information

     42   

6.03.

  

Payment of Taxes and Claims

     44   

6.04.

  

Preservation of Existence

     44   

6.05.

  

Maintenance of Properties

     44   

6.06.

  

Maintenance of Insurance

     44   

6.07.

  

Compliance With Laws

     44   

6.08.

  

Inspection Rights

     45   

6.09.

  

Keeping of Records and Books of Account

     45   

6.10.

  

Compliance with ERISA

     45   

6.11.

  

Compliance With Agreements

     45   

6.12.

  

[Reserved]

     45   

6.13.

  

Material Subsidiaries

     46   

6.14.

  

Use of Proceeds

     46   

6.15.

  

Post-Closing Requirement

     46   

6.16.

  

Deposit Accounts

     47   

6.17.

  

Insurance

     47   

6.18.

  

Lockbox Account and Bridge Bank

     47   

 

-ii-


TABLE OF CONTENTS

(continued)

 

          Page  

SECTION 7

  

NEGATIVE COVENANTS

     47   

7.01.

  

Indebtedness

     47   

7.02.

  

Liens

     49   

7.03.

  

Fundamental Changes

     50   

7.04.

  

Dispositions

     50   

7.05.

  

Investments

     51   

7.06.

  

Restricted Payments

     51   

7.07.

  

ERISA

     52   

7.08.

  

[Reserved]

     52   

7.09.

  

Transactions with Affiliates

     52   

7.10.

  

Certain Indebtedness Payments, Etc

     52   

7.11.

  

Financial Covenants

     53   

7.12.

  

Accounting Changes

     53   

7.13.

  

Organization Documents

     53   

7.14.

  

Burdensome Agreements

     54   

SECTION 8

  

EVENTS OF DEFAULT AND REMEDIES

     54   

8.01.

  

Events of Default

     54   

8.02.

  

Certain Financial Covenant Defaults

     56   

8.03.

  

Remedies Upon Event of Default

     56   

SECTION 9

  

MISCELLANEOUS

     57   

9.01.

  

Amendments; Consents

     57   

9.02.

  

Transmission and Effectiveness of Communications and Signatures

     57   

9.03.

  

Attorney Costs, Expenses and Taxes

     58   

9.04.

  

Binding Effect; Assignment

     59   

9.05.

  

Set-off

     59   

9.06.

  

[Reserved]

     59   

9.07.

  

[Reserved]

     59   

9.08.

  

No Waiver; Cumulative Remedies

     59   

9.09.

  

Usury

     60   

 

-iii-


TABLE OF CONTENTS

(continued)

 

          Page  

9.10.

  

Counterparts

     60   

9.11.

  

Integration

     60   

9.12.

  

Nature of Lender’s Obligations

     60   

9.13.

  

Survival of Representations and Warranties; Termination of Agreement

     60   

9.14.

  

Indemnity by Borrower

     60   

9.15.

  

Nonliability of Lender

     61   

9.16.

  

No Third Parties Benefited

     62   

9.17.

  

Severability

     62   

9.18.

  

Confidentiality

     62   

9.19.

  

Further Assurances

     63   

9.20.

  

Headings

     63   

9.21.

  

Time of the Essence

     63   

9.22.

  

Governing Law

     63   

9.23.

  

Judicial Reference Waiver of Jury Trial

     64   

9.24.

  

PATRIOT Act Notification

     64   

9.25.

  

Entire Agreement

     64   

 

-iv-


EXHIBITS

Forms of:

A Form of Notice of Borrowing
B Form of Compliance Certificate
C Form of Note
D Form of Warrant
E Judicial Reference Waiver of Jury Trial
F Form of General Security Agreement
G Form of Guaranty
H Form of Stock Pledge Agreement
I Form of Intellectual Property Security Agreement

SCHEDULES

 

2.01 Commitments
5.01 Material Subsidiaries and First Tier Foreign Subsidiaries
5.05 Litigation
5.07 Ownership of Property
7.01 Existing Indebtedness and Liens
7.05 Investments
7.10 Subordination Provisions
9.02 Lending Offices, Addresses for Notices


C REDIT A GREEMENT

This C REDIT A GREEMENT ( “Agreement” ) is entered into as of April 30, 2015, by and among A DESTO T ECHNOLOGIES C ORPORATION , a California corporation ( “Adesto” ), A RTEMIS A CQUISITION LLC , a California limited liability company ( “Artemis” , and, together with Adesto, collectively, the “Borrowers” ), O PUS B ANK , a California commercial bank, as Lender ( “Lender” ),

R ECITALS

Borrowers have requested that the Lender provide a term loan facility and Lender is willing to do so on the terms and conditions set forth herein.

In consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows:

SECTION 1

DEFINITIONS AND ACCOUNTING TERMS

1.01. Defined Terms. As used in this Agreement, the following terms shall have the meanings set forth below:

“Acquisition” means any transaction or series of related transactions for the purpose of or resulting, directly or indirectly, in (a) the acquisition of all or substantially all of the assets of a Person, or of any line of business or any division of a Person, (b) the acquisition of in excess of 50% of the capital stock, partnership interests or equity of any Person, or otherwise causing any Person to become a Subsidiary, or (c) a merger or consolidation or any other combination with another Person (other than a Person that is a Subsidiary).

“Adesto” has the meaning set forth in the introductory paragraph hereto.

Adesto Technologies France means Adesto’s wholly owned Subsidiary with that name which is incorporated and existing under the laws of France.

Adesto Technologies UK means Adesto’s wholly owned Subsidiary with that name which is incorporated and existing under the laws of the United Kingdom.

“Affiliate” means any Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, another Person. A Person shall be deemed to be “controlled by” any other Person if such other Person possesses, directly or indirectly, power (a) to vote 10% or more of the securities (on a fully diluted basis) having ordinary voting power for the election of directors or managing general partners; or (b) to direct or cause the direction of the management and policies of such Person whether by contract or otherwise.

“Agreement” means this Credit Agreement, as amended, restated, extended, supplemented or otherwise modified in writing from time to time.


Adesto Technologies Corporation Credit Agreement

 

“Anti-Corruption Laws” mean the United States Foreign Corrupt Practices Act of 1977 and the U.K. Bribery Act 2010.

“Anti-Money Laundering Laws” mean the Currency and Foreign Transactions Reporting Act of 1970 (otherwise known as the Bank Secrecy Act), the USA PATRIOT Act, the U.S. Money Laundering Control Act of 1986 and any other United States law or regulation governing such activities.

“Anti-Terrorism Order” means Executive Order No. 13224 of September 24, 2001, Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit or Support Terrorism, 66 Fed. Reg. 49,079 (2001), as amended.

“Approved Fund” means any Fund that is administered or managed by (a) Lender, (b) an Affiliate of Lender, or (c) an entity or an Affiliate of an entity that administers or manages Lender.

“Artemis” has the meaning set forth in the introductory paragraph hereto.

“Asset Coverage Ratio” means, for any period, for Borrower and its Subsidiaries on a consolidated basis, the ratio of (a) the sum of Cash held in a Designated Deposit Account and Eligible Receivables for such period to (b) Senior Indebtedness for such period.

“Asset Sale” means a sale, lease or sub-lease (as lessor or sublessor), sale and leaseback, assignment, conveyance, transfer or other disposition to, or any exchange of property with, any Person (other than any Borrower or any Subsidiary), in one transaction or a series of transactions, of all or any part of any Borrower or any of its domestic Subsidiaries’ businesses, assets or properties of any kind, whether real, personal, or mixed and whether tangible or intangible, whether now owned or hereafter acquired, including, without limitation, the Equity Securities of any Subsidiaries, other than (i) inventory or other assets (including Cash or Cash Equivalents) sold, transferred or otherwise disposed of in the ordinary course of business consistent with past practice, (ii) sales of other assets for aggregate consideration of less than $500,000 with respect to any transaction or series of related transactions and less than $1,000,000 in the aggregate during any fiscal year, (iii) leases, subleases, licenses and sublicenses, each to the extent entered into in the ordinary course of business and (iv) transactions permitted by Section 7.04(a) and Section 7.04(b).

“Attorney Costs” means and includes all reasonable attorneys’ and other fees and disbursements of any law firm or other external counsel and the allocated cost of internal legal services and all disbursements of internal counsel.

“Blocked Person” means any (i) OFAC Listed Person, (ii) agent, department, or instrumentality of, or any Person otherwise beneficially owned by, controlled by or acted on behalf of, directly or indirectly, (x) any OFAC Listed Person or (y) any Person, entity, organization, foreign country or regime that is subject to any OFAC Sanctions Program, or (iii) Person otherwise blocked, subject to sanctions under or engaged in any activity in violation of any U.S. Economic Sanctions.

“Board” means the Board of the United States Federal Reserve System.

 

-2-


Adesto Technologies Corporation Credit Agreement

 

“Borrowers” has the meaning set forth in the introductory paragraph hereto.

“Borrowing” and “Borrow” each mean a borrowing of Loans hereunder.

“Business Day” means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banks in New York, New York, San Francisco, California or Irvine, California are generally authorized or obligated, by law or executive order, to close.

“Capital Leases” means any and all leases under which certain obligations are required to be capitalized on the books of a lessee in accordance with GAAP.

“Cash” or “Cash Equivalents” means assets properly classified as “marketable securities”, “cash”, “cash equivalents” or “short term investments” under GAAP.

“Change of Control” means (i) the direct or indirect acquisition by any person (as such term is used in Section 13(d) and Section 14(d)(2) of the Exchange Act, but excluding any employee benefit plan of Borrowers and their Subsidiaries, or any person or entity acting it its capacity as trustee, agent or other fiduciary or administrator of any such plan) or related persons constituting a group (as such term is used in Rule 13d-5 under the Exchange Act), of (a) beneficial ownership of the issued and outstanding shares of voting stock or similar equity interest of a corporation or other entity, the result of which acquisition is that such person or group possesses in excess of 40% of the combined voting power of all then-issued and outstanding voting stock of such corporation or other entity, or (b) the power to elect, appoint, or cause the election or appointment of at least a majority of the members of the board of directors of such corporation or other entity, or (ii) if Adesto shall at any time cease to directly or indirectly own and control legally and beneficially (free and clear of all Liens) all of the Equity Securities of Artemis.

“CISADA” means the Comprehensive Iran Sanctions, Accountability and Divestment Act.

“Closing Date” means the date all the conditions precedent in Section 4.01 are satisfied or waived in accordance with Section 4.01.

“Code” means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute thereto.

“Compliance Certificate” means a certificate substantially in the form of Exhibit B , properly completed and signed by a Senior Officer of Adesto.

“Consolidated Cash Balance” has the meaning set forth in Section 7.11(b).

“Consolidated EBITDA” means the sum of the following, provided that the items contained in (b) through (i) below shall be added to (a) only to the extent they have been deducted in calculating, and therefore form no portion of, Consolidated Net Income:

(a) Consolidated Net Income, provided that there shall be excluded from such Consolidated Net Income the following: (i) all gains and all losses realized by Borrowers

 

-3-


Adesto Technologies Corporation Credit Agreement

 

and their Subsidiaries upon the sale or other disposition (including, without limitation, pursuant to sale and leaseback transactions) of property or assets that are not sold or otherwise disposed of in the ordinary course of business, or pursuant to the sale of any capital stock held by any Borrower or any Subsidiary; and (ii) all items of gain or income that are properly classified as extraordinary in accordance with GAAP or are unusual or non-recurring; and

(b) Consolidated Interest Charges; and

(c) The amount of Taxes, based on or measured by income, used or included in the determination of such Consolidated Net Income; and

(d) The amount of depreciation and amortization expense deducted in determining such Consolidated Net Income, including any impairment of intangible/goodwill as defined under FAS 142 and FAS 144; and

(e) Any non-cash stock, stock option or restricted stock based compensation charges determined in accordance with GAAP; and

(f) Cash charges related to restructuring, discontinued operations, and extraordinary items, including, but not limited to, facilities and personnel reductions or exit of a business or products, in an amount not to exceed $300,000 in the aggregate for the period beginning on the Closing Date and ending on the final Maturity Date; and

(g) Other non-cash extraordinary or non-recurring charges.

For purposes of calculating Consolidated EBITDA for any period in connection with the Leverage Ratio, if during such period any Borrower or any Subsidiary shall have made any Permitted Acquisition, Consolidated EBITDA for such period shall be calculated after giving pro forma effect to such Permitted Acquisition as if such Permitted Acquisition occurred on the first day of such period.

“Consolidated Interest Charges” means, for any period, for Borrowers and their Subsidiaries on a consolidated basis, the sum of (a) all interest, premium payments, fees, charges and related expenses payable by Borrowers and their Subsidiaries in connection with borrowed money (including capitalized interest) or in connection with the deferred purchase price of assets, in each case to the extent treated as interest in accordance with GAAP, and (b) the portion of rent payable by Borrowers and their Subsidiaries with respect to such period under Capital Leases that is treated as interest in accordance with GAAP.

“Consolidated Net Income” means, for any period, for Borrowers and their Subsidiaries on a consolidated basis, the net income of Borrowers and their Subsidiaries determined in accordance with GAAP.

“Consolidated Tangible Net Worth” means, as of any date of determination, for Borrowers and their Subsidiaries on a consolidated basis, Shareholders’ Equity of Borrowers and their Subsidiaries on that date minus the Intangible Assets of Borrowers and their Subsidiaries on that date.

 

-4-


Adesto Technologies Corporation Credit Agreement

 

“Contractual Obligation” means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or undertaking to which such Person is a party or by which it or any of its property is bound.

“Controlled Entity” means (a) any Subsidiary, (b) any Affiliate of Borrower or any Subsidiary and (c) if Borrower has a parent company, such parent company and its Affiliates.

“Debtor Relief Laws” means the Bankruptcy Code of the United States of America, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States of America or other applicable jurisdictions from time to time in effect affecting the rights of creditors generally.

“Default” means any event that, has occurred and is in a cure period and which if not cured or waived on or before the end of such cure period will be an Event of Default.

“Default Rate” means, with respect to any Loan, the Interest Rate, plus 5% per annum, in each case to the fullest extent permitted by applicable Laws.

“Deposit Account Control Agreements” means, if any, the respective Deposit Account Control Agreements entered into among any Borrower, as Customer, the Lender and any depository institutions at which such Borrower maintains deposit accounts from time to time (other than the Lender).

“Designated Deposit Account” means a deposit account maintained by Adesto with the Lender, as from time to time designated by Adesto to Lender by Requisite Notice.

“Disposition” or “Dispose” means the sale, transfer, License Disposition or other disposition (including any sale and leaseback transaction) of any property by any Person, including any sale, assignment, transfer or other disposal with or without recourse of any notes or accounts receivable or any rights and claims associated therewith.

“Dollar” and “$” means lawful money of the United States of America.

“Eligible Receivables” means with respect to the Borrowers, as of any date of determination, subject to modification by the Lender in its reasonable discretion based upon the results of a field audit, the face value of each account (as used in this definition, each such account, an “Account” ) arising out of any contract or agreement which is a bona fide, non-contingent, existing obligation of the named account debtor thereunder (as used in this definition, and with respect to each individual contract or agreement, an “Account Debtor” ) actually and absolutely owing to a Borrower and arising from the sale and delivery of merchandise or the rendering of services to such Account Debtor in the ordinary course of such Borrower’s business as presently conducted for which the Account Debtor has been billed and such Account satisfies and continues to satisfy the following requirements:

(i) the Account is evidenced by an invoice that has not remained unpaid for a period exceeding one hundred twenty (120) days or more beyond the invoice date of the invoice;

 

-5-


Adesto Technologies Corporation Credit Agreement

 

(ii) the Account is not due from an Account Debtor whose debt on Accounts that are unpaid for a period exceeding one hundred twenty (120) days or more after the invoice date of the respective invoices exceeds fifty percent (50%) of such Account Debtor’s total debt to the Borrowers;

(iii) the Account is a valid, legally enforceable obligation of the Account Debtor and no offset (including, without limitation, discounts, advertising allowances, counterclaims or contra accounts) or other defense on the part of such Account Debtor or any claim on the part of such Account Debtor denying liability thereunder has been asserted; provided, however, that if the Account is subject to any such offset, defense or claim, or any inventory related thereto has been returned, such account shall not be an Eligible Receivable only to the extent of the maximum amount of such offset, defense, claim or return and the balance of such Account, if it otherwise represents a valid, uncontested and legally enforceable obligation of the Account Debtor and meets all of the other criteria for eligibility set forth herein, shall be considered an Eligible Receivable;

(iv) the services have been performed or the subject merchandise has been shipped or delivered on open Account to the named Account Debtor on an absolute sale basis and not on a bill-and-hold, consignment, on approval or subject to any other repurchase or return agreement, and no material part of the subject goods has been returned;

(v) the Account does not represent a pre-billing, prepaid deposit, retention billing or progress billing;

(vi) other than pursuant to the Security Documents, the Account is not subject to any Lien or security interest whatsoever;

(vii) the Account is not evidenced by chattel paper or an instrument of any kind;

(viii) the Account has not been turned over to any Person for collection;

(ix) the Account is not owing by an Account Debtor that shall have failed to pay twenty-five percent (25%) or more of all Accounts owed by such Account Debtor to the Borrower within the period set forth in (ii) above or which has become insolvent or is the subject of any bankruptcy, arrangement, reorganization proceedings or other proceedings for relief of debtors;

(x) the Account is not owing by an Account Debtor that (A) is an Affiliate of the Borrower), (B) is a Governmental Authority (except to the extent that Borrower has complied with the Federal Assignment of Claims Act of 1940, as amended, or analogous state statutes, in a manner reasonably satisfactory to Lender) or (C) except to the extent approved by Lender in its sole discretion, is organized under the laws of, or has its principal place of business outside, the United States of America or Canada or any state or any province thereof; and

(xi) unless previously agreed to by the Lender in writing, the aggregate amount of Accounts payable by the Account Debtor of the Account does not constitute more than 30% of all Accounts of Borrower.

 

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Adesto Technologies Corporation Credit Agreement

 

“Employee Benefit Plan” means any employee benefit plan within the meaning of Section 3(3) of ERISA, maintained or contributed to by any Borrower or any ERISA Affiliate, other than a Multiemployer Plan.

“Environmental Laws” mean all Laws relating to environmental, health, safety and land use matters applicable to any property of any Borrower or Subsidiary.

“Equity Securities” or “Equity Security” of any Person means (a) all common stock, preferred stock, participations, shares, partnership interests or other equity interests in such Person (regardless of how designated and whether or not voting or non-voting) and (b) all warrants, options and other rights to acquire any of the foregoing, other than convertible debt securities which have not been converted into common stock, preferred stock, participations, shares, partnership interests or other equity interests in any such Person.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, or any successor Federal statute.

“ERISA Affiliate” means any trade or business (whether or not incorporated) under common control with any Borrower within the meaning of Sections 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code).

“ERISA Event” means (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by any Borrower or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by any Borrower or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Sections 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the imposition of any liability under Title IV of ERISA, other than PBGC premiums due but not delinquent under Section 4007 of ERISA, upon any Borrower or any ERISA Affiliate.

“Event of Default” means any of the events specified in Section 8.

“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, or any successor federal statute.

“Excluded Taxes” has the meaning set forth in Section 3.01.

 

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Adesto Technologies Corporation Credit Agreement

 

“Existing Financial Statements” means the un-audited consolidated balance sheet of Borrowers and their Subsidiaries for each completed fiscal year prior to the Closing Date, and the related consolidated statements of income and cash flows for such fiscal year(s) of Borrowers.

“Existing Indebtedness” means all Indebtedness of the Borrowers to Bridge Bank.

“FATCA” means collectively, Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantially comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof and any agreements entered into pursuant to Section 1471(b)(1) of the Code.

“Federal Funds Rate” means, for any day, the rate per annum (rounded upwards to the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate charged to the Lender on such day on such transactions as determined by Lender.

“First Tier Foreign Subsidiary” means, at any date of determination, each foreign Material Subsidiary in which any Borrower or any of its domestic subsidiaries owns directly more than 50%, in the aggregate, of the capital stock of such Subsidiary.

“Fund” means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans or similar extensions of credit in the ordinary course of business.

“GAAP” means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or such other principles as may be approved by a significant segment of the accounting profession, that are applicable to the circumstances as of the date of determination, consistently applied. If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Loan Document, and either Borrowers or Lender shall so request, Lender and Borrowers shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP, provided that, until so amended, (a) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (b) Borrowers shall provide to Lender financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP.

 

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Adesto Technologies Corporation Credit Agreement

 

“General Security Agreement” means that certain Security Agreement (Personal Property), substantially in the form of Exhibit F , dated as of the date hereof, between Borrowers (or, as the case may be, each Guarantor), as Debtor, and Lender, as Secured Party, securing the Obligations of Borrowers (or, as the case may be, the obligations of each Guarantor), as the same may from time to time be amended, modified or supplemented.

“Governmental Authority” means (a) any international, foreign, federal, state, county or municipal government, or political subdivision thereof, (b) any governmental or quasi-governmental agency, authority, board, bureau, commission, department, instrumentality, central bank or public body, or (c) any court, administrative tribunal or public utility.

“Guarantor” means each domestic Material Subsidiary in existence on the date hereof (as set forth on Schedule 5.01 hereof) and thereafter any Person that may from time to time deliver a Guaranty hereafter pursuant to the terms of Section 6.13 hereof.

“Guaranty” means each of those certain Guaranties, substantially in the form of Exhibit G, dated as of the date hereof, as supplemented form time to time hereafter, from each Guarantor in favor of the Lender, together with any Guaranty executed hereafter pursuant to the terms of Section 6.13 hereof, as the same may from time to time hereafter be amended, modified or supplemented.

“Guaranty Obligation” means, as to any Person, any (a) guaranty by such Person of Indebtedness of, or other obligation payable or performable by, any other Person or (b) assurance, agreement, letter of responsibility, letter of awareness, undertaking or arrangement given by such Person to an obligee of any other Person with respect to the payment or performance of an obligation by, or the financial condition of, such other Person, whether direct, indirect or contingent, including any purchase or repurchase agreement covering such obligation or any collateral security therefor, any agreement to provide funds (by means of loans, capital contributions or otherwise) to such other Person, any agreement to support the solvency or level of any balance sheet item of such other Person or any “keep-well” or other arrangement of whatever nature, in each such case, given for the purpose of assuring or holding harmless such obligee against loss with respect to any obligation of such other Person; provided , however, that the term “Guaranty Obligation” shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guaranty Obligation shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, covered by such Guaranty Obligation or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the Person in good faith.

“Hazardous Substance” means any substance, material or waste, including asbestos and petroleum (including crude oil or any fraction thereof), which is or becomes designated, classified or regulated as “toxic,” “hazardous,” a “pollutant” or similar designation under any Laws.

“Indebtedness” means, as to any Person at any date of determination, all items which would, in conformity with GAAP, be classified as liabilities on a balance sheet of such Person as at such date, including:

(a) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments;

 

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Adesto Technologies Corporation Credit Agreement

 

(b) any direct or contingent obligations of such Person arising under letters of credit (including standby and commercial), banker’s acceptances, bank guaranties, surety bonds and similar instruments;

(c) whether or not so included as liabilities in accordance with GAAP but excluding any portion thereof which would be accounted for as interest under GAAP, net obligations under any Swap Contract in an amount equal to (i) if such Swap Contract has been closed out, the termination value thereof, or (ii) if such Swap Contract has not been closed out, the mark-to-market value thereof determined on the basis of readily available quotations provided by any recognized dealer in such Swap Contract;

(d) whether or not so included as liabilities in accordance with GAAP and whether with or without recourse, all obligations of such Person to pay the deferred purchase price of property or services (if such deferral is greater than 180 days), and indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements);

(e) Capital Leases in an amount of the capitalized lease liability appearing on Borrowers’ financial statements delivered in accordance with Sections 6.01(a) and (b) of this Agreement;

(f) the principal component or liquidation preference of all Equity Securities of such Person and which by the terms thereof could at any time prior to the Maturity Date (at the request of the holders thereof or otherwise) be subject to mandatory sinking fund payments, mandatory redemption or other acceleration; and

(g) all Guaranty Obligations of such Person in respect of any of the foregoing obligations of any other Person;

provided that for all purposes of this Agreement, Indebtedness shall exclude (i) trade and other accounts payable in the ordinary course of business in accordance with customary trade terms and which are not overdue for a period of more than sixty (60) days (unless contested in good faith by any Borrower or any Subsidiary), (ii) deferred Taxes, and (iii) accrued interest and expenses, except to the extent capitalized.

For all purposes of this Agreement, the Indebtedness of any Person shall include, at any such time as such partnership or joint venture is not Solvent, the Indebtedness of any partnership or joint venture (to the extent the joint venture is a legal entity where the venture members have pass-through liability for all of the debts of the joint venture) in which such Person is a general partner or a joint venturer, unless such Indebtedness is expressly made non-recourse to such Person (subject to customary recourse exceptions acceptable to Lender).

“Indemnified Liabilities” has the meaning set forth in Section 9.14.

 

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Adesto Technologies Corporation Credit Agreement

 

“Indemnitees” has the meaning set forth in Section 9.14.

“Intangible Assets” means assets that are required to be disclosed as intangible assets in accordance with GAAP on Borrowers’ balance sheet, including customer lists, goodwill, computer software, copyrights, trade names, trade-marks, patents, unamortized deferred charges, unamortized debt discount and capitalized research and development costs.

“Intellectual Property Security Agreement” means that certain Intellectual Property Security Agreement dated as of the date hereof, entered into by Borrowers, as Debtors, and Lender, as Secured Party, securing the Obligations of Borrowers, as the same may from time to time be amended, modified or supplemented.

“Interest Rate” means a fluctuating rate per annum equal to (a) the higher of (1) the rate of interest in effect for such day as publicly announced from time to time by the Wall Street Journal as its “prime rate” (or the average prime rate if a high and a low prime rate are therein reported) or (2) 3.25% plus (b) (1) if the Cash and Cash Equivalents of the Borrowers are greater than 125% of the outstanding principal of the Loan, 1.00% or (2) if the Cash and Cash Equivalents of the Borrowers are less than or equal to than 125% of the outstanding principal of the Loan, 2.00%.

“Investment” means, as to any Person, any investment by such Person, whether by means of the purchase or other acquisition of stock or other securities of any other Person or by means of a loan, creating a debt, capital contribution, guaranty or other debt or equity participation or interest in any other Person. For purposes of covenant compliance, the amount of any Investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value of such Investment.

“IP Licensing Payments” means, in respect of any patent, trademark, copyright, mask work, trade secret or other intellectual property right owned or held by any Borrower or any of such Borrower’s Subsidiaries (the “IP Rights” ), any payments received from the granting by any Borrower or any of such Borrower’s Subsidiaries of a license in the IP Rights.

“IRS” means the United States Internal Revenue Service.

“Knowledge” means, when referring to the “Knowledge” of any Person or any similar phrase or qualification based on knowledge or awareness with respect to such Person, (i) the actual knowledge of such Person, and (ii) the knowledge that any such Person, as a reasonably prudent business person, would have obtained in the conduct of his or her business.

“Landlord’s Agreement” means an executed lien waiver from a lessor of a real property, in form and substance reasonably satisfactory to Lender, including, without limitation, (i) waiver of said lessor’s lien rights with respect to any property of any Borrower located thereon and (ii) reasonable rights on entry for Lender (and its agents) to assemble and remove any Collateral located on such premises.

“Laws” or “Law” means all international, foreign, federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any

 

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Adesto Technologies Corporation Credit Agreement

 

Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case whether or not having the force of law.

“Lender” means each lender from time to time party hereto.

“Lending Office” means the office or offices of Lender described as such on Schedule 9.02 , or such other office or offices as Lender may from time to time notify Borrowers.

Leverage Ratio” means, as of any date of determination, for Borrowers and their Subsidiaries on a consolidated basis, the ratio of (a) Indebtedness (other than Indebtedness under clause (c) of the definition thereof) as of such date to (b) Consolidated Tangible Net Worth.

“License Disposition” means, in respect of any patent, trademark, copyright, mask work, trade secret or other intellectual property right owned or held by Borrowers or any of their Subsidiaries (the “IP Holder” ) which is material to Borrowers and any of their Subsidiaries taken as a whole (together, “Material IP” ), (i) the granting by the IP Holder of an exclusive license across all or substantially all fields, uses or regions to any Person other than a Borrower or another Subsidiary, (ii) the granting of any license by the IP Holder that conveys directly or indirectly to any Person other than Borrowers or their Subsidiaries all or substantially all of the economic value of such Material IP, or (iii) the abandonment by the IP Holder of such Material IP.

“Lien” means any mortgage, pledge, hypothecation, assignment, deposit arrangement (including in the nature of, cash collateral accounts or security interests), encumbrance, lien (statutory or other), fixed or floating charge, or other security interest of any kind or nature whatsoever (including any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code or comparable Laws of any jurisdiction), including the interest of a purchaser of accounts receivable.

“Loan” has the meaning specified in Section 2.01(a).

“Loan Commitment” means, in the aggregate, $15,000,000.

“Loan Documents” means this Agreement, each Notice of Borrowing, each Note, each Guaranty, each Security Document, any Landlord’s Agreement, the Perfection Certificate, any subordination agreements pertaining to Subordinated Debt, and each certificate, fee letter, and other instrument or agreement from time to time executed by Borrower or any of its Subsidiaries or any Senior Officer and delivered in connection with this Agreement.

“Master Agreement” has the meaning set forth in the definition of “Swap Contract” .

“Material Adverse Effect” means any set of circumstances or events which (a) has any material adverse effect upon the validity or enforceability of any Loan Document, (b) is material and adverse to the financial condition, business, assets or operations of Borrowers and their Subsidiaries taken as a whole, (c) has any material adverse effect upon the value or condition of the collateral under any Security Document, or (d) materially impairs the ability of any Borrower or any Subsidiary to perform its Obligations.

 

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Adesto Technologies Corporation Credit Agreement

 

“Material Lease” means any lease entered into by Borrowers and their Subsidiaries after the Closing Date for premises in excess of 25,000 square feet.

“Material Subsidiaries” means each Subsidiary of a Borrower which has assets with a total book value greater than 10% of the consolidated total assets of such Borrower and its Subsidiaries, determined as of the end of the fiscal quarter immediately preceding the date of determination.

“Maturity Date” means April 30, 2018, or such earlier date upon which the Loan may be terminated in accordance with the terms of this Agreement.

“Multiemployer Plan” means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA.

“Net Asset Sales Proceeds” means, with respect to any Asset Sale, an amount equal to: (i) Cash payments (including any Cash or Cash Equivalents received by way of deferred payment pursuant to, or by monetization of, a note receivable or otherwise, but only as and when so received) received by Borrowers or any of their Subsidiaries from such Asset Sale, minus (ii) any direct costs incurred in connection with such Asset Sale, including (a) income, gains or transfer Taxes payable by the seller as a result of any gain recognized in connection with such Asset Sale, (b) payment of the outstanding principal amount of, premium or penalty, if any, and interest on any Indebtedness (other than the Loans) that is secured by a Lien on the stock or assets in question and that is required to be repaid under the terms thereof as a result of such Asset Sale and (c) a reasonable reserve for any indemnification payments (fixed or contingent) attributable to seller’s indemnities and representations and warranties to purchaser in respect of such Asset Sale undertaken by Borrowers or any of their Subsidiaries in connection with such Asset Sale.

“Net Insurance/Condemnation Proceeds” means an amount equal to: (i) any Cash (or Cash Equivalents) payments or proceeds received by Borrowers or any of their Subsidiaries (a) under any casualty insurance policy in respect of a covered loss thereunder or (b) as a result of the taking of any assets of Borrowers or any of their Subsidiaries by any Person pursuant to the power of eminent domain, condemnation or otherwise, or pursuant to a sale of any such assets to a purchaser with such power under threat of such a taking, minus (ii) (a) any costs incurred by Borrowers or any of their Subsidiaries in connection with the adjustment or settlement of any claims of such Borrower or such Subsidiary in respect thereof, and (b) any costs incurred in connection with any sale of such assets as referred to in clause (i)(b) of this definition, including income, gains or transfer Taxes payable as a result of any gain recognized in connection therewith.

“Net Proceeds” means, with respect to any sale or issuance of any Equity Security or other security by any Person (including in the case of Adesto, any sale or issuance of any Subordinated Debt), the aggregate consideration received by such Person from such sale or issuance less the actual amount of fees and commissions payable to Persons other than such Person or any Affiliate of such Person.

 

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Adesto Technologies Corporation Credit Agreement

 

“Note” means a promissory note made by Borrowers in favor of Lender evidencing Loans made by Lender, substantially in the form of Exhibit C (collectively, the “Notes” ).

“Notice of Borrowing” has the meaning set forth in Section 4.01(a)(iii).

“Obligations” means all advances to, and debts, liabilities, obligations, covenants and duties of, Borrowers and their Subsidiaries arising under any Loan Document, whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest that accrues after the commencement of any proceeding under any Debtor Relief Laws by or against any Borrower or any Subsidiary or Affiliate of any Borrower.

OFAC” means the Office of Foreign Assets Control, United States Department of the Treasury.

“OFAC Listed Person” means any Person whose name appears on the SDN List.

“OFAC Sanctions Program” means any economic or trade sanction that OFAC is responsible for administering and enforcing. A list of OFAC Sanctions Programs may be found at http://www.treasury.gov/resource-center/sanctions/Programs/Pages/Programs.aspx.

“Opus Bank” means Opus Bank, a California commercial bank.

“Ordinary Course Dispositions” means:

(a) Dispositions of surplus equipment or damaged, obsolete or worn out property, whether now owned or hereafter acquired, in the ordinary course of business;

(b) Dispositions in the ordinary course of business (and, with respect to License Dispositions, such Dispositons are not conducted in a matter dissimilar to ordinary course dispositions made prior to the Closing Date) and other Dispositions permitted by this Agreement;

(c) Dispositions of property to the extent that such property is exchanged for credit against the purchase price of similar replacement property, or the proceeds of such sale are reasonably promptly applied to the purchase price of such replacement property or where Borrowers and their Subsidiary determine in good faith that the failure to replace such property will not be detrimental to the business of such Borrower or such Subsidiary; provided that the fair market value of all assets not replaced shall not exceed $500,000 over the life of this Agreement;

(d) Dispositions of assets or property by any Subsidiary of a Borrower to a Borrower or another Subsidiary of a Borrower, or by a Borrower to any Subsidiary of a Borrower; provided that if (i) a Default or Event of Default shall have occurred and be continuing or (ii) the Leverage Ratio (determined on a pro forma basis after giving effect

 

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Adesto Technologies Corporation Credit Agreement

 

to such transaction) is greater than 2.00 to 1.00, any Disposition under this clause (d) shall only be permitted in exchange for the fair market value of the property being disposed of; provided that this clause (d) shall not restrict (1) Ordinary Course Indebtedness referred to in clause (b) of the definition thereof, (2) Ordinary Course Investments referred to in clause (c) of the definition thereof and (3) Restricted Payments permitted pursuant to Sections 7.06(a)(ii) and 7.06(f);

(e) Dispositions which constitute the making or liquidating of Permitted Investments, including, without limitation, in respect of any Swap Contract, provided that Borrowers are in compliance with Section 6.16; and

(f) Dispositions which constitute the incurrence (but not the enforcement) of Permitted Liens;

provided, however , that, other than with respect to Dispositions of the types described in clauses (a) and (d) of this definition (except as otherwise expressly required pursuant to clause (d)), no such Disposition shall be for less than the fair market value of the property being disposed of.

“Ordinary Course Indebtedness” means:

(a) Indebtedness under the Loan Documents;

(b) Guaranty Obligations of any Borrower or any of its Subsidiaries guarantying Indebtedness otherwise permitted hereunder of any Borrower or any Subsidiary of Borrower;

(c) Indebtedness arising from the honoring of a check, draft or similar instrument against insufficient funds or from the endorsement of instruments for collection in the ordinary course of any Borrower’s or any Subsidiary’s business;

(d) Indebtedness of any Borrower or any of its Subsidiaries with respect to surety, appeal, indemnity, performance or other similar bonds in the ordinary course of business; and

(e) Indebtedness with respect to cash deposited by customers to obtain the right to delivery of future goods or services; provided , however, that all such cash deposits are held in an account pursuant to Section 6.16 or subject to a Deposit Account Control Agreement.

“Ordinary Course Investments” means Investments consisting of:

(a) Investments in other assets properly classified as “marketable securities” or “Cash” or Cash Equivalents” , and which conform to the investment policies adopted by the Board of Directors of Adesto from time to time;

 

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Adesto Technologies Corporation Credit Agreement

 

(b) advances to officers, directors and employees of any Borrower and its Subsidiaries for travel, entertainment, relocation and analogous ordinary business purposes;

(c) Investments of a Borrower in any of its Subsidiaries and Investments of any Subsidiary of a Borrower in a Borrower or another Subsidiary of a Borrower; provided that (i) if at the time any Borrower or any such Subsidiary proposes to make such Investment the Leverage Ratio (determined on a pro forma basis after giving effect to such transaction) is greater than 2.00 to 1.00, no such Investment by any Borrower or any Guarantor in any Subsidiary which is not a Guarantor may be made if the aggregate amount of Investments in Subsidiaries which are not Guarantors, after giving pro forma effect to the making of such Investment, would exceed $100,000 and (ii) if a Default or Event of Default has occurred and be continuing, Investments under this clause (c) shall only be permitted in Subsidiaries that are Guarantors;

(d) extensions of credit to customers or suppliers of Borrowers and their Subsidiaries in the ordinary course of business and any Investments received in satisfaction or partial satisfaction thereof;

(e) Guaranty Obligations permitted by Section 7.01.

(f) Investments received by a Borrower or any of its Subsidiaries as distributions on claims in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers and suppliers arising in the ordinary course of business;

(g) Investments of any Subsidiary existing at the time it becomes a Subsidiary of a Borrower, provided that such Investments were not made in anticipation of such Person becoming a Subsidiary of such Borrower;

(h) Investments consisting of loans to employees, the proceeds of which shall be used to purchase Equity Securities of a Borrower or its Subsidiaries and other loans to employees in an aggregate amount not in excess of $250,000 at any time outstanding;

(i) Restricted Payments described in Section 7.06(c); and

(j) Investments by any Borrower or any Subsidiary in Adesto Technologies France or Adesto Technologies UK in an aggregate amount not to exceed $500,000 after the Closing Date.

“Ordinary Course Liens” means:

(a) Liens pursuant to any Loan Document;

(b) Liens for Taxes not yet due or which are being contested in good faith and by appropriate proceedings, if adequate reserves with respect thereto are maintained on the books of the applicable Person in accordance with GAAP;

 

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Adesto Technologies Corporation Credit Agreement

 

(c) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s, landlord’s or other like Liens arising in the ordinary course of business which are not overdue for a period of more than sixty (60) days or which are being contested in good faith and by appropriate proceedings, if adequate reserves with respect thereto are maintained on the books of the applicable Person in accordance with GAAP and no item or portion of property of such Borrower or any of its Subsidiaries is in jeopardy of being seized, levied upon or forfeited as a result thereof;

(d) pledges or deposits in connection with worker’s compensation, unemployment insurance and other social security legislation;

(e) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business;

(f) easements, rights-of-way, restrictions and other similar encumbrances affecting real property which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of any Person;

(g) attachment, judgment or other similar Liens arising in connection with litigation or other legal proceedings (and not otherwise constituting an Event of Default hereunder) in the ordinary course of business that is currently being contested in good faith by appropriate proceedings, adequate reserves have been set aside therefor, and no material property is subject to a material risk of loss or forfeiture;

(h) during any period when no Default or Event of Default has occurred and is continuing, Liens on the property or assets of any Subsidiary of a Borrower in favor of a Borrower or any other Subsidiary of a Borrower; provided that if, at the time a Guarantor proposes to create such Liens in favor of any Subsidiary which is not a Guarantor, the Leverage Ratio (determined on a pro forma basis after giving effect to such transaction) is greater than 2.00 to 1.00, no such Lien may be created if the aggregate amount of Indebtedness of Guarantors to Subsidiaries which are not Guarantors, after giving pro forma effect thereto, would exceed $300,000;

(i) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties and in connection with the importation of goods in the ordinary course of any Borrower’s and its Subsidiaries’ businesses;

(j) Liens arising solely by virtue of any statutory or common law provision relating to banker’s liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with a creditor depository institution; provided that (i) such deposit account is not a dedicated cash collateral account and is not subject to restrictions against access by Borrowers in excess of those set forth by regulations promulgated by the Federal Reserve Board, and (ii) such deposit account is not intended by any Borrower or any Subsidiary to provide collateral to the depository institution;

 

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Adesto Technologies Corporation Credit Agreement

 

(k) Liens on insurance proceeds in favor of insurance companies with respect to the financing of insurance premiums; and

(l) purported Liens evidenced by the filing of UCC precautionary financing statements relating to operating leases entered into in the ordinary course of business and not otherwise prohibited under this Agreement.

“Organization Documents” means, (a) with respect to any corporation, the certificate or articles of incorporation and the bylaws; (b) with respect to any limited liability company, the articles of formation and operating agreement; and (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership or joint venture agreement and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation with the secretary of state or other department in the state of its formation, in each case as amended from time to time.

“Outstanding Obligations” means, as of any date, and giving effect to all payments, repayments and prepayments made on such date, the aggregate outstanding Obligations.

“Payment Date” means the first day of each calendar month and the Maturity Date; provided, further, that interest accruing at the Default Rate shall be payable from time to time upon demand by Lender.

“PBGC” means the Pension Benefit Guaranty Corporation or any successor thereto established under ERISA.

“Pension Plan” means any “employee pension benefit plan” (as such term is defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is subject to Title IV of ERISA and is sponsored or maintained by any Borrower or any ERISA Affiliate or to which any Borrower or any ERISA Affiliate contributes or has an obligation to contribute, or in the case of a multiple employer plan (as described in Section 4064(a) of ERISA) has made contributions at any time during the immediately preceding five plan years.

“Perfection Certificate” means that certain Perfection Certificate dated as of the date hereof executed by each Borrower.

“Permitted Acquisitions” means any Acquisitions which meet the following criteria:

(a) (1) the Borrowers shall have demonstrated (by delivery of a pro forma compliance certificate satisfactory to the Lender) that immediately before and after giving effect to such Acquisition on a pro forma basis, Borrowers and their Subsidiaries will be in compliance with the financial covenants set forth in Section 7.11 as of the most recent fiscal quarter end with respect to which the Lender has received a Compliance Certificate, (2) the Acquisition is not in the nature of a hostile takeover, and (3) after giving effect to the Acquisition, there would be no breach under Section 7.08; and

(b) any Acquisition does not exceed $100,000; and

(c) aggregate Acquisitions in any period of four consecutive fiscal quarters do not exceed $500,000.

 

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Adesto Technologies Corporation Credit Agreement

 

“Permitted Indebtedness” has the meaning specified in Section 7.01.

“Permitted Investments” has the meaning specified in Section 7.05.

“Permitted Liens” has the meaning specified in Section 7.02.

“Person” means any individual, trustee, corporation, general partnership, limited partnership, limited liability company, joint stock company, trust, unincorporated organization, bank, business association, firm, joint venture, or Governmental Authority.

“Plan” means any employee benefit plan maintained or contributed to by any Borrower or by any trade or business (whether or not incorporated) under common control with such Borrower as defined in Section 4001(b) of ERISA and insured by the Pension Benefit Guaranty Corporation under Title IV of ERISA.

“PT” means Pacific Time.

“Reportable Event” means any of the events set forth in Section 4043(b) of ERISA or the regulations thereunder, a withdrawal from a Plan described in Section 4063 of ERISA, or a cessation of operations described in Section 4062(e) of ERISA.

“Requisite Notice” means, unless otherwise provided herein, irrevocable written notice to the intended recipient. Such notices shall be (i) delivered to such recipient at the address or telephone number specified on Schedule 9.02 or as otherwise designated by such recipient by Requisite Notice to Lender, and (ii) if made by Borrowers, given or made by a Senior Officer of Adesto. Any written notice delivered in connection with any Loan Document shall be in the form, if any, prescribed herein or therein. Any notice sent by other than hardcopy shall be promptly confirmed by a telephone call to the recipient and, if requested by Lender, by a manually-signed hardcopy thereof.

“Requisite Time” means, with respect to any of the actions listed below, the time and date set forth below opposite such action:

 

Prepayment 8:00 a.m. PT Same date as such prepayment
Payments by Borrowers to Lender 11:00 a.m. PT On date payment is due

“Restricted Payment” means:

(a) the declaration or payment of any dividend or distribution by any Borrower or any Subsidiary, either in cash, securities or other property, on any shares of Equity Securities of any class of any Borrower or any Subsidiary, including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, defeasance, acquisition, cancellation or termination of any such Equity Securities; and

(b) any other payment or distribution by any Borrower or any Subsidiary in respect of its Equity Securities, either directly or indirectly.

 

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Adesto Technologies Corporation Credit Agreement

 

“Sanctioned Country” means a country subject to any OFAC Sanctions Program.

SDN List means the list of Special Designated Nationals and Blocked Persons published by OFAC. The SDN List is available at http://www.treasury.gov/sdn.

“Securities Account Control Agreements” means the respective Securities Account Control Agreements entered into among a Borrower, as customer, the Lender, as secured party, and any account holders with whom such Borrower maintains securities accounts from time to time.

“Securitization” means a public or private offering by Lender or any of its Affiliates or their respective successors and assigns, of securities which represent an interest in, or which are collateralized, in whole or in part, by the Loans.

“Security Documents” means the General Security Agreement, the Intellectual Property Security Agreement, the Stock Pledge Agreement, the Deposit Account Control Agreements, the Securities Account Control Agreements and each Guaranty and any other security agreements executed in connection with this Agreement which recite that they secure the Obligations.

“Senior Indebtedness” means, with respect to any Person at any time, all Indebtedness of such Person other than Subordinated Debt.

“Senior Officer” means, with respect to any Borrower and any Subsidiary, any chief executive officer, the chief financial officer, the chief operating officer or the treasurer of such Borrower or such Subsidiary and any other Person reasonably designated in writing as a “Senior Officer” by such Borrower or Subsidiary.

“Shareholders’ Equity” means, as of any date of determination for Borrowers and their Subsidiaries on a consolidated basis, shareholders’ equity as of that date determined in accordance with GAAP.

“Solvent” means, as to any Person at any time, that (i) the fair value of the property of such Person is greater than the amount of such Person’s liabilities (including disputed, contingent and unliquidated liabilities) as such value is established and liabilities evaluated for purposes of Section 101(32) of the Bankruptcy Code; (ii) the present fair saleable value of the property of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured; (iii) such Person is able to realize upon its property and pay its debts and other liabilities (including disputed, contingent and unliquidated liabilities) as they mature in the normal course of business; (iv) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay as such debts and liabilities mature; and (v) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person’s property would constitute unreasonably small capital.

 

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Adesto Technologies Corporation Credit Agreement

 

“Stock Pledge Agreement” means that certain Security and Pledge Agreement, substantially in the form of Exhibit H , dated as of the date hereof, between Borrowers, as Debtors, and Lender, as Secured Party, securing the Obligations of Borrowers, as the same may be amended from time to time.

“Subordinated Debt” means any subordinated debt permitted by Sections 7.01(g) and 7.01(h).

“Subsidiary” of a Person means a corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the shares of securities or other interests having ordinary voting power for the election of directors or other governing body (other than securities or interests having such power only by reason of the happening of a contingency) are at the time beneficially owned or controlled, directly, or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise specified, all references to a “Subsidiary” or to “Subsidiaries” in this Agreement shall refer to a Subsidiary or Subsidiaries of Adesto.

“Swap Contract” means (a) any and all rate swap transactions, basis swaps, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., or any other master agreement (any such master agreement, together with any related schedules, as amended, restated, extended, supplemented or otherwise modified in writing from time to time, a “Master Agreement” ), including any such obligations or liabilities under any Master Agreement.

“Taxes” has the meaning specified in Section 3.1(a).

“Threshold Amount” means $500,000.

“to the best knowledge of” means, when modifying a representation, warranty or other statement of any Person, that the fact or situation described therein is known by such Person (or, (i) in the case of Borrowers, known by any Senior Officer or executive officer of any Borrower, or, (ii) in the case of any other Person other than a natural Person, known by any officer of such Person) making the representation, warranty or other statement, or with the exercise of reasonable due diligence under the circumstances (in accordance with the standard of what a reasonable Person in similar circumstances would have done) would have been known by such Person (or, (i) in the case of Borrowers, would have been known by any Senior Officer or executive officer of any Borrower, or, (ii) in the case of any other Person other than a natural Person, would have been known by any executive officer of such Person).

 

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Adesto Technologies Corporation Credit Agreement

 

“Unfunded Pension Liability” means the excess of a Pension Plan’s benefit liabilities under Section 4001(a)(16) of ERISA, over the current value of that Pension Plan’s assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section 412 of the Code for the applicable plan year.

“U.S. Economic Sanctions” means all United States economic sanctions, including but not limited to the Trading with the Enemy Act, the International Emergency Economic Powers Act, CISADA or any similar law or regulation with respect to Iran or any other country, the Sudan Accountability and Divestment Act, any OFAC Sanctions Program, or any economic sanctions regulations administered and enforced by the United States or any enabling legislation or executive order relating to any of the foregoing.

“USA PATRIOT Act” means United States Public Law 107-56, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT Act of 2001), as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect.

“Voluntary Redemption Event” means, in respect of any Indebtedness consisting of bonds, debentures, senior or subordinated notes or other debt securities, any redemption, prepayment or call for redemption or prepayment of any or all of such Indebtedness at the election of the issuer and not in connection with any breach by such issuer of any term or covenant contained in any instrument, indenture or agreement evidencing such Indebtedness.

1.02. Use of Certain Terms.

(a) All terms defined in this Agreement shall have the defined meanings when used in any certificate or other document made or delivered pursuant hereto or thereto, unless otherwise defined therein.

(b) As used herein, unless the context requires otherwise, the masculine, feminine and neuter genders and the singular and plural include one another.

(c) The words “herein” and “hereunder” and words of similar import when used in any Loan Document shall refer to the Loan Documents as a whole and not to any particular provision thereof. The term “including” is by way of example and not limitation. References herein to a Section, subsection or clause shall, unless the context otherwise requires, refer to the appropriate Section, subsection or clause in this Agreement.

(d) The term “or” is disjunctive; the term “and” is conjunctive. The term “shall” is mandatory; the term “may” is permissive.

1.03. Accounting Terms. All accounting terms not specifically or completely defined in this Agreement shall be construed in conformity with, and all financial data required to be submitted by this Agreement shall be prepared in conformity with, GAAP applied on a consistent basis, as in effect from time to time, and applied in a manner consistent with that used

 

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Adesto Technologies Corporation Credit Agreement

 

in preparing Borrowers’ reviewed financial statements for the fiscal year ended December 31, 2014, except as otherwise specifically prescribed herein. Notwithstanding any other provision contained herein, all terms of an accounting or financial nature used herein shall be construed, and all computations of amounts and ratios referred to herein shall be made, without giving effect to any election under Financial Accounting Standards Board Accounting Standards Codification 825 (or any other Financial Accounting Standard having a similar result or effect) to value any Indebtedness or other liabilities of Borrowers or any Subsidiary at “fair value” , as defined therein.

1.04. Rounding. Any financial ratios required to be maintained by Borrowers pursuant to this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed in this Agreement and rounding the result up or down to the nearest number (with a round-up if there is no nearest number) to the number of places by which such ratio is expressed in this Agreement.

1.05. Exhibits and Schedules. All exhibits and schedules to this Agreement, either as originally existing or as the same may from time to time be supplemented, modified or amended, are incorporated herein by this reference.

1.06. References to Agreements and Laws. Unless otherwise expressly provided herein, (a) references to agreements (including the Loan Documents) and other contractual instruments shall include all amendments, restatements, extensions, supplements and other modifications thereto (unless prohibited by any Loan Document), and (b) references to any Law shall include all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting such Law.

SECTION 2

EXTENSION OF CREDIT

2.01. Loans; Maximum Amounts. Subject to the terms and conditions set forth in this Agreement, Lender agrees to make Loans to the Borrowers as follows:

(a) Loan . Subject to the terms and conditions set forth in this Agreement, Lender agrees to make a loan to the Borrowers (the “Loan ) in Dollars on the Closing Date in the amount of the Loan Commitment. The Loan Commitment shall expire concurrently with the making of the Loan on the Closing Date. Once prepaid or repaid, the Loan may not be reborrowed. The Loan shall be repaid in accordance with Section 2.02 and Section 2.03.

(b) Notes . Loans shall be evidenced by one or more Notes. The date, amount and maturity of Lender’s Loans and payments and other particulars with respect thereto may be endorsed on schedule(s) attached to its Note by Lender and/or recorded on one or more loan accounts or records maintained by Lender in the ordinary course of business. Such Notes, loan accounts and records shall be conclusive absent manifest error of the amount of such Loans and payments thereon. Any failure so to record or any error in doing so shall not, however, limit or otherwise affect the obligation of Borrowers to pay any amount owing with respect to the Loans.

 

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Adesto Technologies Corporation Credit Agreement

 

2.02. Prepayments.

(a) Voluntary . Upon Requisite Notice to Lender not later than the Requisite Time therefor, Borrowers may at any time and from time to time voluntarily prepay Loans in part or in full without premium or penalty. Any prepayment of any Loan shall be accompanied by all accrued interest thereon. All voluntary prepayments of the Loan shall be applied pro rata to the then remaining scheduled payments of principal due under the Loan (including, without limitation, the payment due on the maturity thereof).

(b) Mandatory . In addition to the payments required by Section 2.03(b) hereof, Borrowers shall (subject to Section 2.02(c) below) make mandatory prepayments of Loans as set forth below; provided, however, that so long as no Default or Event of Default shall have occurred and be continuing (or, so long as no Default or Event of Default would arise from any of the below described transactions), then the prepayment requirements of Section 2.02(b)(i) and (ii) shall not apply. Subject to Section 2.02(c) below, all such prepayments required under Sections 2.02(b)(i) through (iii) shall be applied pro rata to the remaining scheduled payments of principal due under the Loan (including, without limitation, the payment due on the maturity thereof). To the extent any amounts remain after such application to the Loans, other than any amounts remaining as a result of Lender declining prepayment pursuant to Section 2.02(c), may be retained by Borrowers.

(i) Asset Sales. No later than the fifth Business Day following the date of receipt by any Borrower or any of its domestic Subsidiaries of any Net Asset Sale Proceeds (or on the 271st day if the first proviso hereto applies) if such Net Asset Sale Proceeds are equal to or in excess of $500,000 received in any fiscal year through the applicable date of determination, Borrowers shall prepay, subject to the provisions of Section 2.02(c) below, the Loans in an aggregate amount equal to such Net Asset Sale Proceeds; provided that , so long as no Event of Default shall have occurred and be continuing, Borrowers need not so apply such Net Asset Sale Proceeds so long as any Borrower or one or more of its Subsidiaries invests such Net Asset Sale Proceeds within two hundred seventy (270) days of receipt thereof in assets of the general type used in the business of Borrowers and their Subsidiaries (including acquisitions of assets by way of stock purchase, merger or acquisition of assets of a company or business unit in compliance with Section 7.08); provided, further , pending any such investment all such Net Asset Sale Proceeds shall be invested in Cash or Cash Equivalents and deposited in the Designated Deposit Account and held therein until such time as such Net Asset Sale Proceeds are applied in payment of such investment.

(ii) Insurance/Condemnation Proceeds. No later than the fifth Business Day following the date of receipt by any Borrower or any of its Subsidiaries (or on the 271st day if the first proviso hereto applies), or Lender as loss payee, of any Net Insurance/Condemnation Proceeds equal to or in excess of $100,000 received in any fiscal year through the applicable date of determination, Borrowers shall prepay, subject to the provisions of Section 2.02(c) below, the Loan in an aggregate amount equal to such Net Insurance/Condemnation Proceeds equal to or in excess of $100,000; provided so long as no Event of Default shall have occurred and be continuing, Borrowers need not so apply such Net Insurance/Condemnation Proceeds so long as any Borrower or one or

 

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Adesto Technologies Corporation Credit Agreement

 

more of its Subsidiaries invests such Net Insurance/Condemnation Proceeds within two hundred seventy (270) days of receipt thereof in assets of the general type used in the business of Borrowers and their Subsidiaries, which investment may include the repair, restoration or replacement of the applicable assets thereof; provided, further , pending any such investment all such Net Insurance/Condemnation Proceeds, as the case may be, shall be invested in Cash or Cash Equivalents and deposited in the Designated Deposit Account and held therein until such time as such Net Asset Sale Proceeds are applied in payment of such investment.

(c) Lender’s Right to Decline Certain Mandatory Prepayments. Lender has the right to decline requiring Borrowers to pay to it the mandatory prepayment(s) described in Sections 2.02(b) above. Upon receipt by the Lender of any such prepayment of the Loan, the amount of the prepayment that is available to prepay the Loans (the “Prepayment Amount” ) shall be deposited in a cash collateral Account on terms reasonably satisfactory to the Lender and the Borrowers, pending application of such amount on the date on which such prepayment shall be made (the “Prepayment Date” ), which date shall be ten (10) Business Days after the date of such receipt. Lender may decline such prepayment by giving written notice to the Borrowers by not later than 11:00 a.m. on the Business Day immediately preceding the Prepayment Date. On the Prepayment Date, an amount equal to that portion of the Prepayment Amount accepted by the Lender to prepay Loans owing to Lender shall be withdrawn from the applicable cash collateral account and applied to prepay Loans owing Lender in the manner described in the first paragraph of Section 2.02(b), for such prepayment.

2.03. Principal and Interest.

(a) Except as otherwise provided hereunder, if not sooner paid, Borrowers agree, jointly and severally, to pay to Lender the outstanding principal amount of each Loan on the Maturity Date.

(b) Borrowers shall pay to Lender monthly installments of principal on the Loan (each such installment in an amount equal to $500,000) beginning on November 1, 2015 and on each Payment Date thereafter through and including the Maturity Date; and

(c) Subject to subsection (d) below, and unless otherwise specified herein, Borrowers shall pay to Lender, on the first day of each calendar month thereafter through and including the Maturity Date, in arrears, interest on the unpaid principal amount of the Loan (before and after default, before and after maturity, before and after judgment, and before and after the commencement of any proceeding under any Debtor Relief Laws) from the date borrowed until paid in full (whether by acceleration or otherwise) on each Payment Date at a rate per annum equal to the Interest Rate.

(d) Notwithstanding subsection (c) of this Section, while any Event of Default exists or after acceleration, Borrowers shall pay to Lender interest (after as well as before entry of judgment thereon to the extent permitted by law) on the principal amount of all Outstanding Obligations, at the Default Rate.

(e) In addition to interest as set forth herein, Borrowers shall pay to Lender a late charge equal to five percent (5%) of any amounts due under the Loan in the event any such amount is not paid when due.

 

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Adesto Technologies Corporation Credit Agreement

 

2.04. Commitment Fee. On the Closing Date, Borrowers shall pay to Lender an amount equal to 0.30% of Lender’s Loan Commitment (the “Commitment Fee” ).

2.05. Computation of Interest and Fees. Computation of all types of interest and all fees shall be calculated on the basis of a year of 360 days and the actual number of days elapsed.

2.06. Making Payments.

(a) Except as otherwise provided herein, all payments by Borrowers hereunder shall be made via automatic payment from the Designated Deposit Account. All payments received after the Requisite Time shall be deemed received on the next succeeding Business Day. All payments shall be made in immediately available funds in lawful money of the United States of America. All payments by Borrowers shall be made without condition or deduction for any counterclaim, defense, recoupment or setoff.

(b) Upon satisfaction of any applicable terms and conditions set forth herein, Lender shall promptly apply any amounts received in accordance with the prior subsection available in like funds as received by wire transfer to Lender at its Lending Office.

(c) If any payment to be made by Borrowers shall come due on a day other than a Business Day, payment shall instead be considered due on the next succeeding Business Day, and such extension of time shall be reflected in computing interest and fees.

(d) If Lender is required at any time to return to Borrowers, or to a trustee, receiver, liquidator, custodian, or any official under any proceeding under Debtor Relief Laws, any portion of a payments made by Borrowers, Lender shall return its share of the amount to be returned.

(e) In addition to interest as set forth herein, Borrowers shall pay to Lender a late charge equal to five percent (5%) of any amounts due under the Loan in the event any such amount is not paid within one (1) day after the date when due.

2.07. Funding Sources. Nothing in this Agreement shall be deemed to obligate Lender to obtain the funds for any Loan in any particular place or manner or to constitute a representation by Lender that it has obtained or will obtain the funds for any Loan in any particular place or manner.

2.08. Collateral. The Obligations are secured by the Security Documents.

2.09. Joint and Several.

(a) The obligations of each Borrower under this Agreement and the other Loan Documents shall be joint and several and, to the fullest extent permitted by Applicable Law, shall not be affected by (i) the failure of the Lender, or any of its successors or assigns, or

 

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Adesto Technologies Corporation Credit Agreement

 

any holder of the Notes or any of the Obligations to assert any claim or demand or to exercise or enforce any right, power or remedy against any other Borrower, any Guarantor or other guarantor or the Collateral or otherwise, (ii) any extension or renewal for any period (whether or not longer than the original period) or exchange of any of the Obligations or the release or compromise of any obligation of any nature of any Person with respect thereto, (iii) the surrender, release or exchange of all or any part of any property (including without limitation the Collateral) securing payment, performance and observance of any of the Obligations or the compromise or extension or renewal for any period (whether or not longer than the original period) of any obligations of any nature of any Person with respect to any such property, (iv) the invalidity or unenforceability of any of the Obligations as against any other Borrower, any Guarantor, any other guarantor thereof or any other Person, and (v) any other act, matter or thing which would or might, in the absence of this provision, operate to release, discharge or otherwise prejudicially affect the obligations of Borrowers, other than the indefeasible payment in full of the Obligations.

(b) To the fullest extent permitted by Applicable Law and except to the extent that any of the following are expressly required by the provisions of any of the Loan Documents, each Borrower hereby waives (i) presentment, demand for payment and protest of nonpayment of any of the Obligations, and notices of protest, dishonor or nonperformance, (ii) notice of any Event of Default or Default or the Lender’s inability to enforce performance of the other Borrowers’ or any Guarantor’s (or other guarantor’s) obligations to any holder of Obligations, (iii) demand for performance or observance of, and any enforcement of any provision of, or any pursuit or exhaustion of rights or remedies with respect to any security for the Obligations or against the other Borrowers or any Guarantor or other guarantor of, the Obligations pursuant to this Agreement or any other Loan Document or otherwise, and any requirements of diligence or promptness on the part of the Lender or any holder of the Obligations in connection therewith, (iv) any action or nonaction on the part of the Lender or any holder of Obligations which may impair or prejudice the rights of any Borrower, including without limitation subrogation rights or rights to obtain exoneration, contribution, indemnification or any other reimbursement or compensation from any other Borrower, any Guarantor, any other guarantor or borrowers in respect of the Obligations or any other Person, (v) failure or delay to perfect or continue the perfection of any security interest in any Collateral, (vi) any action which harms or impairs the value of, or any failure to preserve or protect the value of, any Collateral, (vii) any defense based upon an election of remedies by the Lender or the holders of the Obligations, (viii) any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal, (ix) any and all demands and notices of every kind and description, including notice of the creation of any of the Obligations, with respect to the foregoing or which may be required to be given by any statute or rule of law and (x) all defenses (other than indefeasible payment in full) which any Borrower may now or hereafter have to the payment of the Obligations which could otherwise be asserted by such Borrower. In addition to the defenses referred to above which have been expressly waived hereunder, each Borrower waives all other defenses (other than indefeasible payment in full) which it may now or hereafter have to the payment by it of the Obligations. No delay or omission on the part of the Lender or any holder of any Obligation or with respect to the Collateral shall operate as a waiver or relinquishment of such right. No action which the Lender, the holder of any Obligation, any Borrower or any Guarantor may take or refrain from taking with respect to the Obligations, including any amendments thereto or

 

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Adesto Technologies Corporation Credit Agreement

 

modifications thereof or waivers with respect thereto, shall affect the provisions of this Agreement or the obligations of the Borrowers hereunder. None of the rights of the Lender or of any holder of any Obligation shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of any of them or any Borrower or any Guarantor, by any noncompliance by any Borrower with the terms, provisions and covenants of this Agreement, regardless of any knowledge thereof which the Lender or any holder of the Obligations may have or otherwise be charged with. Each Borrower hereby agrees to waive, and does hereby absolutely and irrevocably waive and relinquish, the benefit and advantage of, and does hereby covenant not to assert, any appraisement, valuation, stay, extension, redemption or similar laws, now or at any time hereafter in force, which might delay, prevent or otherwise impede the performance or enforcement of this Agreement or any other Loan Document or the Obligations. Each Borrower’s obligations under this Section 2.09 shall not be affected by the invalidity or unenforceability of any of the Obligations as against any other Borrower, any Guarantor, any other guarantor thereof or any other Person. For purposes of this Section 2.09, the Obligations shall be due and payable when and as the same shall be so due and payable under the terms of any Loan Document, notwithstanding the fact that the collection or enforcement thereof may be stayed or enjoined under the Bankruptcy Code, as from time to time in effect, or other applicable law, regulation or order.

(c) To the fullest extent permitted by Applicable Law, each Borrower hereby grants to the Lender full power in its sole discretion, without notice to such Borrower, such notice being hereby expressly waived, and without in any way affecting the joint and several liability of such Borrower under this Agreement:

(i) To waive compliance with, and any Event of Default or Default under, and to consent to any amendment to or modification of any term or provision of, or to give any waiver in respect of, this Agreement, any other Loan Document, the Collateral, the Obligations or any guarantee thereof (each as from time to time in effect);

(ii) To grant any one or more extensions or renewals of the Obligations (for any period, no matter how long), or any total or partial release (by operation of law or otherwise), discharge, compromise or settlement with respect to the obligations of any Borrower or any other Person in respect of the Obligations, whether or not rights against the other Borrowers under this Section 2.09 are reserved in connection therewith;

(iii) To take security in any form for the Obligations, and to the extent permitted in any security agreement to consent to (A) the addition to, (B) the substitution, exchange, surrender, release or other disposition of, or (C) deal in any other manner with, all or any part of any property contained in the Collateral whether or not the property, if any, received upon the exercise of such power shall be of a character or value the same as or different from the character or value of any property disposed of, and to obtain, modify or release any present or future guarantees of the Obligations and at any time after the occurrence and during the continuance of an Event of Default to proceed against any of the Collateral or such guarantees in any order;

 

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Adesto Technologies Corporation Credit Agreement

 

(iv) To, at any time after the occurrence and during the continuance of an Event of Default, collect or liquidate any of the Obligations or the Collateral in any manner or to refrain from collecting or liquidating any of the Obligations or the Collateral; and

(v) To make the Loans under this Agreement or any other Loan Document, or otherwise, in such amount as the Lender may determine, even though the condition of the Borrowers (financial or otherwise on an individual or consolidated basis) may have deteriorated since the date hereof.

(d) Each Borrower acknowledges and agrees that it has made such investigation as it deems desirable of the risks undertaken by such Borrower in entering into this Agreement and the other Loan Documents and is fully satisfied that it understands all such risks. Each Borrower hereby waives any obligation which may now or hereafter exist on the part of the Lender or any holder of any Obligation to inform such Person of the risks being undertaken by entering into this Agreement and the other Loan Documents or of any changes in such risks and, from and after the date hereof, each Borrower undertakes to keep itself informed of such risks and any changes therein. Further, each Borrower hereby expressly waives any duty which may now or hereafter exist on the part of the Lender or any holder of any Obligation to disclose to such Borrower any matter related to the business, operations, character, collateral, credit or condition (financial or otherwise) of any Borrower or its Affiliates or its or their properties or management, whether now or hereafter known by the Lender or any holder of any Obligation. Each Borrower represents, warrants and agrees that it assumes sole responsibility for obtaining from each other Borrower all information concerning this Agreement and all other Loan Documents and all other information as to any other Borrower and Affiliates or their properties or management or anything relating to any of the above as such Borrower deems necessary or desirable.

(e) Each Borrower hereby covenants and agrees that (i) it will not enforce or otherwise exercise (except as may be necessary to preserve any such rights, but not to realize upon the same) any rights of reimbursement, subrogation, contribution or other similar rights with respect to the Obligations against the Guarantors or any other guarantor of the Obligations or the other Borrowers, prior to the payment in full of the Obligations and the termination of the Commitments hereunder, and (ii) all debt, claims and obligations now or hereafter owing by the other Borrowers to such Borrower are hereby subordinated to the prior payment in full of the Obligations and are subordinated as a claim against the other Borrowers or any of their assets, whether such claim be in the ordinary course of business or in the event of voluntary or involuntary liquidation, dissolution, insolvency or bankruptcy.

SECTION 3

TAXES, YIELD PROTECTION AND ILLEGALITY

3.01. Taxes.

(a) Any and all payments by Borrowers to or for the account of Lender under any Loan Document shall be made free and clear of and without deduction for any and all present or future taxes, duties, levies, imposts, deductions, assessments, fees, withholdings or

 

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similar charges, and all liabilities with respect thereto (“ Taxes ”), excluding the following (collectively, “ Excluded Taxes ”): (i) Taxes imposed or measured by a Lender’s net income, that are imposed on it by the jurisdiction (or any political subdivision thereof) (A) under the Laws of which Lender is organized or maintains a lending office, or (B) with which the Lender otherwise has a present or former connection (other than any such connection arising solely from the Lender having executed, delivered or performed its obligations or received a payment under, or enforced, any Loan Document); (ii) any branch profits Tax imposed by the United States or any similar Tax imposed by another jurisdiction in which any Borrower is located; (iii) any taxes that are attributable to Lender’s failure or inability to comply with the Section 3.1(e) below; (iv) United States withholding Taxes required to be imposed on amounts payable to a Lender pursuant to the Laws in force at the time such Lender becomes a party to this Agreement, except, in the case of a Lender that designates a new Lending Office or becomes a Party to this Agreement pursuant to an assignment, withholding Taxes shall not be Excluded Taxes to the extent that such Taxes were not Excluded Taxes with respect to Lender or its assignor, as the case may be, immediately before such designation of a new Lending Office or assignment; United States withholding taxes imposed by FATCA; and (vi) any penalties, interest, costs and expenses (including Attorney Costs) imposed on Lender arising from the assertion by any Governmental Authority that Lender did not properly withhold any Tax or other amount from payments made in respect of any Foreign Lender If any Borrower is required by any Law to deduct any Taxes other than Excluded Taxes (“ Indemnified Taxes ”) from or in respect of any sum payable under any Loan Document to Lender, (A) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section), Lender receives an amount equal to the sum it would have received had no such deductions been made, (B) such Borrower shall make such deductions, (C) such Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable Laws, and (D) within thirty (30) days after the date of such payment, such Borrower shall furnish to Lender the original or a certified copy of a receipt evidencing payment thereof.

(b) In addition, Borrowers agree to pay any and all present or future stamp, property, excise, court, or documentary Taxes, charges or similar levies, which arise from any payment made under any Loan Document or from the execution, delivery, performance, enforcement or registration of, or otherwise with respect to, any Loan Document (hereinafter referred to as “Other Taxes” ).

(c) If any Borrower shall be required by the Laws of any jurisdiction outside the United States to deduct any Indemnified Taxes from or in respect of any sum payable under any Loan Document to Lender, such Borrower shall also pay to Lender, at the time interest is paid, such additional amount that Lender specifies as necessary to preserve the after-tax yield (after factoring in United States (federal and state) Taxes imposed on or measured by net income, and taking into account any foreign tax credits available under Sections 901 through 903 of the Code or similar credit or exemption under a similar state law attributable to the Borrower’s payment of such Indemnified Taxes) Lender would have received if such deductions (including deductions applicable to additional sums payable under this Section) had not been made. A certificate that the Lender delivers to a Borrower as to any such additional amount shall be conclusive absent manifest error.

 

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Adesto Technologies Corporation Credit Agreement

 

(d) Without duplication of any amounts payable under clauses (a), (b) or (c) above, Borrowers agree to indemnify, defend and hold Lender harmless for (i) the full amount of Indemnified Taxes and Other Taxes (including any Indemnified Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section) paid by Lender; and (ii) any liability (including penalties, interest and expenses) arising therefrom or with respect thereto; provided that (A) Borrowers shall not be obligated to indemnify the Lender for any interest or penalties described in clause (ii) above (and such interest and penalties shall be considered Excluded Taxes) to the extent the Lender (1) had actual knowledge of the existence of the Tax, interest, or expense, the non-payment of which gave rise to such interest or penalties, and (2) failed to give the Borrowers notice of such Tax, interest or expense within ten (10) Business Days after the Lender received actual knowledge of the existence thereof; and (B) nothing contained in this subsection (d) shall be deemed to imply any obligation on the part of the Lender to provide the Borrowers with the notice of any such Tax, penalty, interest or expense. Payment under this subsection (d) shall be made within thirty (30) days after the date the Lender makes a demand therefor.

(e) Lender, on or prior to the Closing Date, upon the effectiveness of any assignment or designation of a new Lending office, and from time to time thereafter if reasonably requested in writing by Borrower, shall provide Borrowers with (i), in the case of a Lender that is not a “United States Person” as that term is defined in Section 7701(a)(30) of the Code (“ U.S. Person ”) (a “ Non-U.S. Lender ”), a complete and properly executed IRS Form W-8BEN, W-8ECI or W-8IMY (including all required accompanying information), as appropriate, or any successor form prescribed by the IRS (including a United States taxpayer identification number), certifying that such Non-U.S. Lender is entitled to benefits under an income Tax treaty to which the United States is a party that reduces the rate of withholding Tax on payments of interest, certifying that such Non-U.S. Lender is eligible for the “portfolio interest exemption” or certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States or (ii) in the case of a Lender that is a U.S. Person, an IRS Form W-9 or any successor form prescribed by the IRS. If a payment made by a Borrower to Lender would be subject to U.S. federal withholding Tax imposed by FATCA if Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), Lender shall deliver to a Borrower at the time or times prescribed by law and at such time or times reasonably requested by such Borrower such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Borrower as may be necessary for such Borrower to comply with its obligations under FATCA and to determine that Lender has complied with Lender’s obligations under FATCA or to determine the amount to deduct and withhold from such payment. In addition, Lender will (A) take all actions reasonably requested in good faith by a Borrower in writing that are consistent with applicable legal and regulatory restrictions to claim any available reductions or exemptions from Indemnified Taxes or Other Taxes and (B) otherwise cooperate with Borrowers to minimize any amounts payable by Borrowers under this Section 3.01; provided that, in each case, any out-of-pocket cost relating directly to such action or cooperation requested by a Borrower shall be borne by Borrowers, and Lender shall not be required to take any action that it determines in its sole good faith discretion may be adverse in any non de minimis respect to it and not indemnified to its satisfaction.

 

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Adesto Technologies Corporation Credit Agreement

 

3.02. Increased Cost and Reduced Return; Capital Adequacy. If Lender determines that any change in or the interpretation of any Laws announced after the date hereof have the effect of reducing the rate of return on the capital of Lender or compliance by Lender (or its Lending Office) or any corporation controlling Lender as a consequence of Lender’s obligations hereunder (taking into consideration its policies with respect to capital adequacy and Lender’s desired return on capital), then from time to time upon demand of Lender, Borrowers shall pay to Lender such additional amounts as will compensate Lender for such reduction; provided, however , that Borrowers shall not be required to pay additional amounts to compensate Lender for (i) any Excluded Taxes or any liabilities excluded from the definition of Indemnified Taxes by Section 3.01, (ii) any reduction in connection with any penalties, interest, costs and expenses (including Attorney Costs) arising from the assertion by any Governmental Authority that Lender did not properly withhold any Tax or other amount from payments made in respect of Lender; or (iii) any change in the rate of applicable Taxes imposed on or measured by net income, and (b) notwithstanding anything herein to the contrary, (i) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (ii) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to have been implemented after the date hereof.

3.03. Matters Applicable to all Requests for Compensation.

(a) Lender, if claiming compensation under this Section 3, shall deliver to Borrowers a certificate setting forth in reasonable detail the additional amount or amounts to be paid to it hereunder, which shall be conclusive in the absence of clearly demonstrable error. In determining such amount, Lender may use any reasonable averaging and attribution methods.

(b) Borrowers shall not be obligated to pay any amount under this Section 3 which arose prior to the date which is one hundred eighty (180) days preceding the date of such demand or is attributable to periods prior to the date which is one hundred eighty (180) days preceding the date of such demand; provided, however , that in the event any Law is enacted that retroactively imposes any cost or charge upon the Lender that would otherwise be a basis for compensation under Sections 3.01 and 3.02, the Lender may make a demand for such compensation through and including the date which is one hundred eighty (180) days after the date upon which such Law takes effect.

3.04. Survival. All of Borrowers’ obligations under this Section 3 shall survive for a period of one (1) year after the payment in full of all Obligations; provided, however , that the obligation of Borrowers to make any payment under this Section 3 is contingent upon the receipt by Borrowers of the certificate described in Section 3.03(a) within the later of (a) one hundred eighty (180) days after the repayment of all Loans, or (b) in the case of any Law retroactively imposing any cost or charge upon the Lender, one hundred eighty (180) days after the date upon which such Law takes effect.

 

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Adesto Technologies Corporation Credit Agreement

 

SECTION 4

CONDITIONS PRECEDENT TO EXTENSION OF CREDIT

4.01. Conditions of Extension of Credit. The obligation of Lender to make its Loans hereunder is subject to satisfaction of the following conditions precedent:

(a) Unless waived by Lender, Lender’s receipt of the following, each of which shall be originals or facsimiles (followed promptly by originals) unless otherwise specified, each properly executed by a Senior Officer of each Borrower, each dated on, or in the case of third-party certificates, recently before the Closing Date and each in form and substance satisfactory to Lender and its legal counsel:

(i) executed counterparts of this Agreement, sufficient in number for distribution to Lender and Borrowers;

(ii) an executed original Note executed by each Borrower in favor of Lender, in the principal amount equal to the Loan Commitment;

(iii) a notice of borrowing, substantially in the form of Exhibit A , attached hereto (the “Notice of Borrowing” );

(iv) a preferred stock purchase warrant or warrants (such preferred stock purchase warrants issued to the Lender, together with each preferred stock purchase warrant delivered in substitution or exchange for any such preferred stock purchase warrant, herein called the “Warrants” ), in the form of Exhibit D hereto, initially exercisable for a number of shares of preferred stock as set forth in the Warrant attached hereto as Exhibit D attached hereto, duly executed and delivered by the authorized officers of the Borrowers;

(v) executed original counterparts of each of the Security Documents together with all filings deemed necessary or desirable by the Lender in order to perfect the Liens created thereby;

(vi) such certificates of resolutions or other action, incumbency certificates and/or other certificates of Senior Officers of each Borrower and each Guarantor as Lender may require to establish the identities of and verify the authority and capacity of each Senior Officer thereof authorized to act as a Senior Officer thereof;

(vii) such evidence as Lender may reasonably require to verify that each Borrower and each Guarantor is duly organized or formed, validly existing, in good standing and qualified to engage in business in such Borrower or such Guarantor’s jurisdiction of organization and in each foreign jurisdiction in which such Borrower or such Guarantor is required to be qualified, including certified copies of each Borrower’s and each Guarantor’s Organization Documents, certificates of good standing and/or qualification to engage in business, tax clearance certificates, and the like;

 

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Adesto Technologies Corporation Credit Agreement

 

(viii) a Perfection Certificate signed by a Senior Officer of each Borrower;

(ix) a certificate signed by a Senior Officer of each Borrower certifying (A) that the representations and warranties made by each Borrower herein and in the other Loan Documents are true and correct on and as of the Closing Date (except to the extent such representations and warranties specifically refer to an earlier date, in which case they shall be true and correct as of such earlier date), (B) that each Borrower is in compliance with all the terms and provisions of the Loan Documents to which it is a party, and no Default or Event of Default shall have occurred and be continuing, and (C) that there has been no Material Adverse Effect since December 31, 2014;

(x) the audited consolidated balance sheet of Borrowers and their Subsidiaries as at the end of such fiscal year, and the related consolidated statements of income and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, for the fiscal years ending December 31, 2013 and December 31, 2014;

(xi) Satisfactory completion of Lender’s due diligence including, but not limited to the completion of a collateral field audit conducted by an examiner selected by the Lender;

(xii) [Reserved];

(xiii) [Reserved];

(xiv) Receipt of certificates of insurance required to be maintained under Section 5.14 hereof or under any other Loan Documents, from insurance carriers acceptable to the Lender, which certificates of insurance are in such forms and amounts acceptable to the Lender under insurance policies with loss payable clauses in favor of the Lender; provided, however, that Lender may permit this requirement to be satisfied after the Closing Date for a period not greater than five (5) Business Days; and

(xv) Such other assurances, certificates, documents, consents or opinions as Lender reasonably may require.

(b) the Lender shall have received evidence, satisfactory to the Lender, of (i) repayment or release in full of all liabilities and obligations of the Borrowers under or otherwise with respect to the Existing Indebtedness and termination of the Existing Indebtedness and (ii) release of any and all Liens on the assets of the Borrowers securing the Existing Indebtedness and termination or release of all related mortgages, Uniform Commercial Code financing statements and other filings (as applicable) with respect to such Liens.

(c) Any fees required to be paid on or before the Closing Date shall have been paid.

 

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Adesto Technologies Corporation Credit Agreement

 

(d) Unless waived by Lender, Borrowers shall have paid all Attorney Costs of Lender to the extent invoiced prior to or on the Closing Date, plus such additional amounts of Attorney Costs as shall constitute its reasonable estimate of Attorney Costs incurred or to be incurred by it through the closing proceedings ( provided that such estimate shall not thereafter preclude final settling of accounts between Borrowers and Lender).

SECTION 5

REPRESENTATIONS AND WARRANTIES

Borrowers represent and warrant to Lender that:

5.01. Existence and Qualification; Power; Compliance with Laws.

(a) Adesto is a corporation duly incorporated, validly existing and in good standing under the Laws of the state of its incorporation, has the corporate power and authority and the legal right to own, lease and operate its properties and to conduct its business as currently conducted, is duly qualified and in good standing under the Laws of the State of California, and is in compliance with all Laws except to the extent that noncompliance could not be reasonably expected to have a Material Adverse Effect. Artemis is a limited liability company duly formed, validly existing and in good standing under the Laws of the state of its formation, has the limited liability company power and authority and the legal right to own, lease and operate its properties and to conduct its business as currently conducted, is duly qualified and in good standing under the Laws of the State of California, and is in compliance with all Laws except to the extent that noncompliance could not be reasonably expected to have a Material Adverse Effect. Each Guarantor and each Subsidiary of each Borrower is a corporation or other legal entity duly organized, validly existing and in good standing under the Laws of its jurisdiction of organization, has the corporate power and authority and the legal right to own, lease and operate its properties and to conduct its business as currently conducted, and is duly qualified as a foreign corporation or other legal entity and is in good standing in each jurisdiction in which such qualification is required by Law and is in compliance with all Laws except to the extent that noncompliance could not reasonably be expected to have a Material Adverse Effect.

(b) Schedule 5.01 attached hereto lists, as of the Closing Date, each of the Subsidiaries, including a notation identifying each Material Subsidiary and each First Tier Foreign Subsidiary.

5.02. Power; Authorization; Enforceable Obligations. Each Borrower has the corporate power and authority and the legal right to make, deliver and perform each Loan Document to which it is a party and each Borrower has the corporate power and authority to borrow hereunder and has taken all necessary action to authorize the borrowings on the terms and conditions of this Agreement and to authorize the execution, delivery and performance of this Agreement and the other Loan Documents to which it is a party. Each Subsidiary party to a Loan Document has the corporate or other organizational power and authority and the legal right to make, deliver and perform each Loan Document to which it is a party and each such Subsidiary has the corporate or other organizational power and authority and has taken all necessary action to authorize the execution, delivery and performance of the Loan Documents to

 

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Adesto Technologies Corporation Credit Agreement

 

which it is a party. No consent or authorization of, filing with, or other act by or in respect of any Governmental Authority, is required in connection with the borrowings hereunder or with the execution, delivery, performance, validity or enforceability of this Agreement or any of the other Loan Documents. The Loan Documents have been duly executed and delivered by each Borrower and each Subsidiary party thereto, and constitute a legal, valid and binding obligation of each such Borrower and each such Subsidiary, enforceable against such Borrower or such Subsidiary in accordance with their respective terms.

5.03. No Legal Bar. The execution, delivery, and performance by each Borrower and each Subsidiary of the Loan Documents to which it is a party and compliance with the provisions thereof have been duly authorized by all requisite action on the part of each such Borrower and each such Subsidiary and do not and will not (a) violate or conflict with, or result in a breach of, or require any consent under (i) any Organization Documents of any Borrower or any of its Subsidiaries, (ii) any material applicable Laws, rules, or regulations or any order, writ, injunction, or decree of any Governmental Authority or arbitrator, or (iii) any material Contractual Obligation of any Borrower or any of its Subsidiaries or by which any of them or any of their property is bound or subject, (b) constitute a default under any such material agreement or instrument, or (c) result in, or require, the creation or imposition of any Lien on any of the properties of any Borrower or any of its Subsidiaries (other than the Liens granted in connection herewith).

5.04. Financial Statements; No Material Adverse Effect; Solvency.

(a) The Existing Financial Statements (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; (ii) fairly present in all material respects the financial condition of Borrowers and their Subsidiaries as of the date thereof and their results of operations for the period covered thereby in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; and (iii) to the extent required by GAAP, show all material indebtedness and other liabilities, direct or contingent, of Borrowers and their Subsidiaries as of the date thereof, including liabilities for Taxes, material commitments and Indebtedness in accordance with GAAP consistently applied throughout the period covered thereby.

(b) Since the date of the Existing Financial Statements, there has been no event or circumstance which has a Material Adverse Effect.

(c) On the date hereof (but after giving effect to the Loans), each Borrower is, and the Borrowers, collectively, are, Solvent.

5.05. Litigation. Except as disclosed in Schedule 5.05 , no litigation, investigation or proceeding of or before an arbitrator or Governmental Authority is pending or, to the knowledge of any Borrower after due and diligent investigation, threatened by or against any Borrower or any of its Subsidiaries or against any of their properties or revenues which could reasonably be expected to have a Material Adverse Effect.

 

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5.06. No Default. Neither Borrower nor any its Subsidiaries are in default under or with respect to any Contractual Obligation which could reasonably be expected to have a Material Adverse Effect, and no Default or Event of Default has occurred and is continuing or will result from the consummation of this Agreement or any of the other Loan Documents, or the making of the Loans hereunder.

5.07. Ownership of Property; Liens. Each Borrower and its Subsidiaries have valid fee or leasehold interests in all real property which they use in their respective businesses, and, except as disclosed in Schedule 5.07 , each Borrower and its respective Subsidiaries have good and marketable title to all their other property, and none of such property is subject to any Lien, except as permitted in Section 7.02.

5.08. Taxes. Each Borrower and its Subsidiaries have filed all material tax returns which are required to be filed, and have paid, or made provision for the payment of, all Taxes with respect to the periods, property or transactions covered by said returns, or pursuant to any assessment received by such Borrower or its Subsidiaries, except (a) such Taxes, if any, as are being contested in good faith by appropriate proceedings and as to which adequate reserves have been established and maintained, and (b) immaterial Taxes; provided, however , that in each case no material item or portion of property of any Borrower or any of its Subsidiaries is in jeopardy of being seized, levied upon or forfeited.

5.09. Margin Regulations; Investment Company Act.

(a) No Borrower is engaged nor will any Borrower engage, principally or as one of its important activities, in the business of extending credit for the purpose of “purchasing” or “carrying” “margin stock” within the respective meanings of each of the quoted terms under Regulation U of the Board of Governors of the Federal Reserve System as now and from time to time hereafter in effect. No part of the proceeds of any Loans hereunder will be used for “purchasing” or “carrying” “margin stock” as so defined or for any purpose which violates, or which would be inconsistent with, the provisions of Regulations U or X of such Board of Governors.

(b) Neither Borrower nor any of its Subsidiaries is or is required to be registered as an “investment company” under the Investment Company Act of 1940.

5.10. ERISA Compliance.

(a) Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other federal or state Laws. Each Plan that is intended to qualify under Section 401(a) of the Code has received a favorable determination or opinion letter from the IRS or an application for such a letter is currently being processed by the IRS with respect thereto and, to the best knowledge of Borrowers, nothing has occurred which would prevent, or cause the loss of, such qualification. Each Borrower and each ERISA Affiliate have made all required contributions to each Plan subject to Section 412 of the Code, and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code has been made with respect to any Plan. There has been no prohibited transaction (which is not otherwise exempt under Section 4975 of the Code) or violation of the fiduciary responsibility rules under ERISA with respect to any Plan that has or could reasonably be expected to have a Material Adverse Effect.

 

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Adesto Technologies Corporation Credit Agreement

 

(b) (i) No ERISA Event has occurred or, to the best knowledge of Borrowers with respect to any ERISA Affiliate, is reasonably expected to occur; (ii) no Pension Plan has any Unfunded Pension Liability; (iii) neither any Borrower nor any ERISA Affiliate, has incurred or, to the best knowledge of Borrowers with respect to any ERISA Affiliate reasonably expects to incur, any liability under Title IV of ERISA with respect to any Pension Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (iv) neither any Borrower nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Sections 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (v) neither any Borrower nor any ERISA Affiliate has engaged in a transaction that could be subject to Sections 4069 or 4212(c) of ERISA.

5.11. Intangible Assets. Each Borrower and its Subsidiaries own, or possess the right to use, all trademarks, trade names, copyrights, patents, patent rights, franchises, licenses and other intangible assets that are used in the conduct of their respective businesses as now operated or could obtain such right without causing a Material Adverse Effect, and none of such items, to the best knowledge of Borrowers, conflicts with the valid trademark, trade name, copyright, patent, patent right or intangible asset of any other Person to the extent that such conflict has or could reasonably be expected to have a Material Adverse Effect.

5.12. Compliance With Laws. Each Borrower and its Subsidiaries are in compliance in all material respects with all material Laws that are applicable to such Person.

5.13. Environmental Compliance. Each Borrower and its Subsidiaries conduct in the ordinary course of business a review of the effect of existing Environmental Laws and claims alleging potential liability or responsibility for violation of any Environmental Law on their respective businesses, operations and properties, and as a result thereof Borrower has reasonably concluded that such Environmental Laws and claims could not, individually or in the aggregate, have a Material Adverse Effect.

5.14. Insurance. The properties of each Borrower and its Subsidiaries are insured with financially sound and reputable insurance companies not Affiliates of any Borrower, in such amounts, with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where such Borrower or such Subsidiary operates.

5.15. Disclosure. No statement, information, report, representation, or warranty made by any Borrower or any Subsidiary in any Loan Document or furnished to Lender in connection with any Loan Document contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements herein or therein not misleading (it being recognized by Lender that the projections and forecasts provided by Borrower in good faith and based upon reasonable assumptions are not viewed as facts and that actual results during the period or periods covered by such projections and forecasts may differ from the projected or forecasted results).

 

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Adesto Technologies Corporation Credit Agreement

 

5.16. [Reserved].

5.17. USA PATRIOT Act, Foreign Assets Control Regulations, Etc.

(a) Neither the Loans contemplated hereunder nor the use of the proceeds thereof will violate the Anti-Terrorism Order, the USA PATRIOT Act, the Trading with the Enemy Act, as amended, or any U.S. Economic Sanctions or any enabling legislation or executive order relating thereto. Each Borrower has provided to Lender all information related to each Loan Party (including but not limited to names, addresses and tax identification numbers (if applicable)) reasonably requested in writing by the Lender, as required by regulatory authorities under applicable “know your customer” rules and regulations and other Anti-Money Laundering Laws, including, without limitation, the USA PATRIOT Act, and each Borrower and its Subsidiaries are in compliance, in all material respects, with the USA PATRIOT Act.

(b) Neither the Borrowers nor any Controlled Entity is a Blocked Person, and neither the Borrowers nor any Controlled Entity has been notified that its name appears or may in the future appear on the SDN List.

(c) Neither the Borrowers nor any Controlled Entity (i) has been found in violation of, charged with, or convicted of, money laundering, drug trafficking, terrorist-related activities or other money laundering predicate crimes under the Anti-Money Laundering Laws or any U.S. Economic Sanction violations, (ii) is under investigation by any Governmental Authority for possible violation of the Anti-Money Laundering Laws or any U.S. Economic Sanctions, (iii) has been assessed civil penalties under any Anti-Money Laundering Laws or any U.S. Economic Sanctions, or (iv) has had any of its funds seized or forfeited in an action under any Anti-Money Laundering Laws. Each Borrower has established procedures and controls which it reasonably believes are adequate (and otherwise comply with applicable law) to ensure that each Borrower and each Controlled Entity is and will continue to be in compliance with all applicable current and future Anti-Money Laundering Laws and U.S. Economic Sanctions.

(d) No part of the proceeds from the Loans hereunder constitutes or will constitute funds obtained on behalf of any Blocked Person or Sanctioned Country or will otherwise be used by any Borrower or any Controlled Entity, directly or indirectly, (i) in connection with any investment in, or any transactions or dealings with, any Blocked Person or Sanctioned Country, or (ii) otherwise in violation of any U.S. Economic Sanctions.

(e) (i) Neither the Borrowers nor any Controlled Entity (aa) has been charged with, or convicted of bribery or any other anti-corruption related activity under any applicable law or regulation in a U.S. or any non-U.S. country or jurisdiction, including but not limited to the Anti-Corruption Laws, (bb) to the best knowledge of each Borrower after making due inquiry, is under investigation by any U.S. or non-U.S. Governmental Authority for possible violation of Anti-Corruption Laws, (cc) has been assessed civil or criminal penalties under any Anti-Corruption Laws or (dd) has been or is the target of sanctions imposed by the United Nations or the European Union;

 

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(ii) To the best knowledge of each Borrower after making due inquiry, neither the Borrowers nor any Subsidiary has, within the last five years, directly or indirectly offered, promised, given, paid or authorized the offer, promise, giving or payment of anything of value to a governmental official or a commercial counterparty for the purposes of: (aa) influencing any act, decision or failure to act by such governmental official in his or her official capacity or such commercial counterparty, (bb) inducing a governmental official to do or omit to do any act in violation of the governmental official’s lawful duty, or (cc) inducing a governmental official or a commercial counterparty to use his or her influence with a government or instrumentality to affect any act or decision of such government or entity; in each case in order to obtain, retain or direct business or to otherwise secure an improper advantage in violation of any applicable law or regulation or which would cause any holder to be in violation of any law or regulation applicable to such holder; and

(f) Neither the Loans contemplated hereunder nor the use of the proceeds thereof will violate the Anti-Terrorism Order, the USA PATRIOT Act, the Trading with the Enemy Act, as amended, or any U.S. Economic Sanctions or any enabling legislation or executive order relating thereto. Each Borrower has provided to Lender all information related to each Loan Party (including but not limited to names, addresses and tax identification numbers (if applicable)) reasonably requested in writing by the Lender, as required by regulatory authorities under applicable “know your customer” rules and regulations and other Anti-Money Laundering Laws, including, without limitation, the USA PATRIOT Act, and the Borrower and its Subsidiaries are in compliance, in all material respects, with the USA PATRIOT Act.

(g) Neither the Borrowers nor any Controlled Entity is a Blocked Person, and neither the Borrowers nor any Controlled Entity has been notified that its name appears or may in the future appear on the SDN List.

(h) Neither the Borrowers nor any Controlled Entity (i) has been found in violation of, charged with, or convicted of, money laundering, drug trafficking, terrorist-related activities or other money laundering predicate crimes under the Anti-Money Laundering Laws or any U.S. Economic Sanction violations, (ii) is under investigation by any Governmental Authority for possible violation of the Anti-Money Laundering Laws or any U.S. Economic Sanctions, (iii) has been assessed civil penalties under any Anti-Money Laundering Laws or any U.S. Economic Sanctions, or (iv) has had any of its funds seized or forfeited in an action under any Anti-Money Laundering Laws. Each Borrower has established procedures and controls which it reasonably believes are adequate (and otherwise comply with applicable law) to ensure that each Borrower and each Controlled Entity is and will continue to be in compliance with all applicable current and future Anti-Money Laundering Laws and U.S. Economic Sanctions.

(i) No part of the proceeds from the Loans hereunder constitutes or will constitute funds obtained on behalf of any Blocked Person or Sanctioned Country or will otherwise be used by the Borrower or any Controlled Entity, directly or indirectly, (i) in connection with any investment in, or any transactions or dealings with, any Blocked Person or Sanctioned Country, or (ii) otherwise in violation of any U.S. Economic Sanctions.

 

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(j) (i) Neither the Borrowers nor any Controlled Entity (aa) has been charged with, or convicted of bribery or any other anti-corruption related activity under any applicable law or regulation in a U.S. or any non-U.S. country or jurisdiction, including but not limited to the Anti-Corruption Laws, (bb) to the best knowledge of Borrower after making due inquiry, is under investigation by any U.S. or non-U.S. Governmental Authority for possible violation of Anti-Corruption Laws, (cc) has been assessed civil or criminal penalties under any Anti-Corruption Laws or (dd) has been or is the target of sanctions imposed by the United Nations or the European Union;

(ii) To the best knowledge of each Borrower after making due inquiry, neither the Borrowers nor any Subsidiary has, within the last five years, directly or indirectly offered, promised, given, paid or authorized the offer, promise, giving or payment of anything of value to a governmental official or a commercial counterparty for the purposes of: (aa) influencing any act, decision or failure to act by such governmental official in his or her official capacity or such commercial counterparty, (bb) inducing a governmental official to do or omit to do any act in violation of the governmental official’s lawful duty, or (cc) inducing a governmental official or a commercial counterparty to use his or her influence with a government or instrumentality to affect any act or decision of such government or entity; in each case in order to obtain, retain or direct business or to otherwise secure an improper advantage in violation of any applicable law or regulation or which would cause any holder to be in violation of any law or regulation applicable to such holder; and

(iii) No part of the proceeds from the Loans hereunder will be used, directly or indirectly, for any improper payments, including bribes, to any governmental official or commercial counterparty in order to obtain, retain or direct business or obtain any improper advantage. Each Borrower has established procedures and controls which it reasonably believes are adequate (and otherwise comply with applicable law) to ensure that the Borrowers and each Subsidiary is and will continue to be in compliance with all applicable current and future Anti-Corruption Laws.

SECTION 6

AFFIRMATIVE COVENANTS

So long as any Obligation remains unpaid or unperformed (or, in the case of Sections 6.12, 6.13, 6.14, 6.15 and 6.17, within the time period specified therein), Borrowers shall, and shall (except in the case of Borrowers’ reporting covenants set forth in Sections 6.01 and 6.02(a)-(c) and Borrowers’ covenants set forth in Sections 6.12, 6.13 and 6.14), cause each Subsidiary, to:

6.01. Financial Statements. Deliver to Lender, in form and detail satisfactory Lender:

(a) (i) as soon as available, but in any event within 95 days after the end of each fiscal year of Borrowers (starting with the fiscal year ended December 31, 2014, provided that for the fiscal year ended December 31, 2014 only, Borrowers shall deliver the following on or before June 15, 2015), a consolidated balance sheet of Borrowers and their Subsidiaries as at the end of such fiscal year, and the related

 

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consolidated statements of income and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail, and (ii) as soon as available, but in any event within 95 days after any fiscal year, a consolidated balance sheet of Borrowers and their Subsidiaries as at the end of such fiscal year, and the related consolidated statements of income and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail, audited and accompanied by a report and opinion of an independent certified public accountant, which report and opinion shall be prepared in accordance with GAAP and shall not be subject to any qualifications or exceptions as to the scope of the audit and accompanied by a Compliance Certificate as required under Section 6.02(a) hereof;

(b) as soon as available, but in any event within 45 days after the end of each of the first three (3) fiscal quarters of each fiscal year of Borrowers (starting with the fiscal quarter ended March 31, 2015), a consolidated balance sheet of Borrowers and their Subsidiaries as at the end of such fiscal quarter, and the related consolidated statements of income and cash flows for such fiscal quarter and for the portion of Borrowers’ fiscal year then ended, setting forth in each case in comparative form the figures for the corresponding fiscal quarter of the previous fiscal year and the corresponding portion of the previous fiscal year, all in reasonable detail and accompanied by a Compliance Certificate as required under Section 6.02(a) hereof;

(c) as soon as available, but in any event within 10 days after the end of each calendar month, a monthly Asset Coverage Ratio Report (as required by Section 7.11), a monthly cash report, monthly accounts receivable and payable reports with agings and monthly inventory report, all in reasonable detail.

(d) such other financial reports as Lender may reasonably request from Borrowers, including without limitation, annual projections, as approved by the Board of Directors of each Borrower, for the Borrowers’ next fiscal year to be delivered within 60 days after the end of each fiscal year of Borrowers; and

(e) Reports required to be delivered pursuant to clauses (a) and (b) of this Section 6.01 shall be deemed to have been delivered on the date on which Borrowers posts such reports on Borrowers’ website on the Internet at the website address listed on Schedule 9.02 hereof or when such report is posted on the Securities and Exchange Commission’s website at www.sec.gov ; provided that (x) Borrowers shall deliver paper copies of the reports referred to in such clauses (a) and (b) of this Section 6.01 to Lender if Lender requests Borrowers to deliver such paper copies until written request to cease delivering paper copies is given by Lender, (y) Borrowers shall notify Lender of the posting of any such new material, and (z) in every instance Borrowers shall provide paper copies of the Compliance Certificates required by clause (a) of Section 6.02 to Lender.

6.02. Certificates, Notices and Other Information. Deliver to Lender, in form and detail satisfactory to Lender:

(a) concurrently with the delivery of the financial statements referred to in Sections 6.01(a), (b) and (c) (as to (c) regarding the Asset Coverage Ratio only), a duly completed Compliance Certificate signed by a Senior Officer of each Borrower;

 

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(b) promptly after the same are available, copies of each annual report, proxy or financial statement or other report or communication sent to the stockholders of any Borrower, and copies of all annual, regular, periodic and special reports and registration statements which any Borrower may file or be required to file with the Securities and Exchange Commission under Sections 13 or 15(d) of the Exchange Act, and not otherwise required to be delivered to Lender pursuant hereto;

(c) promptly after the occurrence thereof, notice of any Default or Event of Default;

(d) notice of any change in accounting policies or financial reporting practices by any Borrower or any Subsidiary that is material to Borrowers or to Borrowers and their Subsidiaries on a consolidated basis;

(e) promptly after the commencement thereof, notice of any litigation, investigation or proceeding affecting any Borrower where the reasonably expected damages to such Borrower exceed the Threshold Amount, or in which injunctive relief or similar relief is sought, which relief could reasonably be expected to have a Material Adverse Effect;

(f) promptly after the occurrence thereof, notice of any Reportable Event with respect to any Plan or the intent to terminate any Plan, or the institution of proceedings or the taking or expected taking of any other action to terminate any Plan or withdraw from any Plan;

(g) promptly after the occurrence thereof, notice of any Material Adverse Effect; and

(h) promptly, such other data and information as from time to time may be reasonably requested by Lender. Notwithstanding any provision of this Agreement to the contrary, so long as no Default or Event of Default shall have occurred and be continuing, neither any Borrower nor any of its Subsidiaries shall be required to disclose, permit the inspection, examination, photocopying or making extracts of, or discuss, any document, information or other matter that (i) constitutes non-financial trade secrets or non-financial proprietary information, or (ii) the disclosure of which to Lender, or its designated representative, is then prohibited by law or any agreement binding on any Borrower or any of its Subsidiaries that was not entered into by any Borrower or any such Subsidiary for the purpose of concealing information from the Lender.

Each notice pursuant to this Section shall be accompanied by a statement of a Senior Officer of such Borrower setting forth details of the occurrence referred to therein and, if applicable, stating what action such Borrower has taken and proposes to take with respect thereto.

 

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The annual reports, proxies, financial statements or other communications required by Section 6.02(b) above shall be deemed to have been delivered on the date on which Borrower posts such reports on Borrowers’ website on the Internet at the website address listed on Schedule 9.02 hereof or when such report is posted on the Securities and Exchange Commission’s website at www.sec.gov; provided that (y) Borrowers shall deliver paper copies of the reports referred to in Section 6.02(b) to Lender if Lender requests Borrowers to deliver such paper copies until written request to cease delivering paper copies is given by Lender, and (z) Borrowers shall notify Lender of the posting of any such new material.

6.03. Payment of Taxes and Claims. Pay and discharge when due all federal, state and other material Taxes, assessments, governmental charges, levies and claims for sums that have become due and payable, except for any such tax, assessment, charge, levy or claim which is being contested in good faith and by appropriate proceedings, if adequate reserves with respect thereto are maintained on the books of the applicable Person in accordance with GAAP and no item or portion of property of any Borrower or any of its Subsidiaries is in jeopardy of being seized, levied upon or forfeited as a result thereof.

6.04. Preservation of Existence. Preserve and maintain its existence, licenses, permits, rights, franchises and privileges necessary or desirable in the normal conduct of its business, except (i) as permitted by Section 7.03, or (ii) where failure to do so would not reasonably be expected to have a Material Adverse Effect.

6.05. Maintenance of Properties. Maintain, preserve and protect all of its material properties and equipment necessary in the operation of its business in good order and condition, subject to wear and tear in the ordinary course of business, and not permit any waste of its properties, except where failure to do so would not reasonably be expected to have a Material Adverse Effect.

6.06. Maintenance of Insurance. Maintain liability and casualty insurance with responsible insurance companies satisfactory to the Lender in such amounts and against such risks as is customary for similarly situated businesses.

6.07. Compliance With Laws.

(a) Comply with the requirements of all applicable Laws and orders of any Governmental Authority including, without limitation, ERISA, Environmental Laws, the Anti-Money Laundering Laws, U.S. Economic Sanctions and the Anti-Corruption Laws, noncompliance with which would reasonably be expected to have a Material Adverse Effect.

(b) Conduct its operations and keep and maintain its property in material compliance with all Environmental Laws.

(c) Prevent itself or any Affiliate from (i) becoming a Blocked Person, (ii) using any part of the proceeds of the Loan, directly or indirectly, to lend, contribute, provide, or otherwise make available to fund any activity or business with or related to any Blocked Peron or Sanctioned Country, or in any other manner that will result in any violation or breach by any Person of any U.S. Economic Sanctions and (iii) using any part of the proceeds of the Loan, directly or indirectly, for any payment to any payment to any governmental official or

 

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Adesto Technologies Corporation Credit Agreement

 

employee, political party, official of a political party, candidate for political officer, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the Anti-Corruption Laws.

6.08. Inspection Rights. Permit Lender to perform an annual collateral field audit of Borrower’s accounts receivable, inventory and equipment. In addition, at any time during regular business hours and as often as reasonably requested upon reasonable notice (but not more often than twice in a calendar year unless an Event of Default exists), permit Lender, or any employee, agent or representative thereof, to examine, audit and make copies and abstracts from Borrowers’ records and books of account and to visit and inspect its properties, including, but not limited to, an annual collateral field audit on accounts receivable and inventory, and to discuss its affairs, finances and accounts with any of its officers and key employees, and, upon request, furnish promptly to Lender true copies of all financial information and internal management reports made available to their board of directors (or any committee thereof). Notwithstanding any provision of this Agreement to the contrary, so long as no Default or Event of Default shall have occurred and be continuing, neither any Borrower nor any of its Subsidiaries shall be required to disclose, permit the inspection, examination, photocopying or making extracts of, or discuss, any document, information or other matter that (i) constitutes non-financial trade secrets or non-financial proprietary information, or (ii) the disclosure of which to Lender, or its designated representative, is then prohibited by law or any agreement binding on any Borrower or any of its Subsidiaries that was not entered into by any Borrower or any such Subsidiary for the purpose of concealing information from the Lender. Borrowers shall, however, furnish to Lender such information concerning Borrowers’ intellectual property (including, without limitation, application and registration numbers for any filings in connection with such intellectual property) as is reasonably necessary to permit Lender to perfect a security interest in such intellectual property.

6.09. Keeping of Records and Books of Account. Keep adequate records and books of account reflecting all financial transactions in conformity with GAAP, consistently applied, and in material conformity with all applicable requirements of any Governmental Authority having regulatory jurisdiction over any Borrower or any applicable Subsidiary.

6.10. Compliance with ERISA. Cause, and cause each of its ERISA Affiliates to: (a) maintain each Plan in compliance in all material respects with the applicable provisions of ERISA, the Code and other federal or state law; (b) cause each Plan which is qualified under Section 401(a) of the Code to maintain such qualification; and (c) make all required contributions to any Plan subject to Section 412 of the Code.

6.11. Compliance With Agreements. Promptly and fully comply with all Contractual Obligations to which any one or more of them is a party, except for any such Contractual Obligations (a) the nonperformance of which would not cause a Default or Event of Default, (b) then being contested by any of them in good faith by appropriate proceedings, or (c) if the failure to comply therewith could not reasonably be expected to have a Material Adverse Effect.

6.12. [Reserved].

 

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Adesto Technologies Corporation Credit Agreement

 

6.13. Material Subsidiaries.

(a) In the event that any Borrower or any Domestic Subsidiary creates or acquires a domestic Material Subsidiary, such Borrower (or Domestic Subsidiary) shall within forty-five (45) days (unless a longer period is agreed to by Lender) (i) cause such Material Subsidiary (aa) to execute and deliver a Guaranty, in form and substance satisfactory to Lender, in favor of Lender, and (bb) to execute and deliver a security agreement, substantially in the form of the Security Agreement, granting a security interest in its assets to secure the Guaranty; (ii) pledge to Lender the ownership interests in such Material Subsidiary pursuant to a pledge agreement substantially in the form of the Stock Pledge Agreement; and (iii) deliver to Lender the outstanding share certificates to the extent such equity interests are certificated (or other evidence of its equity) evidencing such pledged ownership interests; provided, however , in no event shall (1) the aggregate amount of assets for all domestic Subsidiaries that are not a Guarantor and party to a security agreement referred to in this subsection (a) exceed 20% of the total assets of such Borrower and its Subsidiaries as of the last day of the most recent fiscal year of the Borrower for which the Borrower has delivered audited financial statements and (2) the aggregate amount of revenues for all domestic Subsidiaries that are not a Guarantor and party to a security agreement exceed 20% of the total revenues of such Borrower and its Subsidiaries for the most recent fiscal year of Borrowers for which the Borrowers have delivered audited financial statements and such Borrower shall, from time to time, cause such additional domestic Subsidiaries to execute and deliver the documents referred to in this subsection (a) and comply with the other provisions of this subsection (a) as required to comply with this proviso.

(b) In the event that any Borrower creates or acquires a First Tier Foreign Subsidiary, such Borrower shall within ninety (90) days (unless a longer period is agreed to by Lender) (i) pledge to Lender sixty-six percent (66%) of the ownership interests in such foreign Material Subsidiary owned by such Borrower pursuant to a pledge agreement substantially in the form of the Stock Pledge Agreement; (ii) deliver to Lender the outstanding shares certificates (or other evidence of its equity) evidencing such pledged ownership interests; and (iii) take such further actions as Lender requests to perfect the security interest in such pledged ownership interests.

6.14. Use of Proceeds. Use the proceeds of the Loans for lawful general corporate purposes including working capital, to repay certain Indebtedness of the Borrower and for capital expenditures and other expenses not otherwise in contravention of this Agreement.

6.15. Post-Closing Requirement.

(a) Within thirty (30) days of the Closing Date, Borrowers will provide a completed Lender’s Loss Payable endorsement naming Lender as a Lender’s Loss Payee, in form and substance satisfactory to Lender.

(b) Within sixty (60) days of the Closing Date, obtain an executed Landlord’s Agreement from the landlord of each of the Borrowers’ offices in Sunnyvale, CA and Grass Valley, CA, in form and substance reasonably satisfactory to Lender.

 

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6.16. Deposit Accounts. (a) At all times maintain its primary deposit accounts, including the Designated Deposit Account, with Opus Bank, and (b) direct that all customer payments be paid into a lockbox account at Opus Bank. Notwithstanding the foregoing, Borrowers and their Subsidiaries shall be permitted to maintain Cash in accounts outside of the United States, in an aggregate amount not to exceed the equivalent of US$500,000.

6.17. Insurance. Cause the Lender to be named as loss payee on all property insurance policies, and the Lender to be named as additional insured on all liability insurance policies, obtained or maintained by or on behalf of any Borrower or any of its Subsidiaries. Each policy of insurance or endorsement shall contain a clause requiring the insurer to give not less than 30 days prior written notice to the Lender in the event of cancellation of the policy for any reason whatsoever and a clause specifying that the interests of the Lender shall not be impaired or invalidated by any act or neglect by any Borrower or any of its Subsidiaries. If the Borrowers fail to provide and pay for such insurance, the Lender may, at its option, but shall not be required to, procure the same and charge the Borrowers therefor.

6.18. Lockbox Account and Bridge Bank. Cause all monies deposited into, or held in, any lockbox account maintained for Borrowers at Bridge Bank (including without limitation, the account ending in 9984) to be swept daily into the deposit accounts governed by the Deposit Account Control Agreement dated as of the date hereof by and between Borrowers, Lender and Bridge Bank.

SECTION 7

NEGATIVE COVENANTS

So long as any Obligations remain unpaid or unperformed, no Borrower shall, nor shall it permit any Subsidiary to, directly or indirectly:

7.01. Indebtedness. Create, incur, assume or suffer to exist any Indebtedness except for the following ( “Permitted Indebtedness” ):

(a) Indebtedness under this Agreement;

(b) Indebtedness outstanding on the date hereof and listed on Schedule 7.01 and any refinancings, refundings, renewals or extensions thereof, provided that (i) the amount of such Indebtedness is not increased at the time of such refinancing, refunding, renewal or extension except by an amount equal to the premium or other amount paid, and fees and expenses incurred, in connection with such refinancing and by an amount equal to any utilized commitments thereunder, (ii) the terms relating to principal amount, amortization, maturity, collateral (if any) and subordination (if any), and other material terms taken as a whole, of any such refinancing, refunding, renewing or extending Indebtedness, and of any agreement entered into and of any instrument issued in connection therewith, are no less favorable in any material respect to such Borrower and its Subsidiaries or the Lender than the terms of any agreement or instrument governing the Indebtedness being refinanced, refunded, renewed or extended and (iii) the weighted average life of the principal payments pursuant to such refinanced, refunded, renewed or extended Indebtedness shall be no shorter than the weighted average life of such payments pursuant to such Indebtedness immediately prior to such refinancing, refunding, renewal or extension;

 

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(c) Ordinary Course Indebtedness;

(d) Indebtedness of Borrowers under any letter of credit facility (a “Permitted LC Agreement” ); provided that (A) the sum at any time of the aggregate face amount of all letters of credit issued and outstanding under all Permitted LC Agreements, plus the aggregate amount of all unremedied drawings under such letters of credit, does not exceed $2,000,000, and (B) the Indebtedness of Borrowers under any Permitted LC Agreement is at all times either unsecured or secured by Liens permitted pursuant to Section 7.02;

(e) Indebtedness of Borrowers and their Subsidiaries under loans and Capital Leases incurred by any Borrower or any of its Subsidiaries to finance the acquisition by such Person of real property, improvements, fixtures, equipment or other fixed assets (together with attachments, ascensions, additions, “soft costs” and proceeds thereof), provided that in each case, (i) such Indebtedness is incurred by such Person at the time of, or not later than six (6) months after, the acquisition by such Person of the property so financed, (ii) such Indebtedness does not exceed the purchase price of the property so financed, and (iii) the aggregate outstanding principal amount of such Indebtedness does not exceed $500,000 at any time;

(f) Indebtedness of Borrowers and their Subsidiaries under initial or successive refinancings, refundings, renewals or extensions of any Indebtedness permitted by subsections (d) and (e) above or this clause (f), provided that (i) the amount of such Indebtedness is not increased at the time of such refinancing, refunding, renewal or extension except by an amount equal to the premium or other amount paid, and fees and expenses incurred, in connection with such refinancing, and (ii) the weighted average life of the principal payments pursuant to such refinanced, refunded, renewed or extended Indebtedness shall be no shorter than the weighted average life of such payments pursuant to such Indebtedness immediately prior to such refinancing, refunding, renewal or extension;

(g) unsecured Indebtedness of any Borrower to any of such Borrower’s Subsidiaries, Indebtedness of any of Borrower’s Subsidiaries to any Borrower or Indebtedness of any of any Borrower’s Subsidiaries to any of such Borrower’s other Subsidiaries; provided that any such Indebtedness shall be unsecured and expressly subordinated to the indefeasible payment in full in cash of the Obligations on terms satisfactory to the Lender;

(h) Subordinated Debt of any Borrower to any Person, provided that (A) such Indebtedness contains subordination provisions no less favorable to Lender than those set forth in Schedule 7.10 or as otherwise approved by the Lender and (B) the aggregate principal amount of all Subordinated Debt of Borrowers outstanding does not exceed $10,000,0000 at any time; and (C) the maturity date of the Subordinated Debt shall not be earlier than 120 days after following the Maturity Date of the Loans;

 

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(i) [Reserved]; and

(j) Other unsecured Indebtedness not included in (a) through (i) above and not exceeding, in the aggregate outstanding principal amount at any time, $500,000.

7.02. Liens. Incur, assume or suffer to exist, any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, except for the following ( “Permitted Liens” ):

(a) Liens existing on the date hereof and listed on Schedule 7.01 and any renewals or extensions thereof, provided that the property covered thereby is not increased and any renewal or extension of the obligations secured or benefited thereby is permitted by Section 7.01(b);

(b) Ordinary Course Liens;

(c) Liens on Cash or Cash Equivalents securing reimbursement obligations of Borrowers under letters of credit in an aggregate amount of all such cash and cash equivalents not to exceed $1,000,000;

(d) Liens on the property or assets of any corporation which becomes a Subsidiary of any Borrower after the date of this Agreement, provided that (i) such Liens exist at the time such corporation became a Subsidiary or such assets were acquired, and (ii) such Liens were not created in contemplation of such acquisition by such Borrower;

(e) Liens securing Indebtedness and any related obligations of any Borrower or any of its Subsidiaries which constitutes Permitted Indebtedness under Section 7.01(e);

(f) Rights of vendors or lessors under conditional sale agreements, Capital Leases or other title retention agreements, provided that in each case, (i) such rights secure or otherwise relate to Permitted Indebtedness, (ii) such rights do not extend to any property other than property acquired with the proceeds of such Permitted Indebtedness (together with accessions, additions, replacements and proceeds thereof), and (iii) such rights do not secure any Indebtedness other than Permitted Indebtedness;

(g) [Reserved];

(h) Liens incurred in connection with leases, subleases, licenses and sublicenses granted to Persons not interfering in any material respect with the business of Borrowers and their Subsidiaries and any interest or title of a lessee or licensee under any such leases, subleases, licenses or sublicenses; and

(i) Liens not otherwise permitted hereunder on the property or assets of any Borrower and any of its Subsidiaries securing (i) borrowed money Indebtedness, or (ii) all obligations of Borrowers arising other than in connection with any securitization which are evidenced by bonds, debentures, notes or other similar instruments; provided that, in each case, the aggregate outstanding principal amount of all Indebtedness secured by such Liens does not exceed at any time $300,000.

 

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Adesto Technologies Corporation Credit Agreement

 

7.03. Fundamental Changes. Merge or consolidate with or into any Person or liquidate, wind-up or dissolve itself, or permit or suffer any liquidation or dissolution or sell all or substantially all of its assets, except that:

(a) any Subsidiary may merge with (i) any Borrower, provided that such Borrower shall be the continuing or surviving corporation, (ii) any one or more Subsidiaries, provided that if such Subsidiary is a Guarantor, such Subsidiary shall be the continuing or surviving corporation, and (iii) any joint venture, partnership or other Person, so long as such joint venture, partnership and other Person will, as a result of making such merger and all other contemporaneous related transactions, become a Subsidiary and a Guarantor (if the Subsidiary which merged with such joint venture, partnership or other Person was a Guarantor);

(b) any Subsidiary may sell or transfer all or substantially all of its assets (through voluntary liquidation, dissolution or winding up or otherwise), to any Borrower or to another Subsidiary; provided that if, either immediately prior to or after giving effect (on a pro forma basis) to such proposed sale or transfer (i) an Event of Default shall have occurred and be continuing or (ii) the Leverage Ratio (determined on a pro forma basis after giving effect to such transaction) is greater than 2.00 to 1.00, no Guarantor shall make any such sale or transfer to any Subsidiary which is not also a Guarantor or does not concurrently therewith become a Guarantor;

(c) any Borrower may merge into or consolidate with any other Person, provided that (i) such Borrower is the surviving corporation, and (ii) immediately after giving effect to such merger or consolidation, no Default or Event of Default shall have occurred and be continuing; and

(d) any Subsidiary may merge or consolidate with or into any other Person or sell all or substantially all of its assets to the extent such transaction is a Disposition otherwise permitted under Section 7.04 or an Investment otherwise permitted under Section 7.05 and immediately after giving effect to such merger or consolidation, (i) no Default or Event of Default shall have occurred and be continuing, and (ii) Borrowers are in compliance with the provisions of Section 7.11(a) determined on a pro forma basis after giving effect to such transaction.

To the extent any Subsidiary is a Guarantor, the surviving entity of any merger permitted hereunder shall execute such documentation as is satisfactory to Lender to ratify or otherwise assume the obligations under such Guaranty.

7.04. Dispositions. Make any Dispositions, except:

(a) Ordinary Course Dispositions and other Dispositions permitted by this Agreement;

(b) Dispositions permitted by Section 7.03; and

(c) Dispositions not otherwise prohibited hereunder, provided that the book value of the property so disposed in any such Dispositions from and after the Closing Date shall not at any time exceed $300,000.

 

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7.05. Investments. Make any Investments, except for the following (“ Permitted Investments ”):

(a) Investments existing on the Closing Date and listed on Schedule 7.05 attached hereto;

(b) Ordinary Course Investments;

(c) Investments permitted by Section 7.01 or Section 7.03;

(d) Investments in the nature of Permitted Acquisitions;

(e) Investments of Borrowers and their Subsidiaries in Swap Contracts, provided that all such arrangements are entered into in connection with bona fide hedging operations and not for speculation;

(f) Investments not otherwise permitted hereunder, provided that the aggregate amount of such other Investments (less any return on any such Investments) does not at any time exceed $100,000.

7.06. Restricted Payments. Make any Restricted Payments, except as follows:

(a) (i) Borrowers may pay dividends or other distributions payable solely in shares of capital stock of any Borrower or any Subsidiary or (ii) a Subsidiary may pay dividends or other distributions to any Borrower or to another Subsidiary; provided that the total of all such dividends or other distributions to Subsidiaries which are not Guarantors shall not exceed $300,000 over the life of this Agreement, and provided further that if (1) a Default or Event of Default shall have occurred and be continuing or (2) the Leverage Ratio (determined on a pro forma basis after giving effect to such transaction) is greater than 2.00 to 1.00, no such dividends or other distributions shall be paid by any Guarantor to any Subsidiary which is not also a Guarantor; provided , however, that this clause (a) shall not restrict dividends or other distributions from Subsidiaries which are not Guarantors to other Subsidiaries which are not Guarantors;

(b) any Borrower may distribute rights pursuant to a shareholder rights plan or redeem such rights, provided that such redemption is in accordance with the terms of such shareholder rights plan;

(c) any Borrower may make Restricted Payments in connection with or pursuant to any of its (i) Employee Benefits Plans or in connection with the employment, termination or compensation of its service providers, employees, officers or directors, and (ii) to repurchase Equity Securities of a Borrower which a shareholder is selling whether such repurchase is pursuant to a repurchase right or otherwise, provided, however, that with respect to (c)(ii) above, such Restricted Payments may not exceed $1,000,000 in the aggregate at any time there are Outstanding Obligations; and

 

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(d) any Subsidiary of any Borrower may declare or pay any ratable dividends in respect of its Equity Securities or purchase or redeem shares of its Equity Securities or make distributions to shareholders not otherwise permitted hereunder, provided that (i) the aggregate amount paid or distributed in any period of four consecutive quarters (excluding any amounts covered by subsection (b) above) does not exceed 5% of Consolidated Tangible Net Worth as determined as of the fiscal quarter immediately preceding the date of determination; and (ii) when combined with the amount of all purchases of Equity Securities made under Section 7.06(e), the total of all such dividends, purchases or redemptions shall not exceed the sum of $100,000 in the aggregate over the life of this Agreement; provided, further, that the provisions of this clause (f), shall not restrict any Subsidiary from declaring or paying dividends to any Borrower or to any wholly owned Subsidiary of Borrower.

7.07. ERISA. At any time engage in a transaction which could be subject to Sections 4069 or 4212(c) of ERISA, or permit any Pension Plan to (a) engage in any non-exempt “ prohibited transaction ” (as defined in Section 4975 of the Code); (b) fail to comply with ERISA or any other applicable Laws; or (c) incur any material “ accumulated funding deficiency ” (as defined in Section 302 of ERISA), which, with respect to each event listed above, has a Material Adverse Effect.

7.08. [Reserved] .

7.09. Transactions with Affiliates. Enter into any transaction of any kind with any Affiliate (other than transactions among Borrowers or any of its Subsidiaries and any Subsidiary) of Borrowers other than arm’s-length transactions with Affiliates that are otherwise permitted hereunder, except as follows:

(a) reasonable and customary fees in the industry paid to members of the board of directors (or similar governing body) of such Borrower or its Subsidiaries; and

(b) reasonable compensation arrangements and benefit plans for officers and employees of such Borrower and its Subsidiaries entered into or maintained in the ordinary course of business, provided that such transactions in no instance shall have a Material Adverse Effect on any Borrower or any Subsidiary.

7.10. Certain Indebtedness Payments, Etc. Pay, prepay, redeem, purchase, defease or otherwise satisfy in any manner prior to the scheduled payment thereof (y) any Subordinated Debt except as otherwise permitted under this Section 7.10 or (z) during any period when an Event of Default has occurred and is continuing, any Indebtedness of Borrowers and their Subsidiaries; amend, modify or otherwise change the terms of any document, instrument or agreement evidencing Subordinated Debt such that such amendment, modification or change would (a) cause the outstanding aggregate principal amount of all such Subordinated Debt so amended, modified or changed to be increased as a consequence of such amendment, modification or change, (b) cause the subordination provisions applicable to such Subordinated

 

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Debt to be less favorable to Lender than those set forth on Schedule 7.10 , (c) increase the interest rate applicable thereto, (d) accelerate the scheduled payment thereof, or (e) change any default or event of default with respect thereto (other than to eliminate any such event of default or increase any grace period related thereto) or confer any additional rights on the holders of such Subordinated Debt (or a trustee or other representative on their behalf) which would be adverse to Lender.

7.11. Financial Covenants.

(a) Asset Coverage Ratio. Permit the Asset Coverage Ratio, reported in accordance with Section 6.01(c) and determined as of the last day of any fiscal month of Borrowers, to be less than as set forth below:

 

Date

   Ratio

Closing Date to September 30, 2015

   1.00:1.00

After September 30, 2015

   1.10:1.00

(b) Minimum Consolidated EBITDA . Permit Consolidated EBITDA (measured on a trailing three month basis) to be less than as set forth below:

 

Quarter Ending

   Minimum EBITDA  

September 30, 2015

   $ 1   

December 31, 2015

   $ 1   

March 31, 2016

   $ 1   

June 30, 2016

   $ 250,000   

September 30, 2016 and thereafter

   $ 500,000   

provided, however that this Section 7.11(b) shall not apply if, at all times during the applicable quarter, Cash held in the Designated Deposit Account is greater than 125% of the current outstanding principal amount of the Loan; provided, further , that if for any fiscal quarter it is ultimately determined that Cash held in the Designated Deposit Account was less than 125% of the outstanding principal amount of the Loan for such fiscal quarter then compliance with the above stated minimum Consolidated EBITDA shall be required.

7.12. Accounting Changes. Change (i) its fiscal year, or (ii) its accounting practices except as permitted by GAAP, in each case, except to the extent required in order to conform the fiscal year or accounting practices of a Subsidiary with those of Borrowers.

7.13. Organization Documents. Amend or modify its Organization Documents in a manner adverse to the Lender.

 

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7.14. Burdensome Agreements. Enter into any Contractual Obligation (other than this Agreement, the other Loan Documents and Indebtedness of foreign Subsidiaries permitted pursuant to Section 7.01) that (a) limits the ability (i) of any Subsidiary to make Restricted Payments to any Borrower or any Guarantor or otherwise transfer property to any Borrower or any Guarantor, (ii) of any Subsidiary to Guarantee the Indebtedness of any Borrower or (iii) of any Borrower or any Subsidiary to create, incur, assume or suffer to exist Liens on property of such Person, except with respect to specific property encumbered to secure payment of particular Indebtedness incurred to finance the acquisition thereof and permitted pursuant to Section 7.01(e); or (b) requires the grant of a Lien to secure an obligation of such Person if a Lien is granted to secure another obligation of such Person.

SECTION 8

EVENTS OF DEFAULT AND REMEDIES

8.01. Events of Default. Any one or more of the following events shall constitute an Event of Default:

(a) Borrowers fail to pay any principal on any Outstanding Obligation (other than fees) as and on the date when due; or

(b) Borrowers fail to pay any interest on any Outstanding Obligation or fails to pay any other fees or amount payable to Lender under any Loan Document within five (5) Business Days after the date due; or

(c) Any default occurs in the observance or performance of any agreement contained in Section 7; or

(d) Any default occurs in the observance or performance of any agreement contained in Section 6.01 and such default continues for ten (10) days after receipt of Lender’s written notice informing Borrower that delivery of an item is late; or

(e) The occurrence of an Event of Default (as such term is or may hereafter be specifically defined in any other Loan Document) under any other Loan Document; or a Borrower fails to perform or observe any other covenant or agreement (not specified in subsections (a), (b) (c) or (d) above) contained in any Loan Document on its part to be performed or observed and such failure continues for thirty (30) days after receipt of Lender’s written notice; or

(f) Any representation or warranty in any Loan Document proves to have been incorrect in any material respect when made or deemed made; or

(g) (i) any Borrower or any Material Subsidiary (x) defaults in any payment when due of principal of or interest on any Indebtedness (other than Indebtedness hereunder) having an aggregate principal amount in excess of the Threshold Amount which remains uncured beyond any applicable cure period, or (y) defaults in the observance or performance of any other agreement or covenant relating to any Indebtedness (other than Indebtedness hereunder) or contained in any instrument or

 

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agreement evidencing, securing or relating thereto, or any other event shall occur, the effect of which default or other event is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, any Guaranty Obligation in excess of the Threshold Amount to become payable or cash collateral in respect thereof to be demanded on account of such default or other event; or (ii) any Borrower is unable or admits in writing its inability to pay its debts generally as they mature; or

(h) Any Loan Document (or the subordination provisions of any Subordinated Debt), at any time after its execution and delivery and for any reason other than the agreement of Lender or satisfaction in full of all the Obligations, ceases to be in full force and effect or is declared by a court of competent jurisdiction to be null and void, invalid or unenforceable in any respect; or any Borrower or any Guarantor denies that it has any or further liability or obligation under any Loan Document, or purports to revoke, terminate or rescind any Loan Document; or

(i) (i) A final judgment against any Borrower or any Material Subsidiary is entered for the payment of money in excess of the Threshold Amount, or any non-monetary final judgment is entered against any Borrower or any Material Subsidiary which has a Material Adverse Effect and, in each case if such judgment remains unsatisfied without procurement of a stay of execution within thirty (30) calendar days after the date of entry of judgment; or (ii) any writ or warrant of attachment or execution or similar process is issued or levied against all or any material part of the property of any such Person representing an obligation for the payment of money which is (singly or in the aggregate with all other such writs or warrants or similar process) in excess of the Threshold Amount and is not released, vacated or fully bonded (A) within thirty (30) calendar days after its issue or levy or (B) if earlier, five (5) days prior to the date of any proposed sale.

(j) any Borrower or any of its Material Subsidiaries institutes or consents to the institution of any proceeding under Debtor Relief Laws, or makes an assignment for the benefit of creditors; or applies for or consents to the appointment of any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer for it or for all or any material part of its property; or any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer is appointed without the application or consent of that Person and the appointment continues undischarged or unstayed for sixty (60) calendar days; or any proceeding under Debtor Relief Laws relating to any such Person or to all or any part of its property is instituted without the consent of that Person and continues undismissed or unstayed for sixty (60) calendar days, or an order for relief is entered in any such proceeding; or

(k) (i) An ERISA Event occurs with respect to a Pension Plan or Multiemployer Plan which has resulted or could reasonably be expected to result in liability of any Borrower under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of the Threshold Amount; (ii) the aggregate amount of Unfunded Pension Liability among all Pension Plans at any time exceeds the Threshold Amount; or (iii) any Borrower or any ERISA Affiliate fails to pay

 

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Adesto Technologies Corporation Credit Agreement

 

when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of the Threshold Amount; or

(l) There occurs (i) any Change of Control, or (ii) any event relating to a change in the corporate ownership, control or governance of any Borrower or any Subsidiary as issuer (“ Issuer ”) of any notes, bonds, debentures, Subordinated Debt or other debt securities, the result of which is to cause Indebtedness evidenced by any such notes, bonds, debentures, Subordinated Debt or other debt securities to be subject to mandatory redemption or repurchase by Issuer, provided the outstanding amount of such outstanding Indebtedness exceeds the Threshold Amount.

8.02. Certain Financial Covenant Defaults. In the event that, after taking into account any extraordinary charge to earnings taken or to be taken as of the end of any fiscal period of Borrowers (a “Charge” ), and if solely by virtue of such Charge, there would exist an Event of Default due to breach of Section 7.11 as of such fiscal period end date, such Event of Default shall be deemed to arise upon the earlier of (i) the date after such fiscal period end date on which any Borrower announces publicly it will take, is taking or has taken such Charge (including an announcement in the form of a statement in a report filed with the SEC) or, if such announcement is made prior to such fiscal period end date, the date that is such fiscal period end date, and (ii) the date Borrowers deliver to Lender its audited annual or unaudited quarterly financial statements in respect of such fiscal period reflecting such Charge as taken.

8.03. Remedies Upon Event of Default. Without limiting any other rights or remedies of Lender provided for elsewhere in this Agreement, or the other Loan Documents, or by applicable Law, or in equity, or otherwise:

(a) Upon the occurrence, and during the continuance, of any Event of Default other than an Event of Default described in Section 8.01(j): Lender may declare all or any part of the unpaid principal of all Loans, all interest accrued and unpaid thereon and all other amounts payable under the Loan Documents to be immediately due and payable, whereupon the same shall become and be immediately due and payable, without protest, presentment, notice of dishonor, demand or further notice of any kind, all of which are expressly waived by each Borrower; and/or

(b) Upon the occurrence of any Event of Default described in Section 8.01(j):

(i) all obligations of Lender shall automatically terminate without notice to or demand upon Borrowers, which are expressly waived by each Borrower; and

(ii) the unpaid principal of all Loans, all interest accrued and unpaid thereon and all other amounts payable under the Loan Documents shall be immediately due and payable, without protest, presentment, notice of dishonor, demand or further notice of any kind, all of which are expressly waived by each Borrower.

 

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Adesto Technologies Corporation    Credit Agreement

 

(c) Upon the occurrence of any Event of Default, Lender, without notice to (except as expressly provided for in any Loan Document) or demand upon Borrowers, which are expressly waived by each Borrower (except as to notices expressly provided for in any Loan Document), may proceed to protect, exercise and enforce their rights and remedies under the Loan Documents against Borrowers and such other rights and remedies as are provided by Law or equity (including, without limitation, the provisions of the applicable Uniform Commercial Code).

(d) The order and manner in which Lender’s rights and remedies are to be exercised shall be determined by Lender in its sole and absolute discretion. Regardless of how Lender may treat payments for the purpose of its own accounting, for the purpose of computing the Obligations hereunder, payments shall be applied first , to costs and expenses (including Attorney Costs) incurred by Lender, second , to the payment of accrued and unpaid interest on the Loans to and including the date of such application, third , to the payment of the unpaid principal of the Loans, and fourth , to the payment of all other amounts (including fees) then owing to Lender under the Loan Documents. No application of payments will cure any Event of Default, or prevent acceleration, or continued acceleration, of amounts payable under the Loan Documents, or prevent the exercise, or continued exercise, of rights or remedies of Lender hereunder or thereunder or at Law or in equity.

SECTION 9

MISCELLANEOUS

9.01. Amendments; Consents. No amendment, modification, supplement, extension, termination or waiver of any provision of this Agreement or any other Loan Document, no approval or consent thereunder, no consent to any departure by Borrowers therefrom and no release of collateral in which Lender has a security interest prior to payment in full of the Obligations shall be effective unless in writing signed Lender, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

9.02. Transmission and Effectiveness of Communications and Signatures.

(a) Modes of Delivery. Except as otherwise provided in any Loan Document, notices, requests, demands, directions, agreements and documents delivered in connection with the Loan Documents (collectively, “communications” ) shall be transmitted by Requisite Notice to the number and address set forth on Schedule 9.02 , may be delivered by the following modes of delivery, and shall be effective as follows:

 

Mode of Delivery

  

Effective on earlier of actual receipt and:

Courier:    Scheduled delivery date
Facsimile:    When transmission in legible form complete
Mail:    Fourth Business Day after deposit in U.S. mail first class postage pre-paid
Personal delivery:    When received
Telephone:    When conversation completed

 

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Adesto Technologies Corporation Credit Agreement

 

provided , however, that communications delivered to Lender pursuant to Section 2 must be in writing and shall not be effective until actually received by Lender.

(b) Reliance by Lender. Lender shall be entitled to rely and act on any communications purportedly given by or on behalf of any Borrower even if (i) such communications (A) were not made in a manner specified herein, (B) were incomplete or (C) were not preceded or followed by any other notice specified herein, or (ii) the terms thereof, as understood by the recipient, varied from any subsequent related communications provided for herein. Each Borrower shall indemnify Lender from any loss, cost, expense or liability as a result of relying on any communications permitted herein.

(c) Effectiveness of Facsimile Documents and Signatures. Documents and agreements delivered from time to time in connection with the Loan Documents may be transmitted and/or signed by facsimile. The effectiveness of any such documents and signatures shall, subject to applicable Law, have the same force and effect as hardcopies with manual signatures and shall be binding on Borrowers and Lender. Lender may also request that any such documents and signature be confirmed by a manually-signed hardcopy thereof; provided , however, that the failure to request or deliver any such manually-signed hardcopy shall not affect the effectiveness of any facsimile documents or signatures.

9.03. Attorney Costs, Expenses and Taxes. Each Borrower, jointly and severally, agrees (a) to pay or reimburse Lender for all reasonable costs and expenses incurred in connection with the development, preparation, negotiation and execution of the Loan Documents, and the development, preparation, negotiation and execution of any amendment, waiver, consent, supplement or modification to, any Loan Documents, and any other documents prepared in connection herewith or therewith, and the consummation and administration of the transactions contemplated hereby and thereby, including all reasonable Attorney Costs, and (b) to pay or reimburse Lender for all costs and expenses incurred in connection with any refinancing, restructuring, reorganization (including a bankruptcy reorganization), collection and enforcement or attempted enforcement, or preservation of any rights under any Loan Documents, and any other documents prepared in connection herewith or therewith, or in connection with any refinancing, or restructuring of any such documents in the nature of a “workout” or of any insolvency or bankruptcy proceeding, including Attorney Costs. The foregoing costs and expenses shall include all reasonable search, filing, recording, title insurance and appraisal charges and fees and taxes related thereto, and other out-of-pocket expenses incurred by Lender and the cost of independent public accountants and other outside experts retained by Lender. Such costs and expenses shall also include administrative costs of Lender reasonably attributable to the administration of the Loan Documents. Any amount payable by Borrowers under this Section shall bear interest from the tenth day following the date of demand for payment at the Default Rate, unless waived by Lender. The agreements in this Section shall survive repayment of all Obligations.

 

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Adesto Technologies Corporation Credit Agreement

 

9.04. Binding Effect; Assignment.

(a) Successors and Assigns Generally . The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the no Borrower may assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Lender. Lender may from time to time sell the Loan and the Loan Documents (or any interest therein) and may grant participations in the Loan. Each Borrower agrees to cooperate with Lender’s efforts to do any of the foregoing and to execute all documents reasonably required by Lender in connection therewith which do not materially adversely affect Borrowers’ rights under the Loan Documents.

(b) Certain Pledges . Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment shall release Lender from any of its obligations hereunder or substitute any such pledgee or assignee for Lender as a party hereto.

9.05. Set-off. In addition to any rights and remedies of Lender or any assignee or participant of Lender thereof (each, a “ Proceeding Party ”) provided by law, upon the occurrence and during the continuance of any Event of Default, each Proceeding Party is authorized at any time and from time to time, without prior notice to Borrowers, any such notice being waived by each Borrower to the fullest extent permitted by law, to proceed directly, by right of set-off, banker’s lien, or otherwise, against any assets of any Borrower and its Subsidiaries which may be in the hands of such Proceeding Party (including all general or special, time or demand, provisional or other deposits and other indebtedness owing by such Proceeding Party to or for the credit or the account of any Borrower) and apply such assets against the Obligations, irrespective of whether such Proceeding Party shall have made any demand therefor and although such Obligations may be unmatured. Lender agrees promptly to notify Borrowers after any such set-off and application made by Lender; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application.

9.06. [Reserved] .

9.07. [Reserved] .

9.08. No Waiver; Cumulative Remedies.

(a) No failure by Lender to exercise, and no delay by Lender in exercising, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege under any Loan Document preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

(b) The rights, remedies, powers and privileges herein or therein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by Law. Any decision by Lender not to require payment of any interest (including Default Interest), fee, cost or other amount payable under any Loan Document or to calculate any amount payable by a particular method on any occasion shall in no way limit or be deemed a waiver of Lender’s right to require full payment thereof, or to calculate an amount payable by another method that is not inconsistent with this Agreement, on any other or subsequent occasion.

 

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9.09. Usury. Notwithstanding anything to the contrary contained in any Loan Document, the interest and fees paid or agreed to be paid under the Loan Documents shall not exceed the maximum rate of non-usurious interest permitted by applicable Law (the “ Maximum Rate ”). If Lender shall receive interest or a fee in an amount that exceeds the Maximum Rate, the excessive interest or fee shall be applied to the principal of the Outstanding Obligations or, if it exceeds the unpaid principal, refunded to Borrowers. In determining whether the interest or a fee contracted for, charged, or received by Lender exceeds the Maximum Rate, such Person may, to the extent permitted by applicable Law, (a) characterize any payment that is not principal as an expense, fee, or premium rather than interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the contemplated term of the Obligations.

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

9.11. Integration. This Agreement, together with the other Loan Documents and any letter agreements referred to herein, comprises the complete and integrated agreement of the parties on the subject matter hereof and supersedes all prior agreements, written or oral, on the subject matter hereof. In the event of any conflict between the provisions of this Agreement and those of any other Loan Document, the provisions of this Agreement shall control and govern; provided that the inclusion of supplemental rights or remedies in favor of Lender in any other Loan Document shall not be deemed a conflict with this Agreement. Each Loan Document was drafted with the joint participation of the respective parties thereto and shall be construed neither against nor in favor of any party, but rather in accordance with the fair meaning thereof.

9.12. Nature of Lender’s Obligations . Nothing contained in this Agreement or any other Loan Document and no action taken by Lender pursuant hereto or thereto may, or may be deemed to, make Lender a partnership, an association, a joint venture or other entity, either with any Borrower or any Affiliate of Borrower.

9.13. Survival of Representations and Warranties; Termination of Agreement. All representations and warranties made hereunder and in any Loan Document, certificate or statement delivered pursuant hereto or thereto or in connection herewith or therewith shall survive the execution and delivery thereof but shall terminate when this Agreement terminates. Such representations and warranties have been or will be relied upon by Lender, notwithstanding any investigation made by Lender or on its behalf. This Agreement shall terminate when all costs and expenses (including Attorney Costs) incurred by or otherwise owing to Lender have been paid, accrued and unpaid interest on the Loans has been paid, the unpaid principal on the Loans has been paid and all other amounts and Obligations then owing (including, but not limited to, fees and indemnities) to Lender under the Loan Documents have been paid.

9 .14. Indemnity by Borrower. Each Borrower agrees to indemnify, defend, save and hold harmless Lender and its respective Affiliates, directors, officers, agents, attorneys and

 

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Adesto Technologies Corporation Credit Agreement

 

employees (collectively, the “ Indemnitees ”) from and against: (a) any and all claims, demands, actions or causes of action that are asserted against any Indemnitee by any Person (other than Lender) relating directly or indirectly to a claim, demand, action or cause of action that such Person asserts or may assert against any Borrower, any of its Affiliates or any its officers or directors; (b) any and all claims, demands, actions or causes of action arising out of or relating to, the Loan Documents, any predecessor loan documents, the Loan Commitments, the use or contemplated use of the proceeds of any Loan, property that is the subject of any Material Lease or any other collateral given to secure the obligations of Borrowers under this Agreement, or the relationship of Borrowers and Lender under this Agreement; (c) any administrative or investigative proceeding by any Governmental Authority arising out of or related to a claim, demand, action or cause of action described in subsection (a) or (b) above; and (d) all liabilities, claims, actions, loss, damages, including, without limitation, foreseeable and unforeseeable consequential damages, costs and expenses (including sums paid in settlement of claims and all consultant, expert and legal fees and expenses of Indemnitees’ counsel) directly or indirectly arising out of or resulting from any Hazardous Substance being present at any time in or around any part of the property that is the subject of any Material Lease, or in the soil, groundwater or soil vapor on or under the property that is the subject of any Material Lease, including those incurred in connection with any investigation of site conditions or any clean-up, remedial, removal or restoration work, or any resulting damages or injuries to the person or property of any third parties or to any natural resources; (e) any and all liabilities, losses, costs or expenses (including Attorney Costs) that any Indemnitee suffers or incurs as a result of the assertion of any foregoing claim, demand, action, cause of action or proceeding, or as a result of the preparation of any defense in connection with any foregoing claim, demand, action, cause of action or proceeding, in all cases, whether or not an Indemnitee is a party to such claim, demand, action, cause of action or proceeding, including those liabilities caused by an Indemnitee’s own negligence (all the foregoing, collectively, the “ Indemnified Liabilities ”); provided that no Indemnitee shall be entitled to indemnification for any loss caused by its own gross negligence or willful misconduct or for any loss asserted against it by another Indemnitee. This Section 9.14 shall survive termination of this Agreement.

9.15. Nonliability of Lender.

Each Borrower acknowledges and agrees that:

(a) Any inspections of any property of any Borrower made by or through Lender are for purposes of administration of the Loan Documents only, and Borrowers are not entitled to rely upon the same (whether or not such inspections are at the expense of any Borrower);

(b) By accepting or approving anything required to be observed, performed, fulfilled or given to Lender pursuant to the Loan Documents, Lender shall not be deemed to have warranted or represented the sufficiency, legality, effectiveness or legal effect of the same, or of any term, provision or condition thereof, and such acceptance or approval thereof shall not constitute a warranty or representation to anyone with respect thereto by Lender;

 

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Adesto Technologies Corporation Credit Agreement

 

(c) The relationship between Borrowers and Lender is, and shall at all times remain, solely that of borrower and lender; Lender shall not under any circumstance be deemed to be in a relationship of confidence or trust or a fiduciary relationship with any Borrower or its Affiliates, or to owe any fiduciary duty to any Borrower or its Affiliates; Lender does not undertake or assume any responsibility or duty to any Borrower or its Affiliates to select, review, inspect, supervise, pass judgment upon or inform any Borrower or its Affiliates of any matter in connection with their property or the operations of such Borrower or its Affiliates; each Borrower and its Affiliates shall rely entirely upon their own judgment with respect to such matters; and any review, inspection, supervision, exercise of judgment or supply of information undertaken or assumed by Lender in connection with such matters is solely for the protection of Lender and neither any Borrower nor any other Person is entitled to rely thereon; and

(d) Lender shall not be responsible or liable to any Person for any loss, damage, liability or claim of any kind relating to injury or death to Persons or damage to property caused by the actions, inaction or negligence of any Borrower and/or its Affiliates and each Borrower hereby indemnifies and holds Lender harmless from any such loss, damage, liability or claim.

9.16. No Third Parties Benefited. This Agreement is made for the purpose of defining and setting forth certain obligations, rights and duties of Borrowers and Lender in connection with the Loans, and is made for the sole benefit of Borrowers and Lender, and Lender’s successors and assigns. Except as provided in Sections 10.04 and 10.13, no other Person shall have any rights of any nature hereunder or by reason hereof.

9.17. Severability. Any provision of the Loan Documents that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

9.18. Confidentiality. Lender shall use any confidential non-public information concerning Borrowers and their Subsidiaries that is furnished to Lender by or on behalf of Borrowers and their Subsidiaries in connection with the Loan Documents (collectively, “ Confidential Information ”) solely for the purpose of evaluating and providing products and services to them and administering and enforcing the Loan Documents, and it will hold the Confidential Information in confidence. Notwithstanding the foregoing, Lender may disclose Confidential Information (a) to their Affiliates or any of their or their Affiliates’ directors, officers, employees, advisors, or representatives (collectively, the “ Representatives ”) whom it determines need to know such information for the purposes set forth in this Section; (b) to any bank or financial institution or other entity to which Lender has assigned or desires to assign an interest or participation in the Loan Documents or the Obligations, provided that any such foregoing recipient of such Confidential Information agrees to keep such Confidential Information confidential as specified herein; (c) to any governmental agency or regulatory body having or claiming to have authority to regulate or oversee any aspect of Lender’s business or that of its Representatives in connection with the exercise of such authority or claimed authority; (d) to the extent necessary or appropriate to effect or preserve Lender’s or any of their Affiliates’

 

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Adesto Technologies Corporation Credit Agreement

 

security (if any) for any Obligation or to enforce any right or remedy or in connection with any claims asserted by or against Lender or any of their Representatives under the Loan Documents; (e) pursuant to any subpoena or any similar legal process so long as Borrowers are, or have been, given notice of such legal process and the opportunity to seek a protective order; (f) to a Person that is an investor or prospective investor in a Securitization that agrees that its access to information regarding Borrowers and the Loans is solely for purposes of evaluating an investment in such Securitization; provided that any such recipient of such Confidential Information agrees to keep such Confidential Information confidential as specified herein; and (g) to a Person that is a trustee, collateral manager, servicer, noteholder or secured party in a Securitization in connection with the administration, servicing and reporting on the assets serving as collateral for such Securitization; provided that any such recipient of such Confidential Information agrees to keep such Confidential Information confidential as specified herein. For purposes hereof, the term “ Confidential Information ” shall not include information that (x) is in Lender’s possession prior to its being provided by or on behalf of the Borrowers, provided that such information is not known by Lender to be subject to another confidentiality agreement with, or other legal or contractual obligation of confidentiality to, Borrowers, (y) is or becomes publicly available (other than through a breach hereof by Lender), or (z) becomes available to Lender on a non-confidential basis, provided that the source of such information was not known by Lender to be bound by a confidentiality agreement or other legal or contractual obligation of confidentiality with respect to such information.

9.19. Further Assurances. Each Borrower and its Subsidiaries shall, at their expense and without expense to Lender, do, execute and deliver such further acts and documents as Lender from time to time reasonably requires for the assuring and confirming unto Lender of the rights hereby created or intended now or hereafter so to be, or for carrying out the intention or facilitating the performance of the terms of any Loan Document (including, without limitation, any matters set forth in any supplement agreement regarding post-closing deliveries or filings entered into with the Lender).

9.20. Headings. Section headings in this Agreement and the other Loan Documents are included for convenience of reference only and are not part of this Agreement or the other Loan Documents for any other purpose.

9.21. Time of the Essence. Time is of the essence of the Loan Documents.

9.22. Governing Law.

(a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE; PROVIDED THAT LENDER SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.

(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA OR OF THE UNITED STATES FOR THE CENTRAL DISTRICT OF SUCH STATE, AND BY EXECUTION AND DELIVERY OF

 

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Adesto Technologies Corporation Credit Agreement

 

THIS AGREEMENT, BORROWERS AND LENDER EACH CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. BORROWERS AND LENDER EACH IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS , WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF ANY LOAN DOCUMENT OR OTHER DOCUMENT RELATED HERETO. BORROWERS AND LENDER EACH WAIVES PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY THE LAW OF SUCH STATE.

9.23. Judicial Reference Waiver of Jury Trial. In all the Loan Documents the sections regarding “Jury Trial Waiver” are hereby deleted in their entirety and all claims in connection with the Loan Documents shall be determined by a consensual general judicial reference, pursuant to the provisions of California Code of Civil Procedure §§ 638 et seq ., as such statutes may be amended or modified from time to time, and as more fully set forth in Exhibit E .

9.24. PATRIOT Act Notification . Lender hereby notifies Borrowers (and each Subsidiary) that, pursuant to the requirements of the USA PATRIOT Act, it is required to obtain, verify and record information that identifies Borrowers (and, to the extent requested, each Subsidiary), which information includes the name and address of Borrowers (and, to the extent requested, each Subsidiary) and other information that will allow Lender to identify Borrowers (and, to the extent requested, each Subsidiary) in accordance with the USA PATRIOT Act.

9.25. Entire Agreement. This Agreement and the other Loan Documents represent the final agreement between the parties and may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of the parties. There are no unwritten oral agreements between the parties.

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.

 

ADESTO TECHNOLOGIES CORPORATION , a California corporation, as a Borrower

ARTEMIS ACQUISITION LLC , a California limited liability company, as a Borrower

By: Adesto Technologies Corporation, as sole member and manager of Artemis Acquisition LLC
By:

/s/ Narbeh Derhacobian

Name: Narbeh Derhacobian
Its: President & CEO
By:

/s/ Narbeh Derhacobian

Name: Narbeh Derhacobian
Its: President & CEO
OPUS BANK , as Lender
By:

/s/ Kevin McBride

Name: Kevin McBride
Its: Senior Managing Director


EXHIBIT A

FORM OF NOTICE OF BORROWING

Date:             ,         

 

To: O PUS B ANK ,

as Lender

Ladies and Gentlemen:

Reference is made to that certain Credit Agreement dated as of April 30, 2015 by and among A DESTO T ECHNOLOGIES C ORPORATION , a California corporation ( “Adesto” ), A RTEMIS A CQUISITION LLC , a California limited liability company ( “Artemis” , and, together with Adesto, collectively, the “Borrowers” ), and O PUS B ANK , a California Commercial Bank, as Lender (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the “Agreement” ), the terms defined therein being used herein as therein defined).

The undersigned hereby requests a Borrowing of Loans:

1. On                     

2. In the amount of USD $15,000,000

The foregoing request complies with the requirements of Section 2.01 of the Agreement. The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the above date, before and after giving effect to the Loan:

(a) The representations and warranties made by Borrowers in Section 5 of the Agreement are and will be correct on and as of the date of this Loan, except to the extent that such representations and warranties specifically refer to any earlier date; and

(b) No Default or Event of Default has occurred and is continuing on the date hereof or after giving effect to this Loan.

 

ADESTO TECHNOLOGIES CORPORATION , a California corporation, as a Borrower

   

ARTEMIS ACQUISITION LLC , a California limited liability company, as a Borrower

      By: Adesto Technologies Corporation, as sole member and manager of Artemis Acquisition LLC
By:  

 

    By:  

 

Name:       Name:  
Its:       Its:  

 

Credit Agreement    A-1    Loan #:             
  

 

Form of Request for Extension of Credit

  


EXHIBIT B

FORM OF COMPLIANCE CERTIFICATE

Financial Statement Date:             ,         

 

To: O PUS B ANK ,

as Lender

Ladies and Gentlemen:

Reference is made to that certain Credit Agreement dated as of April 30, 2015, by and among A DESTO T ECHNOLOGIES C ORPORATION , a California corporation ( “Adesto” ), A RTEMIS A CQUISITION LLC , a California limited liability company ( “Artemis” , and, together with Adesto, collectively, the “Borrowers” ), and O PUS B ANK , a California Commercial Bank, as Lender (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the “Agreement” , the terms defined therein being used herein as therein defined).

The undersigned Responsible Officer hereby certifies as of the date hereof that [he/she] is the [Responsible Officer] of each Borrower, and that, as such, [he/she] is authorized to execute and deliver this Certificate to Lender on the behalf of Borrowers, and that:

[1. Attached hereto as Schedule 1 are the year-end audited financial statements required by Section 6.01(a) of the Agreement for the fiscal year of Borrowers ended as of the above date, together with the report and opinion of an independent certified public accountant required by such section, and the monthly accounts receivable and payable reports with agings, the monthly cash report, and the monthly inventory report required by Section 6.01(c) of the Agreement for the calendar month ended as of the above date.] [Use for fiscal year-end Financial Statements]

[1. Attached hereto as Schedule 1 are the unaudited financial statements required by Section 6.01(b) of the Agreement for the fiscal quarter of Borrowers ended as of the above date. Such financial statements fairly present the financial condition, results of operations and changes in financial position of Borrowers and their Subsidiaries in accordance with GAAP as at such date and for such periods, subject only to normal year-end audit adjustments and the absence of footnotes, and the monthly accounts receivable and payable reports with agings, the monthly cash report, and the monthly inventory report required by Section 6.01(c) of the Agreement for the calendar month ended as of the above date.] [Use for fiscal quarter-end Financial Statements]

[1. Attached hereto as Schedule 1 are the monthly accounts receivable and payable reports with agings, the monthly cash report, and the monthly inventory report required by Section 6.01(c) of the Agreement for the calendar month ended as of the above date.] [Use for calendar month-end Financial Reports]

2. The undersigned has reviewed and is familiar with the terms of the Agreement and has made, or has caused to be made under his supervision, a detailed review of the transactions and conditions (financial or otherwise) of Borrowers and their Subsidiaries during the accounting period covered by the attached financial information.

 

Credit Agreement    B-1   
  

 

Form of Compliance Certificate

  


3. A review of the activities of Borrowers and their Subsidiaries during such fiscal period has been made under my supervision with a view to determining whether during such fiscal period each of Borrowers and their Subsidiaries performed and observed all its respective Obligations under the Loan Documents, and to the best knowledge of the undersigned during such fiscal period, Borrowers and their Subsidiaries performed and observed each covenant and condition of the Loan Documents applicable to it.

4. The following financial covenant analyses and information set forth on Schedule 2 attached hereto are true and accurate on and as of the date of this Certificate.

IN WITNESS WHEREOF , the undersigned has executed this Certificate as of                     .

 

ADESTO TECHNOLOGIES CORPORATION , a California corporation, as a Borrower

   

ARTEMIS ACQUISITION LLC , a California limited liability company, as a Borrower

      By: Adesto Technologies Corporation, as sole member and manager of Artemis Acquisition LLC
By:  

 

    By:  

 

Name:       Name:  
Its:       Its:  

 

Credit Agreement    B-2   
  

 

Form of Compliance Certificate

  


For the Quarter ended                      ( “Statement Date” )

SCHEDULE 2

to the Compliance Certificate

 

      Fiscal Month Ending
I.    Section 7.11(a) – Minimum Asset Coverage Ratio.        /    /    
A.    Sum of:   
1.    Cash held in the Designated Deposit Account:    $             
2.    Eligible Receivables:    $             
3.    Sum of Line I.A.I and I.A.2:    $             
B.    Senior Indebtedness:   
C.    Asset Coverage Ratio (Line I.A.3 divided by Line I.B.):             to 1.00
   Minimum Permitted :   
   For each month ended on or before September 30, 2015   
  

1.00 to 1.00

  
   For each month ended after September 30, 2015   
  

1.10 to 1.00

  

[II.

   Section 7.11(b) – Minimum Consolidated EBITDA 1    Fiscal Quarter Ending
          /    /    

 

A. Consolidated EBITDA
 

 

1   If during the relevant period any Borrower or any Subsidiary shall have made any Permitted Acquisition, Consolidated EBITDA for such period shall be calculated after giving pro forma effect to such Permitted Acquisition as if such Permitted Acquisition occurred on the first day of such period.

 

Credit Agreement    B-3   
  

 

Form of Compliance Certificate

  


1.   Consolidated Net Income, provided that there shall be excluded from such Consolidated Net Income the following: (i) all gains and all losses realized by Borrowers and their Subsidiaries upon the sale or other disposition (including, without limitation, pursuant to sale and leaseback transactions) of property or assets that are not sold or otherwise disposed of in the ordinary course of business, or pursuant to the sale of any capital stock held by any Borrower or any Subsidiary; and (ii) all items of gain or income that are properly classified as extraordinary in accordance with GAAP or are unusual or non-recurring    $             
2.   Consolidated Interest Charges: The sum of:   
 

(a)    all interest, premium payments, fees, charges and related expenses payable by Borrowers and their Subsidiaries in connection with borrowed money (including capitalized interest) or in connection with the deferred purchase price of assets, in each case to the extent treated as interest in accordance with GAAP,

   $             
 

(b)    the portion of rent payable by Borrowers and their Subsidiaries with respect to such period under Capital Leases that is treated as interest in accordance with GAAP, and

   $             
 

(c)    the portion of rent under any Synthetic Lease Obligation that would be treated as interest in accordance with GAAP if the Synthetic Lease Obligation were treated as a Capital Lease under GAAP.

   $             
3.   The amount of Taxes, based on or measured by income, used or included in the determination of such Consolidated Net Income for such period:    $             
4.   The amount of depreciation and amortization expense deducted in determining such Consolidated Net Income, including any impairment of intangible/goodwill as defined under FAS 142 and FAS 144:    $             
5.   Any non-cash stock, stock option or restricted stock based compensation charges for such period determined in accordance with GAAP:    $             
6.   Cash charges related to restructuring, discontinued operations, and extraordinary items, including, but not limited to, facilities and personnel reductions or exit of a business or products, in an amount not to exceed $300,000 in the aggregate for the period beginning on the Closing Date and ending on the final Maturity Date:    $             

 

Credit Agreement    B-4   
  

 

Form of Compliance Certificate

  


7.   Other non-cash extraordinary or non-recurring charges:    $             
8.   Consolidated EBITDA   
 

(Sum of Lines II.A.1-II.A.7): 2

   $             

 

     Minimum Permitted:             

 

Quarter Ending

   Minimum EBITDA  
September 30, 2015    $ 1   
December 31, 2015    $ 1   
March 31, 2016    $ 1   
June 30, 2016    $ 250,000   
September 30, 2016 and thereafter    $ 500,000   

] 3

 

 

2 provided that the items contained in (2) through (7) above shall be added to (1) only to the extent they have been deducted in calculating, and therefore form no portion of, Consolidated Net Income
3 7.11(b) shall not apply if, at all times during the applicable quarter, Cash held in the Designated Deposit Account is greater than 125% of the current outstanding principal amount of the Loan; provided , that if for any fiscal quarter it is ultimately determined that Cash held in the Designated Deposit Account was less than 125% of the outstanding principal amount of the Loan for such fiscal quarter then compliance with the above stated minimum Consolidated EBITDA shall be required. This can be skipped if 7.11(b) does not apply.

 

Credit Agreement    B-5   
  

 

Form of Compliance Certificate

  


EXHIBIT C

FORM OF NOTE

 

USD $15,000,000               , 201  

FOR VALUE RECEIVED, the undersigned, jointly and severally hereby promise to pay to the order of O PUS B ANK , a California Commercial Bank (the “Lender” ), on the Maturity Date (as defined in the Credit Agreement referred to below) the principal amount of F IFTEEN M ILLION AND N O /100 D OLLARS (USD $15,000,000.00]), or such lesser principal amount of Loans (as defined in the Credit Agreement referred to below) payable by Borrowers to Lender on such Maturity Date under that certain Credit Agreement, dated as of April 30, 2015, among A DESTO T ECHNOLOGIES C ORPORATION , a California corporation ( “Adesto” ), A RTEMIS A CQUISITION LLC , a California limited liability company ( “Artemis” , and, together with Adesto, collectively, the “Borrowers” ), the Lenders from time to time party thereto, Opus Bank, as Lender, (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the “Credit Agreement;” the terms defined therein being used herein as therein defined).

Borrowers shall make scheduled prepayments on this Note as set forth in Section 2.03(b) of the Credit Agreement. Borrowers shall also make such prepayments on this Note as are required by Section 2.02 of the Credit Agreement.

Each Borrower, jointly and severally, promises to pay interest on the unpaid principal amount of each Loan from the date of such Loan until such principal amount is paid in full, at such interest rates, and payable at such times as are specified in the Credit Agreement.

All payments of principal and interest shall be made to Lender for the account of Lender in United States dollars in immediately available funds at Lender’s payment office.

If any amount is not paid in full when due hereunder, such unpaid amount shall bear interest, to be paid upon demand, from the due date thereof until the date of actual payment (and before as well as after judgment) computed at the per annum rate set forth in the Credit Agreement.

This Note is one of the “Notes” referred to in the Credit Agreement. Reference is hereby made to the Credit Agreement for rights and obligations of payment and prepayment, events of default and the right of Lender to accelerate the maturity hereof upon the occurrence of such events. Loans made by Lender shall be evidenced by one or more loan accounts or records maintained by Lender in the ordinary course of business. Lender may also attach schedules to this Note and endorse thereon the date, amount and maturity of its Loans and payments with respect thereto.

Each Borrower, for itself, its successors and assigns, hereby waives diligence, presentment, protest and demand and notice of protest, demand, dishonor and non-payment of this Note.

 

Credit Agreement    C-1    Loan #:             
  

 

Form of Note

  


Each Borrower, jointly and severally, agrees to pay all collection expenses, court costs and Attorney Costs (whether or not litigation is commenced) which may be incurred by Lender in connection with the collection or enforcement of this Note.

THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.

 

ADESTO TECHNOLOGIES CORPORATION , a California corporation, as a Borrower

ARTEMIS ACQUISITION LLC , a California limited liability company, as a Borrower

By: Adesto Technologies Corporation, as sole member and manager of Artemis Acquisition LLC
By:

 

By:

 

Name: Name:
Its: Its:

 

Credit Agreement C-2 Loan #:             

 

Form of Note


LOANS AND PAYMENTS WITH RESPECT THERETO

 

Date

 

End of

Interest

Period

 

Amount of

Principal

or Interest

Paid This

Date

 

Outstanding

Principal

Balance

This Date

 

Notation

Made by

                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                

 

Credit Agreement    C-3    Loan #:             
  

 

Form of Note

  


EXHIBIT D

FORM OF WARRANT

THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER THE SECURITIES LAWS OF APPLICABLE STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

ADESTO TECHNOLOGIES CORPORATION

WARRANT TO PURCHASE

PREFERRED STOCK

 

Warrant No.: E-2   Issued on April 30, 2015

This certifies that for good and valuable consideration, Opus Bank or its assigns and transferees, is entitled, subject to the terms and conditions of this Warrant, to purchase from Adesto Technologies Corporation, a California corporation (the “ Company ”), at any time prior to 5:00 p.m. Pacific time on April 30, 2022 (the “ Expiration Date ”) up to 1,052,632 shares of Warrant Stock (as defined below) at the Warrant Price (as defined below), upon surrender of this Warrant at the principal offices of the Company, together with a duly executed subscription form in the form attached hereto as Exhibit A and concurrent payment of the full Warrant Price for the shares of Warrant Stock so purchased in accordance with the terms hereof. The Warrant Price and the number and character of shares of Warrant Stock purchasable under this Warrant are subject to adjustment as provided herein.

1. DEFINITIONS . The following definitions shall apply for purposes of this Warrant:

1.1 Affiliate ” shall mean any individual, firm, corporation, partnership, association, limited liability company, trust or any other entity of a Holder who, directly or indirectly, controls, is controlled by or is under common control with such Holder, including, without limitation, any partner, officer, director, member, manager or employee of such Holder (or of any such entity that is an Affiliate of such Holder) and any investment fund now or hereafter existing that is controlled by or under common control with one or more managers or general partners of or shares the same management company with such Holder

1.2 Change of Control ” means a Deemed Liquidation Event, as defined in the Restated Articles.

 

1


1.3 Common Stock ” means shares of the Company’s common stock.

1.4 Holder ” means any person who shall at the time be the registered holder of this Warrant.

1.5 Restated Articles ” means the Company’s Amended and Restated Articles of Incorporation, as amended, restated or supplemented from time to time.

1.6 Rights Agreement ” means that certain Fourth Amended and Restated Investors’ Rights Agreement, dated August 19, 2013, by and among the Company and the parties listed on Schedule A thereto, as amended, restated, modified and supplemented from time to time.

1.7 Warrant Price means $0.7125 per share. The Warrant Price (including as specified in the foregoing clauses (a) and (b)) is subject to adjustment as provided herein.

1.8 Warrant Stock ” means the Company’s Series E Preferred Stock of. The number and character of shares of Warrant Stock are subject to adjustment as provided herein and the term “ Warrant Stock ” shall include stock and other securities and property at any time receivable or issuable upon exercise of this Warrant in accordance with its terms.

2. EXERCISE .

2.1 Method of Exercise . Subject to the terms and conditions of this Warrant, the Holder may exercise this Warrant in whole or in part, at any time or from time to time, on any business day before the Expiration Date, for up to 1,052,632 shares of Warrant Stock, by surrendering this Warrant at the principal offices of the Company, with the subscription form attached hereto as Exhibit A duly executed by the Holder, and (i) payment (by cash, wire transfer of funds, or check) in an amount equal to the product obtained by multiplying (1) the number of shares of Warrant Stock to be purchased by the Holder by (2) the Warrant Price or adjusted Warrant Price, if applicable, therefor as determined in accordance with the terms hereof, or (ii) solely contingent upon and immediately prior to a Change of Control, in accordance with the procedures set forth in Section 2.2 below.

2.2 Cashless Exercise .

(a) Solely contingent upon and immediately prior to a Change of Control, in lieu of exercising this Warrant for cash, wire transfer funds or check, the Holder may elect to receive, without payment by the Holder of any additional consideration, a number of shares of Warrant Stock equal to “X”, computed using the formula set forth below, by surrender of this Warrant in accordance with Section 2.1 hereof together with notice of such election, in which event the Company shall issue to the Holder such number of shares of Warrant Stock:

 

  X   =    Y(A-B)
             A
Where:   X   =    The number of shares of Warrant Stock to be issued to the Holder pursuant to this election;
  Y   =    The number of shares of Warrant Stock in respect of which this election is made;
  A   =    The Fair Market Value (the “ Fair Market Value ”) of one share of Warrant Stock (taking into consideration, among other things, the number of shares of Common Stock into which one share of Warrant Stock are then convertible in accordance with the Restated Charter) at the time this election is made; and
  B   =    The Warrant Price (as adjusted to the date of the issuance).

 

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(b) For purposes of this Section 2.2 , the Fair Market Value as of a particular date shall be equal to the consideration per share of Warrant Stock that a holder of Warrant Stock would receive in the Change of Control pursuant to the terms of the definitive agreement governing such Change of Control.

2.3 Partial Exercise . Upon a partial exercise of this Warrant, the number of shares of Warrant Stock issuable upon exercise of this Warrant immediately prior to such exercise shall be reduced by the aggregate number of shares of Warrant Stock issued upon such exercise of this Warrant. The Company will promptly issue to Holder an amended Warrant stating the remaining number of shares of Warrant Stock that are available. All other terms and conditions of that amended Warrant shall be identical to those contained in this Warrant.

2.4 No Fractional Shares . No fractional shares may be issued upon any exercise of this Warrant, and any fractions shall be rounded down to the nearest whole number of shares. If upon any exercise of this Warrant a fraction of a share results, the Company will pay the cash value of any such fractional share.

2.5 Restrictions on Exercise . This Warrant may not be exercised if the issuance of the Warrant Stock upon such exercise would constitute a violation of any applicable federal or state securities laws or other laws or regulations. As a condition to the exercise of this Warrant, the Holder shall execute the subscription form attached hereto as Exhibit A , confirming and acknowledging that the representations and warranties of the Holder set forth in Section 6 of this Warrant are true and correct as of the date of exercise.

3. ISSUANCE OF STOCK . This Warrant shall be deemed to have been exercised immediately prior to the close of business on the date that this Warrant, a duly completed and executed Form of Subscription in the form attached hereto as Exhibit A and (except as otherwise provided in Section 2.2 ) payment of the full Warrant Price in accordance with this Warrant have been delivered to the Company, whereupon the person entitled to receive the shares of Warrant Stock issuable upon such exercise shall be treated for all purposes as the holder of record of such shares as of the close of business on such date. As soon as practicable on or after such date, but conditioned upon the receipt of this Warrant by the Company, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of whole shares of Warrant Stock issuable upon such exercise, together with payment of any fractional shares pursuant to Section 2.4 .

4. CHANGE OF CONTROL . No less than ten (10) business days prior to the closing of any Change of Control, the Company shall provide Holder with written notice of the proposed Change of Control together with a copy of the executed definitive agreement providing for such Change of Control (or if the closing is occurring simultaneously with signing the definitive agreement, the current draft of such definitive agreement), and all schedules and exhibits thereto, and an expected capitalization table for the Company as of immediately prior to the Change of Control. During such notice period, Holder may exercise this Warrant in accordance with its terms, and may elect to make such exercise contingent upon the closing of the Change of Control. Subject to prior exercise of this Warrant as provided in the preceding sentence, this Warrant shall automatically expire and be of no further force and effect without any action by the Company or the Holder as of immediately prior to the closing of a Change of Control.

 

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5. ADJUSTMENT PROVISIONS . The number and character of shares of Warrant Stock issuable upon exercise of this Warrant (or any shares of stock or other securities or property at the time receivable or issuable upon exercise of this Warrant) and the Warrant Price therefor, are subject to adjustment upon the occurrence of the following events between the date this Warrant is issued and the date it is exercised:

5.1 Adjustment for Stock Splits, Stock Dividends, Recapitalizations, etc . The Warrant Price of this Warrant and the number of shares of Warrant Stock issuable upon exercise of this Warrant (or any shares of stock or other securities at the time issuable upon exercise of this Warrant) shall each be adjusted by multiplying the Warrant Price of such share of Warrant Stock in effect immediately prior to such Common Stock Event by a fraction, (a) the numerator of which shall be the number of shares of Common Stock on a fully diluted basis issued and outstanding immediately prior to such Common Stock Event, and (b) the denominator of which shall be the number of shares of Common Stock on a fully diluted basis issued and outstanding immediately after such Common Stock Event, and the product so obtained shall thereafter be the Warrant Price for such share of Warrant Stock. The Warrant Price for a share of Warrant Stock shall be readjusted in the same manner upon the happening of each subsequent Common Stock Event. As used herein, the term “ Common Stock Event ” shall mean at any time or from time to time, any stock dividend, stock split, reverse stock split, reclassification, recapitalization or other similar event affecting the number of outstanding shares of Warrant Stock or Common Stock (or such other stock or securities).

5.2 Adjustment for Other Dividends and Distributions . In case the Company shall make or issue, or shall fix a record date for the determination of eligible holders entitled to receive, a dividend or other distribution payable with respect to the Warrant Stock or Common Stock that is payable in (a) securities of the Company (other than issuances with respect to which adjustment is made under Section 5.1 ), or (b) assets, then, and in each such case, the Holder, upon exercise of this Warrant at any time after the consummation, effective date or record date of such event, shall receive, in addition to the shares of Warrant Stock issuable upon such exercise prior to such date, the securities or such other assets of the Company to which the Holder would have been entitled upon such date if the Holder had exercised this Warrant on the date of such event (or such record date, as applicable) and had they thereafter, during the period from the date of such event (or such record date, as applicable) to and including the exercise date, retained such securities receivable by them as aforesaid during such period (all subject to further adjustment as provided in this Warrant).

5.3 Adjustment for Reorganization, Consolidation, Merger . Other than any reorganization, consolidation or merger that constitutes a Change of Control, in case of any reorganization of the Company (or of any other corporation, the stock or other securities of which are at the time receivable on the exercise of this Warrant), after the date of this Warrant, or in case, after such date, the Company (or any such corporation) shall consolidate with or merge into another corporation or convey all or substantially all of its assets to another corporation and then distribute the proceeds to its stockholders, then, and in each such case, the Holder, upon the exercise of this Warrant (as provided in Section 2 ), at any time after the consummation of such reorganization, consolidation, merger or conveyance, shall be entitled to receive, in lieu of the stock or other securities and property of the Company, or of such successor or purchasing corporation resulting from such reorganization, merger or consolidation, receivable upon the exercise of this Warrant prior to such consummation, the stock or other securities or property to which the Holder would have been entitled upon the consummation of such reorganization, consolidation, merger or conveyance if the Holder had exercised this Warrant immediately prior thereto, all subject to further adjustment as provided in this Warrant, and the successor or purchasing corporation in such reorganization, consolidation, merger or conveyance (if other than the Company) shall duly execute and deliver to the Holder a supplement hereto acknowledging such corporation’s obligations under this Warrant; and in each such case, the terms of this Warrant shall be applicable to the shares of stock or other securities or property receivable upon the exercise of this Warrant after the consummation of such reorganization, consolidation, merger or conveyance.

 

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5.4 Conversion of Stock . In case all (a) the authorized Warrant Stock is converted, pursuant to the Restated Articles, into Common Stock or other securities or property, or (b) the Warrant Stock otherwise ceases to exist or to be authorized by the Restated Articles (each, a “ Stock Event ”), then Holder, upon exercise of this Warrant at any time after such Stock Event, shall receive, in lieu of the number of shares of Warrant Stock and other securities and property that Holder would have been entitled to receive upon exercise of this Warrant immediately prior to such Stock Event, the stock and other securities and property that Holder would have been entitled to receive upon the Stock Event, if, immediately prior to such Stock Event, Holder had exercised this Warrant.

5.5 Adjustment for Issuance of Additional Shares . In the event that the Company shall issue shares of its capital stock at a price per share less than the Warrant Price after the date hereof, the price at which the Warrant Stock may be exercised shall be subject to the same adjustment, if any, to the price at which shares of the applicable Warrant Stock may be converted into shares of Common Stock as provided for in the Restated Articles.

5.6 Notice of Adjustments . The Company shall promptly give written notice of each adjustment or readjustment of the Warrant Price or the number of shares of Warrant Stock or other securities issuable upon exercise of this Warrant. The notice shall describe the adjustment or readjustment and show in reasonable detail the facts on which the adjustment or readjustment is based.

5.7 No Change Necessary . The form of this Warrant need not be changed because of any adjustment in the Warrant Price or in the number of shares of Warrant Stock issuable upon its exercise.

5.8 Reservation of Stock . If at any time the number of shares of Warrant Stock or other securities issuable upon exercise of this Warrant shall not be sufficient to effect the exercise of this Warrant, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Warrant Stock or other securities issuable upon exercise of this Warrant as shall be sufficient for such purpose.

6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF HOLDER . Holder hereby represents and warrants to, and agrees with, the Company, that:

6.1 Purchase for Own Account . The Warrant and the Warrant Stock (collectively, the “ Securities ”) will be acquired for investment for Holder’s own account, not as a nominee or agent, and not with a view to the public resale or distribution thereof within the meaning of the Act, and such Holder has no present intention of selling, granting any participation in, or otherwise distributing the same. If not an individual, such Holder also represents that such Holder has not been formed for the specific purpose of acquiring the Securities.

6.2 Disclosure of Information . Holder has received or has had full access to all the information it considers necessary or appropriate to make an informed investment decision with respect to the Securities. Holder further has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Securities and to obtain additional information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify any information furnished to Holder or to which Holder had access.

 

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6.3 Investment Experience . Holder understands that the purchase of the Securities involves substantial risk. Holder has experience as an investor in securities of companies in the development stage and acknowledges that Holder is able to fend for itself, can bear the economic risk of Holder’s investment in the Securities and has such knowledge and experience in financial or business matters that Holder is capable of evaluating the merits and risks of this investment in the Securities and protecting its own interests in connection with this investment.

6.4 Restricted Securities . Holder understands that the Securities are characterized as “restricted securities” under the Act and Rule 144 promulgated thereunder inasmuch as they are being acquired from the Company in a transaction not involving a public offering, and that under the Act and applicable regulations thereunder such securities may be resold without registration under the Act only in certain limited circumstances. In this connection, Holder is familiar with Rule 144 of the Act, as presently in effect, and understands the resale limitations imposed thereby and by the Act. Holder understands that the Company is under no obligation to register any of the securities sold hereunder except as provided in the Rights Agreement. Holder understands that no public market now exists for any of the Securities and that it is uncertain whether a public market will ever exist for the Securities.

6.5 No Solicitation . At no time was Holder presented with or solicited by any publicly issued or circulated newspaper, mail, radio, television or other form of general advertising or solicitation in connection with the offer, sale and purchase of the Securities.

6.6 Further Limitations on Disposition . Without in any way limiting the representations set forth above, Holder further agrees not to make any disposition of all or any portion of the Securities unless and until:

(a) there is then in effect a registration statement under the Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or

(b) Holder shall have notified the Company of the proposed disposition and shall have furnished the Company with reasonable description of the material terms of the circumstances surrounding the proposed disposition, and, at the expense of Holder or its transferee, with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of such securities under the Act.

Notwithstanding the provisions of paragraphs (a) and (b) above, no such registration statement or opinion of counsel shall be required: (i) for any transfer of the Securities in compliance with SEC Rule 144 or Rule 144A; (ii) for any transfer of any the Securities by a Holder that is a partnership, limited liability company or a corporation to (A) a partner of such partnership, member of such limited liability company or stockholder of such corporation, (B) a controlled Affiliate of such partnership, limited liability or corporation, (C) a retired partner of such partnership, (D) the estate of any such partner, member or stockholder; or (iii) for the transfer by gift, will or intestate succession by Holder to his or her spouse or lineal descendants or ancestors or any trust for any of the foregoing; provided , that , in each of the foregoing cases the transfer was without additional consideration and the transferee agrees in writing to be subject to the terms of this Section 6 to the same extent as if the transferee were an original Holder hereunder.

6.7 Legends . Such Holder understands and agrees that the certificates evidencing the Securities will bear legends substantially similar to those set forth below in addition to any other legend that may be required by applicable law, by the Restated Charter or the Company’s bylaws, each as may be amended from time to time, or by any agreement between the Company and such Holder:

(a) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH,

 

6


THE SALE OR DISTRIBUTION THEREOF. NO SUCH TRANSFER MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.

(b) THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A LOCK-UP PERIOD OF 180 DAYS OR MORE AFTER THE EFFECTIVE DATE OF THE ISSUER’S REGISTRATION STATEMENT FILED UNDER THE ACT, AS AMENDED, AS SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE ORIGINAL HOLDER OF THESE SECURITIES, A COPY OF WHICH MAY BE OBTAINED AT THE ISSUER’S PRINCIPAL OFFICE. AS A RESULT OF SUCH AGREEMENT, THESE SHARES MAY NOT BE TRADED PRIOR TO 180 DAYS AFTER THE EFFECTIVE DATE OF THE INITIAL PUBLIC OFFERING OF THE COMMON STOCK OF THE ISSUER HEREOF. SUCH LOCK-UP PERIOD IS BINDING ON TRANSFEREES OF THESE SHARES.

The legend set forth in (a) above shall be removed by the Company from any certificate evidencing the Securities upon delivery to the Company of an opinion of counsel, reasonably satisfactory to the Company, that a registration statement under the Act is at that time in effect with respect to the legended security or that such security can be freely transferred in a public sale without such a registration statement being in effect and that such transfer will not jeopardize the exemption or exemptions from registration pursuant to which the Company issued the Securities.

The legend set forth in (b) above shall be removed by the Company from any certificate evidencing the Securities at the expiration of any market stand-off period.

6.8 Market Stand-Off Agreement . Holder hereby agrees that it takes the Securities subject to the restrictions and limitations set forth in Section 2.14 of the Rights Agreement.

7. NO RIGHTS OR LIABILITIES AS SHAREHOLDER . This Warrant does not by itself entitle the Holder to any voting rights or other rights as a shareholder of the Company nor shall anything contained herein be construed to confer upon the Holder, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to receive dividend rights or otherwise until this Warrant shall have been exercised and the shares of Warrant Stock issuable upon the exercise hereof shall have become deliverable, as provided herein. In the absence of affirmative action by the Holder to purchase Warrant Stock by exercise of this Warrant, no provisions of this Warrant, and no enumeration herein of the rights or privileges of the Holder, shall cause the Holder to be a shareholder of the Company for any purpose.

8. REGISTRATION UNDER THE ACT . The original Holder of this Warrant is entitled, with respect to the shares of Warrant Stock issued upon the exercise hereof or the shares of Common Stock or other securities issued upon conversion of such shares of Warrant Stock as the case may be, to certain registration rights and other rights and is subject to certain obligations under the Rights Agreement. Notwithstanding anything herein to the contrary, the rights and obligations under the Rights Agreement that the original Holder of this Warrant is entitled to may only be assigned, conveyed or transferred, in whole or in part, in accordance with the restrictions on transfer set forth in the Rights Agreement.

9. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT . If this Warrant is lost, stolen, mutilated or destroyed, the Company shall, upon receipt from the Holder of (a) an affidavit of loss or similar instrument (and, in the case of a mutilated Warrant, the accompanying surrender thereof),

 

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satisfactory to the Company, and (b) at the sole discretion of the Company, a bond as indemnity against any claim that may be made against the Company with respect to the Warrant alleged to be lost, stolen, mutilated or destroy, issue a new Warrant of like denomination and tenor as the Warrant so lost, stolen, mutilated or destroyed.

10. NOTICES OF CORPORATE ACTION . In the event of: (a) any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company, (b) any voluntary or involuntary dissolution, liquidation or winding-up of the Company, (c) the Company making or issuing, or fixing a record date for the determination of eligible holders entitled to receive, a dividend or other distribution payable with respect to shares of capital stock of the Company, or (d) a Stock Event (each, a “ Corporate Action ”), the Company will provide 5 days prior written notice to the Holder specifying the expected date on which any record is to be taken for the purpose of such Corporate Action and the date or expected date on which any such Corporate Action is to be consummated.

11. MISCELLANEOUS .

11.1 Costs And Attorneys’ Fees . In the event that any action, suit or other proceeding is instituted concerning or arising out of this Warrant or any transaction contemplated hereunder, the prevailing party shall recover all of such party’s costs and attorneys’ fees incurred in each such action, suit or other proceeding, including any and all appeals or petitions therefrom.

11.2 Governing Law . This Warrant shall be governed by and construed under the internal laws of the State of California as applied to agreements among California residents entered into and to be performed entirely within California, without reference to principles of conflict of laws or choice of laws. Any action or proceeding relating to this Warrant or to the enforcement of any provision of this Warrant may be brought or otherwise commenced in any state court located in the County of Santa Clara, State of California, or in the federal courts located in the Northern District of California. The Parties: (a) expressly and irrevocably consent and submit to the jurisdiction of each state court located in the County of Santa Clara, State of California (and each appellate court located in such county), and each federal court located in the Northern District of California, in connection with any such action or proceeding; (b) agree that service of any process, summons, notice or document by U.S. mail addressed as set forth in Section 11.3 shall constitute effective service of such process, summons, notice or document for purposes of any such action or proceeding; (c) agree that each state court located in the County of Santa Clara, State of California, and each federal court located in the Northern District of California, shall be deemed to be a convenient forum; and (d) agree not to assert (by way of motion, as a defense or otherwise), in any such action or proceeding commenced in any state court located in the County of Santa Clara, State of California, or in any federal court located in the Northern District of California, any claim that such party is not subject personally to the jurisdiction of such court, that such action or proceeding has been brought in an inconvenient forum, that the venue of such action or proceeding is improper or that this Warrant or the subject matter of this Warrant may not be enforced in or by such court.

11.3 Notices . Any and all notices required or permitted to be given to a party pursuant to the provisions of this Warrant will be in writing and will be effective and deemed to provide such party sufficient notice under this Warrant on the earliest of the following: (a) at the time of personal delivery, if delivery is in person; (b) at the time of transmission by facsimile, addressed to the other party at its facsimile number specified herein (or hereafter modified by subsequent notice to the parties hereto), with confirmation of receipt made by both telephone and printed confirmation sheet verifying successful transmission of the facsimile; (c) one (1) business day after deposit with an express overnight courier for United States deliveries, or two (2) business days after such deposit for deliveries outside of the United States, with proof of delivery from the courier requested; or (d) three (3) business days after deposit in the United States mail by certified mail (return receipt requested) for United States deliveries. All notices for

 

8


delivery outside the United States will be sent by facsimile or by express courier. Notices by facsimile shall be machine verified as received. All notices not delivered personally or by facsimile will be sent with postage and/or other charges prepaid and properly addressed to the party to be notified at the address or facsimile number as follows, or at such other address or facsimile number as such other party may designate by one of the indicated means of notice herein to the other parties hereto as follows:

(a) if to Holder, at Holder’s address set forth on the signature page hereto.

(b) if to the Company, marked “Attention: Chief Executive Officer,” at 1250 Borregas Avenue, Sunnyvale, CA 94089.

With a copy (which shall not constitute notice) to:

Fenwick & West LLP

Silicon Valley Center

801 California Street

Mountain View, CA 94041

Facsimile: (650) 938-5200

Attention: Mark Leahy

11.4 Amendment; Waiver . Any term of this Warrant may be amended, and the observance of any term of this Warrant may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and Holder. Any amendment or waiver effected in accordance with this Section 11.4 shall be binding upon the Company and Holder.

11.5 Severability . If any provision of this Warrant is determined by any court or arbitrator of competent jurisdiction to be invalid, illegal or unenforceable in any respect, such provision will be enforced to the maximum extent possible given the intent of the parties hereto. If such clause or provision cannot be so enforced, such provision shall be stricken from this Warrant and the remainder of this Warrant shall be enforced as if such invalid, illegal or unenforceable clause or provision had (to the extent not enforceable) never been contained in this Warrant. Notwithstanding the forgoing, if the value of this Warrant based upon the substantial benefit of the bargain for any party is materially impaired, which determination as made by the presiding court or arbitrator of competent jurisdiction shall be binding, then both parties agree to substitute such provision(s) through good faith negotiations.

11.6 Titles and Headings . The titles, captions and headings of this Warrant are included for ease of reference only and will be disregarded in interpreting or construing this Warrant. Unless otherwise specifically stated, all references herein to “sections” and “exhibits” will mean “sections” and “exhibits” to this Warrant.

11.7 Counterparts . This Warrant may be executed in any number of counterparts, each of which when so executed and delivered will be deemed an original, and all of which together shall constitute one and the same agreement.

11.8 Facsimile Signatures . This Warrant may be executed and delivered by facsimile and upon such delivery the facsimile signature will be deemed to have the same effect as if the original signature had been delivered to the other party.

11.9 Terms Binding . By acceptance of this Warrant, the Holder accepts and agrees to be bound by all the terms and conditions of this Warrant.

 

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11.10 Entire Agreement . This Warrant and the documents referred to herein, together with all the Exhibits hereto, constitute the entire agreement and understanding of the parties with respect to the subject matter of this Warrant, and supersede any and all prior understandings and agreements, whether oral or written, between or among the parties hereto with respect to the specific subject matter hereof.

11.11 Transfer and Exchange of Warrants . This Warrant may be assigned, in whole or in part, at any time and from time-to-time by Holder to a maximum of 5 Affiliates; provided that any subsequent assignee of this Warrant agrees in writing to be subject to the terms and conditions of this Warrant, including without limitation, Section 6 , to the same extent as if such assignee were an original Holder hereunder. Upon the surrender of any Warrant, properly endorsed, for registration of transfer or for exchange at the principal office of the Company, the Company at its expense will execute and deliver to or upon the order of the Holder thereof a new Warrant or Warrants of like tenor, in the name of such Holder or as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Warrant Stock called for on the face or faces of the Warrant or Warrants so surrendered.

[R EMAINDER OF P AGE I NTENTIONALLY L EFT B LANK ]

 

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I N W ITNESS W HEREOF , the parties hereto have executed this W ARRANT TO P URCHASE P REFERRED S TOCK as of the date first written above.

 

COMPANY :
ADESTO TECHNOLOGIES CORPORATION
By:  

 

Name:   Narbeh Derhacobian
Title:   President and Chief Executive Officer

 

AGREED AND ACKNOWLEDGED :
OPUS BANK
By:  

 

Name:  

 

Title:  

 

 

Address:  
with a copy to:

[S IGNATURE P AGE TO W ARRANT TO P URCHASE P REFERRED S TOCK ]

 

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EXHIBIT A

FORM OF SUBSCRIPTION

(To be completed and signed only upon exercise of Warrant)

To: Adesto Technologies Corporation (the “ Company ”)

We refer to that certain Warrant to Purchase Preferred Stock, Warrant No. E-2, issued on April 30, 2015 (the “ Warrant ”).

On the terms and conditions set forth in the Warrant, the undersigned Holder hereby elects to purchase                  shares of Series E Preferred Stock of the Company (the “ Warrant Stock ”), pursuant to the terms of the attached Warrant, and concurrently with delivery of this Form of Subscription, tenders payment of the purchase price for such shares in full pursuant to Section 2.1 of the Warrant or contingent upon and immediately prior to a Change of Control, elects to receive shares of Warrant Stock in accordance with Section 2.2 of the Warrant.

In exercising the Warrant, the undersigned Holder hereby confirms and acknowledges that the representations and warranties set forth in Section 6 of the Warrant as they apply to the undersigned Holder continue to be true and complete as of this date. Please issue a certificate or certificates representing such shares of Warrant Stock in Holder’s name and deliver such certificate(s) to Holder at the address set forth below:

 

 

(Address)

 

(City, State, Zip Code)

 

(Federal Tax Identification Number)

I N W ITNESS W HEREOF , the undersigned Holder has executed and delivered this F ORM OF S UBSCRIPTION as of the date set forth below.

 

 

Date:                     

 

By:  

 

Name:  

 

Title:  

 

 

     
     


EXHIBIT E

JUDICIAL REFERENCE AND WAIVER OF JURY TRIAL

1. DEFINED TERMS. Initially capitalized terms shall have the meanings given to such terms in the agreement. In addition, the following term when used in this agreement shall have the meaning set forth below (such meaning to be equally applicable to both the singular and plural forms of the term defined):

(a) “Claim” means any claim, cause of action, dispute or controversy between or among the Parties, whether sounding in contract, tort or otherwise, which arises out of or relates to: (i) any of the Loan Documents, (ii) any negotiations, communications, alleged promises, or representations relating to any of the Loan Documents, whether or not incorporated into the Loan Documents or (iii) any indebtedness incorporated into or evidenced by any of the Loan Documents.

2. CLAIMS SUBJECT TO JUDICIAL REFERENCE; CONDUCT OF REFERENCE.

(a) Each Claim shall be determined by a consensual general judicial reference (the Reference ) pursuant to the provisions of California Code of Civil Procedure §§ 638 et seq ., as such statutes may be amended or modified from time to time.

(b) Upon a written request of Lender or Borrower, or upon an appropriate motion by Lender or Borrower, any pending action relating to any Claim and every Claim shall be heard by a single Referee who shall then try all issues (including any and all questions of law and questions of fact relating thereto), and issue findings of fact and conclusions of law and report a statement of decision. The Referee’s statement of decision will constitute the conclusive determination of the Claim. The Lender or Borrowers agree that the Referee shall have the power to issue all legal and equitable relief appropriate under the circumstances before him/her.

(c) The parties shall promptly and diligently cooperate with one another and the Referee, and shall perform such acts as may be necessary to obtain prompt and expeditious resolution of all Claims in accordance with the terms of this Agreement.

(d) Lender or Borrowers may file the Referee’s findings, conclusions and statement with the clerk or judge of any appropriate court, file a motion to confirm the Referee’s report and have judgment entered thereon. If the report is deemed incomplete by such court, the Referee may be required to complete the report and resubmit it.

(e) Lender or Borrowers will have such rights to assert such objections as are set forth in California Code of Civil Procedure §§ 638 et seq .,

(f) The Reference shall be closed to the public and confidential. All records relating to the Reference shall be permanently sealed when the order thereon become final.

 

Credit Agreement    E-1   
  

 

Judicial Reference and Waiver of Jury Trial

  


3. SELECTION OF REFEREE; POWERS.

(a) The Lender and Borrowers shall select a single neutral referee (the Referee ), who shall be a retired judge or justice of the courts of the State of California, or a federal court judge, in each case, with at least ten years of judicial experience in civil matters. The Referee shall be appointed in accordance with California Code of Civil Procedure Section 638 (or pursuant to comparable provisions of federal law if the dispute falls within the exclusive jurisdiction of the federal courts).

(b) If within ten (10) days of the request or motion for the Reference, Lender or Borrowers cannot agree upon a Referee, either Party may request or move that the Referee be appointed by the court. The Referee shall determine all issues relating to the applicability, interpretation, legality and enforceability of this Agreement.

4. PROVISIONAL REMEDIES, SELF-HELP AND FORECLOSURE.

(a) No provision of this agreement shall limit the right of Lender or Borrowers to (i) exercise self-help remedies including, without limitation, set-off, (ii) initiate judicial or non-judicial foreclosure against any real or personal property collateral, (iii) exercise any judicial or power of sale rights, or (iv) obtain or oppose provisional or ancillary remedies, including without limitation, injunctive relief, writs of possession, the appointment of a receiver, and/or additional or supplementary remedies from a court of competent jurisdiction before, after or during the pendency of the Reference.

(b) The exercise of, or opposition to, any such remedy does not waive the right of Lender or Borrowers to the Reference pursuant to this agreement.

5. COSTS AND FEES.

(a) Promptly following the selection of the Referee, the Lender and Borrowers shall advance equal portions of the estimated fees and costs of the Referee.

(b) In the statement of decision issued by the Referee, the Referee shall award costs, including reasonable attorneys’ fees, to the prevailing party, if any, and may order the Referee’s fees to be paid or shared by the Lender or Borrowers in such manner as the Referee deems just.

 

Credit Agreement    E-2   
  

 

Judicial Reference and Waiver of Jury Trial

  


EXHIBIT F

FORM OF GENERAL SECURITY AGREEMENT


 

 

G ENERAL S ECURITY A GREEMENT

(Personal Property)

Dated as of April 30, 2015

From

A DESTO T ECHNOLOGIES C ORPORATION

and

A RTEMIS A CQUISITION LLC,

as Debtors,

to

O PUS B ANK ,

as Lender and Secured Party

 

 

 


G ENERAL S ECURITY A GREEMENT

(Personal Property)

T HIS G ENERAL S ECURITY A GREEMENT (Personal Property) (this “Security Agreement” ) is made as of April 30, 2015, by and between A DESTO T ECHNOLOGIES C ORPORATION , a California corporation ( “Adesto” ), A RTEMIS A CQUISITION LLC , a California limited liability company ( “Artemis” , and, together with Adesto, collectively, the “Debtor” ), and O PUS B ANK , a California Commercial Bank ( “Opus” or “Lender” ) as Lender under that certain Credit Agreement of even date among Debtors and Lender (the “Credit Agreement” ).

R ECITALS

A. Concurrently herewith, Debtor is entering into the Credit Agreement, pursuant to which the Lender shall provide Debtor with a senior term loan facility (the “Facility” ).

B. It is a prerequisite to the Lender’s entering into the Credit Agreement that Debtor enter into this Security Agreement and grant to Lender the security interest hereafter provided to secure the Obligations.

C. Debtor as owner of the assets encumbered hereby, desires to enter into this Security Agreement to secure payment and performance of the Obligations.

A GREEMENT

N OW , T HEREFORE , for good and valuable consideration, receipt and adequacy of which is hereby acknowledged, the parties agree as follows:

1. GENERAL .

1.1 Definitions . For purposes of this Security Agreement, the following terms shall have the meanings specified below. In addition, terms not defined below which are defined in Division 8 or Division 9 of the UCC or in the Credit Agreement shall have the meaning specified therein.

(a) Account Debtors . The term “Account Debtors” means all Persons who now are or hereafter become in any way obligated, liable, or responsible for any payment of any kind in connection with any or all of the Accounts.

(b) Accounts . The term “Accounts” shall have the meaning provided in the UCC and shall include, without limitation, all presently existing and hereafter arising accounts (as defined in the UCC), contract rights, royalties, and other forms of obligations owing to Debtor arising out of (i) the sale or lease of goods, (ii) the sale or licensing of software, patents, trademarks, copyrights and other intellectual property or technology, (iii) the rendering of services (whether or not earned by performance), or (iv) any credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by Debtor.

(c) Intentionally Omitted .

 

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G ENERAL S ECURITY A GREEMENT

 

(d) Bankruptcy Code . The term “Bankruptcy Code” shall mean the Bankruptcy Reform Act of 1978 (11 U.S.C. § 101-1330) as now enacted or hereafter modified.

(e) Certificates of Ownership . The term “Certificates of Ownership” shall mean all of Debtor’s certificates of title.

(f) Collateral . The term “Collateral” shall mean the personal property assets identified as “Collateral” in Exhibit A to this Security Agreement.

(g) Intentionally Omitted .

(h) Copyrights . The term “Copyrights” shall have the meaning provided in the UCC and shall include, without limitation, all copyright rights, copyright applications, copyright registrations and like protections in each work or authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret, now or hereafter existing, created, acquired or held.

(i) Debtor’s Books . The term “Debtor’s Books” shall mean all of Debtor’s books and records including, but not limited to, minute books, ledgers, records indicating, summarizing or evidencing Debtor’s assets, liabilities, the Collateral, the Obligations, and all information relating thereto; records indicating, summarizing or evidencing Debtor’s business operations or financial condition; and all computer programs, disc or tape files, printouts, runs, and other computer prepared information and the equipment containing such information.

(j) Deposit Account . The term “Deposit Accounts” shall have the meaning provided in the UCC.

(k) Intentionally Omitted .

(l) Equipment . The term “Equipment” shall have the meaning provided in the UCC, wherever located, and shall include, without limitation, machinery, machine tools, motors, controls, attachments, parts, tools, and accessories incidental thereto, computer and office equipment, furniture, furnishings, fixtures, motor vehicles, trailers and rolling stock; and all substitutions, replacements, accessories, additions, attachments, improvements, accessions, Proceeds and products of the foregoing.

(m) Event of Default . The term “Event of Default” shall have the meaning given to such term in Section 5 of this Security Agreement.

(n) General Intangibles . The term “General Intangibles” shall have the meaning provided in the UCC, and shall include without limitation, all interests or claims on insurance policies; all interests in any partnership; all Intellectual Property Collateral; trade names, trade name rights; trademarks, trademark rights; copyrights, patents, and all applications therefor; licenses, permits, franchises, and like privileges or rights issued by any Governmental Authority; income tax refunds; customer lists; route lists, purchase orders, computer programs,

 

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G ENERAL S ECURITY A GREEMENT

 

computer disks, computer tapes; design rights, payments of insurance, claims and causes of action; and all guaranty claims which are not classified as supporting obligations, co-op memberships, leasehold interests in personal property, security interests or other security held by or granted to the Debtor to secure payment by an account debtor of any of the Accounts.

(o) Intentionally Omitted .

(p) Intellectual Property Collateral . The term “Intellectual Property Collateral” shall mean all of the following assets now owned or hereafter acquired:

(i) Copyrights, Trademarks, Patents, and Mask Works;

(ii) Licenses or other rights to use any of the Copyrights, Patents, Trademarks, or Mask Works, and all license fees and royalties arising from such use to the extent permitted by such license or rights;

(iii) Any and all trade secrets, and any and all intellectual property rights in computer software and computer software products now or hereafter existing, created, acquired or held;

(iv) Any and all design rights which may be available to Debtor now or hereafter existing, created, acquired or held;

(v) Any and all claims for damages by way of past, present and future infringement of any of the rights included above, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the intellectual property rights identified above;

(vi) All “domain names” of Debtor;

(vii) All amendments, renewals and extensions of any of the Copyrights, Trademarks, Patents, or Mask Works;

(viii) All contracts and contract rights relating to any of the foregoing; and

(ix) All Proceeds of the foregoing.

(q) Inventory . The term “Inventory” shall have the meaning provided in the UCC, and shall include, without limitation, merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products intended for sale or lease or to be furnished under a contract of service, of every kind and description now or at any time hereafter owned by or in the custody or possession, actual or constructive, of Debtor, including such inventory as is temporarily out of its custody or possession or in transit and including any returns upon any accounts or other proceeds, including insurance proceeds, resulting from the sale or disposition of any of the foregoing and any documents of title representing any of the above.

 

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G ENERAL S ECURITY A GREEMENT

 

(r) Lender . The term “Lender” shall have the meaning given to such term in the preamble to this Security Agreement.

(s) Lender Expenses . The term “Lender Expenses” means all costs and expenses incurred by Lender in connection with this Security Agreement or the transactions contemplated hereby which are subject to payment or reimbursement by Debtor pursuant to Section 9.03 of the Credit Agreement.

(t) Licenses . The term “Licenses” shall mean all licenses or other rights to use any of the Copyrights, Patents, Trademarks, or Mask Works and all license fees and royalties arising from such use to the extent permitted by such license or right.

(u) Intentionally Omitted .

(v) Intentionally Omitted .

(w) Mask Works . The term “Mask Works” shall have the meaning provided in the UCC and shall include without limitation all mask work or similar rights available for the protection of semiconductor chips, now owned or hereafter acquired.

(x) Intentionally Omitted .

(y) Negotiable Collateral . The term “Negotiable Collateral” shall mean all of Debtor’s present and future letters of credit (of which it is a beneficiary), notes, drafts, instruments, securities, documents of title, and chattel paper.

(z) Intentionally Omitted .

(aa) Patents . The term “Patents” shall have the meaning provided in the UCC and shall include without limitation all patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same.

(bb) Priority Liens . The term “Priority Liens” shall mean and refer to (i) Liens on any of Debtor’s personal property the purchase price and related acquisition costs of which are financed by third-party lenders or lessors as permitted by the Credit Agreement; (ii) Liens in existence on the date any asset becomes Collateral, to the extent such asset is taken, with the express written consent of Lender, subject to such Lien; (iii) Liens that are Permitted Liens that must be perfected by possession or control and the third-party to whom such Lien is granted has possession or control of the Collateral relating thereto and such third-party has not entered into any agreement altering such priority; (iv) Liens (including tax liens) in favor of any Governmental Authority which pursuant to statute or law creating such Lien and other applicable law, have priority over the Liens granted under this Security Agreement; (v) Liens set forth on Exhibit C hereto and (vi) Liens permitted under clauses (c), (d), (e), (i) and (k) of the definition of “Ordinary Course Liens” in the Credit Agreement.

 

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G ENERAL S ECURITY A GREEMENT

 

(cc) Proceeds . The term “Proceeds” shall have the meaning provided in the UCC and shall include without limitation whatever is received upon the sale, lease, exchange, collection or other disposition of Collateral or proceeds, including, without limitation, proceeds of insurance covering Collateral, tax refunds, and any and all accounts, notes, instruments, chattel paper, equipment, money, deposit accounts, securities accounts, goods, or other tangible and intangible property of Debtor resulting from the sale or other disposition of the Collateral, and the proceeds thereof.

(dd) Security Agreement . The term “Security Agreement” shall mean this Security Agreement, any concurrent or subsequent rider to this Security Agreement and any extensions, supplements, amendments or modifications to this Security Agreement and/or to any such rider.

(ee) Trademarks . The term “Trademarks” shall have the meaning provided in the UCC and shall include without limitation any trademarks and service marks, whether registered or not, application to register and registrations of the same and like protections, and the entire goodwill of the business of Debtor connected with and symbolized by such trademarks.

(ff) UCC . The term “UCC” shall mean the Uniform Commercial Code of the State of California, as presently in force and effect and any replacements therefore as and when such replacements become effective.

1.2 Accounting Terms . All accounting terms and computations shall be based upon generally accepted accounting principles consistently applied.

2. SECURITY INTEREST .

2.1 Security Interest .

(a) As security for the prompt and complete payment and performance of all the Obligations, Debtor hereby grants to Lender a first priority security interest (subject to Priority Liens) in all of Debtor’s right, title interest in, to and under the Collateral described in Exhibit A . Notwithstanding the foregoing, the security interest granted herein shall not extend to and the term “Collateral” shall not include (i) any General Intangibles of the Debtor (whether owned or held as licensee or lessee or otherwise including, for the avoidance of doubt, leasehold interests as lessee or sublessee under real property leases and subleases) to the extent that the granting of a security interest therein would be contrary to applicable law or create a default under any agreement governing such property, right or license (but only if such restrictions are enforceable as a matter of law); or (ii) any equipment financed by another lender or lessor under documentation that prohibits the granting of a second lien thereon executed prior to the date of this Agreement or which is subject to a Permitted Lien.

 

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G ENERAL S ECURITY A GREEMENT

 

(b) Lender’s security interest in the Collateral shall attach to the Collateral without further act on the part of the Lender or Debtor.

(c) Except for Priority Liens, in which case Lender’s security interest shall be junior to third parties holding such Priority Liens, such security interest constitutes a valid, and upon the filing of UCC financing statements and copyright filings with the appropriate governmental authorities, first priority, security interest in the presently existing Collateral, and will constitute a valid, security interest in Collateral acquired after the date hereof.

2.2 Security Documents; Attorney-In-Fact .

(a) Lender may file all financing statements and continuation statements as it may deem necessary to perfect and maintain perfected Lender’s security interest. Debtor shall execute and deliver, or cause to be executed and delivered, to Lender, concurrently with Debtor’s execution of this Security Agreement, and at any time or times hereafter at the request of Lender, all documents which Lender may reasonably request, in form satisfactory to Lender, to perfect and maintain perfected Lender’s security interests in the Collateral and in order to fully consummate all of the transactions contemplated under this Security Agreement.

(b) Debtor hereby irrevocably makes, constitutes and appoints Lender to act on Debtor’s behalf as Debtor’s true and lawful attorney with power to sign the name of Debtor on any of the above-described documents or on any other similar documents which need to be executed, recorded, and/or filed in order to perfect or continue perfected Lender’s security interest in the Collateral.

(c) The appointment of Lender as Debtor’s attorney, and each and every one of Lender’s rights and powers, being coupled with an interest, are irrevocable so long as any Obligations remain unpaid or unperformed.

3. REPRESENTATIONS AND WARRANTIES . In addition to the representations and warranties of Debtor set forth in the Credit Agreement, which are incorporated herein by reference, Debtor represents and warrants that as of the date hereof:

3.1 State of Incorporation: Place of Business . Adesto is a corporation validly existing and in good standing under the laws of the State of California; Artemis is limited liability company validly existing and in good standing under the laws of the State of California; Debtor’s chief executive office and principal place of business is located at 1250 Borregas Avenue, Sunnyvale, California 94089.

3.2 Tangible Collateral . Tangible Collateral is in good operating condition and repair, normal wear and tear excepted.

3.3 No Offsets . To the best of Debtor’s knowledge, each account, account receivable and right to payment and each instrument, document, chattel paper and other agreement constituting or evidencing Collateral is (or will be when arising or issued) a valid, genuine and legally enforceable obligation, subject to no defense, set off or counterclaim (other than those arising in the ordinary course of business) of the account debtor or other obligor named therein or in Debtor’s records pertaining thereto as being obligated to pay such obligation.

 

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G ENERAL S ECURITY A GREEMENT

 

3.4 Warranties and Representations Cumulative . The warranties, representations and agreements set forth herein shall be cumulative and in addition to any and all other warranties, representations and agreements which Debtor shall give, or cause to be given, to Lender, either now or hereafter.

4. COVENANTS . Debtor hereby covenants and agrees that during the term hereof and until all Obligations are fully paid:

4.1 Accounts .

(a) Debtor will not discount any Accounts owed by customers (including, without limitation, rights to payment evidenced by chattel paper or an instrument, commercial tort claims, investment property, and letter of credit rights) or evidence of Indebtedness except (i) to Lender or (ii) for such discounts as are customarily provided (1) for prompt payment or settlement of delinquent accounts or (2) in the ordinary course of business consistent with the past business practices of the Debtor.

(b) Debtor will not sell any Account (including, without limitation, Accounts, rights to payment evidenced by chattel paper or an instrument, commercial tort claims, investment property, and letter of credit rights) or evidence of indebtedness except in the ordinary course of business.

4.2 Notifications . Debtor shall promptly notify Lender of any material loss or material damage to any material item of Collateral.

4.3 Good Repair . Debtor shall (i) maintain, preserve and protect the Collateral necessary in the operation of its business in good order and condition, subject to ordinary wear and tear in the ordinary course of business, (ii) not permit any waste of the Collateral, except where failure to do so would not reasonably be expected to have a Material Adverse Effect and (iii) keep and maintain the Collateral in material compliance with all environmental laws.

4.4 Inspection . At any time during regular business hours and as often as reasonably requested upon reasonable notice, but not more often than once per quarter if no Event of Default exists, permit Lender, or any employee, agent or representative thereof, to examine, audit and make copies and abstracts from Debtor’s records and books of account related to the Collateral and to visit and inspect its properties and to discuss its affairs, finances and accounts with any of its officers and key employees, and, upon request, furnish promptly to Lender true copies of all financial information and internal management reports made available to their board of directors (or any committee thereof). Notwithstanding any provision of this Security Agreement to the contrary, so long as no Event of Default shall have occurred and be continuing, Debtor shall not be required to disclose, permit the inspection, examination, photocopying or making extracts of, or discuss, any document, information or other matter that

 

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G ENERAL S ECURITY A GREEMENT

 

(i) constitutes non-financial trade secrets or non-financial proprietary information, or (ii) the disclosure of which to Lender, or their designated representative, is then prohibited by law or any agreement binding on Debtor that was not entered into by Debtor for the purpose of concealing information from Lender. Debtor shall, however, furnish to Lender such information concerning Debtor’s intellectual property (including, without limitation, application and registration numbers for any filings in connection with such intellectual property) as is reasonably necessary to permit Lender to perfect a security interest in such intellectual property.

4.5 Reports . Upon the Lender’s request but in no event more than once in any twelve (12) consecutive months unless an Event of Default exists, Debtor shall deliver to Lender such reports and information available to Debtor’s management concerning the Collateral as Lender may reasonably request. All reports and information provided to Lender by Debtor shall be complete and accurate in all material respects at the time provided.

4.6 Delivery . Debtor shall, if Lender at any time so requests (whether the request is made before or after the occurrence of an Event of Default), promptly deliver to Lender any instrument, document, chattel paper or Certificate of Ownership constituting Collateral, duly endorsed or assigned by Debtor.

4.7 Use . Debtor shall not use or keep any Collateral, or permit it to be used or kept, negligently or for any unlawful purpose or in violation of any Laws or orders of any Governmental Authority applicable to Debtor, its assets, its business and the Collateral, the noncompliance with which would reasonably be expected to have a Material Adverse Effect.

4.8 Fixtures . Debtor shall not permit any material item of tangible Collateral to become part of or to be affixed to any real property without first assuring to the reasonable satisfaction of Lender that: (i) Lender’s Lien will be prior and senior to any interest or lien then held or thereafter acquired by any mortgagee or encumbrancer of such real property or the owner or purchaser of any interest therein; and (ii) Lender shall have the right to remove any Collateral from such real property at any time and without any unreasonable restraint or impediment.

4.9 Statutes . To the extent that the UCC is superseded by another statute, Debtor shall take such action as is reasonably requested by Lender to enforce, perfect, protect, implement, continue, maintain and preserve Lender’s right hereunder and under the other Loan Documents and the priority of the Lender’s lien.

4.10 Deposit Accounts . For all Deposit Accounts that Debtor now or hereafter maintains with any financial institutions other than Lender ( “Third Party Bank” ), Debtor shall promptly execute a Deposit Account Control Agreement in substantially the form set forth in Exhibit B or other form reasonably acceptable to Lender and shall promptly execute, and obtain the execution of, such Deposit Account Control Agreement by the respective Third Party Bank; provided, however, that this provision shall not apply to Deposit Accounts maintained outside of the United States so long as the amounts so held in such funds do not exceed, in the aggregate, US$500,000 at any time; provided, further , that such funds held outside of the United States shall not be included in the definition of “Consolidated Cash Balance” for purposes of determining compliance with Section 7.11(b) of the Credit Agreement.

 

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4.11 Securities Accounts . For all Securities Accounts that Debtor now or hereafter maintains with any institutions other than Lender ( “Third Party Institution” ), Debtor shall promptly execute a Securities Account Control Agreement in a form reasonably acceptable to Lender and shall promptly obtain the execution of such Securities Account Control Agreement by the respective Third Party Institution. Debtor shall not hold any assets in any Securities Account maintained by Debtor that would not be subject to Lender’s perfected security interest, unless (i) Debtor executes and causes the execution of an account control agreement such that Lender’s security interest in such assets are perfected by such agreement, or (ii) Debtor has executed such other agreements or documents as are necessary to provide and perfect a lien on such assets.

4.12 Equipment . Without limiting the generality of this Section 4, upon Lender’s request, Debtor shall provide the Lender with complete and accurate schedules containing (i) a description of each material item of Equipment; and (ii) such other information regarding the Equipment as the Lender may reasonably require.

4.13 Letters of Credit . To the extent that Debtor holds as beneficiary any Letters of Credit, at the request of Lender, whether or not an Event of Default has occurred, Debtor will use its reasonable efforts to obtain the issuing bank’s consent to the Lender’s lien on such Letter of Credit and recognition of Lender’s right to draw on such Letter of Credit, in the place of Debtor and in accordance with the terms of such Letter of Credit, during the continuance of the Event of Default, in connection with Lender’s exercise of available remedies.

4.14 Lawsuits . To the extent the Debtor hereafter holds or acquires a cause of action for any claim in any material amount, at the request of Lender, whether or not an Event of Default has occurred, Debtor will execute such documents as Lender may request to grant and reflect Lender’s lien on such cause of action.

4.15 Inventory .

(a) Debtor shall not make any Disposition except in the ordinary course of business or as set forth in the Credit Agreement

(b) Without limiting the generality of Section 4.4 above, Debtor shall maintain records containing entries of all material reportable transactions relating to the Inventory, including accurate records showing (i) the current Inventory stock held by Debtor; (ii) the cost and sales records of the Inventory; and (iii) the kinds, types, qualities and quantities of the Inventory.

(c) Lender shall not be directly or indirectly liable or responsible in any way or under any circumstances to Debtor or any other party (i) for the safe keeping of the Inventory; (ii) any loss of, damage to or destruction of the Inventory occurring or arising in any manner from any cause (other than loss or damage arising from Lender’s gross negligence or willful misconduct); (iii) any decrease in the value of the Inventory; or (iv) any act or omission by any carrier, warehouse operator, bailee, forwarding agent, or other party dealing with all or part of the Inventory.

 

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4.16 Accounts .

(a) Upon Lender’s request exercised no more often than three (3) times during any period of twelve (12) consecutive months, Debtor shall furnish Lender access to copies of all contracts, orders, invoices, shipping instructions, delivery receipts, bills of lading, and other similar documents for any goods, the sale or disposition of which gives rise to an Account (collectively the “Accounts Receivable Documentation” ). Upon Lender’s request, Debtor shall also furnish Lender with an aged accounts receivable report. Lender shall have the right from time to time to verify the validity, amount and any other matters relating to any or all of the Accounts directly with the respective Account Debtors in any manner, in Debtor’s name.

(b) Prior to the occurrence of an Event of Default, Debtor shall collect the Accounts, at Debtor’s sole cost and expense. Upon the occurrence and during the continuation of an Event of Default, upon the request of Lender (i) Lender shall have the exclusive right to make all collections on the Accounts and (ii) Debtor shall deliver any amounts collected on such Accounts to Lender, as directed by Lender.

(c) All checks, drafts, money orders, notes, instruments, documents, and other non-cash proceeds of the Accounts delivered to Lender in payment or on account of the Obligations shall not constitute payment except as provided in the UCC.

(d) Debtor shall at all times in all material respects perform and discharge all obligations of Debtor to each Account Debtor in accordance with the terms of all documents, contracts, invoices, and other agreements between Debtor and such Account Debtor.

(e) Without Lender’s prior written consent, Debtor shall not compromise, adjust, or grant any discount, credit, allowance, or extension of time for payment to any Account Debtors except in the ordinary course of Debtor’s business.

4.17 Article 8 Opt Out . No Debtor shall take any action to cause any membership interest, partnership interest, or other equity interest issued by it or any of its Subsidiaries to be or become a “security” within the meaning of, or to be governed by Article 8 of the UCC as in effect under the laws of any state having jurisdiction and shall not itself, and shall not cause or permit any of its Subsidiaries to, “opt in” or to take any other action seeking to establish any such membership interest, partnership interest or other equity interest as a “security” or to become certificated unless certificates evidencing such membership interest, partnership interest or other equity interest are pledged and delivered to the Lender, together with all assignments separate from certificate and other documents as the Lender shall reasonably request.

4.18 Further Assurances . At any time and from time to time Debtor shall execute and deliver such further instruments and take such further action as may reasonably be requested by Lender to effect the purposes of this Security Agreement and to maintain, preserve and protect the Collateral and Lender’s security interest therein.

 

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5. EVENTS OF DEFAULT . The occurrence of any Event of Default under the Credit Agreement shall constitute an Event of Default under this Security Agreement at the option of Lender.

6. LENDER’S RIGHTS AND REMEDIES . The exercise of remedies hereunder shall be made by Lender upon the terms and conditions contained herein or as set forth in Section 8.03 of the Credit Agreement. If an Event of Default shall have occurred and is continuing and has not been cured or waived in accordance with the terms hereof or the terms of the Credit Agreement, Lender shall have the following rights and powers and may, at Lender’s option, without notice of its election and without demand to the extent permitted by Section 8.03 of the Credit Agreement, do any one or more of the following, all of which are hereby authorized by Debtor:

6.1 UCC Rights . Lender shall have all of the rights and remedies of a secured party under the UCC and under all other applicable laws.

6.2 Protection of Collateral . Lender may, without notice to or demand upon Debtor or any guarantor, make such payments and do such acts as Lender considers necessary or reasonable to protect its security interest in the Collateral, to pay, purchase, contest or compromise any encumbrance, charge or lien which in the opinion of Lender appears to be prior or superior to Lender’s security interest and to pay all expenses incurred in connection therewith.

6.3 Possession of Collateral . During the existence of any Event of Default, Lender, without a breach of the peace, may enter any of the premises of Debtor and search for, take possession of, remove, keep or store any or all of the Collateral. If Lender seeks to take possession of any or all of the Collateral by court process, Debtor irrevocably and unconditionally agrees that a receiver may be appointed by a court for such purpose without regard to the adequacy of the security for the Obligations. Lender shall have the right to remain on Debtor’s premises or cause a custodian to remain thereon in exclusive control of such premises without charge for as long as Lender deems necessary in order to complete the enforcement of its rights under this Security Agreement. If Lender seeks possession of any or all of the Collateral by court process, Debtor irrevocably waives (a) any bond and any surety or security relating thereto required by any statute, court rule or otherwise as an incident or condition to such possession; (b) any demand for possession prior to the commencement of any suit or action to recover possession; and (c) any requirement that Lender retain possession of and not dispose of such Collateral until after trial or final judgment.

6.4 Preparation of Collateral . Lender may complete processing, manufacturing or repair all or any part of the Collateral prior to a disposition and, for such purpose and for the purpose of removal, Lender shall have the right to use Debtor’s premises, vehicles, hoists, lifts, cranes, equipment and all other property without charge. Lender may sell, ship, reclaim, lease or otherwise dispose of all or any part of the Collateral in its condition at the time Lender obtains possession of such Collateral or after further manufacturing, processing, or repair.

 

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6.5 Foreclose on Collateral . Lender may sell, lease or otherwise dispose of the Collateral at either public or private sales, or both, by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including Debtor’s premises) as is commercially reasonable in the opinion of Lender. It is not necessary that the Collateral be present at any such sale or that Lender have obtained possession of the Collateral.

(a) Lender shall give the Debtor and each holder of a security interest in the Collateral who has filed with Lender a written request for notice, a notice in writing of the time and place of public sale, or, if the sale is a private sale or some other disposition other than a public sale is to be made of the Collateral, the time on or after which the private sale or other disposition is to be made. The notice shall be personally delivered or mailed, postage prepaid, to Debtor as provided in Section 12.2 of this Security Agreement, at least ten (10) calendar days before the date fixed for the sale, or at least ten (10) calendar days before the date on or after which the private sale or other disposition is to be made, unless the Collateral is perishable or threatens to decline speedily in value or is to be sold on a recognized market. Notice to parties other than Debtor claiming an interest in the Collateral shall be sent to such addresses as they have furnished to Lender. If the sale is to be a public sale, Lender shall also give notice of the time and place by publishing a notice one time at least ten (10) calendar days before the date of the sale in a newspaper of general circulation in the county in which the sale is to be held.

(b) In taking such action Lender shall have a license to use any trademarks, trade names or all Intellectual Property in disposing of the assets.

6.6 Accounts . With respect to the Accounts, and without limiting Lender’s rights above:

(a) Lender may direct any or all Account Debtors to make payment directly to Lender or to a specified agent of Lender.

(b) Lender may demand, collect, receive and give receipts for any and all money and other property due or to become due in connection with the Accounts, in Lender’s or Debtor’s name.

(c) Lender may file any claim and take any other action in any court of law or equity which Lender determines to be appropriate for the purpose of collecting any or all of the Accounts; provided, however , that Lender shall not be obligated in any manner to make any demand or to make any inquiry as to the nature or sufficiency of any payment received by it, or to present or file any claim or take any action to collect or enforce the payment of any or all of the Accounts.

(d) Debtor, at Lender’s request, shall, and Lender, at Lender’s option may, give notice in form acceptable to Lender, to the Account Debtors: (i) of Debtor’s grant of a security interest in the Accounts to Lender; and (ii) of such additional information and instructions concerning Lender’s rights under this Security Agreement as Lender in Lender’s good faith business judgment determines to be necessary or appropriate.

 

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(e) Debtor shall, promptly following Lender’s request, deliver to Lender the originals of all Accounts Receivable Documentation together with the originals of all instruments, chattel paper, security agreements, guaranties, and other documents and property evidencing or securing the Accounts in the same form as received by Debtor, each of which shall be properly endorsed by Debtor to Lender, with recourse.

(f) Lender shall have the right to settle, accept reduced amounts, adjust disputes and claims directly with, and give releases on behalf of Debtor to Account Debtors, upon such terms as Lender, in Lender’s good faith business judgment, determines to be appropriate.

(g) Except as otherwise provided by the UCC and except for any of the following arising from Lender’s or any Lender’s gross negligence or willful misconduct, Lender shall not be directly or indirectly liable or responsible in any way or under any circumstances to Debtor or any other party for: (i) any shortage or discrepancy in, damage to, or loss or destruction of, any goods, the sale or other disposition of which gives rise to an Account; (ii) any act, omission, error or delay of any kind by Lender in settling, failing to settle, collecting, or failing to collect any Account, including any act or omission which results in the loss or impairment of the Debtor’s Account, including any act or omission which results in the loss or impairment of the Debtor’s rights against any third person; (iii) settling any Account for less than the full amount hereof; (iv) any failure or delay by Lender in enforcing or collecting any payment under any Account; or (v) the performance or observance of any or all of Debtor’s duties, obligations, representations, or the warranties under any other agreement or document relating to any or all of the Collateral, including the Accounts.

(h) If for any reason Debtor receives any payment in connection with any of the Accounts following the occurrence and during the continuance of an Event of Default, Debtor: (i) shall immediately pay or deliver such payment to Lender in the original form in which received by Debtor; (ii) shall endorse to Lender, with recourse, all checks, drafts, money orders, notes, and other instruments or documents representing such payment; (iii) shall not commingle such payment with any of Debtor’s other funds or property; and (iv) shall hold such payment separate and apart from Debtor’s other funds and property in an express trust for Lender until paid or delivered to Lender.

6.7 Deposit and Investment Accounts . Lender may deliver a notice of exclusive control, any entitlement order, or other directions or instructions pursuant to any Deposit Account Control Agreement, Securities Account Control Agreement or similar agreement providing control of any Collateral.

6.8 Collection . Lender may take possession of and endorse and collect any or all notes, checks, drafts, money orders, or other instruments of payment relating to the Collateral (including payments made under or with respect to any policy of insurance).

6.9 Postponement . Any public sale of any or all of the Collateral may be postponed from time to time by public announcement at the time and place last scheduled for the sale.

 

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6.10 Discharge of Other Claims . Lender’s sale or disposition of any or all of the Collateral shall transfer to the purchaser all of the Debtor’s rights in such Collateral and discharge all security interests and liens subordinate to Lender’s security interest in the Collateral, and the purchaser shall acquire such Collateral free of all such subordinate interests and liens.

6.11 Information . Without limiting the generality of this Section 6, it shall conclusively be deemed to be commercially reasonable for Lender to direct any prospective purchaser of any or all of the Collateral to Debtor to ascertain all information concerning the status of the Collateral.

6.12 Other Disposition . The Lender’s disposition of any or all of the Collateral in any manner which differs from the procedures specified above shall not be deemed to be commercially unreasonable to the extent such disposition complies with the applicable provisions of the UCC.

6.13 Judicial Action . Lender may reduce Lender’s claims for breach of any of the Obligations to judgment and foreclose or otherwise enforce its security interest in any or all of the Collateral by any available judicial procedure. If Lender has reduced its claims for breach of any of the Obligations to judgment, the Lien of any levy which may be made on any or all of the Collateral by virtue of any execution based upon such judgment shall relate back to the date of Lender’s perfection of its security interest in such Collateral. A judicial sale pursuant to such execution shall constitute a foreclosure of Lender’s security interest by judicial procedure, and Lender may purchase at such sale and thereafter hold the Collateral free of all rights of Debtor therein.

6.14 Receiver . Lender may obtain the appointment of a receiver to take possession of and, at the option of Lender, to collect, sell or dispose of all or part of the Collateral.

6.15 Discharge Claims . Lender may discharge claims, demands, liens, security interests, encumbrances and taxes affecting any or all of the Collateral and take such other actions as Lender determines to be necessary or appropriate to protect the Collateral and Lender’s security interest therein. Lender, without releasing Debtor or any other party from any of the Obligations, may perform any of the Obligations in such manner and to such extent as Lender determine to be necessary or appropriate to protect the Collateral and Lender’s security interest therein.

6.16 Proceeds of Sale . The proceeds of any sale or disposition of the Collateral by Lender shall be applied in the following order of priority:

(a) First , to all liabilities, obligations, costs, and expenses, including reasonable attorneys’ fees and costs, incurred by Lender in exercising any of its rights or remedies under this Security Agreement, including the costs and expenses of retaking, holding, and selling any or all of the Collateral and the costs and expenses of enforcing and collecting upon any or all of the Accounts;

 

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(b) Second , to the payment of the Obligations in such order and amounts as Lender may determine in Lender’s discretion as more fully set forth in the Credit Agreement;

(c) Third , to (i) the satisfaction of Indebtedness secured by any subordinate Lien in the Collateral if written demand therefor is received by Lender before distribution of any such proceeds; and (ii) to the satisfaction of any subordinate attachment lien or execution lien if notice of the levy of attachment or execution is received by Lender before distribution of any such proceeds. If requested by Lender the holder of a subordinate security interest in the Collateral shall furnish Lender with proof of its interest in the Collateral acceptable to Lender, and unless such holder does so, Lender shall have no obligation to comply with such holder’s demand; and

(d) Fourth , the surplus, if any, shall be paid to Debtor.

6.17 Remedies Cumulative . The remedies of Lender, as provided herein, shall be cumulative and concurrent, and may be pursued singularly, successively or together, at the sole discretion of Lender, and may be exercised as often as occasion therefor shall arise. No act of omission or commission by Lender, including specifically any failure to exercise any right, remedy or recourse, shall be deemed to be a waiver or release of the same, such waiver or release to be effected only through a written document executed by Lender and then only to the extent specifically recited therein. A waiver or release with reference to any one event shall not be construed as continuing, as a bar to, or as a waiver or release of, any subsequent right, remedy or recourse as to a subsequent event.

7. LIABILITY FOR DEFICIENCY . Debtor shall at all times remain liable for any deficiency remaining on the Obligations for which Debtor is liable after any disposition of any or all of the Collateral and after Lender’s application of any proceeds to the Obligations.

8. POWER OF ATTORNEY . Debtor hereby irrevocably (until the Obligations are paid in full) appoints Lender, with full power of substitution, as Debtor’s attorney-in-fact, coupled with an interest, with full power, in Lender’s own name or in the name of Debtor to do any or all of the following at any time after the occurrence and during continuation of an Event of Default:

(a) Endorse any checks, drafts, money orders, notes, and other instruments or documents representing or evidencing the Collateral, or proceeds of the Collateral;

(b) Pay or discharge claims, demands, liens, security interests, encumbrances, or taxes affecting or threatened against any or all of the Collateral;

(c) Collect or receive payment of all Accounts, General Intangibles, instruments or other Collateral;

 

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(d) Execute any invoices relating to any Account, any draft against any Account Debtor, any notice to any Account Debtor, any proof of claim in bankruptcy, any notice of lien, claim of mechanic’s, materialman’s or other lien, or assignment or satisfaction of mechanic’s, materialman’s or other lien relating to any item of Collateral;

(e) Grant any extension of time to pay any Account, compromise claims and settle Accounts for less than face value thereof, and execute all releases and other documents in connection therewith;

(f) Commence, prosecute or defend any action or proceeding relating to any of the Collateral;

(g) Receive and open all mail addressed to Debtor and, in the exercise of such right, Lender shall have the right, in Debtor’s name, to notify the Post Office authorities to change the address for the delivery of mail addressed to Debtor to such other address as Lender may designate, including Lender’s address. Lender shall promptly turn over to Debtor all of such mail not relating to the Collateral;

(h) Direct any financial institution which is a participant with Lender in extensions of credit to or for the benefit of Debtor, or which is an institution with which any deposit account or securities account is maintained, to pay to, Lender all monies on deposit by Debtor with said financial institution which are payable by said financial institution to Debtor, regardless of any loss of interest, charge or penalty as a result of payment before maturity;

(i) Settle and adjust, and give releases of, any insurance claim that relates to any of the Collateral, obtain payment of claim, and make all determinations and decisions with respect to any such policy of insurance, and endorse Debtor’s name on any check, draft, instrument or other item of payment or the proceeds of such policies of insurance;

(j) Instruct any accountant or other third person having custody or control of any books or records belonging or relating to the Collateral to give Lender full rights of access with respect thereto;

(k) Execute on behalf of Debtor any document exercising, transferring or assigning any option to purchase, sell or otherwise dispose of or to lease, as lessor or lessee, any real or personal property;

(l) Sell, transfer, pledge, make any agreement with respect to or otherwise deal with any of the Collateral as though Lender were the owner thereof for all purposes; and

(m) Execute on behalf of Debtor any and all documents and instruments (including notices of assignment) required under the Federal Assignment of Claims Act for the direct payment of Accounts to Lender.

 

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9. WAIVERS .

9.1 Application of Payments . After the occurrence and during the continuation of a Default, Debtor waives the right to direct (to the extent permitted by the Loan Documents) the application of any and all payments or collections at any time or times hereafter received by Lender on account of any Obligations, and Debtor agrees that Lender shall have the continuing exclusive right to apply and reapply such payments or collections to the Obligations in any manner as Lender may deem advisable.

9.2 Notices of Demand, Etc . Debtor waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension or renewal of any or all commercial paper, accounts, documents, instruments, chattel paper, and guaranties at any time held by Lender on which Debtor may in any way be liable.

9.3 Confidentiality of Accounting . Debtor waives the right to assert a confidential relationship, if any, Debtor may have with any accounting firm and/or service bureau in connection with any information requested by Lender pursuant to or in accordance with this Security Agreement, and agrees that Lender may contact directly any such accounting firm and/or service bureau in order to obtain such information.

10. ACTIONS . Lender shall have the right, but not the obligation, to commence, appear in, or defend any action or proceeding which affects or which Lender determines may affect: (a) the Collateral; (b) Debtor’s or Lender’s rights or obligations under the Loan Documents; (c) Debtor’s or Lender’s rights under this Security Agreement; or (d) the Loans.

11. INDEMNITY . Debtor agrees to defend, indemnify and hold harmless Lender and its officers, employees, and agents against: (a) all obligations, demands, claims, and liabilities claimed or asserted by any other party related to or in connection with the transactions contemplated by this Security Agreement, or the Collateral and (b) all losses or expenses in any way suffered, incurred or paid by Lender as a result of or in any way arising out of, following or consequential to the transactions between Lender and Debtor, under this Security Agreement or the Collateral (including without limitation, reasonable attorneys fees and reasonable expenses), except for losses arising from or out of Lender’s gross negligence or willful misconduct.

12. MISCELLANEOUS .

12.1 Taxes and Other Expenses Regarding the Collateral . If Debtor fails to pay promptly when due to any Person, monies which Debtor is required to pay by reason of any provision in this Security Agreement, Lender may, but need not, pay the same and charge Debtor’s account therefor, and Debtor shall promptly reimburse Lender therefor. All such sums shall be Lender Expenses hereunder. Any payments made by Lender shall not constitute: (a) an agreement by Lender to make similar payments in the future, or (b) a waiver by Lender of any Event of Default. Lender need not inquire as to, or contest the validity of, any such expense, tax, security interest, encumbrance or lien and the receipt of the usual official notice for the payment thereof shall he conclusive evidence that the same was validly due and owing.

 

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12.2 Notices . Any notice, demand or request required hereunder shall be made in the, manner set forth in the Credit Agreement.

12.3 Release of Collateral . Lender shall promptly file UCC termination statements and any other instruments as necessary upon any Disposition by Debtor of any items or item of Collateral, to the extent such Disposition is permitted under the Credit Agreement.

12.4 Term; Termination . This Security Agreement shall continue in full force and effect as long as any of the Obligations (other than inchoate indemnity obligations) are outstanding. When such Obligations cease to be outstanding, this Agreement and the security interests granted hereby shall terminate. After such termination Lender shall promptly take, at Debtor’s sole cost and expense, all reasonable and customary action and execute such documents in accordance therewith as requested by Debtor to evidence and more fully effect such terminations.

12.5 Course of Dealing . No course of dealing, nor any failure to exercise, nor any delay in exercising any right, power or privilege hereunder shall operate as a waiver thereof.

12.6 Amendment . This Security Agreement may be modified only by a written agreement signed by Debtor and the Lender.

12.7 Agreement Binding, Assignment . This Security Agreement shall be binding and deemed effective when executed by Debtor and Lender. This Security Agreement shall bind and inure to the benefit of the respective successors and assigns of each of the parties; provided, however, that Debtor may not assign this Security Agreement or any rights hereunder without Lender’s prior written consent and any prohibited assignment shall be absolutely void. No consent to an assignment by Lender shall release Debtor or any guarantor from their obligations to Lender. Lender reserves the right to sell, assign, transfer, negotiate or grant participations in all or any part of, or any interest in, any Lender’s rights and benefits hereunder to the extent and in the manner provided for in Section 9.04 of the Credit Agreement. In connection therewith, Lender may disclose all documents and information which Lender now have or hereafter may have relating to Debtor or Debtor’s business, subject to Debtor’s reasonable confidentiality requirements and the provisions of Section 9.3 hereof.

12.8 Article and Section Headings . Article and section headings and article and section numbers have been set forth herein for convenience only. Unless the contrary is compelled by the context, everything contained in each article and section applies equally to this entire Security Agreement.

12.9 Conflict or Credit Agreement Modifications . To the extent that there is an explicit conflict between the terms of the Credit Agreement and this Security Agreement, the terms of the Credit Agreement shall control. Any future changes or modifications to the Credit Agreement shall apply to and modify this Security Agreement, to the extent that such change or modification would reasonably be construed to apply to this Security Agreement.

 

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12.10 Construction . Neither this Security Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against Lender or Debtor, whether under any rule of construction or otherwise. On the contrary, this Security Agreement has been reviewed by all parties and shall be construed and interpreted according to the ordinary meaning of the words used so as to fairly accomplish the purposes and intentions of all parties hereto.

12.11 Time of Essence . Time is of the essence of each provision of this Security Agreement.

12.12 No Third Party Beneficiaries . This Security Agreement and the Loan Documents are entered into for the sole protection and benefit of Lender, Debtor and guarantors (if any), as applicable, and their respective permitted successors and assigns. No other Person shall have any rights or causes of action under this Security Agreement or the Loan Documents.

12.13 Performance of Covenants . Debtor shall perform all of its covenants under this Security Agreement at its sole cost and expense.

12.14 No Waiver by Lender . No waiver by the Lender of any of its rights or remedies in connection with the Loan Documents shall be effective unless such waiver is in writing and signed by the Lender as required by the Credit Agreement.

12.15 Reserved.

12.16 Severability . Each provision of this Security Agreement shall be severable from every other provision of this Security Agreement for the purpose of determining the legal enforceability of any specific provision.

12.17 Integration . Except as to currently existing obligations of Debtor to Lender, all prior agreements, understandings, representations, warranties, and negotiations between the parties whether written or oral, if any, relating to the subject matter hereof are merged into this Security Agreement.

12.18 Successors . This Security Agreement shall be binding upon and inure to the benefit of Debtor and the Lender and their respective permitted successors and assigns.

 

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

12.20 Choice of Law . The validity of this Security Agreement, its construction, interpretation and enforcement, and the rights of the parties hereunder and concerning the Collateral, shall be determined under, governed by and construed in accordance with the laws of the State of California. The parties agree that all actions or proceedings arising in connection with this Security Agreement shall be tried and litigated only in the state courts or federal courts located in the city and county of San Francisco, California.

[Signature page follows]

 

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IN WITNESS WHEREOF, Debtor has executed and delivered this Security Agreement, and Lender has accepted this Security Agreement, on the date first hereinabove written.

 

ADESTO TECHNOLOGIES CORPORATION , a California corporation, as a Debtor

   

ARTEMIS ACQUISITION LLC , a California limited liability company, as a Borrower

By:  

 

    By:   Adesto Technologies Corporation, as sole member and manager of Artemis Acquisition LLC
Name:        
Its:        
      By:  

 

      Name:  
      Its:  
      OPUS BANK , as Lender
      By:  

 

      Name:  
      Its:  

 


G ENERAL S ECURITY A GREEMENT

 

E XHIBIT A TO S ECURITY A GREEMENT

The Collateral shall consist of all right, title and interest of the Debtor in and to the following whether or not in Debtor’s possession:

(a) All goods and Equipment now owned or hereafter acquired, including, without limitation, all fixtures, and all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing, wherever located;

(b) All Inventory, now owned or hereafter acquired;

(c) All Negotiable Collateral;

(d) All non-negotiable warehouse receipts and other documents now or hereafter issued with respect to any or all of the Inventory;

(e) All contract rights and General Intangibles now owned or hereafter acquired, including, without limitation, goodwill;

(f) All now existing and hereafter arising Accounts, contract rights, Instruments (as defined in the UCC), documents, Chattel Paper (as defined in the UCC) and all other obligations now or hereafter owing to Debtor;

(g) All documents, securities, investment property, letters of credit, certificates of deposit, now owned or hereafter acquired;

(h) All Intellectual Property Collateral now owned or hereafter acquired;

(i) All securities accounts, investment property, securities now owned or hereafter acquired; provided, that any Collateral consisting of equity interests in a Subsidiary formed under the laws of a jurisdiction outside of the United States shall be limited to sixty-five percent (65%) of such securities owned by Debtor;

(j) All Deposit Accounts wherever maintained.

(k) All money, cash equivalents maintained with Lender;

(l) All Supporting Obligations as defined in the UCC;

(m) The following patents and patent applications:

 

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Patents Licensed from Axon Technologies Corporation

 

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* Confidential Treatment Requested


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Patents Licensed from Qimonda

 

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Adesto Owned and Issued Patents

 

Adesto Ref

   Document   

Title

   Published
Adesto-1001    US7442605    Resistively switching memory    10/28/2008
Adesto-1002    US7829134    Method for producing memory having a solid electrolyte material region    11/9/2010
Adesto-1002    US8062694    Method for producing memory having a solid electrolyte material region    11/22/2011
Adesto-1003    US7737428    Memory component with memory cells having changeable resistance and fabrication method therefor    6/15/2010
Adesto-1004    US7718537    Method for manufacturing a CBRAM semiconductor memory    5/18/2010
Adesto-1005    US7483293    Method for improving the thermal characteristics of semiconductor memory cells    1/27/2009
Adesto-1006    US7511294    Resistive memory element with shortened erase time    3/31/2009
Adesto-1007    US7749805    Method for manufacturing an integrated circuit including an electrolyte material layer    7/6/2010
Adesto-1008    US7772614    Solid electrolyte memory element and method for fabricating such a memory element    8/10/2010

Abandoned

Adesto-1010    US7700398    Method for fabricating an integrated device comprising a structure with a solid electrolyte    4/20/2010
Adesto-1011    US7215568    Resistive memory arrangement    5/8/2007
Adesto-1011    US7561460    Resistive memory arrangement    7/14/2009
Adesto-1012    US7746683    NOR and NAND memory arrangement of resistive memory elements    6/29/2010
Adesto-1013    US7538411    Integrated circuit including resistivity changing memory cells    5/26/2009
Adesto-1014    US7655939    Memory cell, memory device and method for the production thereof    2/2/2010
Adesto-1015    US8115282    MEMORY CELL DEVICE AND METHOD OF MANUFACTURE    2/14/2012
Adesto-1016    US7515454    CBRAM cell and CBRAM array, and method of operating thereof    4/7/2009
Adesto-1017    US7658773    Method for fabricating a solid electrolyte memory device and solid electrolyte memory device    2/9/2010
Adesto-1019    US7888228    Method of manufacturing an integrated circuit, an integrated circuit, and a memory module    2/15/2011
Adesto-1020    US7732888    Integrated circuit, method for manufacturing an integrated circuit, memory cell array, memory module, and device    6/8/2010

 

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Adesto-1021    US6946882    Current sense amplifier    9/20/2005
Adesto-1022    US7214587    Method for fabricating a semiconductor memory cell    5/8/2007

Abandoned

Adesto-1023    US7215564    Semiconductor memory component in cross-point architecture    5/8/2007

Abandoned

Adesto-1024    US7257014    PMC memory circuit and method for storing a datum in a PMC memory circuit    8/14/2007
Adesto-1025    US7277312    Integrated semiconductor memory with an arrangement of nonvolatile memory cells, and method    10/2/2007
Adesto-1026    US7327603    Memory device including electrical circuit configured to provide reversible bias across the PMC memory cell to perform erase and write functions    2/5/2008
Adesto-1026    US7715226    Memory device including electrical circuit configured to provide reversible bias across the PMC memory cell to perform erase and write functions    5/11/2010
Adesto-1027    US7337282    Memory system and process for controlling a memory component to achieve different kinds of memory characteristics on one and the same memory component    2/26/2008
Adesto-1028    US7368314    Method for fabricating a resistive memory    5/6/2008
Adesto-1029    US7372716    Memory having CBRAM memory cells and method    5/13/2008
ADTO-00101    US8107273    Integrated circuits having programmable metallization cells (PMCs) and operating methods therefor    1/31/2012
ADTO-01200    US7359236    Read, write and erase circuit for programmable memory devices    4/15/2008
ADTO-01201    US7483294    Read, write, and erase circuit for programmable memory devices    1/27/2009
ADTO-01300    US7514706    Voltage reference circuit using programmable metallization cells    4/7/2009
ADTO-01400    US7426131    Programmable memory device circuit    9/16/2008
Adesto-1009    US8531863    Method for operating an integrated circuit having a resistivity changing memory cell    9/10/2013
Adesto-1015US_CON    US8952493    MEMORY CELL DEVICE AND METHOD OF MANUFACTURE    2/10/2015
Adesto-1015US_DIV    US8420481    Memory cell device and method of manufacture    4/16/2013
Adesto-1018    US8268664    Methods of manufacturing a semiconductor device; Method of manufacturing a memory cell; Semiconductor device; Semiconductor processing device; Integrated circuit having a memory cell    9/18/2012

 

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Adesto-0001CON    METHODS OF PROGRAMMING AND ERASING PROGRAMMABLE METALLIZATION CELLS (PMCs)    8625331    7-Jan-14
Adesto-0001DIV    METHODS OF PROGRAMMING AND ERASING PROGRAMMABLE METALLIZATION CELLS (PMCs)    8369132    5-Feb-13
Adesto-0004    Variable impedance memory device having simultaneous program and erase, and corresponding methods and circuits    8274842    25-Sep-12
Adesto-0004DIV    VARIABLE IMPEDANCE MEMORY DEVICE BIASING CIRCUITS AND METHODS    8498164    30-Jul-13
Adesto-0008    Reconfigurable memory arrays having programmable impedance elements and corresponding methods    8331128    11-Dec-12
Adesto-0008/13CON    INTEGRATED CIRCUIT DEVICES AND SYSTEMS HAVING PROGRAMMABLE IMPEDANCE ELEMENTS WITH DIFFERENT RESPONSE TYPES    8675396    18-Mar-14
Adesto-0008/13CON2    APPLICATION OF RELAXATION VOLTAGE PULSES TO PROGRAMMABLE IMPEDANCE ELEMENTS DURING READ OPERATIONS    9007814    14-Apr-15
Adesto-0014    CONDUCTING BRIDGE RANDOM ACCESS MEMORY (CBRAM) DEVICE STRUCTURES    8426839    23-Apr-13
Adesto-0017B    VARIABLE IMPEDANCE MEMORY DEVICE STRUCTURE AND METHOD OF MANUFACTURE INCLUDING PROGRAMMABLE IMPEDANCE MEMORY CELLS AND METHODS OF FORMING THE SAME    8829482    9-Sep-14
Adesto-0026,0029,0030    METHODS AND CIRCUITS FOR TEMPERATURE VARYING WRITE OPERATIONS OF PROGRAMAMBLE IMPEDANCE ELEMENTS    8437171    7-May-13
Adesto-0026,0029,0030CON    CURRENT SOURCE CIRCUITS AND METHODS FOR MASS WRITE AND TESTING OF PROGRAMMABLE IMPEDANCE ELEMENTS    8947907    3-Feb-15
Adesto-0027    PROGRAMMABLE IMPEDANCE ELEMENT CIRCUITS AND METHODS    8294488    23-Oct-12
Adesto-0032    CIRCUITS HAVING PROGRAMMABLE IMPEDANCE ELEMENTS    8687403    1-Apr-14
Adesto-0034,0036,0037    CIRCUITS AND METHODS HAVING PROGRAMMABLE IMPEDANCE ELEMENTS    8947913    3-Feb-15

 

A-7


G ENERAL S ECURITY A GREEMENT

 

Adesto-0039, 40    READ METHODS, CIRCUITS AND SYSTEMS FOR MEMORY DEVICES    8654561    18-Feb-14
Adesto-0043    MEMORY DEVICES AND METHODS WITH IMPROVED READ OPERATIONS    8913444    16-Dec-14
Adesto-0044    MEMORY DEVICES, ARCHITECTURES AND METHODS FOR MEMORY ELEMENTS HAVING DYNAMIC CHANGE IN PROPERTY    8854873    7-Oct-14
Adesto-0047    PROGRAMMABLE MEMORY ELEMENTS, DEVICES AND METHODS HAVING PHYSICALLY LOCALIZED STRUCTURE    8895953    25-Nov-14
Adesto-0048    CONDUCTIVE FILAMENT BASED MEMORY ELEMENTS AND METHODS WITH IMPROVED DATA RETENTION AND/OR ENDURANCE    8531867    10-Sep-13
Adesto-0052    CONTACT STRUCTURE AND METHOD FOR VARIABLE IMPEDANCE MEMORY ELEMENT    8816314    26-Aug-14
Adesto-0054    ERASE AND SOFT PROGRAM WITHIN THE ERASE OPERATION FOR A HIGH SPEED RESISTIVE SWITCHING MEMORY OPERATION WITH CONTROLLED ERASED STATES    8659931    25-Feb-14
Adesto-0055    RESISTIVE SWITCHING DEVICES HAVING ALLOYED ELECTRODES AND METHODS OF FORMATION THEREOF    8847192    30-Sep-14
Adesto-0058    CBRAM/ReRAM WITH IMPROVED PROGRAM AND ERASE ALGORITHMS    8659954    25-Feb-14
Adesto-0063    MEMORY CELLS, DEVICES AND METHOD WITH DYNAMIC STORAGE ELEMENTS AND PROGRAMMABLE IMPEDANCE SHADOW ELEMENTS    8995173    31-Mar-15
Adesto-0064    PMC-BASED NON-VOLATILE CAM    8320148    27-Nov-12
Adesto-0064CON    PMC-BASED NON-VOLATILE CAM    8659926    25-Feb-14
Adesto-0068    CIRCUITS AND METHODS FOR PROGRAMMING VARIABLE IMPEDANCE ELEMENTS    8976568    10-Mar-15
Adesto-0073    VARIABLE IMPEDANCE MEMORY ELEMENT STRUCTURES, METHODS OF MANUFACTURE, AND MEMORY DEVICES CONTAINING THE SAME    8624219    7-Jan-14
Adesto-0075    PROGRAMMABLE IMPEDANCE MEMORY ELEMENTS, METHODS OF MANUFACTURE, AND MEMORY DEVICES CONTAINING THE SAME    8847191    30-Sep-14
Adesto-0075CON    PROGRAMMABLE IMPEDANCE MEMORY ELEMENTS WITH LATERALLY EXTENDING CELL STRUCTURE    8952351    10-Feb-15

 

A-8


G ENERAL S ECURITY A GREEMENT

 

Adesto-0076    CIRCUITS AND METHODS FOR PLACING PROGRAMMABLE IMPEDANCE MEMORY ELEMENTS IN HIGH IMPEDANCE STATES    8730752    20-May-14
Adesto-0077    Resistive switching devices and methods of formation thereof    8941089    27-Jan-15
Adesto-0085    MEMORY DEVICES, CIRCUITS AND, METHODS THAT APPLY DIFFERENT ELECTRICAL CONDITIONS IN ACCESS OPERATIONS    8982602    17-Mar-15
Adesto-0087    MEMORY DEVICES, CIRCUITS AND, METHODS THAT APPLY DIFFERENT ELECTRICAL CONDITIONS IN ACCESS OPERATIONS    8902631    2-Dec-14
Adesto-0090    Resistive Switching Memory    8912517    16-Dec-14
Adesto-0091    Resistive Switching Devices Having A Buffer Layer and Methods of Formation Thereof    8866122    21-Oct-14
Adesto-0095    SAFEGUARDING DATA THROUGH AN SMT PROCESS    9007808    14-Apr-15
Adesto-0097    Resistive Devices and Methods of Operation Thereof    8953362    10-Feb-15
Adesto-0098    Resistive Devices and Methods of Operation Thereof    9001553    7-Apr-15
Adesto-0108    Reverse program and erase cycling algorithms    8995167    31-Mar-15
Adesto-0109    Verify pulse delay to improve resistance window    9019745    28-Apr-15

 

A-9


G ENERAL S ECURITY A GREEMENT

 

Adesto Pending Patent Applications

 

Adesto Ref

  

Title

   App No    App Date    Status
Adesto-0042    MEMORY DEVICES AND METHODS FOR READ AND WRITE OPERATIONS TO MEMORY ELEMENTS HAVING DYNAMIC CHANGE IN PROPERTY    13/408,367    29-Feb-2012    Allowed
Adesto-0048DIV    MEMORY ELEMENTS AND METHODS WITH IMPROVED DATA RETENTION AND/OR ENDURANCE    13/972,718    21-Aug-2013    Allowed
Adesto-0057    PROGRAMMABLE WINDOW OF OPERATION FOR CBRAM    13/548,429    13-Jul-2012    Allowed
Adesto-0065    Pre-conditioning circuits and methods for programmable impedance elements in memory devices    13/763,461    8-Feb-2013    Allowed
Adesto-0071    SOLID ELECTROLYTE MEMORY ELEMENTS WITH ELECTRODE INTERFACE FOR IMPROVED PERFORMANCE    13/850,267    25-Mar-2013    Allowed
Adesto-0078    Resistive Switching Memories    13/462,659    2-May-2012    Allowed
Adesto-0084    Triggered cell annihilation for resistive switching memory devices    13/859,853    10-Apr-2013    Allowed
Adesto-0102    Coding Techniques for Reducing Write Cycles for Memory    13/687,147    28-Nov-2012    Allowed
Adesto-0138    Resistive switching memory with diode select    14/256,123    18-Apr-2014    Allowed
Adesto-0008/13CON3    PROTOTYPING INTEGRATED CIRCUIT DEVICES WITH PROGRAMMABLE IMPEDANCE ELEMENTS    14/686,403    14-Apr-2015    Pending
Adesto-0014/16DIV    CONDUCTING BRIDGE RANDOM ACCESS MEMORY (CBRAM) DEVICE STRUCTURES AND FABRICATION METHODS    13/845,922    18-Mar-2013    Pending
Adesto-0019    PROGRAMMABLE IMPEDANCE ELEMENTS, METHODS OF FORMING ALL OR PORTIONS OF SUCH ELEMENTS, AND METHODS AND DEVICES THAT INCLUDE SUCH ELEMENTS    13/242,391    23-Sep-2011    Pending
Adesto-0020    PROGRAMMABLE IMPEDANCE DEVICES AND CELLS, AND METHODS THEREFOR    13/243,659    23-Sep-2011    Pending
Adesto-0027DIV    PROGRAMMABLE IMPEDANCE ELEMENT CIRCUITS AND METHODS    13/657,568    22-Oct-2012    Pending
Adesto-0032DIV    CIRCUITS HAVING PROGRAMMABLE IMPEDANCE ELEMENTS AND VERTICAL ACCESS DEVICES    14/231,729    31-Mar-2014    Pending
Adesto-0034DIV    CIRCUITS AND METHODS HAVING PROGRAMMABLE IMPEDANCE ELEMENTS    14/578,368    20-Dec-2014    Pending
Adesto-0041    MEMORY DEVICES AND METHODS HAVING DATA VALUES BASED ON DYNAMIC CHANGE IN MATERIAL PROPERTY    13/315,652    9-Dec-2011    Pending
Adesto-0043DIV    MEMORY DEVICES AND METHODS WITH IMPROVED READ OPERATIONS    14/572,646    16-Dec-2014    Pending
Adesto-0046    MEMORY DEVICES, ARCHITECTURES AND METHODS WITH DATA VALUES STORED IN MULTIPLE PROGRAMMABLE IMPEDANCE ELEMENTS    13/545,919    10-Jul-2012    Pending
Adesto-0067    RESISTIVE MEMORY DEVICES, CIRCUITS AND METHODS HAVING READ CURRENT LIMITING    13/336,642    23-Dec-2011    Pending
Adesto-0070    MEMORY DEVICES AND METHODS HAVING ADAPTABLE READ THRESHOLD LEVELS    13/851,011    26-Mar-2013    Pending
Adesto-0076CON    CIRCUITS AND METHODS FOR PLACING PROGRAMMABLE IMPEDANCE MEMORY ELEMENTS IN HIGH IMPEDANCE STATES    14/281,830    19-May-2014    Pending
Adesto-0079    Resistive Devices and Methods of Operation Thereof    13/470,030    11-May-2012    Pending
Adesto-0086    MULTI-PORT MEMORY DEVICES AND METHODS HAVING PROGRAMMABLE IMPEDANCE ELEMENTS    13/615,493    13-Sep-2012    Pending
Adesto-0088    MEMORY DEVICES AND METHODS HAVING WRITE DATA PERMUTATION FOR CELL WEAR REDUCTION    13/626,721    25-Sep-2012    Pending
Adesto-0089    SYSTEM ARCHITECTURE WITH MULTIPLE MEMORY TYPES, INCLUDING PROGRAMMABLE IMPEDANCE MEMORY ELEMENTS    13/846,539    18-Mar-2013    Pending
Adesto-0090DIV    Resistive Switching Memory    14/552,250    24-Nov-2014    Pending
Adesto-0096    Solid electrolyte materials and structures for memory device elements    13/691,425    30-Nov-2012    Pending

 

A-10


G ENERAL S ECURITY A GREEMENT

 

Adesto-0097CON    Resistive Devices and Methods of Operation Thereof    14/599,654    19-Jan-2015    Pending
Adesto-0106    NETWORK INTERFACE WITH LOGGING    13/716,357    17-Dec-2012    Pending
Adesto-0107    Two Terminal Resistive Access Devices and Methods of Formation Thereof    13/748,470    23-Jan-2013    Pending
Adesto-0109CON    Verify pulse delay to improve resistance window    14/663,719    20-Mar-2015    Pending
Adesto-0112    Storage elements, structures and methods having edgeless features for programmable layer(s)    13/830,315    14-Mar-2013    Pending
Adesto-0113    Latch circuits and methods with programmable impedance elements    14/176,123    9-Feb-2014    Pending
Adesto-0116    Resistive Switching Devices Having a Switching Layer And An Intermediate Electrode Layer and Methods of Formation Thereof    13/829,941    14-Mar-2013    Pending
Adesto-0117    NONVOLATILE MEMORY ELEMENTS HAVING CONDUCTIVE STRUCTURES WITH SEMIMETALS AND/OR SEMICONDUCTORS    14/217,256    17-Mar-2014    Pending
Adesto-0118    Sensing data in resistive switching memory devices    13/793,685    11-Mar-2013    Pending
Adesto-0120    Common plate switching reduction in resistive switching memory devices    13/909,983    4-Jun-2013    Pending
Adesto-0123    Programmable impedance memory elements and corresponding methods    14/195,787    3-Mar-2014    Pending
Adesto-0131    MEMORY DEVICE MAIN NONVOLATILE STORAGE AND BUFFER WITH NONVOLATILE OR QUASI-NONVOLATILE BACKUP    61/993,509    15-May-2014    Pending
Adesto-0133    Serial memory device alert of an external host to completion of an internally self-timed operation    14/516,261    16-Oct-2014    Pending
Adesto-0136,0144    Capacitor arrangements using a resistive switching memory cell structure    14/325,119    7-Jul-2014    Pending
Adesto-0139    Resistive switching memory device architecture for reduced cell damage during processing    14/265,548    30-Apr-2014    Pending
Adesto-0140    Cached memory structure and operation    14/665,831    23-Mar-2015    Pending
Adesto-0142    INTEGRATED CIRCUIT DEVICE WITH PROGRAMMABLE IMPEDANCE MEMORY CELL ARRAY AND RELATED METHODS    14/680,059    6-Apr-2015    Pending
Adesto-0145,0146    MEMORY CELLS WITH VERTICALLY INTEGRATED TUNNEL ACCESS DEVICE AND PROGRAMMABLE IMPEDANCE ELEMENT    14/530,460    31-Oct-2014    Pending
Adesto-0148    Resistive switching memory cell endurance improvement with redundant memory cell mapping    14/326,380    8-Jul-2014    Pending
Adesto-0149    Concurrent read and write operations in a serial flash device    62/021,840    8-Jul-2014    Pending
Adesto-0150    Support for improved SPI throughput in a serial Flash device    62/050,264    15-Sep-2014    Pending
Adesto-0153    CBRAM/RRAM cells utilizing cap layer to prevent oxygen contamination    62/061,124    7-Oct-2014    Pending
Adesto-0154    CBRAM/RRAM Device Anode Materials    62/095,026    21-Dec-2014    Pending
Adesto-0157    Re-erase Operation for Memory Devices with Programmable Impedance Devices    62/095,025    21-Dec-2014    Pending
Adesto-0158    Resistive switching memory with cell access by analog signal controlled transmission gate    14/628,280    22-Feb-2015    Pending

 

A-11


Patents and Patent Applications Acquired from Atmel Corporation

 

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A-12

 

* Confidential Treatment Requested


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A-13

 

* Confidential Treatment Requested


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(n) The following trademarks, trademark applications and trade names:

 

Trademark

  

Ctry

  

App. Num.

  

Reg. Num.

  

Status

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(o) The following copyright registrations and copyright applications

None.

(p) Proceeds of the foregoing; and

(q) All of Debtor’s Books relating to the foregoing.

Notwithstanding the foregoing, the security interest granted herein shall not extend to and the term “Collateral” shall not include (a) any equipment or other property financed by a third party, provided that such third party’s Liens are Liens of the type described in subsection (i) of the definition of Priority Liens; provided further that such equipment or other property shall be deemed “Collateral” hereunder if such third party’s Lien is released or otherwise terminated; (b)

 

A-14

 

* Confidential Treatment Requested


any lease, license, contract, property rights or agreement to which any Debtor is a party or any of its rights (including property rights with respect to equipment) or interests thereunder if and for so long as the grant of such security interest shall constitute or result in (i) the abandonment, invalidation or unenforceability of any right, title or interest of any Debtor therein or (ii) in a breach or termination pursuant to the terms of, or a default under any such lease, license, contract or agreement (other than to the extent that any such term would be rendered ineffective pursuant to Sections 9-406, 9-407- 9-408 or 9-409 of the UCC (or any successor provision or provisions) of any relevant jurisdiction or any other applicable law (including the Bankruptcy Code) or principles of equity); provided, however, that such security interest shall attach immediately at such time as the condition causing such abandonment, invalidation or unenforceability shall be remedied and to the extent severable, shall attach immediately to any portion of such lease, license, contract, or agreement that does not result in any of the consequences specified in (i) or (ii) above; (c) any interests in real property, and (d) any intent-to-use trademarks, prior to the filing of a “Statement of Use” with respect thereto if and solely to the extent that (and so long as) any such intent-to-use trademark application would be rendered void by the attachment or creation of a security interest in the right, title or interest of such Debtor therein).

 

A-15


E XHIBIT B TO S ECURITY A GREEMENT

DEPOSIT ACCOUNT CONTROL AGREEMENT

(Security Agreement)

(All Assets)

T HIS D EPOSIT A CCOUNT C ONTROL A GREEMENT (this “Agreement” ) is entered into this      day of April, 2015, between                      ( “Depository Bank” ), O PUS B ANK , as secured party (the “ Secured Party” ) as Lender under that certain Credit Agreement dated as of April 30, 2015 (as amended from to time, the “Credit Agreement” ) among Lender and A DESTO T ECHNOLOGIES C ORPORATION , a California corporation ( “Adesto” ), A RTEMIS A CQUISITION LLC, a California limited liability company ( “Artemis” , and, together with Adesto, collectively, the “Customer” ).

All parties agree as follows:

1. Deposit Account . Depository Bank maintains deposit account number                      in the name of Customer (said account and, if it is a certificate of deposit or other time deposit, any renewal, replacements and rollovers thereof shall be referred to as the “Account” ). The Account is subject to Depository Bank’s [Deposit Agreement Disclosure Statement] , unless specifically altered by this Agreement.

2. Security Interest . Customer has granted Secured Party a security interest in the Account and in all funds now or later deposited into or held therein including without limitation any interest accruals. All of the foregoing assets are collectively referred to as the “Deposit Account.”

3. Other Deposit Control Agreements . Depository Bank has not entered into any other Deposit Account Control Agreements with any other party relating to the above Accounts.

4. Customer’s Rights In Deposit Account . Subject to the rights of Secured Party under the Loan Documents, Customer retains the ownership of and the right to direct the disposition of funds from the Deposit Account until Depository Bank has received a Notice of Exclusive Control from Secured Party as set forth below.

5. Control of Deposit Account . This Agreement provides Secured Party with control of the Deposit Account for purposes of perfecting its security interest therein. Except as pursuant to bankruptcy or other applicable law, after Depository Bank receives a Notice of Exclusive Control from Secured Party (delivered as set forth in Section 14 below), and has had reasonable opportunity to comply with it Depository Bank and Customer agree that Depository Bank will comply with instructions ( “Instructions” ) as to the withdrawal or disposition of any funds credited to the Deposit Account, and as to any other matters relating to the Deposit Account, received from Secured Party without Customer’s further consent. The Notice of Exclusive Control must be in the form set forth in Attachment B hereto and must be signed by an authorized representative of Secured Party. Secured Party’s instructions may include the giving of stop payment Instructions for any items being presented to the Deposit Account for payment. Instructions are to be provided in writing to the Depository Bank at the address specified below.

 

B-1


6. Depository Bank’s Authorization and Liability.

(a) Upon delivery of a Notice of Exclusive Control to Depository Bank, Depository Bank is authorized to rely on any Instructions from Secured Party even if such Instructions are contrary to any instructions or demands from Customer.

(b) Except for permitting a withdrawal in violation of Sections 4 and 5 hereof, Depository Bank will not be liable to Secured Party for complying with Instructions from Customer that are received by Depository Bank before Depository Bank receives and has a reasonable opportunity to act on a contrary Instructions from Secured Party.

(c) Depository Bank will not be liable to Customer for complying with Instructions originated by Secured Party upon delivery of a Notice of Exclusive Control to Depository Bank, even if Customer notifies Depository Bank that Secured Party is not legally entitled to issue Instructions, unless Depository Bank takes the action after it is served with an injunction, restraining Instructions, or other legal process enjoining it from doing so, issued by a court of competent jurisdiction, and has had a reasonable opportunity to act on the injunction, restraining Instructions or other legal process.

(d) This Agreement does not create any obligation of Depository Bank except for those expressly set forth herein. In particular, Depository Bank need not investigate whether Secured Party is entitled under Secured Party’s agreements with Customer to give Instructions. Depository Bank may rely on any and all notices and communications it believes in good faith are given by the appropriate party.

(e) Depository Bank will not have any liability to Customer or Secured Party for claims, losses, liabilities or damages resulting from any failure to comply with Instructions or delay in complying with Instructions if such failure or delay is due to circumstances beyond Depository Bank’s reasonable control.

(f) Depository Bank will not have any liability to Customer or Secured Party for claims, losses, liabilities or damages suffered or incurred by Customer or Secured Party as a result of or in connection with this Agreement except to the extent such losses, liabilities and damages directly result from Depository Bank’s gross negligence or willful misconduct.

(g) In no event will Depository Bank have any liability to Customer or Secured Party in connection herewith for any consequential, special, punitive or indirect loss or damage whether or not any claim for such damages is based on tort or contract or Depository Bank knew or should have known the likelihood of such damages in any circumstances.

7. Priority .

(a) All of Depository Bank’s present and future rights against the Account are hereby subordinated to Secured Party’s security interest therein; provided, however, that Secured Party agrees that nothing herein subordinates or waives, and that Depository Bank expressly reserves, all of Depository Bank’s present and future rights (whether described as rights of setoff, banker’s lien, chargeback or otherwise, and whether available to Depository Bank under law or any other agreement between Depository Bank and Customer concerning the Account, or

 

B-2


otherwise) with respect to: (i) any item deposited to the Account and returned unpaid, whether for insufficient funds or for any other reason, and without regard to the timeliness of such return or the occurrence or timeliness of any drawee’s notice of non-payment; (ii) any item subject to a claim against Bank of breach of transfer or presentment warranty under the Uniform Commercial Code, as adopted in the applicable state; (iii) any automated clearing house ( “AC” ) entry credited to the Account and returned unpaid or subject to an adjustment entry under applicable clearing house rules, whether for insufficient funds or for any other reason, and without regard to the timeliness of such return or adjustment; (iv) any credit to the Account from a merchant card transaction, against which a contractual demand for chargeback has been made; (v) any credit to the Account made in error; and (vi) Depository Bank’s usual and customary charges for services rendered in connection with the Account. Items, entries, and transactions described in clauses (i) through (v) of this paragraph are hereinafter collectively referred to as “Returned Items.”

(b) Except as otherwise required by law, Depository Bank will not agree with any third party to comply with Instructions originated by such third party.

8. Returned Items . Depository Bank will pay Returned Items by debiting the Deposit Account. Secured Party agrees that it will pay, within ten (10) days of a demand by Depository Bank, any amounts owed for a returned item that is not paid in full by Customer up to the amount of the proceeds received by Secured Party from the corresponding returned item.

9. Indemnity .

(a) Customer hereby agrees to indemnify Depository Bank, its officers, directors, employees, and agents against claims, demands, losses, liabilities, damages, costs and expenses (including reasonable attorneys’ fees and disbursements and the reasonable estimate of the allocated costs and expenses of Depository Bank’s in-house legal counsel and staff) arising out of this Agreement or Depository Bank following any Instructions or other instruction or request of Customer or Secured Party in connection with this Agreement, except to the extent the claims, liabilities, costs and expenses are caused by Depository Bank’s gross negligence or willful misconduct.

(b) Secured Party hereby agrees to indemnify Depository Bank, its officers, directors, employees, and agents against claims, demands, losses, liabilities, damages, costs and expenses (including reasonable attorneys’ fees and disbursements and the reasonable estimate of the allocated costs and expenses of Depository Bank’s in-house legal counsel and staff), arising out of Depository Bank following any Instructions or request of Secured Party in connection with this Agreement, except to the extent the claims, liabilities, costs and expenses are caused by Depository Bank’s negligence or willful misconduct.

10. Statements . Depository Bank will send copies of all statements for the Deposit Account to Customer and Secured Party (at Customer’s expense).

11. Termination .

(a) Secured Party may terminate this Agreement by giving Depository Bank and Customer thirty (30) days prior written notice of termination.

 

B-3


(b) Depository Bank may terminate this Agreement by giving Secured Party and Customer thirty (30) days prior written notice of termination and delivering the funds in the Account to a substitute depository bank designated by Secured Party, which shall have executed an Deposit Account Control Agreement which contains in substance the material terms of this Agreement. The designation of such substitute depository bank shall be subject to the consent of Customer, which consent shall not be unreasonably withheld.

(c) Customer may only terminate this Agreement with the written consent of Secured Party and only after thirty (30) days prior written notice to Depository Bank, approved in writing by Secured Party.

(d) The provisions of Section 9 shall survive and termination of this Agreement.

12. Relationship of the Parties . Nothing in this Agreement shall create any agency or fiduciary relationship between Customer, Secured Party and Depository Bank.

13. Amendments . This Agreement may be amended only by a writing, signed by Depository Bank, Secured Party and Customer.

14. Notice . Written notice to each party is to be provided at the address shown below and shall be effective upon delivery except that (i) delivery via facsimile to Depository Bank of a Notice of Exclusive Control will be considered to have been validly given only when acknowledged in writing by Depository Bank and (ii) delivery of any other notice via facsimile to any party shall be considered delivered upon confirmation of receipt. The addresses to which notices or other communications are to be given may be changed from time to time by notice served as provided herein. Secured Party acknowledges that Depository Bank may not be able to respond to a Notice of Exclusive Control pursuant to Section 5 above if the Secured Party does not deliver the Notice to the address listed below; and Secured Party agrees that Depository Bank will not be held liable for any failure to respond to a Notice of Exclusive Control that Secured Party does not deliver to the address listed below.

 

                       Bank:    Secured Party:    Customer:

 

 

     Opus Bank        

 

     Attn:  

 

     Attn:   

 

 

           

 

 

           

 

Fax:   

 

     Fax:  

 

     Fax:   

 

15. Counterparts . This Agreement may be signed in counterparts that when signed by all parties are one agreement.

16. Governing Law . This Agreement and the Account shall be governed by and construed in accordance with the laws of the State of California.

 

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17. Entire Agreement . This Agreement is the entire agreement and supersedes any prior agreements and contemporaneous oral agreement; of the parties concerning its subject matter.

18. Amendments; Waivers . This Agreement may be amended or modified only in writing signed by all parties hereto, and no waiver of any right under this Agreement will be binding unless it is in writing and signed by the party to be charged.

19. Severability . To the extent a provision of this Agreement is unenforceable, this Agreement will be construed as if the unenforceable provision were omitted.

20. Successors and Assigns . The provisions of this Agreement shall be binding upon and inure to the benefit of Depository Bank, Secured Party and Customer and their respective heirs, executors, administrators, legal representatives, successors and assigns.

21. Waiver . EACH PARTY HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHTS TO TRIAL BY JURY IN ANY PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. IF ANY LITIGATION, ARBITRATION, MEDIATION OR OTHER LEGAL ACTION IS COMMENCED TO ENFORCE THE RIGHTS OF THE PARTIES TO THIS AGREEMENT IN ANY STATE, FEDERAL OR BANKRUPTCY COURT, THE PREVAILING PARTY IN SHALL BE ENTITLED TO AN AWARD FOR THE REASONABLE ATTORNEY FEES AND COSTS INCURRED IN CONNECTION THEREWITH.

[Signature page follows]

 

B-5


IN WITNESS WHEREOF, the parties have executed and delivered this Deposit Account Control Agreement an the date first above written.

 

ADESTO TECHNOLOGIES CORPORATION , a California corporation, as a Debtor

   

ARTEMIS ACQUISITION LLC , a California limited liability company, as a Debtor

By:  

 

    By Adesto Technologies Corporation, as sole member and manager of Artemis Acquisition LLC
Name:        
Its:        
        By:  

 

        Name:  
        Its:  
    OPUS BANK , as Lender
        By:  

 

        Name:  
        Its:  

BANK:

     
By:  

 

     
Print Name:  

 

     
Title:  

 

     
Date:  

 

     

 

B-6


ATTACHMENT A

DEPOSIT ACCOUNT CONTROL AGREEMENT

1. Deposit Account Control Agreements Previously Executed by                      Bank:


ATTACHMENT B

NOTICE OF EXCLUSIVE CONTROL

 

To:  

 

  Bank ( “Depository Bank” )
From:  

 

  ( “Secured Party” )
Re:  

 

  ( “Customer” )
Date:    

Pursuant to the Deposit Account Control Agreement dated                      ( “Agreement” ) entered into among Depository Bank, Customer and Secured Party, Secured Party hereby notifies Depository Bank of Secured Party’s exercise of Secured Party’s rights under the Agreement and directs Depository Bank to cease complying with instructions or any directions originated by Customer or its agents. Secured Party hereby certifies that it is entitled to exercise its rights under the Agreement, that Secured Party has a right to all or part of the funds in the Deposit Account (as defined in the Agreement), and agrees to specify the amount of the funds in the Deposit Account so due Secured Party.

Secured Party hereby agrees to indemnify and hold harmless Depository Bank, its affiliates, and respective directors, officers, employees and agents, pursuant to the terms of Section 9 of the Agreement.

Secured Party agrees that upon receipt of Secured Party’s Notice of Exclusive Control, Depository Bank may exercise Depository Bank’s rights and remedies as permitted under Section 7 of the Agreement and under any applicable laws.

Secured Party hereby certifies that the person executing this Notice of Exclusive Control is an officer, representative or agent of Secured Party authorized to act on behalf of Secured Party and to make the representations and agreements contained in this Notice of Exclusive Control. Secured Party hereby undertakes to notify Depository Bank promptly after the cessation of the events giving rise to its assertion of exclusive control set forth above.

 

SECURED PARTY:     ACKNOWLEDGED BY:
O PUS B ANK , as Lender     [D EPOSITORY B ANK ]
By:  

 

    By:  

 

Title:  

 

    Title:  

 

Date:  

 

    Date:  

 


E XHIBIT C TO S ECURITY A GREEMENT

Priority Liens

*

*

*

 

   C-1   
     

 

*Confidential Treatment Requested

  


EXHIBIT G

FORM OF GUARANTY

 

Credit Agreement   G-1  
  Form of Guaranty  


 

 

G UARANTY

Dated as of             , 20    

From

[N AME OF G UARANTOR ],

as Guarantor,

to

O PUS B ANK ,

as Lender,

 

 

 

 

   
   


G UARANTY

This G UARANTY (this “Guaranty” ), dated as of                  , 20     by [N AME OF G UARANTOR ] , a                                           (the “Guarantor” ), in favor of O PUS B ANK , a California commercial bank ( “Opus” or “Lender” ), as Lender under that certain Credit Agreement of even date among Debtors and Lender (as amended from time to time, the “Credit Agreement” )) which are or may become parties to the Credit Agreement dated as of April 30, 2015 (as may be amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement” ) among Adesto Technologies Corporation, a California corporation ( “Adesto” ), Artemis Acquisition LLC, a California limited liability company ( “Artemis” , and, together with Adesto, collectively, the “Borrower” ), and the Lender. Capitalized terms used herein without definition shall have the meanings ascribed to them in the Credit Agreement.

W ITNESSETH :

W HEREAS , the Borrower and Lender have entered into the Credit Agreement;

W HEREAS , the Borrower and the Guarantor are members of a group of related entities, the success of each of which is dependent in part on the success of the other members of such group;

W HEREAS , the Guarantor expects to receive substantial direct and indirect benefits from the Loans made by Lender to the Borrower pursuant to the Credit Agreement (which benefits are hereby acknowledged);

W HEREAS , a condition precedent to the obligation of the Lender to make its extension of credit to the Borrower under the Credit Agreement is that the Guarantor shall execute and deliver a Guaranty for the benefit of the Lender; and

W HEREAS , Guarantor wishes to guaranty the Borrower’s obligations to the Lender under and in respect of the Credit Agreement as herein provided.

N OW , T HEREFORE , in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

Section 1. Guaranty of Payment and Performance of Obligations . In consideration of the Lender’s extending credit or otherwise in their discretion giving time, financial or banking facilities or accommodations to the Borrower, the Guarantor absolutely, irrevocably and unconditionally guarantees to the Lender that the Borrower will duly and punctually pay or perform, at the place specified therefor, or if no place is specified, at the Lender’s head office, (i) all indebtedness, obligations and liabilities of the Borrower to the Lender, individually or collectively, under the Credit Agreement or any of the other Loan Documents or in respect of the Loan or the Notes or other instruments at any time evidencing any thereof, whether existing on the date of the Credit Agreement or this Guaranty or arising or incurred thereafter, direct or indirect, secured or unsecured, joint or several, absolute or contingent, matured or unmatured, liquidated or unliquidated, arising by contract, operation of law or otherwise, including all such


G UARANTY    [N AME OF G UARANTOR ]

 

which would become due but for the operation of the automatic stay pursuant to §362(a) of the Federal Bankruptcy Code and the operation of §§502(b) and 506(b) of the Federal Bankruptcy Code; and (ii) without limitation of the foregoing, all reasonable fees, costs and expenses incurred by the Lender in attempting to collect or enforce any of the foregoing (collectively the “Obligations” and individually an “Obligation” ). This Guaranty is an absolute, unconditional and continuing guaranty of the full and punctual payment and performance by the Borrower of the Obligations and not of their collectibility only and is in no way conditioned upon any requirement that Lender first attempt to collect any of the Obligations from the Borrower or resort to any security or other means of obtaining payment of any of the Obligations which now has or may acquire after the date hereof or upon any other contingency whatsoever. Upon any Event of Default which is continuing by the Borrower in the full and punctual payment and performance of the Obligations, the liabilities and obligations of the Guarantor hereunder shall, at the option of the Lender, become forthwith due and payable to the Lender owed the same without demand or notice of any nature, all of which are expressly waived by the Guarantor, except for notices required to be given to the Borrower under the Loan Documents. Payments by the Guarantor hereunder may be required by Lender on any number of occasions.

Section 2. Guarantor’s Further Agreements to Pay . The Guarantor further agrees, as the principal obligor and not as a guarantor only, to pay to Lender forthwith upon demand, in funds immediately available to Lender, all costs and expenses (including court costs and legal fees and expenses) incurred or expended by the Lender in connection with this Guaranty and the enforcement hereof, together with interest on amounts recoverable under this Guaranty from the time after such amounts become due at the default rate of interest set forth in the Credit Agreement; provided that if such interest exceeds the maximum amount permitted to be paid under applicable law, then such interest shall be reduced to such maximum permitted amount.

Section 3. Payments. The Guarantor covenants and agrees that the Obligations will be paid in Dollars and otherwise strictly in accordance with their respective terms regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Lender with respect thereto.

Section 4. Taxes. All payments hereunder shall be made without any counterclaim or set-off, free and clear of, and without reduction for, any Taxes or Other Taxes, which are now or may hereafter be imposed, levied or assessed by any Governmental Authority on payments hereunder, all of which will be for the account of and paid by the Guarantor. If for any reason, any such reduction is made or any Taxes or Other Taxes are paid by the Lender (except for taxes on income or profits of Lender), the Guarantor agrees to pay to the Lender such additional amounts as may be necessary to ensure that the Lender receives the same net amount which it would have received had no reduction been made or Taxes or Other Taxes paid.

Section 5. [Intentionally Reserved] .

Section 6. Liability of the Guarantor . The Lender had and shall have the absolute right to enforce the liability of the Guarantor hereunder without resort to any other right or remedy including any right or remedy under any other guaranty, and the release or discharge of any such other guarantor of any Obligations shall not affect the continuing liability of the Guarantor hereunder that has not been released or discharged.

 

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G UARANTY    [N AME OF G UARANTOR ]

 

It is the intention and agreement of the Guarantor and the Lender that the obligations of the Guarantor under this Guaranty shall be valid and enforceable against the Guarantor to the maximum extent permitted by applicable law. Accordingly, if any provision of this Guaranty creating any obligation of the Guarantor in favor of the Lender shall be declared to be invalid or unenforceable in any respect or to any extent, it is the stated intention and agreement of the Guarantor and the Lender that any balance of the obligation created by such provision and all other obligations of the Guarantor to the Lender created by other provisions of this Guaranty shall remain valid and enforceable. Likewise, if by final order a court of competent jurisdiction shall declare any sums which the Lender may be otherwise entitled to collect from Guarantor under any other guaranty to be in excess of those permitted under any law (including any federal or state fraudulent conveyance or like statute or rule of law), it is the stated intention and agreement of the Guarantor and the Lender that all sums not in excess of those permitted under such applicable law shall remain fully collectible by the Lender from the Guarantor.

Section 7. Representations and Warranties; Covenants . The Guarantor hereby makes and confirms the representations and warranties made on its behalf by the Borrower pursuant to Section V of the Credit Agreement, as if such representations and warranties were set forth herein except that the conformation here regarding each representation and warranty that refers to a specific earlier date shall be that it was true as of such specific earlier date. The Guarantor hereby agrees to perform the covenants set forth in Section VI and Section VII of the Credit Agreement (to the extent such covenants expressly apply to Guarantor) as if such covenants were set forth herein. The Guarantor acknowledges that it is, on a collective basis with the Borrower, bound by the financial covenants and other covenants set forth in the Credit Agreement. The Guarantor hereby confirms that it shall be bound by all acts or omissions of the Borrower pursuant to the Credit Agreement.

Section 8. Effectiveness. This Guaranty and the obligations of the Guarantor under this Guaranty shall continue in full force and effect and shall remain in operation until all of the Obligations shall have been paid in full or otherwise fully satisfied, and continue to be effective or be reinstated, as the case may be, if at any time payment or other satisfaction of any of the Obligations is rescinded or must otherwise be restored or returned upon the bankruptcy, insolvency, or reorganization of the Borrower, or otherwise, as though such payment had not been made or other satisfaction occurred. No invalidity, irregularity or unenforceability of the Obligations by reason of applicable bankruptcy laws or any other similar law, or by reason of any law or order of any government or agency thereof purporting to reduce, amend or otherwise affect the Obligations, shall impair, affect, be a defense to or claim against the obligations of Guarantor under this Guaranty.

Section 9. Freedom of Lender to Deal with Borrower and Other Parties . The Lender shall be at liberty, without giving notice to or obtaining the assent of Guarantor and without relieving Guarantor of any liability hereunder, to deal with the Borrower and with each other party who now is or after the date hereof becomes liable in any manner for any of the

 

-3-


G UARANTY    [N AME OF G UARANTOR ]

 

Obligations, in such manner as the Lender in its sole discretion deems fit, and to this end the Guarantor gives to the Lender full authority in its sole discretion to do any or all of the following things: (a) extend credit, make loans and afford other financial accommodations to the Borrower at such times, in such amounts and on such terms as the Lender may approve, (b) vary the terms and grant extensions of any present or future indebtedness or obligation of the Borrower or of any other party to Lender, (c) grant time, waivers and other indulgences in respect thereto, (d) vary, exchange, release or discharge, wholly or partially, or delay in or abstain from perfecting and enforcing any security or guaranty or other means of obtaining payment of any of the Obligations which the Lender now has or may acquire after the date hereof, (e) accept partial payments from the Borrower or any such other party, (f) release or discharge, wholly or partially, any endorser or guarantor, and (g) compromise or make any settlement or other arrangement with the Borrower or any such other party.

Section 10. Unenforceability of Obligations Against Borrower; Invalidity of Security or Other Guaranties. If for any reason the Borrower has no legal existence or is under no legal obligation to discharge any of the Obligations undertaken or purported to be undertaken by it or on its behalf, or if any of the moneys included in the Obligations have become irrecoverable from the Borrower by operation of law or for any other reason, this Guaranty shall nevertheless be binding on the Guarantor to the same extent as if Guarantor at all times had been the principal debtor on all such Obligations. This Guaranty shall be in addition to any other guaranty or other security for the Obligations, and it shall not be prejudiced or rendered unenforceable by the invalidity of any such other guaranty or security.

Section 11. Waivers by Guarantor. (a) The Guarantor waives notice of acceptance hereof, notice of any action taken or omitted by the Lender in reliance hereon, and any requirement that the Lender be diligent or prompt in making demands hereunder, giving notice of any default by the Borrower or asserting any other rights of the Lender hereunder. The Guarantor also irrevocably waives, to the fullest extent permitted by law, all defenses in the nature of suretyship that at any time may be available in respect of Guarantor’s obligations hereunder by virtue of any statute of limitations, valuation, stay, moratorium law or other similar law now or hereafter in effect.

 

-4-


G UARANTY    [N AME OF G UARANTOR ]

 

(b) Guarantor understands and acknowledges that if Lender forecloses, either by judicial foreclosure or by exercise of power of sale, any deed of trust or mortgage securing the Obligations, that foreclosure could impair or destroy any ability Guarantor may have to seek reimbursement, contribution, or indemnification from Borrower or others based on any right Guarantor may have of subrogation, reimbursement, contribution, or indemnification for any amounts paid by Guarantor under this Guaranty. Guarantor further understands and acknowledges that in the absence of this paragraph, such potential impairment or destruction of Guarantor’s rights, if any, may entitle Guarantor to assert a defense to this Guaranty based on Section 580d of the California Code of Civil Procedure ( “CCP” ) as interpreted in Union Bank v. Gradsky , 265 Cal. App. 2d. 40 (1968). By executing this Guaranty, Guarantor freely, irrevocably, and unconditionally: (i) waives and relinquishes that defense and agrees that Guarantor will be fully liable under this Guaranty even though Lender may foreclose, either by judicial foreclosure or by exercise of power of sale, any deed of trust or mortgage securing the Obligations; (ii) agrees that Guarantor will not assert that defense in any action or proceeding Lender may commence to enforce this Guaranty; (iii) acknowledges and agrees that the rights and defenses waived by Guarantor in this Guaranty include any right or defense Guarantor may have or be entitled to assert based upon or arising out of any one or more of CCP §§ 580a, 580b, 580d, or 726 or Section 2848 of the California Civil Code ( “CC” ); and (iv) acknowledges and agrees that Lender is relying on this waiver in creating the Obligations, and that this waiver is a material part of the consideration therefor.

(c) Guarantor agrees not to claim or attempt to enforce any rights and defenses that are or may become available to Guarantor under CC §§2787 to 2855, inclusive, until this Guaranty has terminated as provided in Section 8. Guarantor waives the benefit of any statute of limitations affecting its liability hereunder.

Section 12. Restriction on Subrogation and Contribution Rights. Notwithstanding any other provision to the contrary contained herein or provided by applicable Law, unless and until all of the Obligations have been indefeasibly paid in full in cash or otherwise satisfied in full, the Guarantor hereby irrevocably defers and agrees not to enforce any and all rights it may have at any time (whether arising directly or indirectly, by operation of law or by contract) to assert any claim against the Borrower on account of payments made under this Guaranty, including, without limitation, any and all rights of or claim for subrogation, contribution, reimbursement, exoneration and indemnity, and further waives any benefit of and any right to participate in any collateral which may be held by the Lender or any affiliate of the Lender. In addition, the Guarantor will not claim any set-off or counterclaim against the Borrower in respect of any liability it may have to the Borrower unless and until all of the Obligations have been indefeasibly paid in full in cash and satisfied in full.

Section 13. Notices; Demands. Any demand on or notice made or required to be given pursuant to this Guaranty shall be in writing and shall be delivered in hand, mailed by United States registered or certified first class mail, postage prepaid, return receipt requested,

 

-5-


G UARANTY    [N AME OF G UARANTOR ]

 

sent by overnight courier, or sent by telegraph, telecopy, telefax or telex and confirmed by delivery via courier or postal service, addressed as follows:

(a) if to the Guarantor, at

c/o A DESTO T ECHNOLOGIES C ORPORATION

1250 Borregas Avenue

Sunnyvale, California 94089

Attn:

Telephone:

Facsimile:(            )             -            

E-mail:

or at such other address for notice as the Guarantor shall last have furnished in writing to the Lender; and

(b) if to the Lender, at

O PUS B ANK

Attn:

Telephone:

Facsimile:

with a copy to,

O PUS B ANK

Attn:

Telephone:

E-mail:

or at such other address for notice as the Lender shall last have furnished in writing to the Guarantor.

Any such notice or demand shall be deemed to have been duly given or made and to have become effective on the terms set forth in Section 9.02 to the Credit Agreement.

Section 14. Amendments, Waivers, Etc. No provision of this Guaranty can be changed, waived, discharged or terminated except by an instrument in writing signed by Lender and the Guarantor expressly referring to the provision of this Guaranty to which such instrument relates; and no such waiver shall extend to, affect or impair any right with respect to any Obligation which is not expressly dealt with therein. No course of dealing or delay or omission on the part of the Lender or any of them in exercising any right shall operate as a waiver thereof or otherwise be prejudicial thereto.

 

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G UARANTY    [N AME OF G UARANTOR ]

 

Section 15. Further Assurances. The Guarantor shall, at its sole cost and expense, execute and deliver such further acts and documents as the Lender from time to time may reasonably request in order to give full effect to this Guaranty and to perfect and preserve the rights and powers of the Lender hereunder.

Section 16. Governing Law. (a) THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE; PROVIDED THAT LENDER SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.

(b) THE GUARANTOR AGREES THAT ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS GUARANTY OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA OR OF THE UNITED STATES FOR THE CENTRAL DISTRICT OF SUCH STATE, AND BY EXECUTION AND DELIVERY OF THIS GUARANTY, GUARANTOR CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. GUARANTOR AND LENDER IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS GUARANTY, ANY OTHER LOAN DOCUMENT OR OTHER DOCUMENT RELATED HERETO. GUARANTOR WAIVES PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY THE LAW OF SUCH STATE.

Section 17. Miscellaneous Provisions.

(a) This Guaranty shall inure to the benefit of the Lender and its successors in title and assigns permitted under the Credit Agreement, and shall be binding on the Guarantor and the Guarantor’s successors in title, assigns and legal representatives.

(b) The rights and remedies herein provided are cumulative and not exclusive of any remedies provided by law or any other agreement. The invalidity or unenforceability of any one or more sections of this Guaranty shall not affect the validity or enforceability of its remaining provisions.

(c) Captions are for ease of reference only and shall not affect the meaning of the relevant provisions. The meanings of all defined terms used in this Guaranty shall be equally applicable to the singular and plural forms of the terms defined.

Section 17. WAIVER OF JURY TRIAL. GUARANTOR HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS GUARANTY AND ANY OTHER LOAN DOCUMENT OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO

 

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G UARANTY    [N AME OF G UARANTOR ]

 

THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO ANY LOAN DOCUMENT, OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER FOUNDED IN CONTRACT OR TORT OR OTHERWISE; AND GUARANTOR HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT LENDER MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE GUARNTOR TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.

[Remainder of Page Intentionally Left Blank]

 

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G UARANTY    [N AME OF G UARANTOR ]

 

I N W ITNESS W HEREOF , the Guarantor has executed and delivered this Guaranty as of the date first above written.

 

[N AME OF G UARANTOR ]
By:  

 

Name:  

 

Title:  

 

 

   
   


  

 

EXHIBIT H

FORM OF STOCK PLEDGE AGREEMENT

 

Credit Agreement   H-1  
  Form of Stock Pledge Agreement  


 

 

S ECURITY AND P LEDGE A GREEMENT

(Stock, Membership Interests, Partnership Interests)

Dated as of April 30, 2015

From

A DESTO T ECHNOLOGIES C ORPORATION

and

A RTEMIS A CQUISITION LLC,

as Debtors,

to

O PUS B ANK ,

as Lender and Secured Party

 

 

 

 


S ECURITY AND P LEDGE A GREEMENT

(Stock, Membership Interests, Partnership Interests)

T HIS S ECURITY AND P LEDGE A GREEMENT (Stock, Membership Interests, Partnership Interests) (this “Pledge Agreement” ), is made as of A PRIL 30, 2015, by and between A DESTO T ECHNOLOGIES C ORPORATION , a California corporation ( “Adesto” ), A RTEMIS A CQUISITION LLC , a California limited liability company ( “Artemis” , and, together with Adesto, collectively, the “Debtor” ), and O PUS B ANK , a California Commercial Bank ( “Opus” or “Lender” ), as Lender under that certain Credit Agreement of even date among Debtors and Lender (as amended from time to time, the “Credit Agreement” ).

R ECITALS

A. Concurrently herewith, Debtor is entering into the Credit Agreement pursuant to which Lender provides Debtor with a senior term loan facility (the “Facility” ).

B. It is a prerequisite to the Lender entering into the Credit Agreement that Debtor enter into this Pledge Agreement and grant to Lender, the security interest hereafter provided to secure the Obligations.

C. Debtor, as owner of the assets encumbered hereby, desires to enter into this Pledge Agreement to secure payment and performance of the Obligations.

A GREEMENT

N OW , T HEREFORE , for good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows:

1. DEFINITIONS . For purposes of this Pledge Agreement, the following terms shall have the meanings specified below.

1.1 Bankruptcy Code . The term “Bankruptcy Code” shall mean the Bankruptcy Reform Act of 1978 (11 U.S.C. §101-1130) as amended and as hereafter modified.

1.2 Collateral . “Collateral” shall mean, collectively:

(a) All securities, warrants, assets, security entitlements, investment property and other property whether now owned (and as described in Exhibit A ) or hereafter acquired; provided, that in all instances the pledge of equity interests of any Subsidiary formed in a jurisdiction other than a jurisdiction in the United States (a “Foreign Subsidiary” ) shall be limited to 65% of such equity interests) subject to the terms and conditions as are provided in Sections 3, 4 and 8 below;

(b) All proceeds, and revenues of or from the personal property whether now owned (and as described in Exhibit A attached hereto) or hereafter acquired, all substitutions for such personal property, and all additions thereto (collectively, the “ Collateral


S TOCK P LEDGE A GREEMENT

 

Revenues” ), including (i) stock rights, rights to subscribe, liquidating dividends, stock dividends, cash dividends, interest, stock splits, warrants, options, conversion rights, puts, calls, new securities and other property to which Debtor is or may hereafter become entitled to receive on account of such personal property; and (ii) all Proceeds of such personal property which consist of accounts, contract rights, instruments, documents, chattel paper, inventory, goods, merchandise, equipment, and general intangibles as these terms are defined in the UCC; and

(c) All Collateral Records.

1.3 Collateral Records . The term “Collateral Records” shall mean all of Debtor’s existing and hereafter acquired books, records, data and other documents relating to the assets referred to in Section 1.2(a) and (b).

1.4 Debtor . The term “Debtor” shall have the meaning given to such term in the preamble of this Pledge Agreement.

1.5 Event of Default . “Event of Default” shall have the meaning given to such term in Section 7 of this Pledge Agreement.

1.6 Governmental Authority . The term “Governmental Authority” shall mean (a) any international, foreign, federal, state, county or municipal government, or political subdivision thereof, (b) any governmental or quasi-governmental agency, authority, board, bureau, commission, department, instrumentality, central bank or public body, or (c) any court, administrative tribunal or public utility.

1.7 Lender . The term “Lender” shall have the meaning given to such term in the preamble to this Pledge Agreement.

1.8 Lender Expenses . The term “Lender Expenses” means all costs and expenses incurred by Lender which are subject to payment or reimbursement by Debtor pursuant to Section 9.03 of the Credit Agreement.

1.9 Intentionally Omitted.

1.10 Intentionally Omitted.

1.11 Pledge Agreement . The term “Pledge Agreement” shall mean this Pledge Agreement, any concurrent or subsequent rider to this Pledge Agreement and any extensions, supplements, amendments or modifications to this Pledge Agreement and/or to any such rider.

1.12 Proceeds . The term “Proceeds” shall have the meaning provided in the UCC and shall include without limitation whatever is received upon the sale, lease, exchange, collection or other disposition of Collateral or proceeds, including, without limitation, proceeds of insurance covering Collateral, tax refunds, and any and all accounts, notes, instruments, chattel paper, equipment, money, deposit accounts, goods, or other tangible and intangible property of Debtor resulting from the sale or other disposition of the Collateral, and the proceeds thereof.

 

2


S TOCK P LEDGE A GREEMENT

 

1.13 UCC . The term “UCC” shall mean the California Uniform Commercial Code, as amended from time to time.

1.14 Other Terms . All terms with an initial capital letter that are used but not defined in this Pledge Agreement shall have the respective meanings given to such terms in the Credit Agreement and in Articles 8 and 9 of the UCC, respectively, as applicable.

2. GRANT OF SECURITY INTEREST IN COLLATERAL . As security for the prompt and complete payment and performance of all the Obligations, Debtor hereby grants to Lender, a first priority security interest (subject to Permitted Liens) in all of Debtor’s right, title and interest in, to and under the Collateral.

3. DELIVERY OF COLLATERAL AND VOTING .

3.1 Collateral Delivery .

(a) Initial Delivery of Collateral . Concurrently with Debtor’s execution of this Pledge Agreement and delivery of this Pledge Agreement to the Lender, Debtor shall deliver physical possession to the Lender of every stock certificate, document, instrument and chattel paper which constitutes Collateral and obtain the fully executed Consent in the form attached hereto as Exhibit B . Any such items of Collateral that are certificated securities shall be duly endorsed in blank without restriction or with a duly executed assignment separate from certificate (stock power) duly endorsed in blank without restriction and with all necessary transfer tax stamps affixed. To the extent that Debtor delivers to Lender one or more stock certificates each of which ( “Foreign Subsidiary Certificate” ) reflects an equity interest in any Foreign Subsidiary in excess ( “Excess Equity Interest” ) of the percentage set forth in Section 1.1(c) above ( “Designated Percentage Interest” ), Lender will be entitled to hold such Foreign Subsidiary Certificate to reflect and perfect its security interest in 65% of the equity interest in the Foreign Subsidiary, unless and until Debtor delivers to Lender a (i) replacement certificate reflecting the Designated Percentage Interest; and (ii) an acceptable legal opinion from a law firm reasonably acceptable to Lender that the replacement certificate was properly issued and is fully paid for and properly reflects the Designated Percentage interest in the subject entity and may be delivered to Lender as collateral. (Such replacement certificates when delivered or provided herein as referred to as the “Replacement Foreign Subsidiary Certificate” ).

(b) Future Delivery of Collateral . If at any time after the date of this Pledge Agreement, Debtor obtains possession of any certificate or instrument constituting or representing any item of Collateral, (i) Debtor shall immediately deliver or arrange for the immediate delivery of such certificate or instrument to Lender; (ii) to the extent such item represents a certificated security, Debtor shall duly endorse such certificate in blank without restriction or deliver a duly executed assignment separate from certificate (stock power) duly

 

3


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endorsed in blank without restriction and with all necessary transfer tax stamps affixed; and (iii) Debtor shall hold such Collateral separate and apart from Debtor’s other funds and property in an express trust for the benefit of the Lender until paid or delivered to the Lender.

(c) Uncertificated Securities . If any item of Collateral is an uncertificated security, Debtor shall either (i) procure the issuance of a security certificate to represent such Collateral and endorse and deliver such certificate as required by Section 3.1(a) above; or (ii) cause the issuer thereof to register the Lender as the registered owner of such uncertificated security; or (iii) cause the issuer thereof to enter into an agreement, in form and substance reasonably satisfactory to the Lender, among the Lender, the registered owner of such security, and the issuer to the effect that the issuer will comply with instructions originated by the Lender without further consent by the registered owner; or (iv) cause the security to be credited to a securities account and execute an agreement in form reasonably acceptable to Lender to permit Lender to gain control of such asset.

3.2 Control . If any Collateral is not capable of being delivered, Debtor shall deliver to Lender such financing statements or other instruments as are deemed necessary by Lender to enable it to perfect its security interest in such Collateral and obtain “control” or “possession” of such Collateral under applicable law.

3.3 Pledge under Foreign Law . To the extent that the pledge of the item of Collateral is governed by the laws of a jurisdiction other than a state of the United States, Debtor shall, in lieu of compliance with the other provisions of this Section 3, enter into such agreements and documents as are reasonably necessary to accomplish the pledge of such Collateral to Lender.

3.4 Voting . Provided that no Event of Default has occurred and is continuing, Debtor shall have the right to exercise all voting rights and other consensual rights and powers with respect to the Collateral for any purpose not inconsistent with the terms of this Pledge Agreement and the other Loan Documents; provided, however, that (a) Debtor shall not exercise any such right or power if, in Lender’s discretion, such action would have an adverse effect on the value of the Collateral or impair or otherwise adversely affect the security interest or other rights of the Lender under this Pledge Agreement; and (b) Debtor shall not be permitted to trade, invest, or sell the Financial Assets (as such term is defined in Division 8 of the UCC) without the prior written consent of the Lender.

4. DISPOSITION OF COLLATERAL REVENUES .

4.1 Delivery to Debtor; No Event of Default . Provided that no Event of Default has occurred and is continuing, the Collateral Revenues shall be retained by Debtor to the extent provided in Section 4.3 below.

 

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4.2 Occurrence of Event of Default . If an Event of Default has occurred and is continuing, the Lender shall have the right to hold and apply the Collateral Revenues as provided below.

4.3 Payment of Cash Dividends and Interest . Provided that no Default or Event of Default shall have occurred and be continuing, Debtor shall be entitled to receive all cash dividends and interest payable in connection with the Collateral, except for the following, which are referred to as “Liquidation Dividends,” for (a) cash dividends paid or payable in respect of any Collateral in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus, or paid-in capital of the issuer of such Collateral; and (b) cash paid, payable, or otherwise distributed in respect of principal of, or in redemption of, or in exchange for, any Collateral. If at any time and for any reason Debtor receives any Collateral Revenues other than those that Debtor is entitled to receive under this Section 4.3, Debtor (i) shall immediately deliver such Collateral Revenues to the Lender in the original form received by Debtor; (ii) shall execute and deliver to the Lender such documents of transfer respecting such Collateral Revenues as the Lender may require, including an endorsement in blank of any certificate evidencing such Collateral Revenues; (iii) shall not commingle such Collateral Revenues with any of Debtor’s other funds or property; and (iv) shall hold such Collateral Revenues separate and apart from Debtor’s other funds and property in an express trust for Lender until paid or delivered to the Lender. Notwithstanding the foregoing, to the extent that the Lender holds a Foreign Subsidiary Certificate which reflects an Excess Equity Interest, Lender may receive and collect all Liquidation Dividends payable in connection with the entire Foreign Subsidiary Certificate. Lender shall refund to Debtor any Liquidation Dividends allocable to the Excess Equity Interest.

5. COVENANTS REPRESENTATIONS AND WARRANTIES .

5.1 Debtor’s Covenants . Notwithstanding anything to the contrary contained in the other Loan Documents (and subject to Section 15.11 below), Debtor hereby covenants and agrees that during the term hereof and until all Obligations are fully paid and performed:

(a) Intentionally Omitted .

(b) Further Assurances . Debtor shall deliver to Lender promptly or ensure that Lender promptly receives (i) all Collateral that Debtor is obligated to deliver to the Lender under Section 3.1 above; (ii) all financing statements and all other documents that Lender deems necessary or desirable to evidence the transfer and pledge of the Collateral to Lender as provided in this Pledge Agreement; (iii) except as otherwise expressly provided in this Pledge Agreement, all Collateral Revenues; (iv) such specific acknowledgments, assignments, stock or bond powers, Regulation U Statement of Purpose forms, and other documents as the Lender may request relating to the Collateral; and (v) copies of records and other reports relating to the Collateral in such form and detail and at such times as the Lender may from time to time require.

 

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(c) Changes in Collateral . Debtor shall give prompt notice to Lender of any threatened or asserted dispute or claim with respect to the Collateral, which could reasonably be expected to materially and adversely affect the Collateral.

(d) Subsidiaries . If there is a material recapitalization or restructure or acquisition of the equity interest in any Subsidiaries of Debtor, Debtor shall take such action as is necessary so that Lender shall have and retain (i) 100% of the equity interest in all domestic Material Subsidiaries wholly-owned by Debtor and organized under the laws of the United States or any state or jurisdiction thereof, and (ii) 65% of the equity interests of any First Tier Foreign Subsidiary.

(e) Perfection . From time to time upon Lender’s request, Debtor (i) shall execute and deliver to Lender, and give, file or record, at Debtor’s expense, all notices and other documents that Lender deems necessary or appropriate in order for the Lender to maintain a first priority (subject to Liens (including tax liens) in favor of any Governmental Authority which pursuant to statute or law creating such Lien and other applicable law, have priority over any Lien granted under this Pledge Agreement) perfected security interest in the Collateral; and (ii) shall perform such other acts, and execute and deliver to Lender such additional assignments, agreements, instruments and other documents, as Lender may request in connection with the administration and enforcement of this Pledge Agreement or the Lender’s exercise of any or all of its rights, powers and remedies under this Pledge Agreement.

(f) Litigation Cooperation . Debtor, at its expense, shall appear in and defend any action or proceeding which may materially and adversely affect Debtor’s title to all or part of the Collateral or Lender’s security interest in the Collateral.

(g) Changes . Without prior written notice to Lender, Debtor will not change its name, mailing address, or its state of incorporation.

5.2 Debtor’s Representations . Debtor represents and warrants to Lender as follows:

(a) Ownership of Collateral . Debtor is the sole legal and beneficial owner of the Collateral, free and clear of all Liens, except for the security interest in favor of Lender under this Pledge Agreement and Permitted Liens currently existing in favor of any foreign governmental authority, which to the best of Debtor’s knowledge do not currently exist.

(b) Status of Collateral . All of the Collateral consisting of securities has been duly and validly issued and is fully paid for and non-assessable. Except for Collateral that Debtor has previously disclosed to Lender as “restricted securities” or securities held by an “affiliate” (as such terms are defined in Rule 144 under the Securities Act of 1933, as amended), including Collateral consisting of the stock of any subsidiary of Debtor, or as may be specifically stated to the Lender in writing prior to the date of this Pledge Agreement, all of the Collateral is transferable without prior notice to, or approval or consent from, any person or governmental or regulatory authority, and there exists no condition or restriction or restrictive legend to or affecting the transfer of the Collateral.

 

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(c) Authority to Pledge . Debtor has full rights and authority to pledge the Collateral in the manner hereby specified; and (except for approvals which have already been obtained) no consent of any governmental body or regulatory authority is necessary for the rights created hereunder to be valid.

(d) Continuing Warranties . Debtor’s warranties and representations set forth in this Section 5 and in any exhibit hereto shall be true and correct at the time of execution of this Pledge Agreement by Debtor and at the time Debtor requests or receives any advance under the Credit Agreement.

(e) Subsidiaries . The assets described in Exhibit A as of the time of this Pledge Agreement are all of the issued and outstanding equity interests of the entities described therein, except with respect to any First Tier Foreign Subsidiaries in which case they are only 65% of such issued and outstanding equity interests.

(f) Warranties and Representations Cumulative . The warranties, representations and agreements set forth herein shall be cumulative and in addition to any and all other warranties, representations and agreements which Debtor shall give, or cause to be given, to Lender, either now or hereafter.

6. DUTY OF LENDER TO COOPERATE WITH READJUSTMENTS . Lender agrees to cooperate with Debtor to maintain the percentage interests set forth in 3.1(a) by adjusting the number of equity interests pledged hereunder in the event there is a recapitalization, restructure or acquisition of equity interests by Debtor relating to any of its Subsidiaries.

7. EVENTS OF DEFAULT . The occurrence of any of the following shall constitute an Event of Default under this Pledge Agreement, at the option of the Lender.

7.1 Breach of Pledge Agreement . (i) Any representation or warranty hereunder proves to have been incorrect in any material respect when made or deemed made, (ii) Debtor breaches any provision of this Pledge Agreement which cannot be cured or (iii) the breach by Debtor of any other provision of this Pledge Agreement that remains uncured for a period of thirty (30) days.

7.2 Breach of Other Agreements . The occurrence and continuance of an Event of Default under the Credit Agreement.

7.3 Lien Priority . Lender shall cease to have a valid and perfected first priority (subject to Permitted Liens in favor of any Governmental Authority which pursuant to statute or law creating such Lien and other applicable law, have priority over the Lien granted in this Pledge Agreement) lien upon any material item of the Collateral purported to be covered by such security interest.

 

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7.4 Seizure of Assets . If all or any material item(s) of the Collateral is attached, seized, subjected to a writ or distress warrant, or is levied upon and such action could reasonably be expected to cause a Material Adverse Effect.

8. LENDER’S RIGHTS AND REMEDIES ON DEFAULT . The exercise of remedies hereunder shall be made by Lender upon the terms and conditions contained herein. If an Event of Default shall have occurred and be continuing and has not been cured or waived in accordance with the terms hereof or the Credit Agreement, Lender shall have the following rights and powers and may, at Lender’s option, without notice of its election and without demand to the extent permitted by Section 8.3 of the Credit Agreement, do any one or more of the following (in addition to the rights and remedies permitted under the Credit Agreement), all of which are hereby authorized by Debtor:

8.1 UCC Rights . The Lender shall have all of the rights and remedies of a secured party under the UCC and under all other applicable laws.

8.2 Intentionally Omitted .

8.3 Intentionally Omitted .

8.4 Assembly of Collateral . The Lender may require Debtor to assemble the Collateral and make it available to the Lender at a place designated by the Lender.

8.5 Possession of Collateral . Lender, without a breach of the peace, may enter any of the premises of Debtor and search for, take possession of, remove, keep or store any or all of the Collateral. If the Lender seeks to take possession of any or all of the Collateral by court process, Debtor irrevocably and unconditionally agrees that a receiver may be appointed by a court for such purpose without regard to the adequacy of the security for the Obligations.

8.6 Foreclose on Collateral . Lender shall have the right to sell and dispose of the Collateral, or any part thereof, at public or private sale or at any broker’s board or on any securities exchange, for cash, upon credit or for future delivery, and at such price or prices as the Lender may deem satisfactory. Lender may be the purchaser of any or all of the Collateral so sold at any public sale (or, if the Collateral is of a type customarily sold in a recognized market or is of a type which is the subject of widely distributed standard price quotations, at any private sale) and thereafter hold the same, absolutely free from any right or claim of whatsoever kind. Lender is authorized, at any such sale, if it deems it advisable so to do, to restrict the prospective bidders or purchasers of any of the Collateral to persons who will represent and agree that they are purchasing for their own account for investment, and not with a view to the distribution or sale of any of the Collateral. Upon any such sale the Lender shall have the right to deliver, assign, and transfer to the purchaser thereof the Collateral so sold. Each purchaser at any such sale shall hold the Collateral so sold free from any claim or right of whatsoever kind of Debtor or any other Person, including any equity or right of redemption of Debtor, who, to the extent permitted by law, specifically waives any now existing or hereafter acquired rights of

 

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redemption, stay or appraisal. Lender shall give Debtor: (i) ten (10) days written notice of its intention to make any such public or private sale; or (ii) two (2) days notice of any sale at a broker’s board or on a securities exchange. Such notice, in case of a public sale, shall state the time and place fixed for such sale, and, in case of sale at a broker’s board or on a securities exchange, shall state the board or exchange at which such sale is to be made and the day on which the Collateral, or the portion thereof being so sold, will first be offered for sale at such board or exchange. Any such public sale shall be held at such time or times within ordinary business hours and at such place or places as the Lender may fix in the notice of such sale. At any such sale the Collateral may be sold in one lot as an entirety or in separate parcels, as the Lender may determine. Lender shall not be obligated to make any such sale pursuant to any such notice. Lender may, without notice or publication, postpone any public or private sale or cause the same to be postponed from time to time by announcement at the time and place fixed for the sale, and such sale may be made at any time or place to which the same may be so postponed. In case of any sale of all or any part of the Collateral on credit or for future delivery, the Collateral so sold may be retained by the Lender until the selling price is paid by the purchaser thereof, but the Lender shall not incur any liability in case of the failure of such purchaser to take up and pay for the Collateral so sold and, in case of any such failure, such Collateral may again be sold upon like notice. To the extent that Lender holds any Foreign Subsidiary Certificate which reflects an Excess Equity Interest, Lender may foreclose on such certificate in any manner permitted by applicable law or as specified in this Section 8 as regards any item of Collateral. Upon any sale of such Certificate, Lender will release to Debtor any consideration received in return for the sale of the Excess Equity Interest.

8.7 Judicial Action . Lender, in its discretion, may proceed by a suit or suits at law or in equity to foreclose its security interests in the Collateral under a judgment or decree of a court or courts of competent jurisdiction. Debtor agrees that any disposition of Collateral by way of a private placement or other method which, in the opinion of the Lender, is required or advisable under federal and state securities laws is commercially reasonable.

8.8 Collateral Revenues . Debtor’s rights, if any, to receive any Collateral Revenues shall automatically cease, and all Collateral Revenues shall be paid to the Lender. Any and all Collateral Revenues received by the Lender may be retained by the Lender as additional Collateral or, in the Lender’s discretion, may be applied toward the satisfaction of the Obligations. In such event the Lender shall have the right and power to receive, endorse and collect all checks and other orders for payment of money made payable to Debtor representing any dividend or other distribution payable or distributable in respect of any Collateral.

8.9 Information . Without limiting the generality of this Section 8, it shall conclusively be deemed to be commercially reasonable for the Lender to direct any prospective purchaser of any or all of the Collateral to Debtor to ascertain all information concerning the status of the Collateral.

8.10 Commercially Reasonable Actions by Lender . Debtor acknowledges that it may be impracticable or extremely difficult to effect a public sale of all or part of the Collateral

 

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by reason of certain restrictions contained in state and federal securities laws, as now or hereafter in effect. Because of such restrictions, and without limiting the generality of this Section 8, it shall conclusively be deemed to be commercially reasonable for the Lender to do any or all of the following:

(a) To resort to one or more private sales to a single purchaser or a restricted group of purchasers who may be obligated to agree, among other things, to acquire the Collateral for their own account, for investment and not with a view to the distribution or resale thereof; and

(b) To impose restrictions and conditions with respect to (i) the ability of a purchaser or bidder to bear the economic risk of an investment in the Collateral; (ii) the knowledge and experience of business and financial matters of a purchaser or bidder; (iii) the access of a purchaser or bidder to information regarding the Collateral; and (iv) such other matters as the Lender determines to be necessary or advisable to comply with any state or federal securities laws.

8.11 No Registration Required . Debtor acknowledges that some or all of the conditions and restrictions which may be imposed by the Lender pursuant to Section 8.10 above may result in reduced proceeds being received upon the sale of the Collateral than would otherwise have been obtained. Lender shall have no obligation to delay the sale of any or all of the Collateral for the period of time necessary to permit registration by the issuer of any securities comprising the Collateral, even if such registration would be possible under applicable state and federal securities law.

8.12 Other Procedures . Lender’s disposition of any or all of the Collateral in any manner which differs from the procedures specified in this Section 8 shall not be deemed to be commercially unreasonable.

8.13 Foreclosure . If the Lender has reduced its claims for breach of any of the obligations to judgment, the lien of any levy which may be made on any or all of the Collateral by virtue of any execution based upon such judgment shall relate back to the date of the Lender’s perfection of its security interest in such Collateral. A judicial sale pursuant to such execution shall constitute a foreclosure of the Lender’s security interest by judicial procedure, and the Lender may purchase at such sale and thereafter hold the Collateral free of all rights of Debtor therein.

8.14 Discharge Claims . Lender may discharge claims, demands, liens, security interests, encumbrances and taxes affecting any or all of the Collateral and take such other actions as the Lender determines to be necessary or appropriate to protect the Collateral and the Lender’s security interest therein. Lender, without releasing Debtor or any other Person from any of the Obligations, may perform any of the Obligations in such manner and to such extent as the Lender determines to be necessary or appropriate to protect the Collateral and the Lender’s security interest therein,

 

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8.15 Proceeds of Sale . The proceeds of any sale or disposition of the Collateral by the Lender shall be applied in the following order of priority:

(a) First, to all liabilities, obligations, costs, and expenses, including reasonable attorneys’ fees and costs, incurred by the Lender in exercising any of its rights or remedies under this Pledge Agreement, including the costs and expenses of retaking, holding, and selling any or all of the Collateral;

(b) Second, to the payment of the Obligations in such order and amounts as the Lender may determine in its discretion as more fully set forth in the Credit Agreement;

(c) Third, to (i) the satisfaction of indebtedness secured by any subordinate security interest in the Collateral if written demand therefor is received by the Lender before distribution of any such proceeds; and (ii) to the satisfaction of any subordinate attachment lien or execution lien pursuant to subdivision (b) of Section 701.040 of the Code of Civil Procedure if notice of the levy of attachment or execution is received by the Lender before distribution of any such proceeds. If requested by the Lender, the holder of a subordinate security interest in the Collateral shall furnish the Lender with proof of its interest in the Collateral acceptable to the Lender, and unless such holder does so, the Lender shall have no obligation to comply with such holder’s demand; and

(d) Fourth, the surplus, if any, shall be paid to Debtor.

8.16 Voting Rights . Lender may exercise any or all warrants, options, conversion rights, puts, calls, voting rights, and other rights with respect to any or all of the Collateral (collectively the “Voting and Stock Rights” ) in such manner and to such extent as the Lender in its discretion determines to be necessary or appropriate, and Debtor’s rights and authority to exercise the Voting and Stock Rights shall automatically terminate upon the occurrence and during the continuance of an Event of Default. Notwithstanding anything to the contrary contained in this Pledge Agreement, the Lender shall have no obligation to exercise any or all Voting and Stock Rights, and the Lender shall have no liability or responsibility of any kind to Debtor or any other party for the Lender’s exercise or delay or failure to exercise any or all of the Voting and Stock Rights. In connection with the Lender’s exercise of any or all of the Voting and Stock Rights, the Lender shall have the right (a) to deposit or surrender control of any or all of the Collateral to any third Person; (b) to accept other property in exchange for the Collateral; and (c) to take such other actions as the Lender in its discretion determines to be necessary or appropriate.

9. LIABILITY FOR DEFICIENCY . Debtor shall at all times remain liable for any deficiency remaining on the Obligations, and is liable after any disposition of any or all of the Collateral and after the Lender’s application of any proceeds to the Obligations.

 

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10. POWER OF ATTORNEY . Debtor irrevocably (until the Obligations are paid in full and the Revolving Commitments have been terminated) appoints the Lender, with full power of substitution, as Debtor’s attorney-in-fact, coupled with an interest, with full power, in the Lender’s own name or in the name of Debtor:

10.1 At any time after the occurrence and during the continuation of an Event of Default, to do any or all of the following:

(a) Endorse any checks, drafts, money orders, notes, and other instruments or documents representing or evidencing the Collateral;

(b) Pay or discharge claims, demands, liens, security interests, encumbrances, or taxes affecting or threatening the Collateral;

(c) Receive payment of all Collateral Revenues;

(d) Commence, prosecute or defend any suit, action or proceeding relating to any or all of the Collateral;

(e) Instruct any accountant or other third Person having custody or control of any Collateral Records to deliver such records to the Lender; and

(f) Sell, transfer, pledge, make any agreement with respect to, or otherwise deal with the Collateral as though the Lender were the owner thereof for all purposes.

10.2 To execute any security agreement, assignment, notice, and all other documents which the Lender, in its discretion, determines to be necessary or appropriate in order to (a) perfect or maintain the Lender’s security interest in the Collateral; (b) exercise any or all of the Lender’s rights under this Pledge Agreement; or (c) to consummate or effectuate any of the transactions contemplated by this Pledge Agreement.

11. WAIVERS . Debtor hereby waives presentment, demand for payment, protest, notice of demand, dishonor, protest and nonpayment, and all other notices and demands in connection with the delivery, acceptance, performance, default under, and enforcement of the Obligations. Debtor waives the right to assert any statute of limitations as a defense to the enforcement of any of the Obligations to the fullest extent permitted by law. Debtor hereby irrevocably waives, to the fullest extent permitted by law, all defenses in the nature of suretyship that at any time may be available in respect of Debtor’s obligations hereunder by virtue of any statute of limitations, valuation, stay, moratorium law or other similar law now or hereafter in effect.

12. CUMULATIVE REMEDIES . The Lender’s rights and remedies under this Pledge Agreement are cumulative with and in addition to all other rights and remedies which the Lender may have in connection with the Loans. The Lender may exercise any one or more of its rights and remedies under this Pledge Agreement at the Lender’s option and in such order as the Lender may determine in its discretion. The Lender may exercise its rights under this Pledge Agreement from time to time and at such times as the Lender may determine.

 

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13. ACTIONS . The Lender shall have the right, but not the obligation, to commence, appear in, or defend any action or proceeding which affects or which the Lender determines may affect (a) the Collateral; (b) Debtor’s or the Lender’s rights or obligations under the Loan Documents; (c) Debtor’s or the Lender’s rights under this Pledge Agreement; or (d) the Loans.

14. INDEMNITY . Debtor agrees to defend, indemnify and hold harmless Lender, and its respective officers, employees, and agents against: (a) all obligations, demands, claims, and liabilities claimed or asserted by any other party related to or in connection with the transactions contemplated by this Pledge Agreement or the Collateral, and (b) all losses or expenses in any way suffered, incurred, or paid by Lender as a result of or in any way arising out of, following or consequential to the transactions between Lender and Debtor under this Pledge Agreement or the Collateral (including without limitation, reasonable attorneys fees and reasonable expenses), except for losses arising from or out of Lender’s gross negligence or willful misconduct.

15. GENERAL .

15.1 Taxes and Other Expenses Regarding the Collateral . If Debtor fails to pay promptly when due to any person or entity monies which Debtor is required to pay by reason of any provision in this Pledge Agreement, Lender may, but need not, pay the same and charge Debtor’s account therefor, and Debtor shall promptly reimburse Lender therefor. Any payments made by Lender shall not constitute: (a) an agreement by Lender to make similar payments in the future, or (b) a waiver by Lender of any default under this Pledge Agreement. Lender need not inquire as to, or contest the validity of, any such expense, tax, security interest, encumbrance or lien and the receipt of the usual official notice for the payment thereof shall be conclusive evidence that the same was validly due and owing.

15.2 Notices . Any notice, demand or request required hereunder shall be made in the manner set forth in the Credit Agreement.

15.3 Release of Collateral . Lender shall promptly file UCC termination statements and any other instruments as necessary upon any Disposition by Debtor of any items or item of Collateral, to the extent such Disposition is permitted under the Credit Agreement.

15.4 Termination . At such time as Debtor shall completely satisfy all of the Obligations secured hereunder, this Pledge Agreement shall terminate and Lender shall execute and deliver to Debtor all instruments as may be necessary or proper to reinvest in Debtor full title to the property assigned hereunder, subject to any disposition thereof which may have been made by Lender pursuant hereto.

15.5 Course of Dealing . No course of dealing, nor any failure to exercise, nor any delay in exercising any right, power or privilege hereunder shall operate as a waiver thereof.

 

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15.6 Amendment . This Pledge Agreement may be modified only by a written agreement signed by Debtor and the Lender.

15.7 Agreement Binding; Assignment . This Pledge Agreement shall be binding and deemed effective when executed by Debtor and Lender. This Pledge Agreement shall bind and inure to the benefit of the respective successors and assigns of each of the parties; provided, however, that Debtor may not assign this Pledge Agreement, or any rights hereunder without Lender’s prior written consent and any prohibited assignment shall be absolutely void. No consent to an assignment by Lender shall release Debtor from its obligations to Lender. Lender reserves the right to sell, assign, transfer, negotiate or grant participations in all or any part of, or any interest in, Lender’s or such Lender’s rights and benefits hereunder to the extent and in the manner provided for in Section 9.04 of the Credit Agreement. In connection therewith, Lender may disclose all documents and information that Lender now has or hereafter may have relating to Debtor or Debtor’s business subject to Debtor’s reasonable confidentiality requirements.

15.8 Time of Essence . Time is of the essence of each provision of the Loan Documents.

15.9 Article and Section Headings . Article and section headings and article and section numbers have been set forth herein for convenience only. Unless the contrary is compelled by the context, everything contained in each article and section applies equally to this entire Pledge Agreement.

15.10 Construction . Neither this Pledge Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against Lender or Debtor, whether under any rule of construction or otherwise. On the contrary, this Pledge Agreement has been reviewed by all parties and shall be construed and interpreted according to the ordinary meaning of the words used so as to fairly accomplish the purposes and intentions of all parties hereto.

15.11 Conflict or Credit Agreement Modifications . To the extent that there is an explicit conflict between the terms of the Credit Agreement and this Pledge Agreement, the terms of the Credit Agreement shall control. Any future changes or modifications to the Credit Agreement, shall apply to and modify this Pledge Agreement, to the extent that such change or modification would reasonably be construed to apply, to this Pledge Agreement.

15.12 Performance of Covenants . Debtor shall perform all of its covenants under this Pledge Agreement at its sole cost and expense.

15.13 Term . This Pledge Agreement shall continue in full force and effect as long as any of the Obligations are outstanding or until terminated by written agreement of the Lender.

15.14 Severability . Each provision of this Pledge Agreement shall be severable from every other provision of this Pledge Agreement for the purpose of determining the legal

 

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enforceability of specific provision. Without limiting the generality of the preceding sentence, if the Lender’s security interest in any part of the Collateral is held to be unlawful, void, voidable or unenforceable for any reason, such defect shall in no way affect the validity or enforceability of the remaining terms and conditions of this Pledge Agreement.

15.15 No Third Party Beneficiaries . The Loan Documents are entered into for the sole protection and benefit of Lender and Debtor, as applicable, and their respective permitted successors and assigns. No other Person shall have any rights or causes of action under the Loan Documents.

15.16 Counterparts . This Pledge Agreement may be executed in two or more counterparts, each of which is deemed an original but all of which together shall constitute the same instrument.

15.17 No Waiver By Lender . No waiver by the Lender or any of its rights or remedies in connection with the Obligations or any of the terms and conditions of the Loan Documents shall be effective unless such waiver is in writing and signed by the Lender.

15.18 Article 8 Opt Out . No Debtor shall take any action to cause any membership interest, partnership interest, or other equity interest issued by it or any of its Subsidiaries to be or become a “security” within the meaning of, or to be governed by Article 8 of the UCC as in effect under the laws of any state having jurisdiction and shall not itself, and shall not cause or permit any of its Subsidiaries to, “opt in” or to take any other action seeking to establish any such membership interest, partnership interest or other equity interest as a “security” or to become certificated unless certificates evidencing such membership interest, partnership interest or other equity interest are pledged and delivered to the Lender, together with all assignments separate from certificate and other documents as the Lender shall reasonably request.

15.19 Choice of Law . The validity of this Pledge Agreement, its construction, interpretation and enforcement, and the rights of the parties hereunder and concerning the Collateral, shall be determined under, governed by and construed in accordance with the laws of the State of California. The parties agree that all actions or proceedings arising in connection with this Pledge Agreement shall be tried and litigated only in the state courts or federal courts located in the city and county of San Francisco, California.

16. AMENDMENT . This Pledge Agreement may be modified only by a written agreement signed by Debtor and Lender.

17. ADDITIONAL WAIVERS OF DEBTOR . Notwithstanding the rights given to Debtor pursuant to California Civil Code Sections 1479 and 2822 (and any amendments or successors thereto), to designate how payments will be applied, Debtor irrevocably waives such rights, and the Lender shall have the right in its discretion to determine the order and method of the application of payments received from Debtor or from the sale or disposition of the Collateral

 

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and to revise such application prospectively or retroactively at its discretion (notwithstanding any entry by the Lender on its books). Debtor waives any right to require the Lender (a) to proceed against any Person; (b) to exhaust any Collateral; or (c) to pursue any remedy in the Lender’s power in any order or whatsoever.

18. ENTIRE AGREEMENT . The Loan Documents contain the entire agreement between the Lender and Debtor concerning the subject matter of the Loan Documents and supersede all prior and contemporaneous agreements, statements, understandings, terms, conditions, representations and warranties, whether oral or written, made by the Lender or Debtor concerning the Loans.

[Signature page follows]

 

16


S TOCK P LEDGE A GREEMENT

 

All terms and conditions set forth in the Exhibits and any Addendum(s) attached to this Pledge Agreement are incorporated by this reference.

 

ADESTO TECHNOLOGIES CORPORATION, a California corporation, as a Debtor

   

ARTEMIS ACQUISITION LLC, a California limited liability company, as a Debtor

By:  

 

   

By Adesto Technologies Corporation, as sole member and manager of Artemis Acquisition LLC

Name:        
Its:        
      By:  

 

      Name:  
      Its:  
      OPUS BANK , as Lender
      By:  

 

      Name:  
      Its:  

 

17


Exhibit A

This Exhibit is attached to and made a part of the Security and Pledge Agreement (Stock, Membership Interests, Partnership Interests) dated as of April 30, 2015.

 

Debtor

 

Number of

Shares or

Description of

Other Assets

Held as

Collateral

 

Issuer’s Name

and Address

 

Jurisdiction of
Formation

 

Par Value

 

Identification No.

*

  *   Artemis Acquisition LLC   *   *   *

*

  *   Adesto Technologies France   *   *   *

*

  *   Adesto Technologies UK Limited   *   *   *

*

  *   Adesto Technologies Corporation Limited   *   *   *

 

* Confidential Treatment Requested


EXHIBIT B

CONSENT OF COMPANY

[N AME OF C OMPANY ], a company orgainized under the laws of the [Name of Foreign Jurisdiction] ( “Company” ), hereby consents to the collateral assignment by [ A DESTO T ECHNOLOGIES C ORPORATION ] [A RTEMIS A CQUISITION LLC] ( “Debtor” ) of all of its right, title and interest in 65% of all shares in Company to Opus Bank, as Lender ( “Lender” ) under that certain Credit Agreement dated as of April 30, 2015 (as amended from time to time, the “Credit Agreement” ), subject to the terms and conditions of the Stock Pledge Agreement (as defined in the Credit Agreement) of even date therewith and agrees to be bound by the terms of the Stock Pledge Agreement to which this consent is attached and the other Loan Documents.

Company hereby agrees that upon delivery to it by Lender of one or more stock certificates which reflect an equity interest in Company in excess of 65% Company will promptly issue and deliver within ten (10) days thereafter to Lender one or more replacement certificates, which will in aggregate reflect no more than 65% of the equity interest in Company.

 

COMPANY :
[N AME OF C OMPANY ]
By.  

 

Name:  

 

Title:  

 


CONSENT OF COMPANY

[N AME OF C OMPANY ], a                      corporation ( “Company” ), hereby consents to the collateral assignment by [ A DESTO T ECHNOLOGIES C ORPORATION ] [ A RTEMIS A CQUISITION LLC ] ( “Debtor” ) of all of its right, title and interest in 100% of all shares in Company to O PUS B ANK , as as Lender ( “Lender” ) under that certain Credit Agreement dated as of April     , 2015 (as amended from time to time, the “Credit Agreement” ), subject to the terms and conditions of the Stock Pledge Agreement (as defined in the Credit Agreement) of even date therewith and agrees to be bound by the terms of the Stock Pledge Agreement to which this consent is attached and the other Loan Documents.

 

COMPANY :
[N AME OF C OMPANY ]
By.  

 

Name:  

 

Title:  

 

 

   
   


EXHIBIT I

FORM OF INTELLECTUAL PROPERTY SECURITY AGREEMENT

 

Credit Agreement   I-1  
  Form of Intellectual Property Security Agreement  


 

 

I NTELLECTUAL P ROPERTY S ECURITY A GREEMENT

Dated as of April 30, 2015

From

A DESTO T ECHNOLOGIES C ORPORATION

and

A RTEMIS A CQUISITION LLC,

as Debtors,

to

O PUS B ANK ,

as Lender and Secured Party

 

 

 

 

   
   


I NTELLECTUAL P ROPERTY S ECURITY A GREEMENT

T HIS I NTELLECTUAL P ROPERTY S ECURITY A GREEMENT ( “IP Security Agreement” ) is made as of April 30, 2015 by and between A DESTO T ECHNOLOGIES C ORPORATION , a California corporation ( “Adesto” ), A RTEMIS A CQUISITION LLC , a California limited liability company ( “Artemis” , and, together with Adesto, collectively, the “Debtor” ), and O PUS B ANK , a California commercial bank ( “Opus” or “Lender” ) as Lender under that certain Credit Agreement of even date herewith among Debtors and Lender (the “Credit Agreement” ).

R ECITALS

A. Concurrently herewith Debtor is entering into the Credit Agreement pursuant to which Lender shall provide Debtor with a senior term loan facility (the “Facility” ).

B. It is a prerequisite to the Lender entering into the Credit Agreement that Debtor enters into this IP Security Agreement and grants to the Lender, the security interest hereafter provided to secure the Obligations.

C. Debtor as owner of the assets encumbered hereby, desires to enter into this IP Security Agreement to secure payment and performance of the Obligations.

A GREEMENT

N OW , T HEREFORE , for good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows:

 

1. D EFINITIONS .

For purposes of this IP Security Agreement, the following terms shall have the meanings specified below. In addition terms not defined below that are defined in Division 8 or Division 9 of the UCC or in the Credit Agreement shall have the meaning specified therein.

1.1 Bankruptcy Code. The term “Bankruptcy Code” shall mean the Bankruptcy Reform Act of 1978 (11 U.S.C. § 101-1330) as amended and as hereafter modified.

1.2 Collateral. The term “Collateral” shall mean:

(a) The Intellectual Property Collateral;

(b) All Proceeds thereof; and


I NTELLECTUAL P ROPERTY S ECURITY A GREEMENT

 

(c) All of the Debtor’s Books relating thereto.

Notwithstanding the foregoing, the terms “Collateral” and “Intellectual Property Collateral” shall not include any General Intangibles of the Debtor (whether owned or held as licensee or lessee or otherwise) to the extent that the granting of a security interest therein would be contrary to applicable law or create a default under any agreement governing such property, right or license (but solely to the extent that such restrictions are enforceable as a matter of law).

1.3 Copyrights. The term “Copyrights” shall mean any and all copyright rights, copyright applications, copyright registrations and like protections in each work or authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret, now or hereafter existing, created, acquired or held, including without limitation those set forth on Exhibit A attached hereto, and all renewals of the foregoing.

1.4 Debtor’s Books. The term “Debtor’s Books” shall mean all of Debtor’s books and records including, but not limited to: minute books; ledgers, records indicating, summarizing or evidencing Debtor’s assets, liabilities, the Collateral, the Obligations, and all information relating thereto; records indicating, summarizing or evidencing Debtor’s business operations or financial condition; and all computer programs, disc or tape files, printouts, runs, and other computer prepared information and the equipment containing such information.

1.5 Intentionally Omitted.

1.6 Event of Default. The term “Event of Default” shall have the meaning given to such term in Section 9 of this IP Security Agreement.

1.7 Intellectual Property Collateral. The term “Intellectual Property Collateral” shall mean all of the following assets now owned or hereafter acquired:

(a) Copyrights, Trademarks, Patents, and Mask Works;

(b) Licenses or other rights to use any of the Copyrights, Patents, Trademarks, or Mask Works, and all license fees and royalties arising from such use to the extent permitted by such license or rights;

(c) Any and all trade secrets, and any and all intellectual property rights in computer software and computer software products now or hereafter existing, created, acquired or held;

(d) Any and all design rights which may be available to Debtor now or hereafter existing, created, acquired or held;

 

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I NTELLECTUAL P ROPERTY S ECURITY A GREEMENT

 

(e) Any and all claims for damages by way of past, present and future infringement of any of the rights included above, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the intellectual property rights identified above;

(f) All domain names of Debtor, including without limitation those listed on Exhibit D ;

(g) All amendments, renewals and extensions of any of the Copyrights, Trademarks, Patents, or Mask Works;

(h) All contracts and contract rights relating to any of the foregoing; and

(i) All Proceeds of the foregoing.

1.8 IP Priority Liens. The term “IP Priority Liens” shall mean and refer to (i) Liens on any imbedded software in any equipment, the purchase price and related acquisition costs of such equipment which are financed by third-party lenders or lessors as permitted by the Credit Agreement; (ii) Liens in existence on the date any asset becomes Collateral, to the extent such Lien is Permitted by the Credit Agreement, subject to such Lien; (iii) Liens (including tax Liens) in favor of any Governmental Authority, which pursuant to the statute or law and other applicable law creating such Lien, have priority over Liens granted under this IP Security Agreement; (iv) the Liens set forth on Exhibit E hereto and (v) Liens permitted under Section 7.02(i) of the Credit Agreement and clauses (c), (d), (e), (i) and (k) of the definition of “Ordinary Course Liens” in the Credit Agreement.

1.9 IP Security Agreement. The term “IP Security Agreement” shall mean this IP Security Agreement (any concurrent or subsequent rider to this IP Security Agreement) and any extensions, supplements, amendments or modifications to this IP Security Agreement and/or to any such rider.

1.10 Lender Expenses. The term “Lender Expenses” means all costs and expenses incurred by Lender which are subject to payment or reimbursement by Debtor pursuant to Section 10.03 of the Credit Agreement.

1.11 Lender. The term “Lender” shall have the meaning given to such term in the preamble to this IP Security Agreement.

1.12 Licenses. The term “Licenses” shall mean all licenses or other rights to use any intellectual property rights, including any of the Copyrights, Patents, Trademarks, or Mask Works, and all license fees and royalties arising from such use to the extent permitted by such license or right.

 

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I NTELLECTUAL P ROPERTY S ECURITY A GREEMENT

 

1.13 License Disposition. The term “License Disposition” shall mean in respect of any Intellectual Property Collateral which is material to Debtor (the “Material IP” ) (i) the granting of an exclusive license across all or substantially all fields, uses or regions to any person or entity other than a majority-owned subsidiary of Debtor, (ii) the granting of any license that conveys directly or indirectly to any person or entity other than a majority-owned subsidiary of Debtor, all or substantially all of the economic value of such Material IP, or (iii) the abandonment by the Debtor of such Material IP.

1.14 Intentionally Omitted.

1.15 Intentionally Omitted.

1.16 Mask Works. The term “Mask Works” shall have the meaning provided in the Semiconductor Chip Protection Act of 1984 (17 U.S.C. §§ 901-914) and shall include, without limitation, all mask works or similar rights available for the protection of semiconductor chips, now owned or hereafter acquired, including, without limitation those set forth on Exhibit D attached hereto.

1.17 Obligations. The term “ Obligations ” shall have the meaning set forth in the Credit Agreement.

1.18 Patents. The term “Patents” shall mean all patents, industrial design registrations, utility models, and like protections and grants and applications for the foregoing, including, without limitation, improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same, including without limitation the patents and patent applications set forth on Exhibit B attached hereto.

1.19 Proceeds. The term “Proceeds” shall have the meaning provided in the UCC including without limitation whatever is received upon the sale, lease, exchange, collection or other disposition of Collateral or proceeds, including, without limitation, proceeds of insurance covering the foregoing collateral, tax refunds, and any and all accounts, notes, instruments, chattel paper, equipment, money, deposit accounts, goods, or other tangible and intangible property of Debtor resulting from the sale or other disposition of the Collateral, and the proceeds thereof.

1.20 Trademarks. The term “Trademarks” shall mean any trademarks and servicemark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business of Debtor connected with and symbolized by such trademarks, including without limitation those set forth on Exhibit C attached hereto.

 

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I NTELLECTUAL P ROPERTY S ECURITY A GREEMENT

 

1.21 UCC. The term “UCC” shall mean the California Uniform Commercial Code, as presently in force and effect and any replacements therefore as and when such replacements become effective.

 

2. G RANT OF S ECURITY I NTEREST .

As security for the prompt and complete payment and performance of all the Obligations, Debtor hereby grants to the Lender, a first priority security interest in all of Debtor’s right, title and interest in, to and under the Collateral, subject to IP Priority Liens. Notwithstanding the foregoing, the security interest granted herein shall not extend to, and the term “Collateral” shall not include, any General Intangibles of the Debtor (whether owned or held as licensee or lessee or otherwise) to the extent that the granting of a security interest therein would be contrary to applicable law or create a default under any agreement governing such property, right or license (but only if such restrictions are enforceable as a matter of law).

 

3. A UTHORIZATION AND R EQUEST .

Debtor authorizes and requests that the Register of Copyrights and the Commissioner of Patents and Trademarks record this IP Security Agreement or a version thereof.

 

4. R EPRESENTATIONS AND W ARRANTIES .

In addition to the representations and warranties of Debtor set forth in the Credit Agreement, which are incorporated herein by reference, Debtor represents and warrants, and represents to Lender that:

4.1 Incorporation: Place of Business . Adesto is a corporation validly existing and in good standing under the laws of the State of California; Artemis is limited liability company validly existing and in good standing under the laws of the State of California; and Debtor’s chief executive office and principal place of business is located at 1250 Borregas Avenue, Sunnyvale, California 94089.

4.2 Title to Collateral. Except as specified on Schedule 4.2 hereto, Debtor has and at all times will have good, marketable and indefeasible title to the Collateral; except for any Intellectual Property Collateral which is being licensed by the Debtor or Collateral which is being leased by the Debtor, and as to such assets, Debtor has the appropriate rights to use such Collateral; the Collateral is and at all times shall remain free and clear of all Liens except for licenses granted by Debtor and except for IP Priority Liens.

4.3 Intellectual Property. All of Debtor’s U.S. patents and patent applications, registered copyrights, applications for copyright registration, trademarks, service marks and trade names (whether registered or unregistered), and applications for registration of such trademarks, service marks and trade names, are set forth in Exhibits A, B and C . Debtor represents that none of the Copyrights owned by it constitute a material asset of Debtor’s business. All of Debtor’s registered Mask Works are set forth in Exhibit D .

 

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I NTELLECTUAL P ROPERTY S ECURITY A GREEMENT

 

4.4 Domain Names . All of Debtor’s domain names are set forth in Exhibit D .

4.5 No Conflict . Performance of this IP Security Agreement does not conflict with or result in a breach of any agreement relating to the intellectual property of Debtor, except to the extent that certain intellectual property agreements prohibit the assignment of the rights thereunder to a third party without the licensor’s or other party’s consent and this IP Security Agreement constitutes a security interest.

4.6 IP Enforceability. To Debtor’s knowledge, each of the Patents is valid and enforceable, and no part of the Intellectual Property Collateral has been judged invalid or unenforceable, in whole or in part, and no claim has been made that any part of the Intellectual Property Collateral violates the rights of any third party.

4.7 Validity of Lien . This IP Security Agreement creates, and in the case of after acquired Intellectual Property Collateral, this IP Security Agreement will create at the time Debtor first has rights in such after acquired Intellectual Property Collateral, in favor of Lender a valid and perfected first priority security interest in the Intellectual Property Collateral in the United States securing the payment and performance of the Obligations which is senior to all other interests except for IP Priority Liens.

4.8 IP Registration. To its knowledge, except for, and upon, the filing with the United States Patent and Trademark office with respect to the Patents and Trademarks and the filing with the Register of Copyrights with respect to the Copyrights and Mask Works necessary to perfect the security interests created hereunder and except as been already made or obtained, no authorization, approval or other action by, and no notice to or filing with, any U.S. governmental authority of U.S. regulatory body is required either (i) for the grant by Debtor of the security interest granted hereby or for the execution, delivery or performance of this IP Security Agreement by Debtor in the U.S. or (ii) for the perfection in the United States or the exercise by Lender of its rights and remedies thereunder.

4.9 Complete . All information heretofore, herein or hereafter supplied to Lender by or on behalf of Debtor with respect to the Intellectual Property Collateral is accurate and complete in all material respects.

4.10 Continuing Warranties. Debtor’s warranties and representations set forth in this Section 4 and in any exhibit hereto shall be true and correct at the time of execution of this IP Security Agreement by Debtor and at the time of any request for advance and at the time of any advance under the Credit Agreement.

 

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I NTELLECTUAL P ROPERTY S ECURITY A GREEMENT

 

4.11 Warranties and Representations Cumulative . The warranties, representations and agreements set forth herein shall be cumulative and in addition to any and all other warranties, representations and agreements which Debtor shall give, or cause to be given, to Lender, either now or hereafter.

 

5. C OVENANTS .

So long as the Obligations, or any portion thereof, remains unsatisfied.

5.1 Change in Identity. Without prior notice to Lender, Debtor will not change Debtor’s name, or state of incorporation; or relocate Debtor’s principal place of business or chief executive office.

5.2 Intentionally Omitted.

5.3 Protection of IP . Debtor shall (i) protect, defend and maintain the validity and enforceability of the Intellectual Property Collateral that is material to the business of the Debtor, (ii) use commercially reasonable best efforts to detect infringements of the Intellectual Property Collateral that is material to the business of the Debtor and promptly advise Lender in writing of material infringements detected, and (iii) not allow any Intellectual Property Collateral to be abandoned, forfeited or dedicated to the public without the written consent of Lender, which shall not be unreasonably withheld, unless Debtor determines that reasonable business practices suggest that abandonment is appropriate.

5.4 Copyright Registration. Debtor shall promptly register the most recent version of any of Debtor’s Copyrights, which are material to the business of Debtor, if not already so registered.

5.5 New IP Filings. If and when Debtor shall obtain rights to any new patents, trademarks, service marks, trade names or material copyrights, or otherwise acquire or become entitled to the benefit of, or apply for registration of, any of the foregoing that is material to the business of the Debtor, Debtor (i) shall promptly notify Lender thereof and (ii) hereby authorizes Lender to modify, amend, or supplement the schedules attached hereto to reflect such fact and from time to time to include any of the foregoing and make all necessary or appropriate filings with respect thereto and to perfect Lender’s Lien thereon.

5.6 Notice to Lender. Debtor shall promptly advise Lender of any material adverse change in the composition of the Collateral, including but not limited to any subsequent ownership right of the Debtor in or to any Trademark, Patent, Copyright, or Mask Work specified in this IP Security Agreement that is material to the business of the Debtor. Upon any executive officer of Debtor obtaining actual knowledge thereof, Debtor will promptly notify Lender in writing of any event that materially adversely affects the value of any material

 

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I NTELLECTUAL P ROPERTY S ECURITY A GREEMENT

 

Intellectual Property Collateral, the ability of Debtor to dispose of any material Intellectual Property Collateral or of the rights and remedies of Lender in relation thereto, including the levy of any legal process against any of the Intellectual Property Collateral.

5.7 Intentionally Omitted.

5.8 Intentionally Omitted.

5.9 Further Assurances. Debtor shall, from time to time, execute and file such other instruments, and take such further actions as Lender may reasonably request from time to time to perfect or continue the perfection of Lender’s interest in the Intellectual Property Collateral.

 

6. L ENDER S R IGHTS TO C OMPEL A CTION .

Lender shall have the right, but not the obligation, to take, at Debtor’s sole expense, any actions that Debtor is required under this IP Security Agreement to take but which Debtor fails to take, after ten (10) days’ written notice to Debtor. Debtor shall reimburse and indemnify Lender for all reasonable costs and reasonable expenses incurred in the reasonable exercise of its rights under this Section 6.

 

7. I NSPECTION R IGHTS .

Not more often thane once per quarter unless an Event of Default exists, at any time during regular business hours and as often as reasonably requested upon reasonable notice, permit Lender, or any employee or representative thereof, to examine, audit and make copies and abstracts from Debtor’s records and books of account, including quality control records, relating to the Collateral and to visit and inspect its properties related thereto, and, upon request, furnish promptly to Lender true copies of all financial information and internal management reports made available to their senior management related to the Collateral. Notwithstanding any provision of this Agreement to the contrary, so long as no Event of Default shall have occurred and be continuing, Debtor shall not be required to disclose, permit the inspection, examination, photocopying or making extracts of, or discuss, any document, information or other matter that (i) constitutes non-financial trade secrets or non-financial proprietary information, or (ii) the disclosure of which to Lender, or their designated representative, is then prohibited by law or any agreement binding on Debtor that was not entered into by Debtor for the purpose of concealing information from the Lender. Debtor shall, however, furnish to Lender such information concerning Debtor’s Collateral as is reasonably necessary to permit Lender to perfect a security interest in such intellectual property; provided, however, nothing herein shall entitle Lender access to Debtor’s trade secrets and other proprietary information.

 

8. F URTHER A SSURANCES : A TTORNEY I N F ACT .

8.1 On a continuing basis, Debtor will, subject to any prior licenses, encumbrances and restrictions and prospective licenses, make, execute, acknowledge and deliver, and file and

 

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I NTELLECTUAL P ROPERTY S ECURITY A GREEMENT

 

record in the proper filing and recording places in the United States, all such instruments, including appropriate financing and continuation statements and collateral agreements and filings with the United States Patent and Trademark Office and the Register of Copyrights, and take all such action as reasonably requested by Lender, to perfect Lender’s security interest in all Intellectual Property Collateral and otherwise to carry out the intent and purposes of this IP Security Agreement, or for assuring and confirming to Lender the grant or perfection of a security interest in all Intellectual Property Collateral.

8.2 Debtor hereby irrevocably (until the Obligations are paid in full) appoints Lender as Debtor’s attorney-in-fact, with full authority in the place and stead of Debtor and in the name of Debtor, Lender or otherwise, from time to time in Lender’s discretion, upon Debtor’s failure or inability to do so, to take any action and to execute any instrument which Lender may deem necessary or advisable to accomplish the purposes of this IP Security Agreement, including:

(a) To modify, in its sole discretion, this IP Security Agreement without first obtaining Debtor’s approval of or signature to such modification by amending Exhibit A , Exhibit B , Exhibit C , and Exhibit D hereof, as appropriate, to include reference to any right, title or interest in any Copyrights, Patents, Trademarks or Mask Works acquired by Debtor after the execution hereof or to delete any reference to any right, title or interest in any Copyrights, Patents, Trademarks, or Mask Works in which Debtor no longer has or claims any right, title or interest; and

(b) To file, in its sole discretion, one or more financing or continuation statements and amendments thereto, relative to any of the Intellectual Property Collateral without the signature of Debtor where permitted by law.

 

9. E VENTS OF D EFAULT .

The occurrence of any of the following shall constitute an Event of Default under this IP Security Agreement:

9.1 Breach of IP Security Agreement. (i) Any representation or warranty hereunder proves to have been incorrect in any material respect when made or deemed made, (ii) Debtor breaches any provision of this IP Security Agreement which cannot be cured, or (iii) the breach by Debtor of any other provision of this IP Security Agreement that remains uncured for a period of thirty (30) days.

9.2 Breach of Other Agreements. The occurrence and continuance of an Event of Default under the Credit Agreement as defined therein.

9.3 Lien Priority. Lender shall cease to have a valid and perfected first priority security interest upon any material item of the Collateral subject only to the IP Priority Liens.

 

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9.4 Material Impairment. If there is a material impairment of the value of the Collateral.

9.5 Seizure of Assets . If all or any material item of Collateral is attached, seized, subjected to a writ or distress warrant, or are levied upon.

 

10. R EMEDIES .

The exercise of remedies hereunder shall be made by Lender upon the terms and conditions contained herein. If an Event of Default shall have occurred and be continuing and not been cured or waived in accordance with the terms hereof or the Credit Agreement, Lender shall have the following rights and powers and may, at Lender’s option, without notice of its election and without demand, to the extent permitted by Section 8.03 of the Credit Agreement, do any one or more of the following (in addition to the rights and remedies permitted under the Credit Agreement), all of which are authorized by Debtor:

10.1 UCC Rights. Lender shall have all of the rights and remedies of a secured party under the UCC and under all other applicable laws.

10.2 Intentionally Omitted.

10.3 Intentionally Omitted.

10.4 Protection of Collateral. Without notice to or demand upon Debtor or any guarantor, make such payments and do such acts as Lender considers necessary or reasonable to protect its security interest in the Collateral to pay, purchase, contest or compromise any encumbrance, charge or lien which in the opinion of Lender appears to be prior or superior to Lender’s security interest and to pay all expenses incurred in connection therewith.

10.5 Assembly of Collateral. Lender may require Debtor to assemble the Collateral and make it available to Lender at a place designated by Lender.

10.6 Possession of Collateral. If an Event of Default exists, Lender, without a breach of the peace, may enter any of the premises of Debtor and search for, take possession of, remove, keep or store any or all of the Collateral. If Lender seeks to take possession of any or all of the Collateral by court process, Debtor irrevocably and unconditionally agrees that a receiver may be appointed by a court for such purpose without regard to the adequacy of the security for the Obligations. Lender shall have the right to remain on Debtor’s premises or cause a custodian to remain thereon in exclusive control of such premises without charge for as long as Lender deems necessary in order to complete the enforcement of its rights under this IP Security Agreement. If Lender seeks possession of any or all of the Collateral by court process, Debtor irrevocably

 

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waives (a) any bond and any surety or security relating thereto required by any statute, court rule or otherwise as an incident or condition to such possession; (b) any demand for possession prior to the commencement of any suit or action to recover possession; and (c) any requirement that Lender retain possession of and not dispose of such Collateral until after trial or final judgment.

10.7 License . Lender shall have a nonexclusive, royalty free license to use the Intellectual Property Collateral to the extent reasonably necessary to permit Lender to exercise its rights and remedies upon the occurrence of an Event of Default. All of Lender’s rights and remedies with respect to the Intellectual Property Collateral shall be cumulative.

 

11. I NDEMNITY .

Debtor agrees to defend, indemnify and hold harmless Lender and its officers, employees, and agents against: (a) all obligations, demands, claims, and liabilities claimed or asserted by any other party related to or in connection with the transactions contemplated by this IP Security Agreement or the Collateral, and (b) all losses or expenses in any way suffered, incurred, or paid by Lender as a result of or in any way arising out of, following or consequential to the transactions between Lender and Debtor under this IP Security Agreement or the Collateral (including without limitation, reasonable attorneys fees and reasonable expenses), except for losses arising from or out of Lender’s gross negligence or willful misconduct.

 

12. G ENERAL .

12.1 Taxes and Other Expenses Regarding the Collateral. If Debtor fails to pay promptly when due to any person or entity, monies which Debtor is required to pay by this IP Security Agreement, Lender may, but need not, pay the same and charge Debtor’s account therefor, and Debtor shall promptly reimburse Lender therefor. Any payments made by Lender shall not constitute; (a) an agreement by Lender to make similar payments in the future, or (b) a waiver by Lender of any default under this IP Security Agreement. Lender need not inquire as to, or contest the validity of, any such expense, tax, security interest, encumbrance or lien and the receipt of the usual official notice for the payment thereof shall be conclusive evidence that the same was validly due and owing.

12.2 Notices. All notices, demands, or requests from one party to another shall, unless otherwise specified herein, be made in the manner set forth in the Credit Agreement.

12.3 Intentionally Omitted.

12.4 Release of Collateral. Lender shall promptly file UCC termination statements and any other documents or instruments as necessary upon any Disposition by Debtor of any items or item of Collateral, to the extent such Disposition is permitted under the Credit Agreement.

 

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12.5 Termination. At such time as the Obligations are paid in full, this Agreement shall terminate and Lender shall execute and deliver to Debtor all instruments as may be necessary or proper to reinvest in Debtor full title to the property assigned hereunder, subject to any disposition thereof which may have been made by Lender pursuant hereto.

12.6 Course of Dealing. No course of dealing, nor any failure to exercise, nor any delay in exercising any right, power or privilege hereunder shall operate as a waiver thereof.

12.7 Intentionally Omitted.

12.8 Amendments. This IP Security Agreement may be amended only by a written instrument signed by both parties hereto.

12.9 Agreement Binding, Assignment. This IP Security Agreement shall be binding and deemed effective when executed by Debtor and Lender. This IP Security Agreement shall bind and inure to the benefit of the respective successors and assigns of each of the parties; provided, however, that Debtor may not assign this Security Agreement or any rights hereunder without Lender’s prior written consent and any prohibited assignment shall be absolutely void. No consent to an assignment by Lender shall release Debtor from its obligations to Lender. Lender reserves the right to sell, assign, transfer, negotiate or grant participations in all or any part of, or any interest in, Lender’s rights and benefits hereunder to the extent and in the manner provided for in Section 9.04 of the Credit Agreement. In connection therewith, Lender may disclose all documents and information that Lender now has or hereafter may have relating to Debtor or Debtor’s business, subject to Debtor’s reasonable confidentiality requirements.

12.10 Article and Section Headings. Article and section headings and article and section numbers have been set forth herein for convenience only. Unless the contrary is compelled by the context, everything contained in each article and section applies equally to this entire IP Security Agreement.

12.11 Construction. Neither this IP Security Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against Lender or Debtor, whether under any rule of construction or otherwise. On the contrary, this IP Security Agreement has been reviewed by all parties and shall be construed and interpreted according to the ordinary meaning of the words used so as to fairly accomplish the purposes and intentions of all parties hereto.

12.12 Performance of Covenants . Debtor shall perform all of its covenants under this IP Security Agreement at its sole cost and expense.

12.13 Term . This IP Security Agreement shall continue in full force and effect as long as any of the Obligations are outstanding.

 

-12-


I NTELLECTUAL P ROPERTY S ECURITY A GREEMENT

 

12.14 Conflict or Credit Agreement Modifications. To the extent that there is an explicit conflict between the terms of the Credit Agreement and this IP Security Agreement, the terms of the Credit Agreement shall control. Any future changes or modifications to the Credit Agreement, shall apply to and modify this IP Security Agreement, to the extent that such change or modification would reasonably be construed to apply to this IP Security Agreement.

12.15 Severability. Each provision of this IP Security Agreement shall be severable from every other provision of this IP Security Agreement for the purpose of determining the legal enforceability of any specific provision.

12.16 Successors . This IP Security Agreement shall be binding upon and inure to the benefit of Debtor and the Lender and their respective permitted successors and assigns.

12.17 Counterparts . This IP Security Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute the same instrument.

 

13. C HOICE OF L AW AND V ENUE .

The validity of this IP Security Agreement, its construction, interpretation and enforcement, and the rights of the parties hereunder and concerning the Collateral, shall be determined under, governed by and construed in accordance with the laws of the State of California. The parties agree that all actions or proceedings arising in connection with this Security Agreement shall be tried and litigated only in the state courts or federal courts located in the city and county of San Francisco, California.

[S IGNATURE PAGES FOLLOW ]

 

-13-


I NTELLECTUAL P ROPERTY S ECURITY A GREEMENT

 

IN WITNESS WHEREOF, the parties hereto have executed this IP Security Agreement on the day and year first above written.

 

ADESTO TECHNOLOGIES CORPORATION , a California corporation, as a Debtor

   

ARTEMIS ACQUISITION LLC , a California limited liability company, as a Borrower

By:  

 

   

By: Adesto Technologies Corporation, as sole member and manager of Artemis Acquisition LLC

Name:        
Its:        
      By:  

 

      Name:  
      Its:  
      OPUS BANK , as Lender
      By:  

 

      Name:  
      Its:  


I NTELLECTUAL P ROPERTY S ECURITY A GREEMENT

 

Exhibit “A” attached to that certain IP Security Agreement dated April 30, 2015.

E XHIBIT A

C OPYRIGHTS

None.

 

A-1


I NTELLECTUAL P ROPERTY S ECURITY A GREEMENT

 

Exhibit “B” attached to that certain IP Security Agreement dated April 30, 2015.

E XHIBIT B

P ATENTS

Adesto Owned and Issued Patents

 

Adesto Ref

  

Document

  

Title

  

Published

Adesto-1001

   US7442605    Resistively switching memory    10/28/2008

Adesto-1002

   US7829134    Method for producing memory having a solid electrolyte material region    11/9/2010

Adesto-1002

   US8062694    Method for producing memory having a solid electrolyte material region    11/22/2011

Adesto-1003

   US7737428    Memory component with memory cells having changeable resistance and fabrication method therefor    6/15/2010

Adesto-1004

   US7718537    Method for manufacturing a CBRAM semiconductor memory    5/18/2010

Adesto-1005

   US7483293    Method for improving the thermal characteristics of semiconductor memory cells    1/27/2009

Adesto-1006

   US7511294    Resistive memory element with shortened erase time    3/31/2009

Adesto-1007

   US7749805    Method for manufacturing an integrated circuit including an electrolyte material layer    7/6/2010

Adesto-1008

   US7772614    Solid electrolyte memory element and method for fabricating such a memory element   

8/10/2010

Abandoned

Adesto-1010

   US7700398    Method for fabricating an integrated device comprising a structure with a solid electrolyte    4/20/2010

Adesto-1011

   US7215568    Resistive memory arrangement    5/8/2007

Adesto-1011

   US7561460    Resistive memory arrangement    7/14/2009

Adesto-1012

   US7746683    NOR and NAND memory arrangement of resistive memory elements    6/29/2010

Adesto-1013

   US7538411    Integrated circuit including resistivity changing memory cells    5/26/2009

Adesto-1014

   US7655939    Memory cell, memory device and method for the production thereof    2/2/2010

Adesto-1015

   US8115282    MEMORY CELL DEVICE AND METHOD OF MANUFACTURE    2/14/2012

Adesto-1016

   US7515454    CBRAM cell and CBRAM array, and method of operating thereof    4/7/2009

 

  B-1  


I NTELLECTUAL P ROPERTY S ECURITY A GREEMENT

 

Adesto-1017

   US7658773    Method for fabricating a solid electrolyte memory device and solid electrolyte memory device    2/9/2010

Adesto-1019

   US7888228    Method of manufacturing an integrated circuit, an integrated circuit, and a memory module    2/15/2011

Adesto-1020

   US7732888    Integrated circuit, method for manufacturing an integrated circuit, memory cell array, memory module, and device    6/8/2010

Adesto-1021

   US6946882    Current sense amplifier    9/20/2005

Adesto-1022

   US7214587    Method for fabricating a semiconductor memory cell   

5/8/2007

Abandoned

Adesto-1023

   US7215564    Semiconductor memory component in cross-point architecture   

5/8/2007

Abandoned

Adesto-1024

   US7257014    PMC memory circuit and method for storing a datum in a PMC memory circuit    8/14/2007

Adesto-1025

   US7277312    Integrated semiconductor memory with an arrangement of nonvolatile memory cells, and method    10/2/2007

Adesto-1026

   US7327603    Memory device including electrical circuit configured to provide reversible bias across the PMC memory cell to perform erase and write functions    2/5/2008

Adesto-1026

   US7715226    Memory device including electrical circuit configured to provide reversible bias across the PMC memory cell to perform erase and write functions    5/11/2010

Adesto-1027

   US7337282    Memory system and process for controlling a memory component to achieve different kinds of memory characteristics on one and the same memory component    2/26/2008

Adesto-1028

   US7368314    Method for fabricating a resistive memory    5/6/2008

Adesto-1029

   US7372716    Memory having CBRAM memory cells and method    5/13/2008

ADTO-00101

   US8107273    Integrated circuits having programmable metallization cells (PMCs) and operating methods therefor    1/31/2012

ADTO-01200

   US7359236    Read, write and erase circuit for programmable memory devices    4/15/2008

ADTO-01201

   US7483294    Read, write, and erase circuit for programmable memory devices    1/27/2009

ADTO-01300

   US7514706    Voltage reference circuit using programmable metallization cells    4/7/2009

ADTO-01400

   US7426131    Programmable memory device circuit    9/16/2008

Adesto-1009

   US8531863    Method for operating an integrated circuit having a resistivity changing memory cell    9/10/2013

 

  B-2  


I NTELLECTUAL P ROPERTY S ECURITY A GREEMENT

 

Adesto-1015US_CON

  

US8952493

   MEMORY CELL DEVICE AND METHOD OF MANUFACTURE   

2/10/2015

Adesto-1015US_DIV

  

US8420481

   Memory cell device and method of manufacture   

4/16/2013

Adesto-1018

   US8268664    Methods of manufacturing a semiconductor device; Method of manufacturing a memory cell; Semiconductor device; Semiconductor processing device; Integrated circuit having a memory cell    9/18/2012

 

Adesto-0001CON

   METHODS OF PROGRAMMING AND ERASING PROGRAMMABLE METALLIZATION CELLS (PMCs)    8625331    7-Jan-14

Adesto-0001DIV

   METHODS OF PROGRAMMING AND ERASING PROGRAMMABLE METALLIZATION CELLS (PMCs)    8369132    5-Feb-13

Adesto-0004

   Variable impedance memory device having simultaneous program and erase, and corresponding methods and circuits    8274842    25-Sep-12

Adesto-0004DIV

   VARIABLE IMPEDANCE MEMORY DEVICE BIASING CIRCUITS AND METHODS    8498164    30-Jul-13

Adesto-0008

   Reconfigurable memory arrays having programmable impedance elements and corresponding methods    8331128    11-Dec-12

Adesto-0008/13CON

   INTEGRATED CIRCUIT DEVICES AND SYSTEMS HAVING PROGRAMMABLE IMPEDANCE ELEMENTS WITH DIFFERENT RESPONSE TYPES    8675396    18-Mar-14

Adesto-0008/13CON2

   APPLICATION OF RELAXATION VOLTAGE PULSES TO PROGRAMMABLE IMPEDANCE ELEMENTS DURING READ OPERATIONS    9007814    14-Apr-15

Adesto-0014

   CONDUCTING BRIDGE RANDOM ACCESS MEMORY (CBRAM) DEVICE STRUCTURES    8426839    23-Apr-13

Adesto-0017B

   VARIABLE IMPEDANCE MEMORY DEVICE STRUCTURE AND METHOD OF MANUFACTURE INCLUDING PROGRAMMABLE IMPEDANCE MEMORY CELLS AND METHODS OF FORMING THE SAME    8829482    9-Sep-14

Adesto-0026,0029,0030

   METHODS AND CIRCUITS FOR TEMPERATURE VARYING WRITE OPERATIONS OF PROGRAMMABLE IMPEDANCE ELEMENTS    8437171    7-May-13

Adesto-0026,0029,0030CON

   CURRENT SOURCE CIRCUITS AND METHODS FOR MASS WRITE AND TESTING OF PROGRAMMABLE IMPEDANCE ELEMENTS    8947907    3-Feb-15

 

  B-3  


I NTELLECTUAL P ROPERTY S ECURITY A GREEMENT

 

Adesto-0027

   PROGRAMMABLE IMPEDANCE ELEMENT CIRCUITS AND METHODS    8294488    23-Oct-12

Adesto-0032

   CIRCUITS HAVING PROGRAMMABLE IMPEDANCE ELEMENTS    8687403    1-Apr-14

Adesto-0034,0036,0037

   CIRCUITS AND METHODS HAVING PROGRAMMABLE IMPEDANCE ELEMENTS    8947913    3-Feb-15

Adesto-0039, 40

   READ METHODS, CIRCUITS AND SYSTEMS FOR MEMORY DEVICES    8654561    18-Feb-14

Adesto-0043

   MEMORY DEVICES AND METHODS WITH IMPROVED READ OPERATIONS    8913444    16-Dec-14

Adesto-0044

   MEMORY DEVICES, ARCHITECTURES AND METHODS FOR MEMORY ELEMENTS HAVING DYNAMIC CHANGE IN PROPERTY    8854873    7-Oct-14

Adesto-0047

   PROGRAMMABLE MEMORY ELEMENTS, DEVICES AND METHODS HAVING PHYSICALLY LOCALIZED STRUCTURE    8895953    25-Nov-14

Adesto-0048

   CONDUCTIVE FILAMENT BASED MEMORY ELEMENTS AND METHODS WITH IMPROVED DATA RETENTION AND/OR ENDURANCE    8531867    10-Sep-13

Adesto-0052

   CONTACT STRUCTURE AND METHOD FOR VARIABLE IMPEDANCE MEMORY ELEMENT    8816314    26-Aug-14

Adesto-0054

   ERASE AND SOFT PROGRAM WITHIN THE ERASE OPERATION FOR A HIGH SPEED RESISTIVE SWITCHING MEMORY OPERATION WITH CONTROLLED ERASED STATES    8659931    25-Feb-14

Adesto-0055

   RESISTIVE SWITCHING DEVICES HAVING ALLOYED ELECTRODES AND METHODS OF FORMATION THEREOF    8847192    30-Sep-14

Adesto-0058

   CBRAM/ReRAM WITH IMPROVED PROGRAM AND ERASE ALGORITHMS    8659954    25-Feb-14

Adesto-0063

   MEMORY CELLS, DEVICES AND METHOD WITH DYNAMIC STORAGE ELEMENTS AND PROGRAMMABLE IMPEDANCE SHADOW ELEMENTS    8995173    31-Mar-15

Adesto-0064

   PMC-BASED NON-VOLATILE CAM    8320148    27-Nov-12

Adesto-0064CON

   PMC-BASED NON-VOLATILE CAM    8659926    25-Feb-14

Adesto-0068

   CIRCUITS AND METHODS FOR PROGRAMMING VARIABLE IMPEDANCE ELEMENTS    8976568    10-Mar-15

Adesto-0073

   VARIABLE IMPEDANCE MEMORY ELEMENT STRUCTURES, METHODS OF MANUFACTURE, AND MEMORY DEVICES CONTAINING THE SAME    8624219    7-Jan-14

 

  B-4  


I NTELLECTUAL P ROPERTY S ECURITY A GREEMENT

 

Adesto-0075

   PROGRAMMABLE IMPEDANCE MEMORY ELEMENTS, METHODS OF MANUFACTURE, AND MEMORY DEVICES CONTAINING THE SAME   

8847191

  

30-Sep-14

Adesto-0075CON

   PROGRAMMABLE IMPEDANCE MEMORY ELEMENTS WITH LATERALLY EXTENDING CELL STRUCTURE   

8952351

  

10-Feb-15

Adesto-0076

   CIRCUITS AND METHODS FOR PLACING PROGRAMMABLE IMPEDANCE MEMORY ELEMENTS IN HIGH IMPEDANCE STATES   

8730752

  

20-May-14

Adesto-0077

   Resistive switching devices and methods of formation thereof   

8941089

  

27-Jan-15

Adesto-0085

   MEMORY DEVICES, CIRCUITS AND, METHODS THAT APPLY DIFFERENT ELECTRICAL CONDITIONS IN ACCESS OPERATIONS   

8982602

  

17-Mar-15

Adesto-0087

   MEMORY DEVICES, CIRCUITS AND, METHODS THAT APPLY DIFFERENT ELECTRICAL CONDITIONS IN ACCESS OPERATIONS   

8902631

  

2-Dec-14

Adesto-0090

   Resistive Switching Memory   

8912517

  

16-Dec-14

Adesto-0091

   Resistive Switching Devices Having A Buffer Layer and Methods of Formation Thereof   

8866122

  

21-Oct-14

Adesto-0095

   SAFEGUARDING DATA THROUGH AN SMT PROCESS   

9007808

  

14-Apr-15

Adesto-0097

   Resistive Devices and Methods of Operation Thereof   

8953362

  

10-Feb-15

Adesto-0098

   Resistive Devices and Methods of Operation Thereof   

9001553

  

7-Apr-15

Adesto-0108

   Reverse program and erase cycling algorithms   

8995167

  

31-Mar-15

Adesto-0109

   Verify pulse delay to improve resistance window   

9019745

  

28-Apr-15

Adesto Pending Patent Applications

 

Adesto Ref

  

Title

  

App No

  

App Date

  

Status

Adesto-0042

   MEMORY DEVICES AND METHODS FOR READ AND WRITE OPERATIONS TO MEMORY ELEMENTS HAVING DYNAMIC CHANGE IN PROPERTY    13/408,367    29-Feb-2012    Allowed

Adesto-0048DIV

   MEMORY ELEMENTS AND METHODS WITH IMPROVED DATA RETENTION AND/OR ENDURANCE    13/972,718    21-Aug-2013    Allowed

Adesto-0057

   PROGRAMMABLE WINDOW OF OPERATION FOR CBRAM    13/548,429    13-Jul-2012    Allowed

Adesto-0065

   Pre-conditioning circuits and methods for programmable impedance elements in memory devices    13/763,461    8-Feb-2013    Allowed

Adesto-0071

   SOLID ELECTROLYTE MEMORY ELEMENTS WITH ELECTRODE INTERFACE FOR IMPROVED PERFORMANCE    13/850,267    25-Mar-2013    Allowed

Adesto-0078

   Resistive Switching Memories    13/462,659    2-May-2012    Allowed

Adesto-0084

   Triggered cell annihilation for resistive switching memory devices    13/859,853    10-Apr-2013    Allowed

Adesto-0102

   Coding Techniques for Reducing Write Cycles for Memory    13/687,147    28-Nov-2012    Allowed

Adesto-0138

   Resistive switching memory with diode select    14/256,123    18-Apr-2014    Allowed

 

  B-5  


I NTELLECTUAL P ROPERTY S ECURITY A GREEMENT

 

Adesto-0008/13CON3

   PROTOTYPING INTEGRATED CIRCUIT DEVICES WITH PROGRAMMABLE IMPEDANCE ELEMENTS    14/686,403    14-Apr-2015    Pending

Adesto-0014/16DIV

   CONDUCTING BRIDGE RANDOM ACCESS MEMORY (CBRAM) DEVICE STRUCTURES AND FABRICATION METHODS    13/845,922    18-Mar-2013    Pending

Adesto-0019

   PROGRAMMABLE IMPEDANCE ELEMENTS, METHODS OF FORMING ALL OR PORTIONS OF SUCH ELEMENTS, AND METHODS AND DEVICES THAT INCLUDE SUCH ELEMENTS    13/242,391    23-Sep-2011    Pending

Adesto-0020

   PROGRAMMABLE IMPEDANCE DEVICES AND CELLS, AND METHODS THEREFOR    13/243,659    23-Sep-2011    Pending

Adesto-0027DIV

   PROGRAMMABLE IMPEDANCE ELEMENT CIRCUITS AND METHODS    13/657,568    22-Oct-2012    Pending

Adesto-0032DIV

   CIRCUITS HAVING PROGRAMMABLE IMPEDANCE ELEMENTS AND VERTICAL ACCESS DEVICES    14/231,729    31-Mar-2014    Pending

Adesto-0034DIV

   CIRCUITS AND METHODS HAVING PROGRAMMABLE IMPEDANCE ELEMENTS    14/578,368    20-Dec-2014    Pending

Adesto-0041

   MEMORY DEVICES AND METHODS HAVING DATA VALUES BASED ON DYNAMIC CHANGE IN MATERIAL PROPERTY    13/315,652    9-Dec-2011    Pending

Adesto-0043DIV

   MEMORY DEVICES AND METHODS WITH IMPROVED READ OPERATIONS    14/572,646    16-Dec-2014    Pending

Adesto-0046

   MEMORY DEVICES, ARCHITECTURES AND METHODS WITH DATA VALUES STORED IN MULTIPLE PROGRAMMABLE IMPEDANCE ELEMENTS    13/545,919    10-Jul-2012    Pending

Adesto-0067

   RESISTIVE MEMORY DEVICES, CIRCUITS AND METHODS HAVING READ CURRENT LIMITING    13/336,642    23-Dec-2011    Pending

Adesto-0070

   MEMORY DEVICES AND METHODS HAVING ADAPTABLE READ THRESHOLD LEVELS    13/851,011    26-Mar-2013    Pending

Adesto-0076CON

   CIRCUITS AND METHODS FOR PLACING PROGRAMMABLE IMPEDANCE MEMORY ELEMENTS IN HIGH IMPEDANCE STATES    14/281,830    19-May-2014    Pending

Adesto-0079

   Resistive Devices and Methods of Operation Thereof    13/470,030    11-May-2012    Pending

Adesto-0086

   MULTI-PORT MEMORY DEVICES AND METHODS HAVING PROGRAMMABLE IMPEDANCE ELEMENTS    13/615,493    13-Sep-2012    Pending

Adesto-0088

   MEMORY DEVICES AND METHODS HAVING WRITE DATA PERMUTATION FOR CELL WEAR REDUCTION    13/626,721    25-Sep-2012    Pending

Adesto-0089

   SYSTEM ARCHITECTURE WITH MULTIPLE MEMORY TYPES, INCLUDING PROGRAMMABLE IMPEDANCE MEMORY ELEMENTS    13/846,539    18-Mar-2013    Pending

Adesto-0090DIV

   Resistive Switching Memory    14/552,250    24-Nov-2014    Pending

Adesto-0096

   Solid electrolyte materials and structures for memory device elements    13/691,425    30-Nov-2012    Pending

Adesto-0097CON

   Resistive Devices and Methods of Operation Thereof    14/599,654    19-Jan-2015    Pending

Adesto-0106

   NETWORK INTERFACE WITH LOGGING    13/716,357    17-Dec-2012    Pending

Adesto-0107

   Two Terminal Resistive Access Devices and Methods of Formation Thereof    13/748,470    23-Jan-2013    Pending

Adesto-0109CON

   Verify pulse delay to improve resistance window    14/663,719    20-Mar-2015    Pending

Adesto-0112

   Storage elements, structures and methods having edgeless features for programmable layer(s)    13/830,315    14-Mar-2013    Pending

Adesto-0113

   Latch circuits and methods with programmable impedance elements    14/176,123    9-Feb-2014    Pending

Adesto-0116

   Resistive Switching Devices Having a Switching Layer And An Intermediate Electrode Layer and Methods of Formation Thereof    13/829,941    14-Mar-2013    Pending

Adesto-0117

   NONVOLATILE MEMORY ELEMENTS HAVING CONDUCTIVE STRUCTURES WITH SEMIMETALS AND/OR SEMICONDUCTORS    14/217,256    17-Mar-2014    Pending

Adesto-0118

   Sensing data in resistive switching memory devices    13/793,685    11-Mar-2013    Pending

Adesto-0120

   Common plate switching reduction in resistive switching memory devices    13/909,983    4-Jun-2013    Pending

Adesto-0123

   Programmable impedance memory elements and corresponding methods    14/195,787    3-Mar-2014    Pending

Adesto-0131

   MEMORY DEVICE MAIN NONVOLATILE STORAGE AND BUFFER WITH NONVOLATILE OR QUASI-NONVOLATILE BACKUP    61/993,509    15-May-2014    Pending

 

  B-6  


I NTELLECTUAL P ROPERTY S ECURITY A GREEMENT

 

Adesto-0133

   Serial memory device alert of an external host to completion of an internally self-timed operation    14/516,261    16-Oct-2014    Pending

Adesto-0136,0144

   Capacitor arrangements using a resistive switching memory cell structure    14/325,119    7-Jul-2014    Pending

Adesto-0139

   Resistive switching memory device architecture for reduced cell damage during processing    14/265,548    30-Apr-2014    Pending

Adesto-0140

   Cached memory structure and operation    14/665,831    23-Mar-2015    Pending

Adesto-0142

   INTEGRATED CIRCUIT DEVICE WITH PROGRAMMABLE IMPEDANCE MEMORY CELL ARRAY AND RELATED METHODS    14/680,059    6-Apr-2015    Pending

Adesto-0145,0146

   MEMORY CELLS WITH VERTICALLY INTEGRATED TUNNEL ACCESS DEVICE AND PROGRAMMABLE IMPEDANCE ELEMENT    14/530,460    31-Oct-2014    Pending

Adesto-0148

   Resistive switching memory cell endurance improvement with redundant memory cell mapping    14/326,380    8-Jul-2014    Pending

Adesto-0149

   Concurrent read and write operations in a serial flash device    62/021,840    8-Jul-2014    Pending

Adesto-0150

   Support for improved SPI throughput in a serial Flash device    62/050,264    15-Sep-2014    Pending

Adesto-0153

   CBRAM/RRAM cells utilizing cap layer to prevent oxygen contamination    62/061,124    7-Oct-2014    Pending

Adesto-0154

   CBRAM/RRAM Device Anode Materials    62/095,026    21-Dec-2014    Pending

Adesto-0157

   Re-erase Operation for Memory Devices with Programmable Impedance Devices    62/095,025    21-Dec-2014    Pending

Adesto-0158

   Resistive switching memory with cell access by analog signal controlled transmission gate    14/628,280    22-Feb-2015    Pending

Patents and Patent Applications Acquired from Atmel Corporation

 

Application Title

 

Country

 

Application

Number

 

Filing

Date

 

Patent Number

 

Issue Date

 

Inventors

*

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*

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*

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*

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*  Confidential Treatment Requested

  B-7  


I NTELLECTUAL P ROPERTY S ECURITY A GREEMENT

 

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*  Confidential Treatment Requested

  B-8  


I NTELLECTUAL P ROPERTY S ECURITY A GREEMENT

 

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*  Confidential Treatment Requested

  B-9  


I NTELLECTUAL P ROPERTY S ECURITY A GREEMENT

 

Exhibit “C” attached to that certain IP Security Agreement dated April 30, 2015.

E XHIBIT C

T RADEMARKS

 

Trademark

   Ctry    App. Num.    Reg. Num.    Status
*    *    *    *    *
*    *    *    *    *
*    *    *    *    *
*    *    *    *    *
*    *    *    *    *
*    *    *    *    *
*    *    *    *    *

 

*  Confidential Treatment Requested

  C-1  


I NTELLECTUAL P ROPERTY S ECURITY A GREEMENT

 

Exhibit “D” attached to that certain IP Security Agreement dated April 30, 2015.

E XHIBIT D

D OMAIN N AMES ; M ASK W ORKS

Adesto has purchased the domain name registration for the following domain name:

*

*

*

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*

*

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*  Confidential Treatment Requested

  D-1  


I NTELLECTUAL P ROPERTY S ECURITY A GREEMENT

 

Exhibit “E” attached to that certain IP Security Agreement dated April 30, 2015.

E XHIBIT E

The following is a list of liens on the Collateral as permitted under Section 1.8 of the IP Security Agreement:

*

*

*

 

*  Confidential Treatment Requested

  E-1  


I NTELLECTUAL P ROPERTY S ECURITY A GREEMENT

 

S CHEDULE 4.2

Reference is made to the liens set forth on Exhibit E.

 


SCHEDULE 2.01

COMMITMENTS

AND PRO RATA SHARES

 

Lender

  

Term Loan
Commitment

    

Pro Rata Share

 

Opus Bank

   USD $ 15,000,000         100

T OTAL

   USD $ 15,000,000         100

 

Credit Agreement   Schedule 5.01  


SCHEDULE 5.01

Subsidiaries; Material Subsidiaries and First Tier Foreign Subsidiaries

Subsidiaries of Adesto:

 

-    Artemis Acquisition LLC
-    Adesto Technologies France
-    Adesto Technologies UK
-    Adesto Technologies Corporation Limited

Schedule of First Tier Foreign Subsidiaries

None.

Schedule of Material Subsidiaries

None.

 

Credit Agreement   Schedule 5.01  


SCHEDULE 5.05

LITIGATION

None.

 

Credit Agreement   Schedule 5.05  


SCHEDULE 5.07

O WNERSHIP OF P ROPERTY ; L IENS

Reference is made to the Liens set forth on Schedule 7.01

 

Credit Agreement   Schedule 5.07-1  


SCHEDULE 7.01

EXISTING INDEBTEDNESS AND LIENS

*

*

*

 

*  Confidential Treatment Requested

   

Credit Agreement

  Schedule 7.01-1  


SCHEDULE 7.05

INVESTMENTS

None.

 

Credit Agreement   Schedule 7.05-1  


SCHEDULE 7.10

SUBORDINATION PROVISIONS

Section [    ].1 Agreement of Subordination . [Adesto Technologies Corporation] covenants and agrees, and each holder of Notes issued hereunder by his acceptance thereof likewise covenants and agrees, that all Notes shall be issued subject to the provisions of this Article [    ]; and each Person holding any Note, whether upon original issue or upon transfer, assignment or exchange thereof, accepts and agrees to be bound by such provisions.

The payment of the principal of, premium, if any, and interest on all Notes (including, but not limited to, the redemption price with respect to the Notes called for redemption in accordance with Section [    ] [Notice of Redemption: Selection of Notes] or submitted for redemption in accordance with Section [    ] Redemption at Option of Holders], as the case may be, as provided in this Indenture) issued hereunder shall, to the extent and in the manner hereinafter set forth, be subordinated and subject in right of payment to the prior payment in full of all Senior Indebtedness, whether outstanding at the date of this Indenture or thereafter incurred.

No provision of this Article [    ] shall prevent the occurrence of any default or Event of Default hereunder.

Section [    ].2 Payments to Noteholders . No payment shall be made with respect to the principal of, or premium, if any, or interest on the Notes (including, but not limited to, the redemption price with respect to the Notes to be called for redemption in accordance with Section [    ] [Notice of Redemption: Selection of Notes] or submitted for redemption in accordance with Section [    ] [Redemption at Option of Holders], as the case may be, as provided in this Indenture), except payments and distributions made by the Trustee as permitted by the first or second paragraph of Section [    ].5, if

 

  (i) a default in the payment of principal, premium, interest, rent or other obligations due on any Senior Indebtedness occurs and is continuing (or, in the case of Senior Indebtedness for which there is a period of grace, in the event of such a default that continues beyond the period of grace, if any, specified in the instrument or lease evidencing such Senior Indebtedness), unless and until such default shall have been cured or waived or shall have ceased to exist; or

 

  (ii) a default, other than a payment default, on a Designated Senior Indebtedness occurs and is continuing that then permits holders of such Designated Senior Indebtedness to accelerate its maturity and the Trustee receives a notice of the default (a “Payment Blockage Notice” ) from a Representative or [Adesto Technologies Corporation].

If the Trustee receives any Payment Blockage Notice pursuant to clause (ii) above, no subsequent Payment Blockage Notice shall be effective for purposes of this Section [    ].2 unless and until (A) at least 365 days shall have elapsed since the initial effectiveness of the immediately prior Payment Blockage Notice, and (B) all scheduled payments of principal, premium, if any, and interest on the Notes-that have come due have been paid in full in cash. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice.

 

Credit Agreement   Schedule 7.10-1  


[Adesto Technologies Corporation] may and shall resume payments on and distributions in respect of the Notes upon the earlier of:

(1) the date upon which the default is cured or waived or ceases to exist, or

(2) in the case of a default referred to in clause (ii) above, 179 days pass after notice is received if the maturity of such Designated Senior Indebtedness has not been accelerated, unless this Article [    ] otherwise prohibits the payment or distribution at the time of such payment or distribution.

Upon any payment by [Adesto Technologies Corporation], or distribution of assets of [Adesto Technologies Corporation] of any kind or character, whether in cash, property or securities, to creditors upon any dissolution or winding-up or liquidation or reorganization of [Adesto Technologies Corporation], whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other proceedings, all amounts due or to become due upon all Senior Indebtedness shall first be paid in full in cash or other payment satisfactory to the holders of such Senior Indebtedness, or payment thereof in accordance with its terms provided for in cash or other payment satisfactory to the holders of such Senior Indebtedness before any payment is made on account of the principal of, premium, if any, or interest on the Notes (except payments made pursuant to Article [    ] [Trustee Provisions] from monies deposited with the Trustee pursuant thereto prior to commencement of proceedings for such dissolution, winding-up, liquidation or reorganization); and upon any such dissolution or winding-up or liquidation or reorganization of [Adesto Technologies Corporation] or bankruptcy, insolvency, receivership or other proceeding, any payment by [Adesto Technologies Corporation], or distribution of assets of [Adesto Technologies Corporation] of any kind or character, whether in cash, property or securities, to which the holders of the Notes or the Trustee would be entitled, except for the provision of this Article [    ], shall (except as aforesaid) be paid by [Adesto Technologies Corporation] or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, or by the holders of the Notes or by the Trustee under this indenture if received by them or it, directly to the holders of Senior Indebted-ness (pro rata to such holders on the basis of the respective amounts of Senior Indebtedness held by such holders, or as otherwise required by law or a court order) or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any Senior Indebtedness may have been issued, as their respective interests may appear, to the extent necessary to pay all Senior Indebtedness in full, in cash or other payment satisfactory to the holders of such Senior Indebtedness, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness, before any payment or distribution is made to the holders of the Notes or to the Trustee.

For purposes of this Article [    ], the words, “cash, property or securities” shall not be deemed to include shares of stock of [Adesto Technologies Corporation] as reorganized or readjusted, or securities of [Adesto Technologies Corporation] or any other corporation provided for by a plan of reorganization or readjustment, the payment of which is subordinated at least to the extent provided in this Article [    ] with respect to the Notes to the payment of ail Senior Indebtedness which may at the time be outstanding; provided that (i) the Senior Indebtedness is assumed by the new corporation, if any, resulting from any reorganization or readjustment, and (ii) the rights of the holders of Senior Indebtedness (other than leases which are not assumed by [Adesto Technologies Corporation] or the new corporation, as the case may be) are not, without the consent of such holders, altered by such reorganization or readjustment. The consolidation of

 

Credit Agreement   Schedule 7.10-2  


[Adesto Technologies Corporation] with, or the merger of [Adesto Technologies Corporation] into, another corporation or the liquidation or dissolution of [Adesto Technologies Corporation] following the conveyance or transfer of its property as an entirety, or substantially as an entirety, to another corporation upon the terms and conditions provided for in Article [    ] [Consolidation, Merger, Sale, Conveyance and Lease] shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section [    ].2 if such other corporation shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions stated in Article [    ] [Consolidation, Merger, Sale, Conveyance and Lease].

In the event of the acceleration of the Notes because of an Event of Default, no payment or distribution shall be made to the Trustee or any holder of Notes in respect of the principal of, premium, if any, or interest on the Notes (including, but not limited to, the redemption price with respect to the Notes called for redemption in accordance with Section [    ] [Notice of Redemption; Selection of Notes] or submitted for redemption in accordance with Section [    ] [Redemption at Option of Holders], as the case may be, as provided in this Indenture), except payments and distributions made by the Trustee as permitted by the first or second paragraph of Section [    ].5, until all Senior Indebtedness has been paid in full in cash or other payment satisfactory to the holders of Senior Indebtedness or such acceleration is rescinded in accordance with the terms of this Indenture. If payment of the Notes is accelerated because of an Event of Default, [Adesto Technologies Corporation] shall promptly notify holders of Senior Indebtedness of the acceleration.

In the event that, notwithstanding the foregoing provisions, any payment or distribution of assets of [Adesto Technologies Corporation] of any kind or character, whether in cash, property or securities (including, without limitation, by way of setoff or otherwise), prohibited by the foregoing, shall be received by the Trustee or the holders of the Notes before all Senior Indebtedness is paid in full in cash or other payment satisfactory to the holders of such Senior Indebtedness, or provision is made for such payment thereof in accordance with its terms in cash or other payment satisfactory to the holders of such Senior Indebtedness, such payment or distribution shall be held in trust for the benefit of and shall be paid over or delivered to the holders of Senior Indebtedness or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any Senior Indebtedness may have been issued, as their respective interests may appear, as calculated by [Adesto Technologies Corporation], for application to the payment of all Senior Indebtedness remaining unpaid to the extent necessary to pay all Senior Indebtedness in full in cash or other payment satisfactory to the holders of such Senior Indebtedness, after giving effect to any concurrent payment or distribution to or for the holders of such Senior Indebtedness.

Nothing in this Section [    ].2 shall apply to claims of, or payments to, the Trustee under or pursuant to Section [    ] [Compensation and Expenses of Trustee]. This Section [    ].2 shall be subject to the further provisions of Section [    ].5.

Section [    ].3 Subrogation of Notes . Subject to the payment in full of all Senior Indebtedness, the rights of the holders of the Notes shall be subrogated to the extent of the payments or distributions made to the holders of such Senior Indebtedness pursuant to the provisions of this Article [    ] (equally and ratably with the holders of all indebtedness of [Adesto Technologies Corporation] which by its express terms is subordinated to other indebtedness of [Adesto Technologies Corporation] to substantially the same extent as the Notes are subordinated and is entitled to like rights of subrogation) to the rights of the holders of Senior Indebtedness to

 

Credit Agreement   Schedule 7.10-3  


receive payments or distributions of cash, property or securities of [Adesto Technologies Corporation] applicable to the Senior Indebtedness until the principal, premium, if any, and interest on the Notes shall be paid in full; and, for the purposes of such subrogation, no payments or distributions to the holders of the Senior Indebtedness of any cash, property or securities to which the holders of the Notes or the Trustee would be entitled except for the provisions of this Article [    ] and no payment over pursuant to the provisions of this Article [    ] to or for the benefit of the holders of Senior Indebtedness by holders of the Notes or the Trustee, shall, as between [Adesto Technologies Corporation], its creditors other than holders of Senior Indebtedness, and the holders of the Notes, be deemed to be a payment by [Adesto Technologies Corporation] to or on account of the Senior Indebtedness; and no payments or distributions of cash, property or securities to or for the benefit of the holders of the Notes pursuant to the subrogation provisions of this Article [    ], which would otherwise have been paid to the holders of Senior Indebtedness shall be deemed to be a payment by [Adesto Technologies Corporation] to or for the account of the Notes. It is understood that the provisions of this Article [    ] are and are intended solely for the purposes of defining the relative rights of the holders of the Notes, on the one hand, and the holders of the Senior Indebtedness, on the other hand.

Nothing contained in this Article [    ] or elsewhere in this Indenture or in the Notes is intended to or shall impair, as among [Adesto Technologies Corporation] its creditors other than the holders of Senior Indebtedness, and the holders of the Notes, the obligation of [Adesto Technologies Corporation], which is absolute and unconditional, to pay to the holders of the Notes the principal of (and premium, if any) and interest on the Notes as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the holders of the Notes and creditors of [Adesto Technologies Corporation] other than the holders of the Senior Indebtedness, nor shall anything herein or therein prevent the Trustee or the holder of any Note from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article [    ] of the holders of Senior Indebtedness in respect of cash, property or securities of [Adesto Technologies Corporation] received upon the exercise of any such remedy.

Upon any payment or distribution of assets of [Adesto Technologies Corporation] referred to in this Article [    ], the Trustee, subject to the provisions of Section [    ] [Duties and Responsibilities of Trustee], and the holders of the Notes shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which such bankruptcy, dissolution, winding-up, liquidation or reorganization proceedings are pending, or a certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent or other person making such payment or distribution, delivered to the Trustee or to the holders of the Notes, for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of the Senior Indebtedness and other indebtedness of [Adesto Technologies Corporation], the amount thereof or payable thereon and all other facts pertinent thereto or to this Article [    ].

Section [    ].4 Authorization to Effect Subordination . Each holder of a Note by the holder’s acceptance thereof authorizes and directs the Trustee on the holder’s behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article [    ] and appoints the Trustee to act as the holder’s attorney-in-fact for any and all such purposes. If the Trustee does not file a proper proof of claim or proof of debt in the form required in any proceeding referred to in the third paragraph of Section [    ] [Payments of Notes on Default; Suit Therefor] hereof at least thirty (30) days before the expiration of the time to file such claim, the

 

Credit Agreement   Schedule 7.10-4  


holders of any Senior Indebtedness or their representatives are hereby authorized to file an appropriate claim for and on behalf of the holders of the Notes.

Section [    ].5 Notice to Trustee . [Adesto Technologies Corporation] shall give prompt written notice in the form of an Officers’ Certificate to a Responsible Officer of the Trustee and to any paying agent of any fact known to [Adesto Technologies Corporation] which would prohibit the making of any payment of monies to or by the Trustee or any paying agent in respect of the Notes pursuant to the provisions of this Article [    ]. Notwithstanding the provisions of this Article [    ] or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment of monies to or by the Trustee in respect of the Notes pursuant to the provisions of this Article [    ], unless and until a Responsible Officer of the Trustee shall have received written notice thereof at the Corporate Trust Office from [Adesto Technologies Corporation] (in the form of an Officers Certificate) or a Representative or a holder or holders of Senior Indebtedness or from any trustee thereof; and before the receipt of any such written notice, the Trustee, subject to the provisions of Section [    ] [Duties and Responsibilities of Trustee, shall be entitled in all respects to assume that no such facts exist; provided that if on a date not fewer than one Business Day prior to the date upon which by the terms hereof any such monies may become payable for any purpose (including, without limitation, the payment of the principal of, or premium, if any, or interest on any Note) the Trustee shall not have received, with respect to such monies, the notice provided for in this Section [    ].5, then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such movies and to apply the same to the purpose for which they were received, and shall not be affected by any notice to the contrary which may be received by it on or after such prior date.

Notwithstanding anything in this Article [    ] to the contrary, nothing shall prevent any payment by the Trustee to the Noteholders of monies deposited with it pursuant to Section [    ] [Discharge of Indenture], and any such payment shall not be subject to the provisions of Section [    ].1 or [    ].2.

The Trustee, subject to the provisions of Section [    ] [Duties and Obligations of Trustee], shall be entitled to rely on the delivery to it of a written notice by a Representative or a person representing himself to be a holder of Senior Indebtedness (or a trustee on behalf of such holder) to establish that such notice has been given by a Representative or a holder of Senior Indebtedness or a trustee on behalf of any such holder or holders. In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any person as a holder of Senior Indebtedness to participate in any payment or distribution pursuant to this Article [    ], the Trustee may request such person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness held by such person, the extent to which such person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such person under this Article [    ] and if such evidence is not furnished the Trustee may defer any payment to such person pending judicial determination as to the right of such person to receive such payment.

Section [    ].6 Trustee Is Relation to Senior Indebtedness . The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article [    ] in respect of any Senior Indebtedness at any time held by it, to the same extent as any other holder of Senior Indebtedness, and nothing in Section [    ] [Limitations on Rights of Trustee as Creditor] or elsewhere in this Indenture shall deprive the Trustee of any of its rights as such holder.

 

Credit Agreement   Schedule 7.10-5  


With respect to the holders of Senior Indebtedness, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article [    ], and no implied covenants or obligations with respect to the holders of Senior Indebtedness shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness and subject to the provisions of Section [    ] [Duties and Obligations of Trustee], the Trustee shall not be liable to any holder of Senior Indebtedness if it shall pay over or deliver to holders of Notes, [Adesto Technologies Corporation] or any other person money or assets to which any holder of Senior Indebtedness shall be entitled by virtue of this Article [    ] or otherwise.

Section [    ].7 No Impairment of Subordination . No right of any present or future holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of [Adesto Technologies Corporation] or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by [Adesto Technologies Corporation] with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof which any such holder may have or otherwise be charged with.

Section [    ].8 Certain Conversions Deemed Payment . For the purposes of this Article [    ] only, (1) the issuance and delivery of junior securities upon conversion of Notes in accordance with Article [    ] [Conversion of Notes] shall not be deemed to constitute a payment or distribution on account of the principal of (or premium, if any) or interest on Notes or on account of the purchase or other acquisition of Notes, and (2) the payment, issuance or delivery of cash (except in satisfaction of fractional shares pursuant to Section 15.[    ] [Cash Payment in Lieu of Fractional Shares]), property or securities (other than junior securities) upon conversion of a Note shall be deemed to constitute payment on account of the principal of such Note. For the purposes of this Section [    ].8, the term “junior securities” means (a) shares of any stock of any class of [Adesto Technologies Corporation], or (b) securities of [Adesto Technologies Corporation] which are subordinated in right of payment to all Senior Indebtedness which may be outstanding at the time of issuance or delivery of such securities to substantially the same extent as, or to a greater extent than, the Notes are so subordinated as provided in this Article [    ]. Nothing contained in this Article [    ] or elsewhere in this Indenture or in the Notes is intended to or shall impair, as among [Adesto Technologies Corporation], its creditors other than holders of Senior Indebtedness and the Noteholders, the right, which is absolute and unconditional, of the Holder of arty Note to convert such Note in accordance with Article [    ] [Conversion of Notes].

Section [    ].9 Article Applicable to Paying Agents . If at any time any paying agent other than the Trustee shall have been appointed by [Adesto Technologies Corporation] and be then acting hereunder, the term “Trustee” as used in this Article [    ] shall (unless the context otherwise requires) be construed as extending to and including such paying agent within its meaning as fully for all intents and purposes as if such paying agent were named in this Article [    ] in addition to or in place of the Trustee; provided, however, that the first paragraph of Section [    ].5 shall not apply to [Adesto Technologies Corporation] or any Affiliate of [Adesto Technologies Corporation] if it or such Affiliate acts as paying agent.

Section [    ].10 Senior Indebtedness Entitled to Rely . The holders of Senior Indebtedness (including, without limitation, Designated Senior Indebtedness) shall have the right to rely upon this Article [    ], and no amendment or modification of the provisions contained herein shall diminish the rights of such holders unless such holders shall have agreed in writing thereto.

 

Credit Agreement   Schedule 7.10-6  


Definitions:

Designated Senior Indebtedness : The term “Designated Senior Indebtedness” means the Credit Agreement and any particular Senior Indebtedness in which the instrument creating or evidencing the same or the assumption or guarantee thereof (or related agreements or documents to which [Adesto Technologies Corporation] is a party) expressly provides that such Indebtedness shall be “Designated Senior Indebtedness” for purposes of the Indenture ( provided that such instrument, agreement or other document may place limitations and conditions on the right of such Senior Indebtedness to exercise the rights of Designated Senior Indebtedness). If any payment made to any holder of any Designated Senior Indebtedness or its Representative with respect to such Designated Senior Indebtedness is rescinded or must otherwise be returned by such holder or Representative upon the insolvency, bankruptcy or reorganization of [Adesto Technologies Corporation] or otherwise, the reinstated Indebtedness of [Adesto Technologies Corporation] arising as a result of such rescission or return shall constitute Designated Senior Indebtedness effective as of the date of such rescission or return.

Senior Indebtedness : The term “Senior Indebtedness” means the principal of, premium, if any, interest (including all interest accruing subsequent to the commencement of any bankruptcy or similar proceeding, whether or not a claim for post-petition interest is allowable as a claim in any such proceeding) and rent payable on or in connection with, and all fees, costs, expenses and other amounts accrued or due on or in connection with, Indebtedness of [Adesto Technologies Corporation], whether outstanding on the date of this Indenture or thereafter created, incurred, assumed, guaranteed or in effect guaranteed by [Adesto Technologies Corporation] (including all deferrals, renewals, extensions or refundings of, or amendments, modifications or supplements to, the foregoing), unless in the case of any particular Indebtedness the instrument creating or evidencing the same or the assumption or guarantee thereof expressly provides that such Indebtedness shall not be senior in right of payment to the Notes or expressly provides that such Indebtedness is “pari passu” or “junior” to the Notes. If any payment made to any holder of any Senior Indebtedness or its Representative with respect to such Senior Indebtedness is rescinded or must otherwise be returned by such holder or Representative upon the insolvency, bankruptcy or reorganization of [Adesto Technologies Corporation] or otherwise, the reinstated Indebtedness of [Adesto Technologies Corporation] arising as a result of such rescission or return shall constitute Senior Indebtedness effective as of the date of such rescission or return.

Credit Agreement : The term “Credit Agreement” means that certain Credit Agreement, dated as of April 30, 2015, by and among Adesto Technologies Corporation, Artemis Acquisition LLC, Opus Bank, as Lender thereunder, as amended and restated, supplemented or otherwise modified from time to time.

 

Credit Agreement   Schedule 7.10-7  


SCHEDULE 9.02

LENDING OFFICES,

ADDRESSES FOR NOTICES

A DESTO T ECHNOLOGIES C ORPORATION

A RTEMIS A CQUISITION LLC

Attn:

Telephone:

E-mail:

LENDER’S OFFICE:

Notices for Borrowing and Payments:

O PUS B ANK

Attn:

Telephone:

Facsimile:

ABA Number:

Account Number: Loan Number

Beneficiary: Adesto Technologies Inc.

Reference: Adesto Technologies Corporation; Loan #

Notices (other than Borrowing Notices and Payment):

O PUS B ANK

Attn:

Telephone:

E-mail:

 

Credit Agreement   Schedule 9.02-1  

Exhibit 10.12

[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

CELL LIBRARY LICENSE AGREEMENT

This CELL LIBRARY LICENSE AGREEMENT (this “ Agreement ”) is entered into as of September 28, 2012 by and between Atmel Corporation, a Delaware corporation (“ Licensor ”), Adesto Technologies Corporation, a California Corporation (“ Parent ”) and Artemis Acquisition LLC, a California Limited Liability Company (“ Licensee ”). Each of Parent, Licensor and Licensee are referred to herein individually as a “ Party ” and collectively as the “ Parties .”

RECITALS

A. Licensor, Licensee and Parent have entered into a Purchase and Sale Agreement, dated as of July 12, 2012, as amended to date (as amended, the “ Purchase Agreement ”) pursuant to which Licensee purchased and acquired from Licensor the Purchased Assets and assumed the Assumed Liabilities (as such terms are defined in the Purchase Agreement).

B. In connection with the Acquisition (as defined in the Purchase Agreement), and in consideration therefore, Licensor wishes to grant to Licensee and its Affiliates a limited license to use the Licensed Intellectual Property (as defined herein) from and after the Closing (as defined in the Purchase Agreement) in order for Licensee to commercialize the Licensed Products (as defined herein) under the terms and conditions set forth herein.

NOW, THEREFORE , in consideration of the foregoing and the respective agreements, covenants, representations and warranties hereinafter set forth and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged and accepted and intending to be legally bound hereby, the Parties hereby agree as follows:

1. Definitions

1.1 Construction . Except to the extent that the context otherwise requires:

(a) The meaning assigned to each term defined herein shall be equally applicable to both the singular and the plural forms of such term and vice versa, and words denoting either gender shall include both genders as the context requires. Where a word or phrase is defined herein, each of its other grammatical forms shall have a corresponding meaning.

(b) The terms “hereof,” “herein” and “herewith” and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement.

(c) When a reference is made in this Agreement to an Article, Section, paragraph, Exhibit or Schedule, such reference is to an Article, Section, paragraph, Exhibit or Schedule to this Agreement unless otherwise specified.


(d) The word “include,” “includes,” and “including” when used in this Agreement shall be deemed to be followed by the words “without limitation,” unless otherwise specified.

(e) A reference to any party to this Agreement or any other agreement or document shall include such party’s predecessors, successors and permitted assigns to the extent that a successor or assign has succeeded to, or been assigned rights under, this Agreement in accordance with Section 7.3 hereof.

(f) Reference to any Law means such Law as amended, modified, codified, replaced or reenacted, and all rules and regulations promulgated thereunder. The Parties have participated jointly in the negotiation and drafting of this Agreement. Any rule of construction or interpretation otherwise requiring this Agreement to be construed or interpreted against any party by virtue of the authorship of this Agreement shall not apply to the construction and interpretation hereof and thereof.

1.2 Definitions . When used in this Agreement with initial letters capitalized, the following terms will have the meanings specified below. In addition, capitalized terms used in this Agreement but not defined in this Agreement will have the meaning ascribed to them in the Purchase Agreement.

(a) “Action” has the meaning set forth in Section 4.3 hereof.

(b) “Affiliate” means, with respect to a Person, any other Person directly or indirectly controlling, controlled by or under common control with such specified Person; provided, however , with respect to Licensee only, if a venture capital firm or other professional investment firm directly or indirectly controls Licensee’s ultimate parent, then Affiliate shall not include the venture capital firm, the professional investment firm or any other portfolio companies directly or indirectly controlled by such venture capital firm or professional investment firm (excluding Licensee, Licensee’s ultimate parent and any Person controlled by that parent).

(c) “Agreement” has the meaning set forth in the preamble hereto.

(d) “Atmel Design Elements” means all cell libraries, library elements, symbols, simulation models, behavioral models, and circuit and logic elements associated with digital circuitry in the Licensed Products, and Improvements thereto, and the incorporation of the Atmel Design Elements into Licensee’s and its Affiliates’ designs of Licensed Products.

(e) “Authorized Service Provider” means a third party contracted by, as the context requires, Licensee or Licensor or their respective Affiliates to provide products or services to Licensee or Licensor or their respective Affiliates. Authorized Service Providers include contract design houses, foundry and other contract manufacturers, assembly, and test houses.

(f) “Bankruptcy Law” has the meaning set forth in Section 6.2(c) hereof.

 

2


(g) “Confidential Information” has the meaning set forth in the Purchase Agreement.

(h) “Flash Memory Product” means a standalone semiconductor device that (i) stores data as its primary purpose and function, (ii) uses an array of memory cells, made from floating gate transistors, that can be electrically erased and reprogrammed, (iii) does not use select transistors within any memory cell, and (iv) does not offer a capability of erasing less than 256 bytes in a single operation; provided , however , that Flash Memory Products do not include any (1) EEPROM or substantially similar memory product, (2) microcontroller products, (3) system on a chip semiconductor products having or containing an embedded memory capability or function, (4) memory products with analog, radio frequency or digital functions not related to the storage of data, or (5) other application specific integrated circuits with functionality similar to any of the devices or products described in clauses (1), (2), (3) or (4) of this definition.

(i) “High Risk Activities” has the meaning set forth in Section 3.4 hereof.

(j) “Improvement” means any improvement, modification, derivative, enhancement, and/or refinement to or of the Atmel Design Elements.

(k) “Intellectual Property Rights” means (a) trade secrets, proprietary or confidential information, supplier and customer information, inventions, know-how, formulae and processes, software and firmware, schematics, circuit designs, architectures, design databases, documentation, invention disclosures; (b) patents (including all reissues, divisions, continuations and extensions thereof) and patent applications (collectively, “ Patents ”); (c) copyrights, copyright registrations, copyright applications, moral rights, mask works, mask work registrations, industrial designs and registrations and applications therefor; (d) trademarks, trademark registrations, trademark applications, service marks, service mark registrations, service mark applications (collectively, “ Marks ”); and (e) any other technology, information, data or legal rights of a similar nature to the above.

(l) “Licensable” means that Licensor has the right to license the respective right under the terms of this Agreement without payment of consideration by, or other detriment to, Licensor.

(m) “Licensed Intellectual Property” means the Intellectual Property Rights owned or Licensable by Licensor which are embodied in the Atmel Design Elements. Notwithstanding anything to the contrary, the “Licensed Intellectual Property” does not include any rights in Marks.

(n) “Licensed Product” means a Flash Memory Product that is manufactured for sale by Licensee or its Affiliates.

(o) “Party” has the meaning set forth in the preamble hereto.

(p) “Purchase Agreement” has the meaning set forth in the recitals hereto.

(q) “Warranting Party” has the meaning set forth in Section 4.1 hereof.

 

3


2. Rights and Licenses

2.1 Licensor License Grant . Subject to the terms and conditions of this Agreement, Licensor hereby grants to Licensee and its Affiliates a non-exclusive, worldwide, non-assumable and non-transferable (except as permitted under Section 7.3), [*], perpetual, irrevocable license, without the right to sublicense (except to the extent contemplated under this Section 2.1) under the Licensed Intellectual Property, to:

(a) use internally, reproduce and modify the Atmel Design Elements solely in connection with the design, development, testing, manufacture (including by Designated Foundry Manufacturers), use, import, sale, offer for sale, or other disposition of Licensed Products; and

(b) disclose, solely to the extent necessary, the Atmel Design Elements to Authorized Service Providers; provided , however , that prior to such disclosure Licensee or its Affiliate shall have entered into a valid and binding customary foundry agreement with each Authorized Service Provider that, among other things, (i) includes confidentiality and use restrictions at least as protective of the Atmel Design Elements and the Confidential Information as are contained in this Agreement, (ii) limits such Authorized Service Providers to using the Atmel Design Elements made available to Licensee pursuant to this Agreement solely for making (including designing, developing and testing) Licensed Products for Licensee or its Affiliates as contemplated under this Agreement, and (iii) requires the Authorized Service Provider to return all Atmel Design Elements and all Confidential Information to Licensee or its Affiliate (including all copies thereof) upon termination of such use or any breach of such agreement.

2.2 Improvements .

(a) The licenses granted in Section 2.1 include the right for Licensee and its Affiliates, at its own cost and expense, to make Improvements, including process shrinks and porting processes to different foundries. Licensee shall own the Improvements that it solely develops or creates. Notwithstanding the foregoing, the creation of such Improvements by Licensee shall not confer or imply any rights on Licensee with respect to the Intellectual Property Rights underlying any such Improvements.

(b) Licensee agrees to grant, and hereby does grant, to Licensor a nonexclusive, worldwide, [*], perpetual, irrevocable license, with the right to sublicense to (i) Affiliates and (ii) Authorized Service Providers solely for making products for Licensor or its Affiliates, to use the Improvements to design, develop, make, have made, use, import, export, offer to sell, and sell or otherwise distribute any products. Licensee has no obligation to disclose, transfer or support the Improvements.

2.3 Limitations . The Parties acknowledge and agree that nothing contained in this Agreement shall be construed as:

(i) An agreement by Licensor to bring or prosecute actions or suits against third parties for infringement of Licensed Intellectual Property Rights or any other right, or conferring any right upon Licensee to bring or prosecute actions or suits against third parties for infringement of Licensed Intellectual Property Rights or any other right;

 

4

* Confidential Treatment Requested


(ii) Conferring on Licensee any right to use in advertising, publicity or otherwise any Licensor trademark, trade name or names, or any contraction, abbreviation or simulation thereof;

(iii) An obligation upon Licensor to furnish any technical information or know-how to Licensee except as specifically provided herein; or

(iv) conferring upon Licensee or any third party (whether by implication, operation of law, estoppel or otherwise) any right or license not expressly granted by Licensor to Licensee under this Agreement.

2.4 Ownership . As between Licensor and Licensee, Licensor or its Affiliates shall own all right, title and interest in and to the Atmel Design Elements, the Confidential Information and all Intellectual Property Rights therein (other than the Improvements, which shall be owned by Licensee in accordance with, and subject to, Section 2.2(a)).

3. Protective Measures; Compliance

3.1 Protective Measures . Licensee will take commercially reasonable steps to protect the Atmel Design Elements from disclosure to or access by any Person other than Licensee’s, its Affiliates’ and their Authorized Service Providers’ employees with a need to know for purposes of this Agreement as permitted in accordance with Article 5 , including, without limitation, keeping all Atmel Design Elements on a secure network. Upon prior written notice, not more than once per year, Licensor may conduct an onsite audit of Licensee to assure compliance with the terms of this Agreement.

3.2 Compliance with Laws; Export . Licensee will comply with the laws and regulations of the United States and all other relevant jurisdictions in connection with its activities related to the Atmel Design Elements. Without limiting the foregoing, Licensee acknowledges that certain laws and regulations of the United States and other jurisdictions may pertain to the export and re-export of the Atmel Design Elements, and Licensee will not export or re-export any Atmel Design Elements in any form without first obtaining all necessary governmental or other approvals as may be required under applicable Laws.

3.3 No Support . Licensor will have no obligation under this Agreement to correct any bugs, defects or errors in any Atmel Design Elements, provide any updates, upgrades or new releases of any Atmel Design Elements, or otherwise provide any technical support or maintenance for any Atmel Design Elements.

3.4 High Risk Activities . LICENSEE ACKNOWLEDGES AND AGREES THAT THE ATMEL DESIGN ELEMENTS ARE NOT DESIGNED OR APPROVED FOR ANY PRODUCTS THAT ARE USED OR DESIGNED TO BE USED IN CONNECTION WITH ANY ACTIVITIES WHERE THE FAILURE OF SUCH PRODUCTS COULD REASONABLY BE EXPECTED TO RESULT IN DEATH, BODILY INJURY, OR SEVERE PHYSICAL OR ENVIRONMENTAL DAMAGE (“ HIGH RISK ACTIVITIES ”). LICENSEE WILL NOT

 

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INCORPORATE (WITHOUT THE EXPRESS WRITTEN APPROVAL OF AN OFFICER OF LICENSOR) ANY ATMEL DESIGN ELEMENTS INTO ANY SUCH PRODUCTS. HIGH RISK ACTIVITIES INCLUDE, WITHOUT LIMITATION, THE OPERATION OF NUCLEAR FACILITIES OR OTHER NUCLEAR APPLICATIONS, AVIONICS AND OTHER AIRCRAFT NAVIGATION AND COMMUNICATION SYSTEMS, AIR TRAFFIC CONTROL, MEDICAL APPLICATIONS (INCLUDING, WITHOUT LIMITATION, LIFE SUPPORT SYSTEMS AND OTHER MEDICAL EQUIPMENT), AND WEAPONS SYSTEMS. WITHOUT LIMITATION OF THIS SECTION 3.4 , IN NO EVENT WILL LICENSOR HAVE ANY LIABILITY TO LICENSEE OR ANY THIRD PARTY ARISING OUT OF OR RELATED TO ANY USE OF ANY ATMEL DESIGN ELEMENTS IN CONNECTION WITH HIGH RISK ACTIVITIES, AND LICENSOR HEREBY DISCLAIMS ANY EXPRESS OR IMPLIED WARRANTY OF FITNESS FOR ANY HIGH RISK ACTIVITIES.

4. Warranty, Indemnity and Limitation of Liability

4.1 Authority Relative to this Agreement . Each Party (“Warranting Party”) hereby represents and warrants to the other Party as follows:

(a) It has all necessary power and authority to execute and deliver this Agreement and to perform its obligations hereunder and to consummate the transactions contemplated hereby;

(b) The execution and delivery of this Agreement by the Warranting Party and the consummation by the Warranting Party of the transactions contemplated hereby have been duly and validly authorized by all necessary action and no other proceedings on the part of such Warranting Party are necessary to authorize this Agreement or to consummate the transactions so contemplated; and

(c) This Agreement has been duly and validly executed and delivered by the Warranting Party and, assuming the due authorization, execution and delivery by the other Party, constitutes a legal, valid and binding obligation of such Warranting Party enforceable against such Warranting Party in accordance with its terms.

4.2 Disclaimers .

(a) EXCEPT AS EXPRESSLY STATED IN THE PURCHASE AGREEMENT OR IN THIS ARTICLE 4 (WARRANTY, INDEMNITY AND LIMITATION OF LIABILITY), EACH PARTY DISCLAIMS ALL REPRESENTATIONS AND WARRANTIES, EXPRESS, STATUTORY OR IMPLIED, WITH RESPECT TO THE LICENSED PRODUCTS, ATMEL DESIGN ELEMENTS, LICENSED INTELLECTUAL PROPERTY AND ANY OTHER CONFIDENTIAL INFORMATION, INCLUDING ANY IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT. THE LIMITATIONS OF LIABILITY HEREIN SHALL APPLY TO ANY DAMAGES, HOWEVER CAUSED AND REGARDLESS OF THE THEORY OF LIABILITY, WHETHER DERIVED FROM CONTRACT, TORT (INCLUDING, BUT NOT LIMITED TO, NEGLIGENCE), OR ANY

 

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OTHER LEGAL THEORY, EVEN IF A PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES AND REGARDLESS OF WHETHER THE LIMITED REMEDIES UNDER THIS AGREEMENT FAIL OF THEIR ESSENTIAL PURPOSE.

(b) THE ATMEL DESIGN ELEMENTS ARE PROVIDED TO LICENSEE “AS IS” AND “WITH ALL FAULTS.” LICENSOR DOES NOT MAKE, AND LICENSOR HEREBY DISCLAIMS, ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND (WHETHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE) IN CONNECTION WITH ANY ATMEL DESIGN ELEMENTS OR ANY OTHER ASPECT OF THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF MERCHANTABILITY, SATISFACTORY QUALITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE OR NON-INFRINGEMENT OF THIRD PARTY RIGHTS, AND ANY WARRANTIES THAT MAY ARISE FROM COURSE OF DEALING, COURSE OF PERFORMANCE OR USAGE OF TRADE.

(c) EACH PARTY ACKNOWLEDGES THAT THE OTHER PARTY HAS ENTERED INTO THIS AGREEMENT IN RELIANCE ON THE LIMITATIONS OF LIABILITY, DISCLAIMERS OF WARRANTIES, EXCLUSION OF DAMAGES AND EXCLUSIVE REMEDIES CONTAINED IN THIS AGREEMENT, AND THAT EACH OF THE FOREGOING PROVISIONS FORMS AN ESSENTIAL AND FUNDAMENTAL PART OF THE BASIS OF THE BARGAIN BETWEEN THE PARTIES, WITHOUT WHICH SUCH THE OTHER PARTY WOULD NOT HAVE ENTERED INTO THIS AGREEMENT. EACH PARTY AGREES THAT SUCH PROVISIONS WILL SURVIVE AND APPLY NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY OR LIMITATION OF LIABILITY.

4.3 Licensor Indemnity . Subject to Section 4.5 , Licensor shall have the right and obligation to defend Licensee and its Affiliates and their respective stockholders, officers, directors, employees, agents, successors and assigns against any third party claim, suit or proceeding (collectively, “ Action ”) alleging that the Atmel Design Elements or their use in accordance with this Agreement, solely unmodified in the form provided by Licensor and used solely as contemplated herein, infringes or misappropriates any third party Intellectual Property Rights, subject to the limitations hereinafter set forth. Licensor will have sole control of any such Action or settlement negotiations, and Licensor agrees to pay, subject to the limitations hereinafter set forth, any final judgment entered against Licensee in any such Action defended by Licensor excluding any amount thereof that is not attributable to infringement or misappropriation resulting from the use of Atmel Design Elements in the form provided by Licensor and used solely as contemplated herein. Notwithstanding the foregoing, Licensor shall have no obligation to defend or settle any Action or to pay any judgment or other amounts to the extent arising from (i) any Improvement or modification of the Atmel Design Elements not made by Licensor; or (ii) any combination of the Atmel Design Elements with technology or other items not provided by Licensor. Licensee agrees that Licensor will be relieved of the foregoing obligations if Licensee fails to (i) notify Licensor promptly in writing of such Action and such failure prejudices the defense of such Action, (ii) give Licensor authority to proceed with sole control of the Action as contemplated herein, or (iii) give Licensor proper and full information and assistance in order to settle and/or defend any such Action. Licensor will not be liable for any costs or expenses incurred without its prior written authorization. Licensee shall have the

 

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right to participate with Licensee’s own counsel at Licensee’s sole expense in the defense of any claim against Licensee and Licensor shall not settle any such claim or take any action in prejudice to Licensee’s interests without Licensee’s written consent, which shall not be unreasonably withheld, conditioned or delayed. In the event of any Action, Licensor shall have the right to (a) modify the Atmel Design Elements to avoid the alleged infringement, provided such modifications do not result in any material loss of functionality to the Licensee of the Atmel Design Elements, or (b) obtain any necessary license or other right to enable Licensee to continue to use the Atmel Design Elements substantially as contemplated herein without infringement.

4.4 Licensee Indemnity . Except to the extent of claims of infringement for which Licensor has an obligation to indemnify Licensee under Section 4.3 or to the extent arising from the Purchased Assets or Licensor’s breach of the Purchase Agreement, Licensee shall defend Licensor and its Affiliates against any Action to the extent arising from Licensee’s use of any Improvements or modifications by Licensee of Atmel Design Elements made by or for Licensee, any combination of the Atmel Design Elements with technology or other items not provided by Licensor, or Licensee’s own products. Licensee will have sole control of any such Action or settlement negotiations, and Licensee agrees to pay, subject to the limitations hereinafter set forth, any final judgment entered against Licensor in any such Action defended by Licensee. Licensor shall have the right to participate with Licensor’s own counsel at Licensor’s sole expense in the defense of any claim against Licensor or any claim of infringement involving the Atmel Design Elements or other Confidential Information, and Licensee shall not settle any such claim or take any action in prejudice to Licensor’s interests without Licensor’s consent. Licensor agrees that Licensee will be relieved of the foregoing obligations if Licensor fails to (i) notify Licensee promptly in writing of such Action and such failure prejudices the defense of such Action, (ii) give Licensee authority to proceed with sole control of the Action as contemplated herein, or (iii) give Licensee proper and full information and assistance in order to settle and/or defend any such Action.

4.5 Limitation of Liability . Until the date that is twenty-four (24) months from the date of this Agreement, neither Party’s total cumulative liability under this Section 4 of this Agreement shall not exceed [*]. Thereafter, neither Party shall have any liability whatsoever under this Section 4 of this Agreement and shall have no obligation to indemnify, or defend, the other Party for any claims or Actions related to this Agreement.

5. Confidentiality . The provisions of Section 10.8 , “Confidentiality,” of the Purchase Agreement shall apply to this Agreement mutatis mutandis .

6. Term and Termination

6.1 Term . This Agreement shall commence on the Closing Date and shall remain in effect until the earlier to occur of (i) the expiration date of the last-to-expire Licensed Intellectual Property or (ii) termination of the Agreement in accordance with Section 6.2 .

 

8

* Confidential Treatment Requested


6.2 Termination for Default . Any Party may at any time, without waiving any legal rights or remedies it may otherwise have, immediately terminate this Agreement if any other Party commences a voluntary case under or seeks relief under any bankruptcy or insolvency or analogous law in any jurisdiction inside or outside the United States (“Bankruptcy Law”), has an involuntary case commenced against it under any Bankruptcy Law which remains undismissed and unstayed for a period of thirty (30) days, makes an assignment to the benefit of its creditors, or becomes insolvent or ceases to do business as a going concern.

6.3 Effect of Termination . Upon any termination of this Agreement, (a) all licenses granted to Licensee under this Agreement will terminate, (b) Licensee will discontinue all use, reproduction, incorporation and other exploitation of the Atmel Design Elements and other Confidential Information in its possession, (c) Licensee will permanently delete all electronic copies of the Atmel Design Elements and other Confidential Information, and destroy all tangible copies of the Atmel Design Elements and other Confidential Information, and (d) the rights and obligations of the parties under Sections 2 , 4 , 5 , 6 and 7 will survive such termination. For the avoidance of doubt, termination of this Agreement will not affect the right of Licensee’s customers to use Atmel Design Elements as incorporated in Licensed Products that are designed or distributed up to the date of termination hereof.

7. General Terms

7.1 Notices . Any notice, request, demand, waiver, consent, approval or other communication which is required or permitted hereunder shall be in writing and shall be deemed given (a) on the date established by the sender as having been delivered personally, (b) on the date delivered by a private courier as established by the sender by evidence obtained from the courier, (c) on the date sent by facsimile, with confirmation of transmission, if sent during normal business hours of the recipient, if not, then on the next business day, or (d) on the fifth day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications, to be valid, must be addressed as follows:

If to Licensee, to:

Artemis Acquisition LLC

c/o Adesto Technologies Corporation

1250 Borregas Avenue

Sunnyvale, CA 94089

Attn: Chief Executive Officer

Facsimile:

With a required copy to:

Fenwick & West LLP

Silicon Valley Center

801 California Street

Mountain View, CA 94041

Attn: Mark A. Leahy, Esq.

Facsimile: (650) 938-5200

 

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If to Parent, to:

Adesto Technologies Corporation

1250 Borregas Avenue

Sunnyvale, CA 94089

Attn: Chief Executive Officer

Facsimile:

With a required copy to:

Fenwick & West LLP

Silicon Valley Center

801 California Street

Mountain View, CA 94041

Attn: Mark A. Leahy, Esq.

Facsimile: (650) 938-5200

If to Licensor, to:

Atmel Corporation

1600 Technology Drive

San Jose, CA 95110

Attn: Legal Department

Facsimile: 1 408 436 4111

email: legal@atmel.com

or to such other address or to the attention of such Person or Persons as the recipient Party has specified by prior written notice to the sending Party (or in the case of counsel, to such other readily ascertainable business address as such counsel may hereafter maintain). If more than one method for sending notice as set forth above is used, the earliest notice date established as set forth above shall control.

7.2 Amendments and Waivers.

(a) Any provision of this Agreement may be amended or waived if, and only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by each Party to this Agreement, or in the case of a waiver, by the Party against whom the waiver is to be effective.

(b) No failure or delay by any Party in exercising any right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege.

 

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(c) To the maximum extent permitted by Law, (i) no waiver that may be given by a Party shall be applicable except in the specific instance for which it was given and (ii) no notice to or demand on one Party shall be deemed to be a waiver of any obligation of such Party or the right of the Party giving such notice or demand to take further action without notice or demand.

7.3 Successors and Assigns . This Agreement may not be assigned by either Party hereto without the prior written consent of the other Party; provided that, without such consent, Licensee may transfer or assign this Agreement, in whole or in part or from time to time, to (i) one or more of its Affiliates, (ii) by operation of law, or (iii) in connection with any merger, consolidation or sale of all or substantially all of its assets or in connection with any similar transaction. Subject to the foregoing, all of the terms and provisions of this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective executors, heirs, personal representatives, successors and assigns. Subject to the preceding sentence, this Agreement shall be binding upon and shall inure to the benefit of the Parties hereto and their respective successors and permitted assigns.

7.4 Governing Law . This Agreement shall be governed by and interpreted and enforced in accordance with the laws of the State of California, without giving effect to any choice of law or conflict of laws rules or provisions (whether of the State of California or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of California.

7.5 Consent to Jurisdiction . Each Party irrevocably submits to the exclusive jurisdiction of (a) the State of California, County of Santa Clara, and (b) the United States District Court for the Northern District of California, for the purposes of any suit, action or other proceeding arising out of this Agreement or any transaction contemplated hereby. Each Party agrees to commence any such action, suit or proceeding either in the courts of the State of California located in the County of Santa Clara, or if such suit, action or other proceeding may not be brought in such court for jurisdictional reasons, in the United States district Court for the Northern District of California. Each Party further agrees that service of any process, summons, notice or document by U.S. registered mail to such Party’s respective address set forth above shall be effective service of process for any action, suit or proceeding in the courts of the State of California located in the County of Santa Clara with respect to any matters to which it has submitted to jurisdiction in this Section 7.5 . Each Party irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby in (i) the courts of the State of California, County of Santa Clara, or (ii) the United States District Court for the Northern District of California, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. EACH PARTY HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE ANCILLARY AGREEMENTS OR THE ACTIONS OF SUCH PARTY IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF AND THEREOF.

 

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7.6 Specific Performance . In the event of a breach of any of Licensee’s agreements or obligations under this Agreement, Licensor shall have the right, without the posting of any bond, to obtain the specific performance thereof.

7.7 Counterparts . This Agreement may be executed in any number of counterparts, and any Party hereto may execute any such counterpart, each of which when executed and delivered shall be deemed to be an original and all of which counterparts taken together shall constitute but one and the same instrument. This Agreement shall become effective when each Party hereto shall have received a counterpart hereof signed by the other Party hereto.

7.8 Third Party Beneficiaries . No provision of this Agreement is intended to confer upon any Person other than the Parties hereto any rights or remedies hereunder; except that in the case of Sections 4.3 and 4.4 hereof, the indemnified Parties and their respective heirs, executors, administrators, legal representatives, successors and assigns, are intended third-party beneficiaries of such sections and shall have the right to enforce such sections in their own names.

7.9 Entire Agreement . This Agreement and the other documents, instruments and agreements specifically referred to herein or therein or delivered pursuant hereto or thereto set forth the entire agreement (except to the extent of (i) definitions expressly incorporated by reference herein from the Purchase Agreement and (ii)  Section 10.8 of the Purchase Agreement, which is incorporated herein as set forth in Article 5 hereof) of the Parties with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements, covenants, representations, warranties, undertakings and understandings, written or oral, among the Parties with respect to the subject matter hereof.

7.10 Captions . All captions contained in this Agreement are for convenience of reference only, do not form a part of this Agreement and shall not affect in any way the meaning or interpretation of this Agreement.

7.11 Severability . Any provision of this Agreement which is invalid or unenforceable in any jurisdiction shall be ineffective to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the remaining provisions hereof, and any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

7.12 Joint and Several Liability. Parent and Licensee shall be jointly and severally liable for all obligations, representations, covenants and agreements of Licensee set forth in this Agreement.

7.13 Independent Contractors. The Parties hereto are independent contractors. Nothing contained herein or done pursuant to this Agreement shall constitute either Party the agent of the other Party for any purpose or in any sense whatsoever, or constitute the Parties as partners or joint venturers.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

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IN WITNESS WHEREOF , the Parties have caused this Agreement to be executed as of the date first set forth above.

 

ATMEL CORPORATION
By: /s/ Stephen Skaggs
Name: Stephen Skaggs
Title: SVP
ADESTO TECHNOLOGIES CORPORATION
By: /s/ Narbeh Derhacobian
Name: Narbeh Derhacobian
Title: President and Chief Executive Officer
ARTEMIS ACQUISITION LLC
By: Adesto Technologies Corporation as sole member and manager of Artemis Acquisition LLC
By: /s/ Narbeh Derhacobian
Name: Narbeh Derhacobian
Title: President and Chief Executive Officer

[SIGNATURE PAGE TO CELL LIBRARY LICENSE AGREEMENT]

Exhibit 10.13

[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

PROCESS TECHNOLOGY AND IP LICENSE AGREEMENT

This PROCESS TECHNOLOGY AND IP LICENSE AGREEMENT (this “ Agreement ”) is entered into as of September 28, 2012 by and between Atmel Corporation, a Delaware corporation (“ Licensor ”), Adesto Technologies Corporation, a California Corporation (“ Parent ”) and Artemis Acquisition LLC, a California Limited Liability Company (“ Licensee ”). Each of Parent, Licensor and Licensee are referred to herein individually as a “ Party ” and collectively as the “ Parties .”

RECITALS

A. Licensor, Licensee and Parent have entered into a Purchase and Sale Agreement, dated as of July 12, 2012, ad amended to date (as amended, the “ Purchase Agreement ”) pursuant to which Licensee purchased and acquired from Licensor the Purchased Assets and assumed the Assumed Liabilities (as such terms are defined in the Purchase Agreement).

B. In connection with the Acquisition (as defined in the Purchase Agreement), and in consideration therefore, Licensor wishes to grant to Licensee and its Affiliates a limited license to use the Licensed Intellectual Property (as defined herein) from and after the Closing (as defined in the Purchase Agreement) in order for Licensee to commercialize the Licensed Products (as defined herein) under the terms and conditions set forth herein.

NOW, THEREFORE , in consideration of the foregoing and the respective agreements, covenants, representations and warranties hereinafter set forth and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged and accepted and intending to be legally bound hereby, the Parties hereby agree as follows:

1. Definitions

1.1 Construction . Except to the extent that the context otherwise requires:

(a) The meaning assigned to each term defined herein shall be equally applicable to both the singular and the plural forms of such term and vice versa, and words denoting either gender shall include both genders as the context requires. Where a word or phrase is defined herein, each of its other grammatical forms shall have a corresponding meaning.

(b) The terms “hereof,” “herein” and “herewith” and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement.

(c) When a reference is made in this Agreement to an Article, Section, paragraph, Exhibit or Schedule, such reference is to an Article, Section, paragraph, Exhibit or Schedule to this Agreement unless otherwise specified.

 

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(d) The word “include,” “includes,” and “including” when used in this Agreement shall be deemed to be followed by the words “without limitation,” unless otherwise specified.

(e) A reference to any party to this Agreement or any other agreement or document shall include such party’s predecessors, successors and permitted assigns to the extent that a successor or assign has succeeded to, or been assigned rights under, this Agreement in accordance with Section 7.3 hereof.

(f) Reference to any Law means such Law as amended, modified, codified, replaced or reenacted, and all rules and regulations promulgated thereunder. The parties have participated jointly in the negotiation and drafting of this Agreement. Any rule of construction or interpretation otherwise requiring this Agreement to be construed or interpreted against any party by virtue of the authorship of this Agreement shall not apply to the construction and interpretation hereof and thereof.

1.2 Definitions . When used in this Agreement with initial letters capitalized, the following terms will have the meanings specified below. In addition, capitalized terms used in this Agreement but not defined in this Agreement will have the meaning ascribed to them in the Purchase Agreement.

(a) “Action” has the meaning set forth in Section 4.3 hereof.

(b) “Affiliate” means, with respect to a Person, any other Person directly or indirectly controlling, controlled by or under common control with such specified Person; provided, however , with respect to Licensee only, if a venture capital firm or other professional investment firm directly or indirectly controls Licensee’s ultimate parent, then Affiliate shall not include the venture capital firm, the professional investment firm or any other portfolio companies directly or indirectly controlled by such venture capital firm or professional investment firm (excluding Licensee, Licensee’s ultimate parent and any Person controlled by that parent).

(c) “Agreement” has the meaning set forth in the preamble hereto.

(d) “Authorized Service Provider” means a third party contracted by, as the context requires, Licensee or Licensor or their respective Affiliates to provide products or services to Licensee or Licensor or their respective Affiliates. Authorized Service Providers include contract design houses, foundry and other contract manufacturers, assembly, and test houses.

(e) “Bankruptcy Law” has the meaning set forth in Section 6.2(b) hereof.

(f) “Confidential Information” has the meaning set forth in the Purchase Agreement.

(g) “Durable Marks” means Marks, product i.d’s and similar markings that are incorporated in the Purchased Assets and not commercially reasonable for Licensee to change. For example, Durable Marks include markings imprinted on masks or reticles. Durable Marks also include product i.d.’s, including as implemented in trimming bits or in software programs. Durable Marks do not include Marks incorporated in user documentation.

 

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(h) “Equipment Recipes” means individual equipment settings and configurations stored in or existing in the particular equipment or servers that implement the Licensor Process Technology. “Equipment Recipes” do not include sequences, process flows or any other aspect of the Licensor Process Technology other than the equipment settings and configurations referred to herein.

(i) “Flash Memory Product” means a standalone semiconductor device that (i) stores data as its primary purpose and function, (ii) uses an array of memory cells, made from floating gate transistors, that can be electrically erased and reprogrammed, (iii) does not use select transistors within any memory cell, and (iv) does not offer a capability of erasing less than 256 bytes in a single operation; provided , however , that Flash Memory Products do not include any (1) EEPROM or substantially similar memory product, (2) microcontroller products, (3) system on a chip semiconductor products having or containing an embedded memory capability or function, (4) memory products with analog, radio frequency or digital functions not related to the storage of data, or (5) other application specific integrated circuits with functionality similar to any of the devices or products described in clauses (1), (2), (3) or (4) of this definition.

(j) “Improvement” means any improvement, modification, derivative, enhancement, and/or refinement to or of the Licensor Process Technology or the PDK IP.

(k) “Intellectual Property Rights” means (a) trade secrets, proprietary or confidential information, supplier and customer information, inventions, know-how, formulae and processes, software and firmware, schematics, circuit designs, architectures, design databases, documentation, invention disclosures; (b) patents (including all reissues, divisions, continuations and extensions thereof) and patent applications (collectively, “ Patents ”); (c) copyrights, copyright registrations, copyright applications, moral rights, mask works, mask work registrations, industrial designs and registrations and applications therefor; (d) trademarks, trademark registrations, trademark applications, service marks, service mark registrations, service mark applications (collectively, “ Marks ”); and (e) any other technology, information, data or legal rights of a similar nature to the above.

(l) “Licensable” means that Licensor has the right to license the respective right under the terms of this Agreement without payment of consideration by, or other detriment to, Licensor.

(m) “Licensed Intellectual Property” means the (i) Intellectual Property Rights (excluding Patents) owned or Licensable by Licensor which are embodied in the Licensor Process Technology or the PDK IP; (ii) Licensed Patents; and (iii) Durable Marks. Notwithstanding anything to the contrary, the “Licensed Intellectual Property” does not include any rights in Marks other than to the Durable Marks.

 

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(n) “Licensed Patents” means any Patent (including all reissues, divisions, continuations and extensions thereof) owned or Licensable by Licensor as of the Closing Date or during the term of this Agreement that, absent a license, would be infringed by, or is essential to the practice of, the manufacture, use, sale, offer for sale, distribution, import or other disposal of Flash Memory Products.

(o) “Licensor Process Technology” means (i) the Licensor semiconductor manufacturing process technology used to manufacture Flash Memory Products listed in Exhibit A-1 ; (ii) the Equipment Recipes; and (iii) Improvements of either of the foregoing. Licensor Process Technology shall not include any PDK IP.

(p) “Licensed Product” means a Flash Memory Product that is manufactured for sale by Licensee or its Affiliates.

(q) “Licensor Product” means any product, other than a Flash Memory Product, that is manufactured for sale by Licensor or its Affiliates.

(r) “PDK IP” means that process design kit (PDK) technology that is listed in Exhibit A-2 ; and Improvements thereof. Notwithstanding anything to the contrary, “PDK IP” does not include any Licensor Process Technology or other process flows or integrations of process flows based upon or derived from Licensor Process Technology.

(s) “Transferred Patents” means any Purchased Asset that is a Patent, including the Patents listed in Exhibit B hereto.

(t) “Warranting Party” has the meaning set forth in Section 4.1 hereof.

2. Rights and Licenses

2.1 Licensor License Grant . Subject to the terms and conditions of this Agreement, Licensor hereby grants to Licensee and its Affiliates a non-exclusive, worldwide, non-assignable and non-transferable (except as permitted under Section 7.3) [*], perpetual, irrevocable license, without the right to sublicense (except to the extent contemplated under this Section 2.1) under the Licensed Intellectual Property, to:

(a) make or have made (including design, develop and test) Licensed Products, and to use, sell, offer for sale, import or otherwise dispose of Licensed Products so made; and

(b) disclose, solely to the extent necessary, Licensor Process Technology and the PDK IP to Authorized Service Providers; provided, however that prior to such disclosure Licensee or its Affiliate shall have entered into a valid and binding customary foundry agreement with each Authorized Service Provider that, among other things, (i) includes confidentiality and use restrictions at least as protective of the Licensor Process Technology, the PDK IP and the Confidential Information as are contained in this Agreement, (ii) limits such Authorized Service Providers to using the Licensor Process Technology and Licensed Intellectual Property made available to Licensee pursuant to this Agreement solely for making (including designing, developing and testing) Licensed Products for Licensee or its Affiliates as contemplated under this Agreement, and (iii) requires the Authorized Service Provider to return all Licensor Process Technology, Licensed Intellectual Property and all Confidential

 

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(c) Information to Licensee or its Affiliate (including all copies thereof) upon termination of such use or any breach of such agreement; and

(c) to grant sublicenses under the Licensed Patents to Authorized Service Providers, solely to the extent the Authorized Service Provider is providing Licensed Products, components thereof or related services to Licensee or its Affiliates.

2.2 Improvements

(a) The licenses granted in Section 2.1 include the right for Licensee and its Affiliates, at its own cost and expense, to make Improvements, including process shrinks and porting processes to different foundries. Licensee shall own the Improvements that it solely develops or creates.

(b) Licensee agrees to grant, and hereby does grant, to Licensor a nonexclusive, worldwide, [*], perpetual, irrevocable license, with the right to sublicense to (i) Affiliates and (ii) Authorized Service Providers solely for making products for Licensor or its Affiliates, to use the Improvements to design, develop, make, have made, use, import, export, offer to sell, and sell or otherwise distribute any products. Licensee has no obligation to disclose, transfer or support the Improvements.

2.3 Licensee License Grant. Subject to the terms and conditions of this Agreement, Licensee hereby grants to Licensor and its Affiliates a non-exclusive, worldwide, non-assignable and non-transferable (except as permitted under Section 7.3), [*], perpetual, irrevocable license, without the right to sublicense (except to the extent contemplated under this Section 2.3) under the Transferred Patents, to:

(a) make or have made (including design, develop and test) Licensor Products, and to use, sell, offer for sale, import or otherwise dispose of Licensor Products so made; and

(b) to grant sublicenses under the Transferred Patents to Authorized Service Providers, solely to the extent the Authorized Service Provider is providing Licensor Products, components thereof or related services to Licensor or its Affiliates.

2.4 Limitations . The Parties acknowledge and agree that nothing contained in this Agreement shall be construed as:

(i) An agreement by Licensor (or Licensee) to bring or prosecute actions or suits against third parties for infringement of Licensed Intellectual Property Rights (or Transferred Patents) or any other right, or conferring any right upon Licensee (or Licensor) to bring or prosecute actions or suits against third parties for infringement of Licensed Intellectual Property Rights (or Transferred Patents) or any other right;

(ii) Conferring on Licensee any right to use in advertising, publicity or otherwise any Licensor trademark, trade name or names, or any contraction, abbreviation or simulation thereof; or

 

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(iii) An obligation upon Licensor to furnish any technical information or know-how to Licensee except as specifically provided herein; or

(iv) conferring upon a Party as licensee or any third party (whether by implication, operation of law, estoppel or otherwise) any right or license not expressly granted by the other Party as licensor under this Agreement.

2.5 Ownership . As between Licensor and Licensee, Licensor or its Affiliates shall own all right, title and interest in and to the Licensor Process Technology, the Confidential Information and all Intellectual Property Rights therein (other than the Improvements, which shall be owned by Licensee in accordance with, and subject to, Section 2.2(a)).

3. Implementation of Licensor Process Technology

3.1 Responsibility for Implementation . Licensee shall be solely responsible for the implementation of the Licensor Process Technology and PDK IP in the manufacture of the Licensed Products; provided, however , that the Parties may agree for Licensor to provide support services to Licensee such as transition services, and Licensor’s obligation to provide any such support services shall then be limited to those expressly required in a signed, written agreement for such services (including the Transition Services Agreement).

4. Warranty, Indemnity and Limitation of Liability

4.1 Authority Relative to this Agreement . Each Party (“ Warranting Party ”) hereby represents and warrants to the other Party as follows:

(a) It has all necessary power and authority to execute and deliver this Agreement and to perform its obligations hereunder and to consummate the transactions contemplated hereby;

(b) The execution and delivery of this Agreement by the Warranting Party and the consummation by the Warranting Party of the transactions contemplated hereby have been duly and validly authorized by all necessary action and no other proceedings on the part of such Warranting Party are necessary to authorize this Agreement or to consummate the transactions so contemplated; and

(c) This Agreement has been duly and validly executed and delivered by the Warranting Party and, assuming the due authorization, execution and delivery by the other Party, constitutes a legal, valid and binding obligation of such Warranting Party enforceable against such Warranting Party in accordance with its terms.

4.2 Disclaimer . EXCEPT AS EXPRESSLY STATED IN THE PURCHASE AGREEMENT OR IN THIS ARTICLE 4 (WARRANTY, INDEMNITY AND LIMITATION OF LIABILITY), EACH PARTY DISCLAIMS ALL REPRESENTATIONS AND WARRANTIES, EXPRESS, STATUTORY OR IMPLIED, WITH RESPECT TO THE LICENSED PRODUCTS, LICENSOR PRODUCTS, LICENSOR PROCESS TECHNOLOGY, PDK IP, LICENSED INTELLECTUAL PROPERTY, TRANSFERRED PATENTS AND ANY OTHER CONFIDENTIAL INFORMATION, INCLUDING ANY IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE AND NON-

 

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INFRINGEMENT. THE LIMITATIONS OF LIABILITY HEREIN SHALL APPLY TO ANY DAMAGES, HOWEVER CAUSED AND REGARDLESS OF THE THEORY OF LIABILITY, WHETHER DERIVED FROM CONTRACT, TORT (INCLUDING, BUT NOT LIMITED TO, NEGLIGENCE), OR ANY OTHER LEGAL THEORY, EVEN IF A PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES AND REGARDLESS OF WHETHER THE LIMITED REMEDIES UNDER THIS AGREEMENT FAIL OF THEIR ESSENTIAL PURPOSE.

4.3 Licensor Indemnity . Subject to Section 4.5 , Licensor shall defend Licensee and its Affiliates and their respective stockholders, officers, directors, employees, agents, successors and assigns against any third party claim, suit or proceeding (collectively, “ Action ”) alleging that the Licensor Process Technology, PDK IP or Durable Marks or their use in accordance with this Agreement, solely unmodified in the form provided by Licensor and used solely as contemplated herein, infringes or misappropriates any third party Intellectual Property Rights, subject to the limitations hereinafter set forth. Licensor will have sole control of any such Action or settlement negotiations, and Licensor agrees to pay, subject to the limitations hereinafter set forth, any final judgment entered against Licensee in any such Action defended by Licensor excluding any amount thereof that is not attributable to infringement or misappropriation resulting from the use of Licensor Process Technology, PDK IP or Durable Marks in the form provided by Licensor and used solely as contemplated herein. Notwithstanding the foregoing, Licensor shall have no obligation to defend or settle any Action or to pay any judgment or other amounts to the extent arising from (i) any Improvement or modification of the Licensor Process Technology or PDK IP not made by Licensor; or (ii) any combination of the Licensor Process Technology or PDK IP with technology or other items not provided by Licensor. Licensee agrees that Licensor will be relieved of the foregoing obligations if Licensee fails to (i) notify Licensor promptly in writing of such Action and such failure prejudices the defense of such Action, (ii) give Licensor authority to proceed with sole control of the Action as contemplated herein, or (iii) give Licensor proper and full information and assistance in order to settle and/or defend any such Action. Licensor will not be liable for any costs or expenses incurred without its prior written authorization. Licensee shall have the right to participate with Licensee’s own counsel at Licensee’s sole expense in the defense of any claim against Licensee and Licensor shall not settle any such claim or take any action in prejudice to Licensee’s interests without Licensee’s written consent, which shall not be unreasonably withheld, conditioned or delayed. In the event of any Action, Licensor shall have the right to (a) modify the Licensor Process Technology or PDK IP to avoid the alleged infringement, provided such modifications do not result in any material loss of functionality to the Licensee of the Licensor Process Technology or PDK IP, or (b) obtain any necessary license or other right to enable Licensee to continue to use the Licensor Process Technology or PDK IP substantially as contemplated herein without infringement.

4.4 Licensee Indemnity . Except to the extent of claims of infringement for which Licensor has an obligation to indemnify Licensee under Section 4.3 or to the extent arising from the Purchased Assets or Licensor’s breach of the Purchase Agreement, Licensee shall defend Licensor and its Affiliates against any Action to the extent arising from Licensee’s use of any Improvements or modifications by Licensee of Licensor Process Technology or PDK IP made by or for Licensee, any combination of the Licensor Process Technology or PDK IP with technology or other items not provided by Licensor, or Licensee’s own products. Licensee will have sole control of any such Action or settlement negotiations, and Licensee agrees to pay,

 

7


subject to the limitations hereinafter set forth, any final judgment entered against Licensor in any such Action defended by Licensee. Licensor shall have the right to participate with Licensor’s own counsel at Licensor’s sole expense in the defense of any claim against Licensor or any claim of infringement involving the Licensor Process Technology, PDK IP or other Confidential Information, and Licensee shall not settle any such claim or take any action in prejudice to Licensor’s interests without Licensor’s consent. Licensor agrees that Licensee will be relieved of the foregoing obligations if Licensor fails to (i) notify Licensee promptly in writing of such Action and such failure prejudices the defense of such Action, (ii) give Licensee authority to proceed with sole control of the Action as contemplated herein, or (iii) give Licensee proper and full information and assistance in order to settle and/or defend any such Action.

4.5 Limitation of Liability . Until the date that is twenty-four (24) months from the date of this Agreement, neither Party’s total cumulative liability under this Section 4 of this Agreement shall exceed [*]. Thereafter, neither Party shall have any liability whatsoever under this Section 4 of this Agreement and shall have no obligation to indemnify, or defend, the other Party for any claims or Actions related to this Agreement.

5. Confidentiality . The provisions of Section 10.8 , “Confidentiality,” of the Purchase Agreement shall apply to this Agreement mutatis mutandis .

6. Term and Termination

6.1 Term . This Agreement shall commence on the Closing Date and shall remain in effect until the earlier to occur of (i) the expiration date of the last-to-expire Licensed Intellectual Property or (ii) termination of the Agreement in accordance with Section 6.2 .

6.2 Termination for Default . Any Party may at any time, without waiving any legal rights or remedies it may otherwise have, immediately terminate this Agreement if any other Party commences a voluntary case under or seeks relief under any bankruptcy or insolvency or analogous law in any jurisdiction inside or outside the United States (“Bankruptcy Law”), has an involuntary case commenced against it under any Bankruptcy Law which remains undismissed and unstayed for a period of thirty (30) days, makes an assignment to the benefit of its creditors, or becomes insolvent or ceases to do business as a going concern.

6.3 Effect of Termination

(a) Upon termination of this Agreement, all rights and licenses granted to Licensee by Licensor hereunder shall terminate immediately, and Licensee shall immediately discontinue any use of Licensor Process Technology, PDK IP, Licensed Intellectual Property and any other Confidential Information. Licensee shall return to Licensor any Confidential Information as required under Article 5 . For the avoidance of doubt, upon termination or expiration of this Agreement, Licensee shall have no right whatsoever to use any Confidential Information.

(b) The following provisions of this Agreement shall survive any expiration or termination of this Agreement in accordance with the terms of such provisions: Section 2.2(b) , Section 2.4 , Article 4 , Article 5 , Article 6 and Article 7.

 

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* Confidential Treatment Requested


7. General Terms

7.1 Notices . Any notice, request, demand, waiver, consent, approval or other communication which is required or permitted hereunder shall be in writing and shall be deemed given (a) on the date established by the sender as having been delivered personally, (b) on the date delivered by a private courier as established by the sender by evidence obtained from the courier, (c) on the date sent by facsimile, with confirmation of transmission, if sent during normal business hours of the recipient, if not, then on the next business day, or (d) on the fifth day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications, to be valid, must be addressed as follows:

If to Licensee, to:

Artemis Acquisition LLC

c/o Adesto Technologies Corporation

1250 Borregas Avenue

Sunnyvale, CA 94089

Attn: Chief Executive Officer

Facsimile:

With a required copy to:

Fenwick & West LLP

Silicon Valley Center

801 California Street

Mountain View, CA 94041

Attn: Mark A. Leahy, Esq.

Facsimile: (650) 938-5200

If to Parent, to:

Adesto Technologies Corporation

1250 Borregas Avenue

Sunnyvale, CA 94089

Attn: Chief Executive Officer

Facsimile:

With a required copy to:

Fenwick & West LLP

Silicon Valley Center

801 California Street

Mountain View, CA 94041

Attn: Mark A. Leahy, Esq.

Facsimile: (650) 938-5200

 

9


If to Licensor, to:

Atmel Corporation

1600 Technology Drive

San Jose, CA 95110

Attn: Legal Department

Facsimile: 1 408 436 4111

email: legal@atmel.com

or to such other address or to the attention of such Person or Persons as the recipient Party has specified by prior written notice to the sending Party (or in the case of counsel, to such other readily ascertainable business address as such counsel may hereafter maintain). If more than one method for sending notice as set forth above is used, the earliest notice date established as set forth above shall control.

7.2 Amendments and Waivers.

(a) Any provision of this Agreement may be amended or waived if, and only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by each Party to this Agreement, or in the case of a waiver, by the Party against whom the waiver is to be effective.

(b) No failure or delay by any Party in exercising any right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege.

(c) To the maximum extent permitted by Law, (i) no waiver that may be given by a Party shall be applicable except in the specific instance for which it was given and (ii) no notice to or demand on one Party shall be deemed to be a waiver of any obligation of such Party or the right of the Party giving such notice or demand to take further action without notice or demand.

7.3 Successors and Assigns . This Agreement may not be assigned by either Party hereto without the prior written consent of the other Party; provided that, without such consent, Licensee may transfer or assign this Agreement, in whole or in part or from time to time, to (i) one or more of its Affiliates, (ii) by operation of law, or (iii) in connection with any merger, consolidation or sale of all or substantially all of its assets or in connection with any similar transaction. Subject to the foregoing, all of the terms and provisions of this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective executors, heirs, personal representatives, successors and assigns. Subject to the preceding sentence, this Agreement shall be binding upon and shall inure to the benefit of the Parties hereto and their respective successors and permitted assigns.

7.4 Governing Law . This Agreement shall be governed by and interpreted and enforced in accordance with the laws of the State of California, without giving effect to any choice of law or conflict of laws rules or provisions (whether of the State of California or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of California.

 

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7.5 Consent to Jurisdiction . Each Party irrevocably submits to the exclusive jurisdiction of (a) the State of California, County of Santa Clara, and (b) the United States District Court for the Northern District of California, for the purposes of any suit, action or other proceeding arising out of this Agreement or any transaction contemplated hereby. Each Party agrees to commence any such action, suit or proceeding either in the courts of the State of California located in the County of Santa Clara, or if such suit, action or other proceeding may not be brought in such court for jurisdictional reasons, in the United States district Court for the Northern District of California. Each Party further agrees that service of any process, summons, notice or document by U.S. registered mail to such Party’s respective address set forth above shall be effective service of process for any action, suit or proceeding in the courts of the State of California located in the County of Santa Clara with respect to any matters to which it has submitted to jurisdiction in this Section 7.5 . Each Party irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby in (i) the courts of the State of California, County of Santa Clara, or (ii) the United States District Court for the Northern District of California, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. EACH PARTY HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE ANCILLARY AGREEMENTS OR THE ACTIONS OF SUCH PARTY IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF AND THEREOF.

7.6 Specific Performance . In the event of a breach of any of Licensee’s agreements or obligations under this Agreement, Licensor shall have the right, without the posting of any bond, to obtain the specific performance thereof.

7.7 Counterparts . This Agreement may be executed in any number of counterparts, and any Party hereto may execute any such counterpart, each of which when executed and delivered shall be deemed to be an original and all of which counterparts taken together shall constitute but one and the same instrument. This Agreement shall become effective when each Party hereto shall have received a counterpart hereof signed by the other Party hereto.

7.8 Third Party Beneficiaries . No provision of this Agreement is intended to confer upon any Person other than the Parties hereto any rights or remedies hereunder; except that in the case of Sections 4.3 and 4.4 hereof, the indemnified Parties and their respective heirs, executors, administrators, legal representatives, successors and assigns, are intended third-party beneficiaries of such sections and shall have the right to enforce such sections in their own names.

 

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7.9 Entire Agreement . This Agreement, the exhibits, Schedules and the other documents, instruments and agreements specifically referred to herein or therein or delivered pursuant hereto or thereto set forth the entire agreement of the Parties with respect to the subject matter (except to the extent of (i) definitions expressly incorporated by reference herein from the Purchase Agreement and (ii)  Section 10.8 of the Purchase Agreement, which is incorporated herein as set forth in Article 5 hereof) and supersedes all prior and contemporaneous agreements, covenants, representations, warranties, undertakings and understandings, written or oral, among the Parties with respect to the subject matter hereof.

7.10 Captions . All captions contained in this Agreement are for convenience of reference only, do not form a part of this Agreement and shall not affect in any way the meaning or interpretation of this Agreement.

7.11 Severability . Any provision of this Agreement which is invalid or unenforceable in any jurisdiction shall be ineffective to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the remaining provisions hereof, and any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

7.12 Joint and Several Liability. Parent and Licensee shall be jointly and severally liable for all obligations, representations, covenants and agreements of Licensee set forth in this Agreement.

7.13 Independent Contractors. The Parties hereto are independent contractors. Nothing contained herein or done pursuant to this Agreement shall constitute either Party the agent of the other Party for any purpose or in any sense whatsoever, or constitute the Parties as partners or joint venturers.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

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IN WITNESS WHEREOF , the Parties have caused this Agreement to be executed as of the date first set forth above.

 

ATMEL CORPORATION
By: /s/ Stephen Skaggs
Name: Stephen Skaggs
Title: SVP
ADESTO TECHNOLOGIES CORPORATION
By: /s/ Narbeh Derhacobian
Name: Narbeh Derhacobian
Title: President and Chief Executive Officer
ARTEMIS ACQUISITION LLC
By: Adesto Technologies Corporation as sole member and manager of Artemis Acquisition LLC
By: /s/ Narbeh Derhacobian
Name: Narbeh Derhacobian
Title: President and Chief Executive Officer

 

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EXHIBIT A-1

Licensor Process Technology

Licensor Process Technology is that semiconductor manufacturing process technology listed below used to manufacture the Flash Memory Products. The Licensor Process Technology, to be provided by Licensor to Licensee on or about the Closing, includes the process flows, recipes process (including, where relevant, the Equipment Recipes), process controls (including statistics (Cp and Cpk) and OCAPs) for such listed and identified semiconductor manufacturing process technology below to permit Licensor to manufacture the Licensed Products.

 

Technology

  

Description

[*]    0.13µm Flash
[*]    0.11µm Flash

 

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* Confidential Treatment Requested


EXHIBIT A-2

PDK IP

The specific process design kits (PDKs) to be provided by Licensor to Licensee on or about the Closing, for all Licensor Process Technologies and all Flash Memory Products, will include the following elements:

 

  1. Device Lists, Descriptions & Models including the NVM Cell description

 

  2. Simulation Models

 

  3. Design Rule Manual

 

  4. Qualification & Characterization Reports

 

  5. Verification Decks (LVS, DRC, PE)

 

  6. Mask Preparation Information

 

15


EXHIBIT B

Transferred Patents

[*]

 

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* Confidential Treatment Requested

Exhibit 23.02

Consent of Independent Registered Public Accounting Firm

We hereby consent to the use in this Registration Statement on Form S-1 of our report dated May 14, 2015 relating to the consolidated financial statements of Adesto Technologies Corporation and its subsidiaries appearing in the Prospectus, which is a part of such Registration Statement. We also consent to the reference of our firm under the heading “Experts” in such Registration Statement.

/s/ Burr Pilger Mayer, Inc.

San Jose, California

September 14, 2015