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x
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Delaware
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20-2530195
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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4401 Great America Parkway
Santa Clara, California 95054
(Address of principal executive office, including zip code)
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Title of each class
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Name of each exchange on which registered
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Common Stock, par value $0.0001 per share
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New York Stock Exchange LLC
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Large accelerated filer
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x
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Accelerated filer
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¨
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Non-accelerated filer
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¨
(Do not check if a smaller reporting company)
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Smaller reporting company
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¨
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Page
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PART I
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Item 1.
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Item 1A.
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Item 1B.
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Item 2.
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Item 3.
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Item 4.
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PART II
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Item 5.
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Item 6.
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Item 7.
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Item 7A.
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Item 8.
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Item 9.
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Item 9A.
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Item 9B.
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PART III
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Item 10.
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Item 11.
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Item 12.
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Item 13.
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Item 14.
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PART IV
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Item 15.
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•
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trends in and expectations regarding revenue (including our revenue mix), costs of revenue, gross margin, cash flows, interest expense, and operating expenses, including future share-based compensation expense;
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•
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our expectation that we will continue to grow our installed end-customer base;
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•
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our expectations regarding future investments in research and development, customer support, and in our sales force, including expectations regarding growth in our sales headcount;
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•
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our expectation that we will continue to expand internationally;
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•
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the availability of our AutoFocus and Aperture subscription offerings;
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•
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our expectation that we will continue to introduce new subscriptions, renew existing contracts, and increase sales to our existing customer base;
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•
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seasonal trends in our results of operations;
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•
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our expectation that we will expand our facilities or add new facilities as we add employees and enter new geographic markets;
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•
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the sufficiency of our cash flow from operations with existing cash and cash equivalents to meet our cash needs for the foreseeable future;
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•
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future investments in product development, services, or technologies; and
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•
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our ability to grow our installed end-customer base.
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ITEM 1.
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BUSINESS
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•
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Threat Prevention Subscription.
This service provides the intrusion detection and prevention capabilities of our platform. Our threat prevention engine blocks vulnerability exploits, viruses, spyware, buffer overflows, denial-of-service attacks, and port scans from compromising and damaging enterprise information resources. It includes mechanisms such as protocol decoder-based analysis, protocol anomaly-based protection, stateful pattern matching, statistical anomaly detection, heuristic-based analysis, custom vulnerability, and spyware phone home signatures.
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•
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URL Filtering Subscription.
This service provides the uniform resource locator (URL) filtering capabilities of our platform. The URL filtering database consists of millions of URLs across many categories and is designed to monitor and control employee web surfing activities. The on-appliance URL database can be augmented to suit the traffic patterns of the local user community with a custom URL database. URLs that are not categorized by the local URL database can be pulled into a separate, cache-based URL database from a very extensive, cloud-based URL database.
|
•
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GlobalProtect Subscription.
This appliance-based service provides protection for mobile users of both traditional laptop devices and mobile devices. It expands the boundaries of the physical network, effectively establishing a logical perimeter that encompasses remote laptop and mobile device users irrespective of their location. When a remote user logs into the device, GlobalProtect automatically determines the closest gateway available to the roaming device and establishes a secure connection. Windows and Apple laptops as well as mobile devices, such as Android phones and tablets and Apple iPhones and iPads, will stay connected to the corporate network whenever they are on a network of any kind. As a result, they are protected as if they never left the corporate campus. GlobalProtect ensures that the same secure application enablement policies that protect users at the corporate site are enforced for all users, independent of their location.
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•
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WildFire Subscription.
This cloud-based or appliance-based service provides protection against targeted malware and advanced persistent threats. This service provides a near real-time analysis engine for detecting previously unseen malware. The core component of this service is a sandbox environment that can operate on an end-customers’ private cloud or our public cloud where files can be run and monitored for more than 100 behavioral characteristics that identify the file as malware. Once identified, preventive measures are automatically generated and delivered to all devices that
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•
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Traps Subscription.
This service provides protection for Windows-based fixed and virtual endpoints and servers. It protects against cyber attacks that aim to exploit software vulnerabilities through its unique capability of stopping the underlying exploit techniques and can prevent cyber attacks without relying on prior knowledge of the attack. Through its integration with WildFire, it is also capable of preventing cyber attacks that rely on malware.
|
•
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AutoFocus Subscription.
This cloud-based service, which we expect to be generally available in fiscal 2016, provides threat intelligence capabilities to our end-customers’ security operations teams. Indicators of compromise and anomalies that occur on an end-customer’s network can be correlated with similar data that has been centrally collected by us in our Threat Intelligence Cloud from among all our participating end-customers. This offers our end-customers priority alerts, deep attack context, and high-fidelity threat intelligence across millions of malware samples and tens of billions of file artifacts.
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•
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Aperture Subscription.
This cloud-based service, which we expect to be generally available in fiscal 2016, provides content control for IT-sanctioned SaaS applications that are used to store and share end-customer’s data. It offers end-customers the capability to safely use these SaaS applications and avert risks associated with improper sharing of confidential data.
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•
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large networking vendors such as Cisco Systems, Inc. (“Cisco”) and Juniper Networks, Inc. (“Juniper”) that incorporate security features in their products;
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•
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large companies such as Intel Corporation (“Intel”), International Business Machines (“IBM”), and Hewlett-Packard Company (“HP”) that have acquired large network and endpoint security specialist vendors in recent years and have the technical and financial resources to bring competitive solutions to the market;
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•
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independent security vendors such as Check Point Software Technologies Ltd. (“Check Point”), Fortinet, Inc. (“Fortinet”), and FireEye, Inc. (“FireEye”), that offer a mix of network and endpoint security products; and Symantec Corporation (“Symantec”), that offers endpoint security products; and
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•
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small and large companies that offer point solutions that compete with some of the features present in our platform.
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•
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product features, reliability, performance, and effectiveness;
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•
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product line breadth, diversity, and applicability;
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•
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product extensibility and ability to integrate with other technology infrastructures;
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•
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price and total cost of ownership;
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•
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adherence to industry standards and certifications;
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•
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strength of sales and marketing efforts; and
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•
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brand awareness and reputation.
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ITEM 1A.
|
RISK FACTORS
|
•
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our ability to attract and retain new end-customers;
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•
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the budgeting cycles and purchasing practices of end-customers;
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•
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changes in end-customer, distributor or reseller requirements, or market needs;
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•
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price competition;
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•
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the timing and success of new product and service introductions by us or our competitors or any other change in the competitive landscape of our industry, including consolidation among our competitors or end-customers;
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•
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changes in the mix of our products and services, including increases in multi-year subscriptions and support and maintenance;
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•
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changes in the growth rate of the enterprise security market;
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•
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deferral of orders from end-customers in anticipation of new products or product enhancements announced by us or our competitors;
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•
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our ability to successfully expand our business domestically and internationally;
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•
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the timing and costs related to the development or acquisition of technologies or businesses;
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•
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lack of synergy, or the inability to realize expected synergies, resulting from recent acquisitions;
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•
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our inability to complete or integrate efficiently any acquisitions that we have completed, or that we may undertake;
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•
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our ability to increase the size of our distribution channel;
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•
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decisions by potential end-customers to purchase security solutions from larger, more established security vendors or from their primary network equipment vendors;
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•
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changes in end-customer attach rates and renewal rates for our services;
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•
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timing of revenue recognition and revenue deferrals;
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•
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our ability to manage production and manufacturing related costs, global customer service organization costs, inventory excess and obsolescence costs, and warranty costs;
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•
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insolvency or credit difficulties confronting our customers, which could adversely affect their ability to purchase or pay for our products and services, or confronting our key suppliers, including our sole source suppliers, which could disrupt our supply chain;
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•
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any disruption in our channel or termination of our relationships with important channel partners, including as a result of consolidation among distributors and resellers of security solutions;
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•
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our inability to fulfill our end-customers’ orders due to supply chain delays or events that impact our manufacturers or their suppliers;
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•
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increased expenses, unforeseen liabilities, or write-downs and any impact on our operating results from any acquisitions we consummate;
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•
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the cost and potential outcomes of litigation, which could have a material adverse effect on our business;
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•
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seasonality or cyclical fluctuations in our markets;
|
•
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future accounting pronouncements or changes in our accounting policies, including the potential impact of the adoption and implementation of the Financial Accounting Standards Board’s new standard regarding revenue recognition;
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•
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the impact on our overall effective tax rate caused by any reorganization in our corporate structure or any changes in our valuation allowance for domestic deferred assets;
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•
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increases or decreases in our expenses or fluctuations in our sales cycle caused by fluctuations in foreign currency exchange rates, as an increasing amount of our expenses is incurred and paid in currencies other than the U.S. dollar;
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•
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political, economic and social instability, including continued hostilities in the Middle East, terrorist activities, and any disruption these events may cause to the broader global industrial economy; and
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•
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general macroeconomic conditions, both domestically and in our foreign markets.
|
•
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large networking vendors such as Cisco and Juniper that incorporate security features in their products;
|
•
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large companies such as Intel, IBM, and HP that have acquired large network and endpoint security specialist vendors in recent years and have the technical and financial resources to bring competitive solutions to the market;
|
•
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independent security vendors such as Check Point, Fortinet, and FireEye, that offer a mix of network and endpoint security products; and Symantec, that offers endpoint security products; and
|
•
|
small and large companies that offer point solutions that compete with some of the features present in our platform.
|
•
|
greater name recognition and longer operating histories;
|
•
|
larger sales and marketing budgets and resources;
|
•
|
broader distribution and established relationships with distribution partners and end-customers;
|
•
|
greater customer support resources;
|
•
|
greater resources to make acquisitions;
|
•
|
lower labor and development costs;
|
•
|
larger and more mature intellectual property portfolios; and
|
•
|
substantially greater financial, technical, and other resources.
|
•
|
competition from larger competitors, such as Cisco, Check Point, and Juniper, that traditionally target larger enterprises, service providers, and government entities and that may have pre-existing relationships or purchase commitments from those end-customers;
|
•
|
increased purchasing power and leverage held by large end-customers in negotiating contractual arrangements with us;
|
•
|
more stringent requirements in our worldwide support and maintenance service contracts, including stricter support response times and penalties for any failure to meet support requirements; and
|
•
|
longer sales cycles and the associated risk that substantial time and resources may be spent on a potential end-customer that elects not to purchase our products and services.
|
•
|
expenditure of significant financial and product development resources in efforts to analyze, correct, eliminate, or work-around errors or defects or to address and eliminate vulnerabilities;
|
•
|
loss of existing or potential end-customers or channel partners;
|
•
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delayed or lost revenue;
|
•
|
delay or failure to attain market acceptance;
|
•
|
an increase in warranty claims compared with our historical experience, or an increased cost of servicing warranty claims, either of which would adversely affect our gross margins; and
|
•
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litigation, regulatory inquiries, or investigations that may be costly and harm our reputation.
|
•
|
political, economic and social uncertainty around the world, in particular, macroeconomic challenges in Europe, terrorist activities, and continued hostilities in the Middle East;
|
•
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greater difficulty in enforcing contracts and accounts receivable collection and longer collection periods;
|
•
|
the uncertainty of protection for intellectual property rights in some countries;
|
•
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greater risk of unexpected changes in regulatory practices, tariffs, and tax laws and treaties;
|
•
|
risks associated with trade restrictions and foreign legal requirements, including the importation, certification, and localization of our products required in foreign countries;
|
•
|
greater risk of a failure of foreign employees, channel partners, distributors, and resellers to comply with both U.S. and foreign laws, including antitrust regulations, the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, U.S. or foreign sanctions regimes and export or import control laws, and any trade regulations ensuring fair trade practices;
|
•
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heightened risk of unfair or corrupt business practices in certain geographies and of improper or fraudulent sales arrangements that may impact financial results and result in restatements of, or irregularities in, financial statements;
|
•
|
increased expenses incurred in establishing and maintaining office space and equipment for our international operations;
|
•
|
greater difficulty in recruiting local experienced personnel, and the costs and expenses associated with such activities;
|
•
|
management communication and integration problems resulting from cultural and geographic dispersion;
|
•
|
fluctuations in exchange rates between the U.S. dollar and foreign currencies in markets where we do business; and
|
•
|
general economic and political conditions in these foreign markets.
|
•
|
announcements of new products, services or technologies, commercial relationships, acquisitions or other events by us or our competitors;
|
•
|
price and volume fluctuations in the overall stock market from time to time;
|
•
|
news announcements that affect investor perception of our industry, including reports related to the discovery of significant cyber attacks;
|
•
|
significant volatility in the market price and trading volume of technology companies in general and of companies in our industry;
|
•
|
fluctuations in the trading volume of our shares or the size of our public float;
|
•
|
actual or anticipated changes in our operating results or fluctuations in our operating results;
|
•
|
whether our operating results meet the expectations of securities analysts or investors;
|
•
|
actual or anticipated changes in the expectations of securities analysts or investors;
|
•
|
litigation involving us, our industry, or both;
|
•
|
regulatory developments in the United States, foreign countries or both;
|
•
|
major catastrophic events;
|
•
|
sales of large blocks of our stock;
|
•
|
departures of key personnel; or
|
•
|
economic uncertainty around the world, in particular, macroeconomic challenges in Europe.
|
•
|
a classified board of directors with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority of our board of directors;
|
•
|
the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquiror;
|
•
|
the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;
|
•
|
a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;
|
•
|
the requirement that a special meeting of stockholders may be called only by the chairman of our board of directors, our president, our secretary, or a majority vote of our board of directors, which could delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors;
|
•
|
the requirement for the affirmative vote of holders of at least 66 2/3% of the voting power of all of the then outstanding shares of the voting stock, voting together as a single class, to amend the provisions of our amended and restated certificate of incorporation relating to the issuance of preferred stock and management of our business or our amended and restated bylaws, which may inhibit the ability of an acquiror to effect such amendments to facilitate an unsolicited takeover attempt;
|
•
|
the ability of our board of directors, by majority vote, to amend the bylaws, which may allow our board of directors to take additional actions to prevent an unsolicited takeover and inhibit the ability of an acquiror to amend the bylaws to facilitate an unsolicited takeover attempt; and
|
•
|
advance notice procedures with which stockholders must comply to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquiror’s own slate of directors or otherwise attempting to obtain control of us.
|
ITEM 1B.
|
UNRESOLVED STAFF COMMENTS
|
ITEM 2.
|
PROPERTIES
|
ITEM 3.
|
LEGAL PROCEEDINGS
|
ITEM 4.
|
MINE SAFETY DISCLOSURES
|
ITEM 5.
|
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
|
|
High
|
|
Low
|
||||
Year Ended July 31, 2014
|
|
|
|
||||
First Quarter
|
$
|
50.50
|
|
|
$
|
42.04
|
|
Second Quarter
|
$
|
64.92
|
|
|
$
|
40.36
|
|
Third Quarter
|
$
|
80.84
|
|
|
$
|
57.02
|
|
Fourth Quarter
|
$
|
85.78
|
|
|
$
|
57.47
|
|
Year Ended July 31, 2015
|
|
|
|
||||
First Quarter
|
$
|
108.50
|
|
|
$
|
76.86
|
|
Second Quarter
|
$
|
130.00
|
|
|
$
|
102.02
|
|
Third Quarter
|
$
|
158.24
|
|
|
$
|
121.31
|
|
Fourth Quarter
|
$
|
200.55
|
|
|
$
|
144.42
|
|
Company/Index
|
7/20/2012
|
|
7/31/2012
|
|
7/31/2013
|
|
7/31/2014
|
|
7/31/2015
|
||||||||||
Palo Alto Networks, Inc.
|
$
|
100.00
|
|
|
$
|
107.55
|
|
|
$
|
92.11
|
|
|
$
|
152.19
|
|
|
$
|
349.76
|
|
NYSE Composite Index
|
$
|
100.00
|
|
|
$
|
101.34
|
|
|
$
|
123.19
|
|
|
$
|
138.23
|
|
|
$
|
140.24
|
|
NYSE Arca Tech 100 Index
|
$
|
100.00
|
|
|
$
|
101.35
|
|
|
$
|
127.39
|
|
|
$
|
154.80
|
|
|
$
|
171.76
|
|
ITEM 6.
|
SELECTED FINANCIAL DATA
|
|
Year Ended July 31,
|
||||||||||||||||||
|
2015
|
|
2014
|
|
2013
|
|
2012
|
|
2011
|
||||||||||
|
(in thousands)
|
||||||||||||||||||
Selected Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
||||||||||
Revenue:
|
|
|
|
|
|
|
|
|
|
||||||||||
Product
|
$
|
492,658
|
|
|
$
|
340,143
|
|
|
$
|
243,707
|
|
|
$
|
174,462
|
|
|
$
|
84,800
|
|
Services
|
435,394
|
|
|
258,036
|
|
|
152,400
|
|
|
80,676
|
|
|
33,797
|
|
|||||
Total revenue
|
928,052
|
|
|
598,179
|
|
|
396,107
|
|
|
255,138
|
|
|
118,597
|
|
|||||
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
||||||||||
Product
(1)
|
131,094
|
|
|
85,503
|
|
|
63,412
|
|
|
44,615
|
|
|
21,766
|
|
|||||
Services
(1)
|
120,405
|
|
|
74,125
|
|
|
46,344
|
|
|
25,938
|
|
|
10,507
|
|
|||||
Total cost of revenue
|
251,499
|
|
|
159,628
|
|
|
109,756
|
|
|
70,553
|
|
|
32,273
|
|
|||||
Total gross profit
|
676,553
|
|
|
438,551
|
|
|
286,351
|
|
|
184,585
|
|
|
86,324
|
|
|||||
Operating expenses:
|
|
|
|
|
|
|
|
|
|
||||||||||
Research and development
(1)
|
185,828
|
|
|
104,813
|
|
|
62,482
|
|
|
38,570
|
|
|
21,366
|
|
|||||
Sales and marketing
(1)
|
522,696
|
|
|
334,763
|
|
|
199,771
|
|
|
115,917
|
|
|
62,254
|
|
|||||
General and administrative
(1)
|
101,565
|
|
|
73,149
|
|
|
42,719
|
|
|
26,207
|
|
|
13,108
|
|
|||||
Legal settlement
|
—
|
|
|
141,173
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Total operating expenses
|
810,089
|
|
|
653,898
|
|
|
304,972
|
|
|
180,694
|
|
|
96,728
|
|
|||||
Operating income (loss)
|
(133,536
|
)
|
|
(215,347
|
)
|
|
(18,621
|
)
|
|
3,891
|
|
|
(10,404
|
)
|
|||||
Interest expense
|
(22,325
|
)
|
|
(1,883
|
)
|
|
(74
|
)
|
|
(36
|
)
|
|
(25
|
)
|
|||||
Other income (expense), net
|
284
|
|
|
(4,930
|
)
|
|
39
|
|
|
(1,056
|
)
|
|
(1,623
|
)
|
|||||
Income (loss) before income taxes
|
(155,577
|
)
|
|
(222,160
|
)
|
|
(18,656
|
)
|
|
2,799
|
|
|
(12,052
|
)
|
|||||
Provision for income taxes
|
9,405
|
|
|
4,292
|
|
|
10,590
|
|
|
2,062
|
|
|
476
|
|
|||||
Net income (loss)
|
$
|
(164,982
|
)
|
|
$
|
(226,452
|
)
|
|
$
|
(29,246
|
)
|
|
$
|
737
|
|
|
$
|
(12,528
|
)
|
Net income (loss) attributable to common stockholders, basic and diluted
|
$
|
(164,982
|
)
|
|
$
|
(226,452
|
)
|
|
$
|
(29,246
|
)
|
|
$
|
—
|
|
|
$
|
(12,528
|
)
|
Net income (loss) per share attributable to common stockholders, basic and diluted
|
$
|
(2.02
|
)
|
|
$
|
(3.05
|
)
|
|
$
|
(0.43
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.88
|
)
|
Weighted-average shares used to compute net income (loss) per share attributable to common stockholders, basic and diluted
|
81,619
|
|
|
74,291
|
|
|
68,682
|
|
|
19,569
|
|
|
14,201
|
|
(1)
|
Includes share-based compensation expense as follows:
|
|
Year Ended July 31,
|
||||||||||||||||||
|
2015
|
|
2014
|
|
2013
|
|
2012
|
|
2011
|
||||||||||
|
(in thousands)
|
||||||||||||||||||
Cost of product revenue
|
$
|
3,858
|
|
|
$
|
1,636
|
|
|
$
|
765
|
|
|
$
|
121
|
|
|
$
|
27
|
|
Cost of services revenue
|
20,425
|
|
|
9,434
|
|
|
3,586
|
|
|
653
|
|
|
179
|
|
|||||
Research and development
|
74,837
|
|
|
29,524
|
|
|
9,931
|
|
|
3,733
|
|
|
1,020
|
|
|||||
Sales and marketing
|
84,113
|
|
|
42,647
|
|
|
20,493
|
|
|
4,267
|
|
|
1,133
|
|
|||||
General and administrative
|
38,198
|
|
|
16,668
|
|
|
9,101
|
|
|
5,151
|
|
|
2,374
|
|
|||||
Total share-based compensation
|
$
|
221,431
|
|
|
$
|
99,909
|
|
|
$
|
43,876
|
|
|
$
|
13,925
|
|
|
$
|
4,733
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
July 31,
|
||||||||||||||||||
|
2015
|
|
2014
|
|
2013
|
|
2012
|
|
2011
|
||||||||||
|
(in thousands)
|
||||||||||||||||||
Selected Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
||||||||||
Cash and cash equivalents
|
$
|
375,814
|
|
|
$
|
653,812
|
|
|
$
|
310,614
|
|
|
$
|
322,642
|
|
|
$
|
40,517
|
|
Investments
|
952,006
|
|
|
320,570
|
|
|
126,321
|
|
|
—
|
|
|
—
|
|
|||||
Working capital
|
41,803
|
|
|
610,155
|
|
|
323,597
|
|
|
259,651
|
|
|
9,739
|
|
|||||
Total assets
|
1,965,178
|
|
|
1,478,466
|
|
|
585,606
|
|
|
407,804
|
|
|
91,172
|
|
|||||
Convertible senior notes, net
|
—
|
|
|
466,875
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Preferred stock warrant liability
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,068
|
|
|||||
Redeemable convertible preferred stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
64,491
|
|
|||||
Common stock including additional paid-in capital
|
988,695
|
|
|
804,414
|
|
|
381,710
|
|
|
309,099
|
|
|
9,311
|
|
|||||
Total stockholders’ equity (deficit)
|
$
|
487,899
|
|
|
$
|
468,583
|
|
|
$
|
272,420
|
|
|
$
|
229,071
|
|
|
$
|
(71,454
|
)
|
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
•
|
Overview.
A discussion of our business and overall analysis of financial and other highlights in order to provide context for the remainder of MD&A.
|
•
|
Key Financial Metrics.
A summary of our GAAP and non-GAAP key financial metrics, which management monitors to evaluate our performance.
|
•
|
Results of Operations.
A discussion of the nature and trends of the components of our financial results and an analysis of our financial results comparing fiscal
2015
to
2014
and fiscal
2014
to
2013
.
|
•
|
Liquidity and Capital Resources.
An analysis of changes in our balance sheets and cash flows, and a discussion of our financial condition and our ability to meet cash needs.
|
•
|
Contractual Obligations and Commitments.
An overview of our contractual obligations, contingent liabilities, commitments, and off-balance sheet arrangements outstanding as of
July 31, 2015
, including expected payment schedule.
|
•
|
Critical Accounting Policies and Estimates.
A discussion of accounting policies that require critical estimates, assumptions, and judgments.
|
•
|
Recent Accounting Pronouncements.
A discussion of expected impacts of impending accounting changes on financial information to be reported in the future.
|
|
July 31,
|
||||||
|
2015
|
|
2014
|
||||
|
(in thousands)
|
||||||
Total deferred revenue
|
$
|
713,654
|
|
|
$
|
422,578
|
|
Cash, cash equivalents, and investments
|
$
|
1,327,820
|
|
|
$
|
974,382
|
|
|
Year Ended July 31,
|
||||||||||
|
2015
|
|
2014
|
|
2013
|
||||||
|
(dollars in thousands)
|
||||||||||
Total revenue
|
$
|
928,052
|
|
|
$
|
598,179
|
|
|
$
|
396,107
|
|
Year over year percentage increase
|
55.1
|
%
|
|
51.0
|
%
|
|
55.3
|
%
|
|||
Gross margin percentage
|
72.9
|
%
|
|
73.3
|
%
|
|
72.3
|
%
|
|||
Operating loss
|
$
|
(133,536
|
)
|
|
$
|
(215,347
|
)
|
|
$
|
(18,621
|
)
|
Operating margin percentage
|
(14.4
|
)%
|
|
(36.0
|
)%
|
|
(4.7
|
)%
|
|||
Billings (non-GAAP)
|
$
|
1,219,128
|
|
|
$
|
771,375
|
|
|
$
|
509,529
|
|
Cash flow provided by operating activities
|
$
|
350,304
|
|
|
$
|
88,406
|
|
|
$
|
114,519
|
|
Free cash flow (non-GAAP)
|
$
|
316,476
|
|
|
$
|
52,299
|
|
|
$
|
92,077
|
|
•
|
Deferred Revenue.
Our deferred revenue consists of amounts that have been invoiced, but have not been recognized as revenue as of the period end. The majority of our deferred revenue balance consists of subscription and support and maintenance revenue that is recognized ratably over the contractual service period. We monitor our deferred revenue balance because it represents a significant portion of revenue to be recognized in future periods.
|
•
|
Cash Flow Provided by Operating Activities.
We monitor cash flow provided by operating activities as a measure of our overall business performance. Our cash flow provided by operating activities is driven in large part by sales of our products and from up-front payments for both subscriptions and support and maintenance services. Monitoring cash flow provided by operating activities enables us to analyze our financial performance without the non-cash effects of certain items such as depreciation, amortization, and share-based compensation costs, thereby allowing us to better understand and manage the cash needs of our business.
|
•
|
Free Cash Flow (non-GAAP).
We define free cash flow, a non-GAAP financial measure, as cash provided by operating activities less purchases of property, equipment, and other assets. We consider free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that, after the purchases of property, equipment, and other productive assets, can be used for strategic opportunities, including investing in our business, making strategic acquisitions, and strengthening the balance sheet.
|
|
Year Ended July 31,
|
||||||||||
|
2015
|
|
2014
|
|
2013
|
||||||
|
(in thousands)
|
||||||||||
Free cash flow (non-GAAP):
|
|
|
|
|
|
||||||
Cash flow provided by operating activities
|
$
|
350,304
|
|
|
$
|
88,406
|
|
|
$
|
114,519
|
|
Less: purchases of property, equipment, and other assets
|
33,828
|
|
|
36,107
|
|
|
22,442
|
|
|||
Free cash flow (non-GAAP)
(1)
|
$
|
316,476
|
|
|
$
|
52,299
|
|
|
$
|
92,077
|
|
Net cash used in investing activities
|
$
|
(679,006
|
)
|
|
$
|
(320,348
|
)
|
|
$
|
(151,565
|
)
|
Net cash provided by financing activities
|
$
|
50,704
|
|
|
$
|
575,140
|
|
|
$
|
25,018
|
|
(1)
|
Includes our cash payments of $75.0 million and $20.0 million in fiscal 2014 for the legal settlement with Juniper and the Mutual Covenant Not to Sue and Release Agreement with Fortinet, respectively.
|
•
|
Billings (non-GAAP).
We define billings, a non-GAAP financial measure, as total revenue plus the change in deferred revenue, net of acquired deferred revenue, during the period. Billings is a key measure used by our management to manage our business because billings drive deferred revenue, which is an important indicator of the health and visibility of our business. We consider billings to be a useful metric for management and investors, particularly as we experience increased sales of subscriptions and strong renewal rates for subscriptions and support and maintenance services, and monitor our near term cash flows. We believe that billings provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management. However, it is important to note that other companies, including companies in our industry, may not use billings, may calculate billings differently, may have different billing frequencies, or may use other financial measures to evaluate their performance, all of which could reduce the usefulness of billings as a comparative measure. A reconciliation of billings to revenue, the most directly comparable financial measure calculated and presented in accordance with GAAP, is provided below:
|
|
Year Ended July 31,
|
||||||||||
|
2015
|
|
2014
|
|
2013
|
||||||
|
(in thousands)
|
||||||||||
Billings (non-GAAP):
|
|
|
|
|
|
||||||
Total revenue
|
$
|
928,052
|
|
|
$
|
598,179
|
|
|
$
|
396,107
|
|
Add: change in total deferred revenue, net of acquired deferred revenue
|
291,076
|
|
|
173,196
|
|
|
113,422
|
|
|||
Billings (non-GAAP)
|
$
|
1,219,128
|
|
|
$
|
771,375
|
|
|
$
|
509,529
|
|
|
Year Ended July 31,
|
|||||||||||||||||||
|
2015
|
|
2014
|
|
2013
|
|||||||||||||||
|
Amount
|
|
% of Revenue
|
|
Amount
|
|
% of Revenue
|
|
Amount
|
|
% of Revenue
|
|||||||||
|
(dollars in thousands)
|
|||||||||||||||||||
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Product
|
$
|
492,658
|
|
|
53.1
|
%
|
|
$
|
340,143
|
|
|
56.9
|
%
|
|
$
|
243,707
|
|
|
61.5
|
%
|
Services
|
435,394
|
|
|
46.9
|
%
|
|
258,036
|
|
|
43.1
|
%
|
|
152,400
|
|
|
38.5
|
%
|
|||
Total revenue
|
928,052
|
|
|
100.0
|
%
|
|
598,179
|
|
|
100.0
|
%
|
|
396,107
|
|
|
100.0
|
%
|
|||
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Product
|
131,094
|
|
|
14.1
|
%
|
|
85,503
|
|
|
14.3
|
%
|
|
63,412
|
|
|
16.0
|
%
|
|||
Services
|
120,405
|
|
|
13.0
|
%
|
|
74,125
|
|
|
12.4
|
%
|
|
46,344
|
|
|
11.7
|
%
|
|||
Total cost of revenue
|
251,499
|
|
|
27.1
|
%
|
|
159,628
|
|
|
26.7
|
%
|
|
109,756
|
|
|
27.7
|
%
|
|||
Total gross profit
|
676,553
|
|
|
72.9
|
%
|
|
438,551
|
|
|
73.3
|
%
|
|
286,351
|
|
|
72.3
|
%
|
|||
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Research and development
|
185,828
|
|
|
20.0
|
%
|
|
104,813
|
|
|
17.5
|
%
|
|
62,482
|
|
|
15.8
|
%
|
|||
Sales and marketing
|
522,696
|
|
|
56.3
|
%
|
|
334,763
|
|
|
56.0
|
%
|
|
199,771
|
|
|
50.4
|
%
|
|||
General and administrative
|
101,565
|
|
|
11.0
|
%
|
|
73,149
|
|
|
12.2
|
%
|
|
42,719
|
|
|
10.8
|
%
|
|||
Legal settlement
|
—
|
|
|
—
|
%
|
|
141,173
|
|
|
23.6
|
%
|
|
—
|
|
|
—
|
%
|
|||
Total operating expenses
|
810,089
|
|
|
87.3
|
%
|
|
653,898
|
|
|
109.3
|
%
|
|
304,972
|
|
|
77.0
|
%
|
|||
Operating loss
|
(133,536
|
)
|
|
(14.4
|
)%
|
|
(215,347
|
)
|
|
(36.0
|
)%
|
|
(18,621
|
)
|
|
(4.7
|
)%
|
|||
Interest expense
|
(22,325
|
)
|
|
(2.4
|
)%
|
|
(1,883
|
)
|
|
(0.3
|
)%
|
|
(74
|
)
|
|
—
|
%
|
|||
Other income (expense), net
|
284
|
|
|
—
|
%
|
|
(4,930
|
)
|
|
(0.8
|
)%
|
|
39
|
|
|
—
|
%
|
|||
Loss before income taxes
|
(155,577
|
)
|
|
(16.8
|
)%
|
|
(222,160
|
)
|
|
(37.1
|
)%
|
|
(18,656
|
)
|
|
(4.7
|
)%
|
|||
Provision for income taxes
|
9,405
|
|
|
1.0
|
%
|
|
4,292
|
|
|
0.8
|
%
|
|
10,590
|
|
|
2.7
|
%
|
|||
Net loss
|
$
|
(164,982
|
)
|
|
(17.8
|
)%
|
|
$
|
(226,452
|
)
|
|
(37.9
|
)%
|
|
$
|
(29,246
|
)
|
|
(7.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Number of employees at period end
|
2,637
|
|
|
|
|
1,722
|
|
|
|
|
1,147
|
|
|
|
•
|
Product Revenue
.
Product revenue is derived primarily from sales of our appliances. Product revenue also includes revenue derived from software licenses of Panorama, GlobalProtect, and the VM-Series. We recognize product revenue at the time of shipment, provided that all other revenue recognition criteria have been met. As a percentage of total revenue, we expect our product revenue to vary from quarter to quarter based on seasonal and cyclical factors.
|
•
|
Services Revenue
.
Services revenue is derived primarily from sales of our subscriptions and support and maintenance. Our contractual subscription and support and maintenance terms are typically one year, although we also offer three to five year terms. We recognize revenue from subscriptions and support and maintenance over the contractual service period. As a percentage of total revenue, we expect our services revenue to vary from quarter to quarter and increase over the long term as we introduce new subscriptions, renew existing services contracts, and expand our installed end-customer base.
|
|
Year Ended July 31,
|
|
|
|
Year Ended July 31,
|
|
|
||||||||||||||||||||||
|
2015
|
|
2014
|
|
Change
|
|
2014
|
|
2013
|
|
Change
|
||||||||||||||||||
|
Amount
|
|
Amount
|
|
Amount
|
|
%
|
|
Amount
|
|
Amount
|
|
Amount
|
|
%
|
||||||||||||||
|
(dollars in thousands)
|
||||||||||||||||||||||||||||
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Product
|
$
|
492,658
|
|
|
$
|
340,143
|
|
|
$
|
152,515
|
|
|
44.8
|
%
|
|
$
|
340,143
|
|
|
$
|
243,707
|
|
|
$
|
96,436
|
|
|
39.6
|
%
|
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Subscription
|
212,676
|
|
|
123,236
|
|
|
89,440
|
|
|
72.6
|
%
|
|
123,236
|
|
|
71,203
|
|
|
52,033
|
|
|
73.1
|
%
|
||||||
Support and maintenance
|
222,718
|
|
|
134,800
|
|
|
87,918
|
|
|
65.2
|
%
|
|
134,800
|
|
|
81,197
|
|
|
53,603
|
|
|
66.0
|
%
|
||||||
Total services
|
435,394
|
|
|
258,036
|
|
|
177,358
|
|
|
68.7
|
%
|
|
258,036
|
|
|
152,400
|
|
|
105,636
|
|
|
69.3
|
%
|
||||||
Total revenue
|
$
|
928,052
|
|
|
$
|
598,179
|
|
|
$
|
329,873
|
|
|
55.1
|
%
|
|
$
|
598,179
|
|
|
$
|
396,107
|
|
|
$
|
202,072
|
|
|
51.0
|
%
|
Revenue by geographic theater:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Americas
|
$
|
639,328
|
|
|
$
|
396,626
|
|
|
$
|
242,702
|
|
|
61.2
|
%
|
|
$
|
396,626
|
|
|
$
|
247,616
|
|
|
$
|
149,010
|
|
|
60.2
|
%
|
EMEA
|
178,719
|
|
|
126,915
|
|
|
51,804
|
|
|
40.8
|
%
|
|
126,915
|
|
|
91,496
|
|
|
35,419
|
|
|
38.7
|
%
|
||||||
APAC
|
110,005
|
|
|
74,638
|
|
|
35,367
|
|
|
47.4
|
%
|
|
74,638
|
|
|
56,995
|
|
|
17,643
|
|
|
31.0
|
%
|
||||||
Total revenue
|
$
|
928,052
|
|
|
$
|
598,179
|
|
|
$
|
329,873
|
|
|
55.1
|
%
|
|
$
|
598,179
|
|
|
$
|
396,107
|
|
|
$
|
202,072
|
|
|
51.0
|
%
|
•
|
Cost of Product Revenue.
Cost of product revenue primarily includes costs paid to our third-party contract manufacturer. Our cost of product revenue also includes amortization of intellectual property licenses, product testing costs, allocated costs, warranty costs, shipping costs, and personnel costs associated with logistics and quality control. We expect our cost of product revenue to increase as our product revenue increases.
|
•
|
Cost of Services Revenue.
Cost of services revenue includes personnel costs for our global customer support and technical operations organizations, amortization of acquired intangible assets, allocated costs, and URL filtering database service fees. We expect our cost of services revenue to increase as our installed end-customer base grows.
|
|
Year Ended July 31,
|
|
|
|
Year Ended July 31,
|
|
|
||||||||||||||||||||||
|
2015
|
|
2014
|
|
Change
|
|
2014
|
|
2013
|
|
Change
|
||||||||||||||||||
|
Amount
|
|
Amount
|
|
Amount
|
|
%
|
|
Amount
|
|
Amount
|
|
Amount
|
|
%
|
||||||||||||||
|
(dollars in thousands)
|
||||||||||||||||||||||||||||
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Product
|
$
|
131,094
|
|
|
$
|
85,503
|
|
|
$
|
45,591
|
|
|
53.3
|
%
|
|
$
|
85,503
|
|
|
$
|
63,412
|
|
|
$
|
22,091
|
|
|
34.8
|
%
|
Services
|
120,405
|
|
|
74,125
|
|
|
46,280
|
|
|
62.4
|
%
|
|
74,125
|
|
|
46,344
|
|
|
27,781
|
|
|
59.9
|
%
|
||||||
Total cost of revenue
|
$
|
251,499
|
|
|
$
|
159,628
|
|
|
$
|
91,871
|
|
|
57.6
|
%
|
|
$
|
159,628
|
|
|
$
|
109,756
|
|
|
$
|
49,872
|
|
|
45.4
|
%
|
Includes share-based compensation of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Product
|
$
|
3,858
|
|
|
$
|
1,636
|
|
|
$
|
2,222
|
|
|
135.8
|
%
|
|
$
|
1,636
|
|
|
$
|
765
|
|
|
$
|
871
|
|
|
113.9
|
%
|
Services
|
20,425
|
|
|
9,434
|
|
|
10,991
|
|
|
116.5
|
%
|
|
9,434
|
|
|
3,586
|
|
|
5,848
|
|
|
163.1
|
%
|
||||||
Total share-based compensation included in cost of revenue
|
$
|
24,283
|
|
|
$
|
11,070
|
|
|
$
|
13,213
|
|
|
119.4
|
%
|
|
$
|
11,070
|
|
|
$
|
4,351
|
|
|
$
|
6,719
|
|
|
154.4
|
%
|
|
Year Ended July 31,
|
|||||||||||||||||||
|
2015
|
|
2014
|
|
2013
|
|||||||||||||||
|
Amount
|
|
Gross
Margin
|
|
Amount
|
|
Gross
Margin
|
|
Amount
|
|
Gross
Margin |
|||||||||
|
(dollars in thousands)
|
|||||||||||||||||||
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Product
|
$
|
361,564
|
|
|
73.4
|
%
|
|
$
|
254,640
|
|
|
74.9
|
%
|
|
$
|
180,295
|
|
|
74.0
|
%
|
Services
|
314,989
|
|
|
72.3
|
%
|
|
183,911
|
|
|
71.3
|
%
|
|
106,056
|
|
|
69.6
|
%
|
|||
Total gross profit
|
$
|
676,553
|
|
|
72.9
|
%
|
|
$
|
438,551
|
|
|
73.3
|
%
|
|
$
|
286,351
|
|
|
72.3
|
%
|
•
|
Research and Development.
Research and development expense consists primarily of personnel costs. Research and development expense also includes prototype related expenses and allocated costs. We expect research and development expense to increase in absolute dollars as we continue to invest in our future products and services, although our research and development expense may fluctuate as a percentage of total revenue.
|
•
|
Sales and Marketing
.
Sales and marketing expense consists primarily of personnel costs, including commission costs. We expense commission costs as incurred. Sales and marketing expense also includes costs for market development programs, promotional and other marketing costs, travel costs, professional services, and allocated costs. We continue to increase the size of our sales force and have also substantially grown our sales presence internationally. We expect sales and marketing expense to continue to increase in absolute dollars as we increase the size of our sales and marketing organizations to increase touch points with end-customers and to expand our international presence, although our sales and marketing expense may fluctuate as a percentage of total revenue.
|
•
|
General and Administrative
.
General and administrative expense consists of personnel costs for our executive, finance, human resources, legal, and information technology organizations, professional services, and certain non-recurring general expenses. Professional services consist primarily of legal, auditing, accounting, and other consulting costs. We expect general and administrative expense to increase in absolute dollars due to additional costs associated with accounting, compliance, insurance, and investor relations, although our general and administrative expense may fluctuate as a percentage of total revenue.
|
•
|
Legal Settlement
.
Legal settlement expense consists of charges related to the Settlement Agreement with Juniper and the Mutual Covenant Not to Sue and Release Agreement with Fortinet. Refer to the discussion under Note
9
. Legal Settlement of Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for information related to these matters.
|
|
Year Ended July 31,
|
|
|
|
Year Ended July 31,
|
|
|
||||||||||||||||||||||
|
2015
|
|
2014
|
|
Change
|
|
2014
|
|
2013
|
|
Change
|
||||||||||||||||||
|
Amount
|
|
Amount
|
|
Amount
|
|
%
|
|
Amount
|
|
Amount
|
|
Amount
|
|
%
|
||||||||||||||
|
(dollars in thousands)
|
||||||||||||||||||||||||||||
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Research and development
|
$
|
185,828
|
|
|
$
|
104,813
|
|
|
$
|
81,015
|
|
|
77.3
|
%
|
|
$
|
104,813
|
|
|
$
|
62,482
|
|
|
$
|
42,331
|
|
|
67.7
|
%
|
Sales and marketing
|
522,696
|
|
|
334,763
|
|
|
187,933
|
|
|
56.1
|
%
|
|
334,763
|
|
|
199,771
|
|
|
134,992
|
|
|
67.6
|
%
|
||||||
General and administrative
|
101,565
|
|
|
73,149
|
|
|
28,416
|
|
|
38.8
|
%
|
|
73,149
|
|
|
42,719
|
|
|
30,430
|
|
|
71.2
|
%
|
||||||
Legal settlement
|
—
|
|
|
141,173
|
|
|
(141,173
|
)
|
|
(100.0
|
)%
|
|
141,173
|
|
|
—
|
|
|
141,173
|
|
|
NM
|
|
||||||
Total operating expenses
|
$
|
810,089
|
|
|
$
|
653,898
|
|
|
$
|
156,191
|
|
|
23.9
|
%
|
|
$
|
653,898
|
|
|
$
|
304,972
|
|
|
$
|
348,926
|
|
|
114.4
|
%
|
Includes share-based compensation of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Research and development
|
$
|
74,837
|
|
|
$
|
29,524
|
|
|
$
|
45,313
|
|
|
153.5
|
%
|
|
$
|
29,524
|
|
|
$
|
9,931
|
|
|
$
|
19,593
|
|
|
197.3
|
%
|
Sales and marketing
|
84,113
|
|
|
42,647
|
|
|
41,466
|
|
|
97.2
|
%
|
|
42,647
|
|
|
20,493
|
|
|
22,154
|
|
|
108.1
|
%
|
||||||
General and administrative
|
38,198
|
|
|
16,668
|
|
|
21,530
|
|
|
129.2
|
%
|
|
16,668
|
|
|
9,101
|
|
|
7,567
|
|
|
83.1
|
%
|
||||||
Total share-based compensation included in operating expenses
|
$
|
197,148
|
|
|
$
|
88,839
|
|
|
$
|
108,309
|
|
|
121.9
|
%
|
|
$
|
88,839
|
|
|
$
|
39,525
|
|
|
$
|
49,314
|
|
|
124.8
|
%
|
|
Year Ended July 31,
|
|
|
|
Year Ended July 31,
|
|
|
||||||||||||||||||||
|
2015
|
|
2014
|
|
Change
|
|
2014
|
|
2013
|
|
Change
|
||||||||||||||||
|
Amount
|
|
Amount
|
|
Amount
|
|
%
|
|
Amount
|
|
Amount
|
|
Amount
|
|
%
|
||||||||||||
|
(dollars in thousands)
|
||||||||||||||||||||||||||
Interest expense
|
$
|
22,325
|
|
|
$
|
1,883
|
|
|
$
|
20,442
|
|
|
NM
|
|
$
|
1,883
|
|
|
$
|
74
|
|
|
$
|
1,809
|
|
|
NM
|
|
Year Ended July 31,
|
|
|
|
Year Ended July 31,
|
|
|
||||||||||||||||||||
|
2015
|
|
2014
|
|
Change
|
|
2014
|
|
2013
|
|
Change
|
||||||||||||||||
|
Amount
|
|
Amount
|
|
Amount
|
|
%
|
|
Amount
|
|
Amount
|
|
Amount
|
|
%
|
||||||||||||
|
(dollars in thousands)
|
||||||||||||||||||||||||||
Other income (expense), net
|
$
|
284
|
|
|
$
|
(4,930
|
)
|
|
$
|
5,214
|
|
|
NM
|
|
$
|
(4,930
|
)
|
|
$
|
39
|
|
|
$
|
(4,969
|
)
|
|
NM
|
|
Year Ended July 31,
|
|
|
|
|
|
Year Ended July 31,
|
|
|
|
|
||||||||||||||||||
|
2015
|
|
2014
|
|
Change
|
|
2014
|
|
2013
|
|
Change
|
||||||||||||||||||
|
Amount
|
|
Amount
|
|
Amount
|
|
%
|
|
Amount
|
|
Amount
|
|
Amount
|
|
%
|
||||||||||||||
|
(dollars in thousands)
|
||||||||||||||||||||||||||||
Provision for income taxes
|
$
|
9,405
|
|
|
$
|
4,292
|
|
|
$
|
5,113
|
|
|
119.1
|
%
|
|
$
|
4,292
|
|
|
$
|
10,590
|
|
|
$
|
(6,298
|
)
|
|
(59.5
|
)%
|
Effective tax rate
|
(6.0
|
)%
|
|
(1.9
|
)%
|
|
|
|
|
|
(1.9
|
)%
|
|
(56.8
|
)%
|
|
|
|
|
|
July 31,
|
||||||
|
2015
|
|
2014
|
||||
|
(in thousands)
|
||||||
Working capital
(1)
|
$
|
41,803
|
|
|
$
|
610,155
|
|
Cash, cash equivalents, and investments:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
375,814
|
|
|
$
|
653,812
|
|
Investments
|
952,006
|
|
|
320,570
|
|
||
Total cash, cash equivalents, and investments
|
$
|
1,327,820
|
|
|
$
|
974,382
|
|
(1)
|
As of
July 31, 2015
, the net carrying amount of the Notes and related debt issuance costs were classified as current liabilities and current assets, respectively, in our consolidated balance sheets. Refer to Note
7
. Convertible Senior Notes of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for more information.
|
|
Year Ended July 31,
|
||||||||||
2015
|
|
2014
|
|
2013
|
|||||||
|
(in thousands)
|
||||||||||
Cash provided by operating activities
|
$
|
350,304
|
|
|
$
|
88,406
|
|
|
$
|
114,519
|
|
Cash used in investing activities
|
(679,006
|
)
|
|
(320,348
|
)
|
|
(151,565
|
)
|
|||
Cash provided by financing activities
|
50,704
|
|
|
575,140
|
|
|
25,018
|
|
|||
Net increase (decrease) in cash and cash equivalents
|
$
|
(277,998
|
)
|
|
$
|
343,198
|
|
|
$
|
(12,028
|
)
|
|
Payments Due by Period
|
||||||||||||||||||
|
Total
|
|
Less Than 1
Year |
|
1 - 3 Years
|
|
3- 5 Years
|
|
More Than 5
Years |
||||||||||
|
|
|
(in thousands)
|
|
|
||||||||||||||
0.0% Convertible Senior Notes due 2019
(1)
|
$
|
575,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
575,000
|
|
Operating lease obligations
(2) (3)
|
409,156
|
|
|
20,821
|
|
|
51,507
|
|
|
83,626
|
|
|
253,202
|
|
|||||
Purchase obligations
(4)
|
42,805
|
|
|
42,805
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Total
(5)
|
$
|
1,026,961
|
|
|
$
|
63,626
|
|
|
$
|
51,507
|
|
|
$
|
83,626
|
|
|
$
|
828,202
|
|
(1)
|
As of
July 31, 2015
, holders may convert their Notes at any time during the fiscal quarter ending October 31, 2015. Refer to Note
7
. Convertible Senior Notes of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for more information.
|
(2)
|
Consists of contractual obligations from our non-cancelable operating leases. In August 2015, we executed an expansion notice under one of our existing lease agreements in Santa Clara, California. As the related lease has not yet been executed, future non-cancelable minimum rental payments related to the expansion notice are not included in the table above. Refer to Note
8
. Commitments and Contingencies of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for more information.
|
(3)
|
Excludes contractual sublease proceeds of
$8.2 million
, of which $3.0 million will be received in less than one year and $5.2 million will be received in one to three years.
|
(4)
|
Consists of minimum purchase commitments of products and components with our independent contract manufacturer and original design manufacturers. Obligations under contracts that we can cancel without a significant penalty are not included in the table above.
|
(5)
|
No amounts related to income taxes are included. As of
July 31, 2015
, we had approximately $40.6 million of tax liabilities recorded related to uncertainty in income tax positions.
|
•
|
Vendor-specific objective evidence (VSOE) of selling price, if available,
|
•
|
Third-party evidence (TPE) of selling price, if VSOE of selling price is not available, or
|
•
|
Best estimate of selling price (BESP), if neither VSOE of selling price nor TPE of selling price are available.
|
ITEM 7A.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
ITEM 8.
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
|
July 31,
|
||||||
|
2015
|
|
2014
|
||||
Assets
|
|
|
|
||||
Current assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
375,814
|
|
|
$
|
653,812
|
|
Short-term investments
|
413,165
|
|
|
118,690
|
|
||
Accounts receivable, net of allowance for doubtful accounts of $723 and $471 at July 31, 2015 and July 31, 2014, respectively
|
212,366
|
|
|
135,518
|
|
||
Prepaid expenses and other current assets
|
72,685
|
|
|
50,306
|
|
||
Total current assets
|
1,074,030
|
|
|
958,326
|
|
||
Property and equipment, net
|
62,878
|
|
|
48,744
|
|
||
Long-term investments
|
538,841
|
|
|
201,880
|
|
||
Goodwill
|
163,522
|
|
|
155,033
|
|
||
Intangible assets, net
|
52,656
|
|
|
47,955
|
|
||
Other assets
|
73,251
|
|
|
66,528
|
|
||
Total assets
|
$
|
1,965,178
|
|
|
$
|
1,478,466
|
|
Liabilities, temporary equity, and stockholders’ equity
|
|
|
|
||||
Current liabilities:
|
|
|
|
||||
Accounts payable
|
$
|
13,204
|
|
|
$
|
14,526
|
|
Accrued compensation
|
79,795
|
|
|
48,727
|
|
||
Accrued and other liabilities
|
28,291
|
|
|
25,000
|
|
||
Deferred revenue
|
423,853
|
|
|
259,918
|
|
||
Convertible senior notes, net
|
487,084
|
|
|
—
|
|
||
Total current liabilities
|
1,032,227
|
|
|
348,171
|
|
||
Convertible senior notes, net
|
—
|
|
|
466,875
|
|
||
Long-term deferred revenue
|
289,801
|
|
|
162,660
|
|
||
Other long-term liabilities
|
67,335
|
|
|
32,177
|
|
||
Commitments and contingencies (Note 8)
|
|
|
|
|
|
||
Temporary equity
|
87,916
|
|
|
—
|
|
||
Stockholders’ equity:
|
|
|
|
||||
Preferred stock, $0.0001 par value; 100,000 shares authorized; none issued and outstanding at July 31, 2015 and July 31, 2014
|
—
|
|
|
—
|
|
||
Common stock, $0.0001 par value; 1,000,000 shares authorized; 84,788 and 79,519 shares issued and outstanding at July 31, 2015 and July 31, 2014, respectively
|
8
|
|
|
8
|
|
||
Additional paid-in capital
|
988,687
|
|
|
804,406
|
|
||
Accumulated other comprehensive loss
|
(88
|
)
|
|
(105
|
)
|
||
Accumulated deficit
|
(500,708
|
)
|
|
(335,726
|
)
|
||
Total stockholders’ equity
|
487,899
|
|
|
468,583
|
|
||
Total liabilities, temporary equity, and stockholders’ equity
|
$
|
1,965,178
|
|
|
$
|
1,478,466
|
|
|
Year Ended July 31,
|
||||||||||
|
2015
|
|
2014
|
|
2013
|
||||||
Revenue:
|
|
|
|
|
|
||||||
Product
|
$
|
492,658
|
|
|
$
|
340,143
|
|
|
$
|
243,707
|
|
Services
|
435,394
|
|
|
258,036
|
|
|
152,400
|
|
|||
Total revenue
|
928,052
|
|
|
598,179
|
|
|
396,107
|
|
|||
Cost of revenue:
|
|
|
|
|
|
||||||
Product
|
131,094
|
|
|
85,503
|
|
|
63,412
|
|
|||
Services
|
120,405
|
|
|
74,125
|
|
|
46,344
|
|
|||
Total cost of revenue
|
251,499
|
|
|
159,628
|
|
|
109,756
|
|
|||
Total gross profit
|
676,553
|
|
|
438,551
|
|
|
286,351
|
|
|||
Operating expenses:
|
|
|
|
|
|
||||||
Research and development
|
185,828
|
|
|
104,813
|
|
|
62,482
|
|
|||
Sales and marketing
|
522,696
|
|
|
334,763
|
|
|
199,771
|
|
|||
General and administrative
|
101,565
|
|
|
73,149
|
|
|
42,719
|
|
|||
Legal settlement (Note 9)
|
—
|
|
|
141,173
|
|
|
—
|
|
|||
Total operating expenses
|
810,089
|
|
|
653,898
|
|
|
304,972
|
|
|||
Operating loss
|
(133,536
|
)
|
|
(215,347
|
)
|
|
(18,621
|
)
|
|||
Interest expense
|
(22,325
|
)
|
|
(1,883
|
)
|
|
(74
|
)
|
|||
Other income (expense), net
|
284
|
|
|
(4,930
|
)
|
|
39
|
|
|||
Loss before income taxes
|
(155,577
|
)
|
|
(222,160
|
)
|
|
(18,656
|
)
|
|||
Provision for income taxes
|
9,405
|
|
|
4,292
|
|
|
10,590
|
|
|||
Net loss
|
$
|
(164,982
|
)
|
|
$
|
(226,452
|
)
|
|
$
|
(29,246
|
)
|
Net loss per share, basic and diluted
|
$
|
(2.02
|
)
|
|
$
|
(3.05
|
)
|
|
$
|
(0.43
|
)
|
Weighted-average shares used to compute net loss per share, basic and diluted
|
81,619
|
|
|
74,291
|
|
|
68,682
|
|
|
Year Ended July 31,
|
||||||||||
|
2015
|
|
2014
|
|
2013
|
||||||
Net loss
|
$
|
(164,982
|
)
|
|
$
|
(226,452
|
)
|
|
$
|
(29,246
|
)
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
||||||
Change in unrealized gains (losses) on investments
|
30
|
|
|
(72
|
)
|
|
(15
|
)
|
|||
Reclassification adjustment for realized net gains on investments included in net loss
|
(13
|
)
|
|
(17
|
)
|
|
(1
|
)
|
|||
Net change
|
17
|
|
|
(89
|
)
|
|
(16
|
)
|
|||
Comprehensive loss
|
$
|
(164,965
|
)
|
|
$
|
(226,541
|
)
|
|
$
|
(29,262
|
)
|
|
Common Stock
|
|
Additional
Paid-In
Capital
|
|
Accumulated
Other
Comprehensive Loss
|
|
Accumulated
Deficit
|
|
Total
Stockholders’
Equity
|
|||||||||||||
|
Shares
|
|
Amount
|
|
||||||||||||||||||
Balance as of July 31, 2012
|
67,852
|
|
|
$
|
7
|
|
|
$
|
309,092
|
|
|
$
|
—
|
|
|
$
|
(80,028
|
)
|
|
$
|
229,071
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(29,246
|
)
|
|
(29,246
|
)
|
|||||
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(16
|
)
|
|
—
|
|
|
(16
|
)
|
|||||
Issuance of common stock in connection with employee equity incentive plans and related excess tax benefit
|
3,760
|
|
|
—
|
|
|
28,907
|
|
|
—
|
|
|
—
|
|
|
28,907
|
|
|||||
Share-based compensation for equity based awards
|
—
|
|
|
—
|
|
|
43,704
|
|
|
—
|
|
|
—
|
|
|
43,704
|
|
|||||
Balance as of July 31, 2013
|
71,612
|
|
|
7
|
|
|
381,703
|
|
|
(16
|
)
|
|
(109,274
|
)
|
|
272,420
|
|
|||||
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(226,452
|
)
|
|
(226,452
|
)
|
|||||
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(89
|
)
|
|
—
|
|
|
(89
|
)
|
|||||
Issuance of common stock in connection with employee equity incentive plans and related excess tax benefit
|
4,806
|
|
|
1
|
|
|
48,001
|
|
|
—
|
|
|
—
|
|
|
48,002
|
|
|||||
Share-based compensation for equity based awards
|
—
|
|
|
—
|
|
|
99,774
|
|
|
—
|
|
|
—
|
|
|
99,774
|
|
|||||
Issuance of common stock in connection with legal settlement
|
1,544
|
|
|
—
|
|
|
113,332
|
|
|
—
|
|
|
—
|
|
|
113,332
|
|
|||||
Issuance of common stock in connection with acquisition
|
1,557
|
|
|
—
|
|
|
87,477
|
|
|
—
|
|
|
—
|
|
|
87,477
|
|
|||||
Equity component of convertible senior notes, net
|
—
|
|
|
—
|
|
|
106,836
|
|
|
—
|
|
|
—
|
|
|
106,836
|
|
|||||
Purchase of convertible senior note hedges
|
—
|
|
|
—
|
|
|
(110,975
|
)
|
|
—
|
|
|
—
|
|
|
(110,975
|
)
|
|||||
Issuance of warrants
|
—
|
|
|
—
|
|
|
78,258
|
|
|
—
|
|
|
—
|
|
|
78,258
|
|
|||||
Balance as of July 31, 2014
|
79,519
|
|
|
8
|
|
|
804,406
|
|
|
(105
|
)
|
|
(335,726
|
)
|
|
468,583
|
|
|||||
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(164,982
|
)
|
|
(164,982
|
)
|
|||||
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
17
|
|
|
—
|
|
|
17
|
|
|||||
Issuance of common stock in connection with employee equity incentive plans and related excess tax benefit
|
5,269
|
|
|
—
|
|
|
50,882
|
|
|
—
|
|
|
—
|
|
|
50,882
|
|
|||||
Share-based compensation for equity based awards
|
—
|
|
|
—
|
|
|
221,315
|
|
|
—
|
|
|
—
|
|
|
221,315
|
|
|||||
Temporary equity reclassification
|
—
|
|
|
—
|
|
|
(87,916
|
)
|
|
—
|
|
|
—
|
|
|
(87,916
|
)
|
|||||
Balance as of July 31, 2015
|
84,788
|
|
|
$
|
8
|
|
|
$
|
988,687
|
|
|
$
|
(88
|
)
|
|
$
|
(500,708
|
)
|
|
$
|
487,899
|
|
|
Year Ended July 31,
|
||||||||||
|
2015
|
|
2014
|
|
2013
|
||||||
Cash flows from operating activities
|
|
|
|
|
|
||||||
Net loss
|
$
|
(164,982
|
)
|
|
$
|
(226,452
|
)
|
|
$
|
(29,246
|
)
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
|
|
||||||
Share-based compensation for equity based awards
|
221,315
|
|
|
99,774
|
|
|
43,704
|
|
|||
Issuance of common stock for legal settlement
|
—
|
|
|
46,173
|
|
|
—
|
|
|||
Depreciation and amortization
|
28,881
|
|
|
19,419
|
|
|
9,892
|
|
|||
Amortization of investment premiums, net of accretion of purchase discounts
|
3,161
|
|
|
1,518
|
|
|
1,943
|
|
|||
Amortization of debt discount and debt issuance costs
|
22,265
|
|
|
1,826
|
|
|
—
|
|
|||
Change in fair value of common stock warrant
|
—
|
|
|
5,859
|
|
|
—
|
|
|||
Excess tax benefit from share-based compensation arrangements
|
(2,455
|
)
|
|
(957
|
)
|
|
(6,762
|
)
|
|||
Loss on facility sublease
|
—
|
|
|
—
|
|
|
262
|
|
|||
Changes in operating assets and liabilities, net of effects of acquisitions:
|
|
|
|
|
|
||||||
Accounts receivable, net
|
(76,830
|
)
|
|
(47,949
|
)
|
|
(41,819
|
)
|
|||
Prepaid expenses and other assets
|
(34,185
|
)
|
|
(10,308
|
)
|
|
(8,865
|
)
|
|||
Accounts payable
|
(3,498
|
)
|
|
(1,100
|
)
|
|
5,830
|
|
|||
Accrued compensation
|
31,068
|
|
|
26,331
|
|
|
10,697
|
|
|||
Accrued and other liabilities
|
34,488
|
|
|
1,076
|
|
|
15,461
|
|
|||
Deferred revenue
|
291,076
|
|
|
173,196
|
|
|
113,422
|
|
|||
Net cash provided by operating activities
|
350,304
|
|
|
88,406
|
|
|
114,519
|
|
|||
Cash flows from investing activities
|
|
|
|
|
|
||||||
Purchases of investments
|
(987,598
|
)
|
|
(506,642
|
)
|
|
(345,324
|
)
|
|||
Proceeds from sales of investments
|
18,508
|
|
|
74,597
|
|
|
13,491
|
|
|||
Proceeds from maturities of investments
|
339,040
|
|
|
233,530
|
|
|
202,710
|
|
|||
Business acquisitions, net of cash acquired
|
(15,128
|
)
|
|
(85,726
|
)
|
|
—
|
|
|||
Purchases of property, equipment, and other assets
|
(33,828
|
)
|
|
(36,107
|
)
|
|
(22,442
|
)
|
|||
Net cash used in investing activities
|
(679,006
|
)
|
|
(320,348
|
)
|
|
(151,565
|
)
|
|||
Cash flows from financing activities
|
|
|
|
|
|
||||||
Proceeds from borrowings on convertible senior notes, net
|
—
|
|
|
560,433
|
|
|
—
|
|
|||
Proceeds from issuance of warrants
|
—
|
|
|
78,258
|
|
|
—
|
|
|||
Purchase of convertible note hedges
|
—
|
|
|
(110,975
|
)
|
|
—
|
|
|||
Proceeds from sales of shares through employee equity incentive plans
|
48,249
|
|
|
46,599
|
|
|
21,032
|
|
|||
Excess tax benefit from share-based compensation arrangements
|
2,455
|
|
|
957
|
|
|
6,762
|
|
|||
Payments of initial public offering costs
|
—
|
|
|
—
|
|
|
(2,698
|
)
|
|||
Repurchases of restricted common stock from terminated employees
|
—
|
|
|
(132
|
)
|
|
(78
|
)
|
|||
Net cash provided by financing activities
|
50,704
|
|
|
575,140
|
|
|
25,018
|
|
|||
Net increase (decrease) in cash and cash equivalents
|
(277,998
|
)
|
|
343,198
|
|
|
(12,028
|
)
|
|||
Cash and cash equivalents—beginning of period
|
653,812
|
|
|
310,614
|
|
|
322,642
|
|
|||
Cash and cash equivalents—end of period
|
$
|
375,814
|
|
|
$
|
653,812
|
|
|
$
|
310,614
|
|
Supplemental disclosures of cash flow information
|
|
|
|
|
|
||||||
Cash paid for income taxes
|
$
|
17,530
|
|
|
$
|
1,523
|
|
|
$
|
304
|
|
Cash paid for interest
|
$
|
61
|
|
|
$
|
44
|
|
|
$
|
58
|
|
Non-cash investing and financing activities
|
|
|
|
|
|
||||||
Issuance of common stock in connection with acquisition
|
$
|
—
|
|
|
$
|
87,477
|
|
|
$
|
—
|
|
•
|
Persuasive Evidence of an Arrangement Exists.
We rely upon non-cancelable sales agreements and purchase orders to determine the existence of an arrangement.
|
•
|
Delivery has Occurred.
We use shipping documents or transmissions of product or service contract registration codes to determine delivery.
|
•
|
The Fee is Fixed or Determinable.
We assess whether the fee is fixed or determinable based on the payment terms associated with the transaction.
|
•
|
Collectability is Reasonably Assured.
We assess collectability based on credit analysis and payment history.
|
•
|
Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
|
•
|
Level 2—Inputs are quoted prices for similar assets and liabilities in active markets or inputs that 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—Inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. The inputs require significant management judgment or estimation.
|
|
|
July 31, 2015
|
|
July 31, 2014
|
||||||||||||||||||||||||||||
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
||||||||||||||||
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Certificates of deposit
|
|
$
|
—
|
|
|
$
|
1,000
|
|
|
$
|
—
|
|
|
$
|
1,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Corporate debt securities
|
|
—
|
|
|
97,825
|
|
|
—
|
|
|
97,825
|
|
|
—
|
|
|
22,239
|
|
|
—
|
|
|
22,239
|
|
||||||||
U.S. government and agency securities
|
|
—
|
|
|
314,340
|
|
|
—
|
|
|
314,340
|
|
|
—
|
|
|
96,451
|
|
|
—
|
|
|
96,451
|
|
||||||||
Total short-term investments
|
|
—
|
|
|
413,165
|
|
|
—
|
|
|
413,165
|
|
|
—
|
|
|
118,690
|
|
|
—
|
|
|
118,690
|
|
||||||||
Long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Certificates of deposit
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,000
|
|
|
—
|
|
|
1,000
|
|
||||||||
Corporate debt securities
|
|
—
|
|
|
92,902
|
|
|
—
|
|
|
92,902
|
|
|
—
|
|
|
39,018
|
|
|
—
|
|
|
39,018
|
|
||||||||
U.S. government and agency securities
|
|
—
|
|
|
445,939
|
|
|
—
|
|
|
445,939
|
|
|
—
|
|
|
161,862
|
|
|
—
|
|
|
161,862
|
|
||||||||
Total long-term investments
|
|
—
|
|
|
538,841
|
|
|
—
|
|
|
538,841
|
|
|
—
|
|
|
201,880
|
|
|
—
|
|
|
201,880
|
|
||||||||
Other assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Certificates of deposit
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,220
|
|
|
—
|
|
|
—
|
|
|
1,220
|
|
||||||||
Total other assets
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,220
|
|
|
—
|
|
|
—
|
|
|
1,220
|
|
||||||||
Total assets measured at fair value
|
|
$
|
—
|
|
|
$
|
952,006
|
|
|
$
|
—
|
|
|
$
|
952,006
|
|
|
$
|
1,220
|
|
|
$
|
320,570
|
|
|
$
|
—
|
|
|
$
|
321,790
|
|
|
July 31, 2015
|
||||||||||||||
|
Amortized Cost
|
|
Unrealized Gains
|
|
Unrealized Losses
|
|
Estimated Fair Value
|
||||||||
Certificates of deposit
|
$
|
1,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,000
|
|
Corporate debt securities
|
190,882
|
|
|
24
|
|
|
(179
|
)
|
|
190,727
|
|
||||
U.S. government and agency securities
|
760,212
|
|
|
271
|
|
|
(204
|
)
|
|
760,279
|
|
||||
Total
|
$
|
952,094
|
|
|
$
|
295
|
|
|
$
|
(383
|
)
|
|
$
|
952,006
|
|
|
July 31, 2014
|
||||||||||||||
|
Amortized Cost
|
|
Unrealized Gains
|
|
Unrealized Losses
|
|
Estimated Fair Value
|
||||||||
Certificates of deposit
|
$
|
1,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,000
|
|
Corporate debt securities
|
61,299
|
|
|
16
|
|
|
(58
|
)
|
|
61,257
|
|
||||
U.S. government and agency securities
|
258,376
|
|
|
45
|
|
|
(108
|
)
|
|
258,313
|
|
||||
Total
|
$
|
320,675
|
|
|
$
|
61
|
|
|
$
|
(166
|
)
|
|
$
|
320,570
|
|
|
July 31, 2015
|
||||||||||||||||||||||
|
Less Than 12 Months
|
|
12 Months or Greater
|
|
Total
|
||||||||||||||||||
|
Fair Value
|
|
Unrealized Loss
|
|
Fair Value
|
|
Unrealized Loss
|
|
Fair Value
|
|
Unrealized Loss
|
||||||||||||
Corporate debt securities
|
$
|
134,976
|
|
|
$
|
(179
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
134,976
|
|
|
$
|
(179
|
)
|
U.S. government and agency securities
|
348,991
|
|
|
(204
|
)
|
|
—
|
|
|
—
|
|
|
348,991
|
|
|
(204
|
)
|
||||||
Total
|
$
|
483,967
|
|
|
$
|
(383
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
483,967
|
|
|
$
|
(383
|
)
|
|
July 31, 2014
|
||||||||||||||||||||||
|
Less Than 12 Months
|
|
12 Months or Greater
|
|
Total
|
||||||||||||||||||
|
Fair Value
|
|
Unrealized Loss
|
|
Fair Value
|
|
Unrealized Loss
|
|
Fair Value
|
|
Unrealized Loss
|
||||||||||||
Corporate debt securities
|
$
|
43,868
|
|
|
$
|
(58
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
43,868
|
|
|
$
|
(58
|
)
|
U.S. government and agency securities
|
142,490
|
|
|
(108
|
)
|
|
—
|
|
|
—
|
|
|
142,490
|
|
|
(108
|
)
|
||||||
Total
|
$
|
186,358
|
|
|
$
|
(166
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
186,358
|
|
|
$
|
(166
|
)
|
|
Amortized Cost
|
|
Fair Value
|
||||
Due within one year
|
$
|
413,148
|
|
|
$
|
413,165
|
|
Due between one and three years
|
538,946
|
|
|
538,841
|
|
||
Total
|
$
|
952,094
|
|
|
$
|
952,006
|
|
|
Amount
|
||
Cash
|
$
|
90,170
|
|
Common stock (1.3 million shares)
|
87,477
|
|
|
Total
|
$
|
177,647
|
|
|
Amount
|
||
Cash
|
$
|
6,930
|
|
Goodwill
|
145,275
|
|
|
Identified intangible assets
|
42,300
|
|
|
Accrued and other liabilities, net
|
(6,950
|
)
|
|
Long-term deferred tax liability, net
|
(9,908
|
)
|
|
Total
|
$
|
177,647
|
|
|
Fair Value
|
|
Estimated Useful Life
|
||
Developed technology
|
$
|
34,500
|
|
|
7 years
|
In-process research and development
|
7,600
|
|
|
N/A
|
|
Other
|
200
|
|
|
2 years
|
|
Total
|
$
|
42,300
|
|
|
|
|
Amount
|
||
Goodwill
|
$
|
10,127
|
|
Identified intangible assets
|
2,200
|
|
|
Net liabilities assumed
|
(1,982
|
)
|
|
Total
|
$
|
10,345
|
|
|
Fair Value
|
|
Estimated Useful Life
|
||
In-process research and development held for defensive purposes
|
$
|
1,900
|
|
|
3 years
|
Other
|
300
|
|
|
2 years
|
|
Total
|
$
|
2,200
|
|
|
|
|
Amount
|
||
Balance as of July 31, 2013
|
$
|
—
|
|
Goodwill acquired
|
155,033
|
|
|
Balance as of July 31, 2014
|
155,033
|
|
|
Goodwill acquired
|
8,120
|
|
|
Measurement period adjustments
|
369
|
|
|
Balance as of July 31, 2015
|
$
|
163,522
|
|
|
July 31,
|
||||||||||||||||||||||
|
2015
|
|
2014
|
||||||||||||||||||||
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
||||||||||||
Intangible assets with finite lives:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Developed technology
|
$
|
53,100
|
|
|
$
|
(7,738
|
)
|
|
$
|
45,362
|
|
|
$
|
34,500
|
|
|
$
|
(1,643
|
)
|
|
$
|
32,857
|
|
Acquired intellectual property
|
8,156
|
|
|
(1,888
|
)
|
|
6,268
|
|
|
6,546
|
|
|
(958
|
)
|
|
5,588
|
|
||||||
In-process research and development held for defensive purposes
|
1,900
|
|
|
(1,003
|
)
|
|
897
|
|
|
1,900
|
|
|
(370
|
)
|
|
1,530
|
|
||||||
Other
|
500
|
|
|
(371
|
)
|
|
129
|
|
|
500
|
|
|
(120
|
)
|
|
380
|
|
||||||
Total intangible assets with finite lives
|
63,656
|
|
|
(11,000
|
)
|
|
52,656
|
|
|
43,446
|
|
|
(3,091
|
)
|
|
40,355
|
|
||||||
In-process research and development with indefinite lives
|
—
|
|
|
—
|
|
|
—
|
|
|
7,600
|
|
|
—
|
|
|
7,600
|
|
||||||
Total purchased intangible assets
|
$
|
63,656
|
|
|
$
|
(11,000
|
)
|
|
$
|
52,656
|
|
|
$
|
51,046
|
|
|
$
|
(3,091
|
)
|
|
$
|
47,955
|
|
|
Fiscal Years Ending July 31,
|
||||||||||||||||||||||
|
2016
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
2021 and Thereafter
|
||||||||||||
Developed technology
|
$
|
7,586
|
|
|
$
|
7,586
|
|
|
$
|
7,586
|
|
|
$
|
7,586
|
|
|
$
|
7,586
|
|
|
$
|
7,432
|
|
Acquired intellectual property
|
947
|
|
|
853
|
|
|
617
|
|
|
511
|
|
|
485
|
|
|
2,855
|
|
||||||
In-process research and development held for defensive purposes
|
633
|
|
|
264
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Other
|
129
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Total future amortization expense
|
$
|
9,295
|
|
|
$
|
8,703
|
|
|
$
|
8,203
|
|
|
$
|
8,097
|
|
|
$
|
8,071
|
|
|
$
|
10,287
|
|
|
July 31,
|
||||||
|
2015
|
|
2014
|
||||
Computers, equipment, and software
|
$
|
62,599
|
|
|
$
|
38,147
|
|
Leasehold improvements
|
25,461
|
|
|
21,258
|
|
||
Demonstration units
|
15,971
|
|
|
14,832
|
|
||
Furniture and fixtures
|
6,631
|
|
|
5,129
|
|
||
Total property and equipment
|
110,662
|
|
|
79,366
|
|
||
Less: accumulated depreciation
|
(47,784
|
)
|
|
(30,622
|
)
|
||
Total property and equipment, net
|
$
|
62,878
|
|
|
$
|
48,744
|
|
•
|
during any fiscal quarter commencing after the fiscal quarter ending on
October 31, 2014
(and only during such fiscal quarter), if the last reported sale price of our common stock for at least
20
trading days (whether or not consecutive) during a period of
30
consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is greater than or equal to
130%
of the conversion price for the Notes on each applicable trading day;
|
•
|
during the
five
business day period after any
five
consecutive trading day period (the “measurement period”), in which the trading price per $1,000 principal amount of Notes for each trading day of the measurement period was less than
98%
of the product of the last reported sale price of our common stock and the conversion rate for the Notes on each such trading day; or
|
•
|
upon the occurrence of specified corporate events.
|
|
July 31,
|
||||||
|
2015
|
|
2014
|
||||
Liability:
|
|
|
|
||||
Principal
|
$
|
575,000
|
|
|
$
|
575,000
|
|
Less: debt discount, net of amortization
|
87,916
|
|
|
108,125
|
|
||
Net carrying amount
|
$
|
487,084
|
|
|
$
|
466,875
|
|
|
|
|
|
||||
Equity (including temporary equity)
|
$
|
(109,785
|
)
|
|
$
|
(109,785
|
)
|
|
Year Ended July 31,
|
||||||
|
2015
|
|
2014
|
||||
Amortization of debt issuance costs
|
$
|
2,056
|
|
|
$
|
166
|
|
Amortization of debt discount
|
20,209
|
|
|
1,660
|
|
||
Total interest expense recognized
|
$
|
22,265
|
|
|
$
|
1,826
|
|
|
|
|
|
||||
Effective interest rate of the liability component
|
4.8
|
%
|
|
4.8
|
%
|
|
Amount
|
||
Years ending July 31:
|
|
||
2016
|
$
|
20,821
|
|
2017
|
24,374
|
|
|
2018
|
27,133
|
|
|
2019
|
41,583
|
|
|
2020
|
42,043
|
|
|
2021 and thereafter
|
253,202
|
|
|
Committed gross lease payments
|
409,156
|
|
|
Less: proceeds from sublease rental
|
8,174
|
|
|
Net operating lease obligation
|
$
|
400,982
|
|
•
|
Mutual dismissal with prejudice of all pending litigation between the parties and general release of all liability for Palo Alto Networks and Juniper,
|
•
|
Cross-license between both parties for the patents-in-suit and associated family members and counterparts worldwide for the life of the patents, and
|
•
|
Mutual covenant not to sue for infringement of any other patents for a period of
eight years
.
|
|
Options Outstanding
|
|||||||||||
|
Number
of Shares |
|
Weighted-
Average Exercise Price Per Share |
|
Weighted-
Average Remaining Contractual Term (Years) |
|
Aggregate
Intrinsic Value |
|||||
Balance—July 31, 2014
|
5,830
|
|
|
$
|
13.02
|
|
|
7.0
|
|
$
|
395,507
|
|
Options granted
|
—
|
|
|
—
|
|
|
|
|
|
|||
Options forfeited
|
(54
|
)
|
|
17.43
|
|
|
|
|
|
|||
Options exercised
|
(2,505
|
)
|
|
11.99
|
|
|
|
|
|
|||
Balance—July 31, 2015
|
3,271
|
|
|
$
|
13.74
|
|
|
6.2
|
|
$
|
562,906
|
|
Options vested and expected to vest—July 31, 2015
|
3,254
|
|
|
$
|
13.70
|
|
|
6.1
|
|
$
|
560,111
|
|
Options exercisable—July 31, 2015
|
2,578
|
|
|
$
|
12.13
|
|
|
6.1
|
|
$
|
447,799
|
|
|
RSUs Outstanding
|
|||||||||||
|
Number
of Shares |
|
Weighted-
Average Grant-Date Fair Value Per Share |
|
Weighted-
Average Remaining Contractual Term (Years) |
|
Aggregate
Intrinsic Value |
|||||
Balance—July 31, 2014
|
6,046
|
|
|
$
|
59.84
|
|
|
1.4
|
|
$
|
488,880
|
|
RSUs granted
|
4,142
|
|
|
122.36
|
|
|
|
|
|
|||
RSUs vested
|
(2,511
|
)
|
|
58.40
|
|
|
|
|
|
|||
RSUs forfeited
|
(494
|
)
|
|
70.55
|
|
|
|
|
|
|||
Balance—July 31, 2015
|
7,183
|
|
|
$
|
95.66
|
|
|
1.2
|
|
$
|
1,334,817
|
|
RSUs vested and expected to vest—July 31, 2015
|
6,582
|
|
|
$
|
94.90
|
|
|
1.2
|
|
$
|
1,223,133
|
|
|
Number of shares
|
|
Balance—July 31, 2014
|
8,066
|
|
Authorized
|
3,578
|
|
RSUs granted
|
(4,142
|
)
|
Repurchased
|
—
|
|
Options forfeited
|
54
|
|
RSUs forfeited
|
494
|
|
Balance—July 31, 2015
|
8,050
|
|
|
Year Ended July 31,
|
||||
|
2015
|
|
2014
|
|
2013
|
Risk-free interest rate
|
0.1%
|
|
0.1%
|
|
0.1%
|
Expected term
|
< 1 year
|
|
< 1 year
|
|
< 1 year
|
Volatility
|
40%
|
|
40%
|
|
42%
|
Dividend yield
|
—%
|
|
—%
|
|
—%
|
|
Year Ended July 31,
|
||||||||||
|
2015
|
|
2014
|
|
2013
|
||||||
Cost of product revenue
|
$
|
3,858
|
|
|
$
|
1,636
|
|
|
$
|
765
|
|
Cost of services revenue
|
20,425
|
|
|
9,434
|
|
|
3,586
|
|
|||
Research and development
|
74,837
|
|
|
29,524
|
|
|
9,931
|
|
|||
Sales and marketing
|
84,113
|
|
|
42,647
|
|
|
20,493
|
|
|||
General and administrative
|
38,198
|
|
|
16,668
|
|
|
9,101
|
|
|||
Total share-based compensation
|
$
|
221,431
|
|
|
$
|
99,909
|
|
|
$
|
43,876
|
|
|
Year Ended July 31,
|
||||||||||
|
2015
|
|
2014
|
|
2013
|
||||||
United States
|
$
|
(47,493
|
)
|
|
$
|
(149,243
|
)
|
|
$
|
5,198
|
|
Foreign
|
(108,084
|
)
|
|
(72,917
|
)
|
|
(23,854
|
)
|
|||
Total
|
$
|
(155,577
|
)
|
|
$
|
(222,160
|
)
|
|
$
|
(18,656
|
)
|
|
July 31,
|
||||||
|
2015
|
|
2014
|
||||
Deferred tax assets:
|
|
|
|
||||
Accruals and reserves
|
$
|
38,936
|
|
|
$
|
7,942
|
|
Deferred revenue
|
35,261
|
|
|
30,430
|
|
||
Research and development and foreign tax credits
|
20,123
|
|
|
8,741
|
|
||
Net operating loss carryforwards
|
18,376
|
|
|
32,282
|
|
||
Share-based compensation
|
35,893
|
|
|
17,715
|
|
||
Gross deferred tax assets
|
148,589
|
|
|
97,110
|
|
||
Valuation allowance
|
(138,354
|
)
|
|
(89,309
|
)
|
||
Total deferred tax assets
|
10,235
|
|
|
7,801
|
|
||
Deferred tax liabilities:
|
|
|
|
||||
Fixed assets and intangible assets
|
(7,919
|
)
|
|
(15,040
|
)
|
||
Other deferred tax liabilities
|
(1,631
|
)
|
|
(565
|
)
|
||
Total deferred tax liabilities
|
(9,550
|
)
|
|
(15,605
|
)
|
||
Total
|
$
|
685
|
|
|
$
|
(7,804
|
)
|
|
Year Ended July 31,
|
||||||||||
|
2015
|
|
2014
|
|
2013
|
||||||
Unrecognized tax benefits at the beginning of the period
|
$
|
10,385
|
|
|
$
|
6,561
|
|
|
$
|
2,630
|
|
Additions for tax positions taken in prior years
|
6,061
|
|
|
428
|
|
|
585
|
|
|||
Reductions for tax positions taken in prior years
|
(612
|
)
|
|
—
|
|
|
(3
|
)
|
|||
Additions for tax positions taken in the current year
|
51,324
|
|
|
3,396
|
|
|
3,349
|
|
|||
Unrecognized tax benefits at the end of the period
|
$
|
67,158
|
|
|
$
|
10,385
|
|
|
$
|
6,561
|
|
|
Year Ended July 31,
|
||||||||||
|
2015
|
|
2014
|
|
2013
|
||||||
Net loss
|
$
|
(164,982
|
)
|
|
$
|
(226,452
|
)
|
|
$
|
(29,246
|
)
|
Weighted-average shares used to compute net loss per share, basic and diluted
|
81,619
|
|
|
74,291
|
|
|
68,682
|
|
|||
Net loss per share, basic and diluted
|
$
|
(2.02
|
)
|
|
$
|
(3.05
|
)
|
|
$
|
(0.43
|
)
|
|
Year Ended July 31,
|
|||||||
|
2015
|
|
2014
|
|
2013
|
|||
Options
|
3,271
|
|
|
5,830
|
|
|
10,033
|
|
RSUs
|
7,183
|
|
|
6,046
|
|
|
2,241
|
|
ESPP shares
|
78
|
|
|
95
|
|
|
114
|
|
Convertible senior notes
|
5,214
|
|
|
5,214
|
|
|
—
|
|
Warrants related to the issuance of convertible senior notes
|
5,214
|
|
|
5,214
|
|
|
—
|
|
Total
|
20,960
|
|
|
22,399
|
|
|
12,388
|
|
|
Year Ended July 31,
|
||||||||||
|
2015
|
|
2014
|
|
2013
|
||||||
Revenue:
|
|
|
|
|
|
||||||
Product
|
$
|
492,658
|
|
|
$
|
340,143
|
|
|
$
|
243,707
|
|
Services
|
|
|
|
|
|
||||||
Subscription
|
212,676
|
|
|
123,236
|
|
|
71,203
|
|
|||
Support and maintenance
|
222,718
|
|
|
134,800
|
|
|
81,197
|
|
|||
Total services
|
435,394
|
|
|
258,036
|
|
|
152,400
|
|
|||
Total revenue
|
$
|
928,052
|
|
|
$
|
598,179
|
|
|
$
|
396,107
|
|
|
Three Months Ended
|
||||||||||||||
|
Oct. 31,
2014
|
|
Jan. 31,
2015
|
|
Apr. 30,
2015
|
|
Jul. 31,
2015
|
||||||||
Revenue:
|
|
|
|
|
|
|
|
||||||||
Product
|
$
|
101,476
|
|
|
$
|
115,621
|
|
|
$
|
121,524
|
|
|
$
|
154,037
|
|
Services
|
90,870
|
|
|
102,034
|
|
|
112,648
|
|
|
129,842
|
|
||||
Total revenue
|
192,346
|
|
|
217,655
|
|
|
234,172
|
|
|
283,879
|
|
||||
Cost of revenue:
|
|
|
|
|
|
|
|
||||||||
Product
|
29,141
|
|
|
30,640
|
|
|
32,851
|
|
|
38,462
|
|
||||
Services
|
24,320
|
|
|
28,685
|
|
|
31,544
|
|
|
35,856
|
|
||||
Total cost of revenue
|
53,461
|
|
|
59,325
|
|
|
64,395
|
|
|
74,318
|
|
||||
Total gross profit
|
138,885
|
|
|
158,330
|
|
|
169,777
|
|
|
209,561
|
|
||||
Operating expenses:
|
|
|
|
|
|
|
|
||||||||
Research and development
|
37,305
|
|
|
46,948
|
|
|
48,486
|
|
|
53,089
|
|
||||
Sales and marketing
|
106,366
|
|
|
122,875
|
|
|
131,026
|
|
|
162,429
|
|
||||
General and administrative
|
18,977
|
|
|
27,023
|
|
|
26,989
|
|
|
28,576
|
|
||||
Total operating expenses
|
162,648
|
|
|
196,846
|
|
|
206,501
|
|
|
244,094
|
|
||||
Operating loss
|
(23,763
|
)
|
|
(38,516
|
)
|
|
(36,724
|
)
|
|
(34,533
|
)
|
||||
Interest expense
|
(5,489
|
)
|
|
(5,539
|
)
|
|
(5,631
|
)
|
|
(5,666
|
)
|
||||
Other income (expense), net
|
341
|
|
|
344
|
|
|
(55
|
)
|
|
(346
|
)
|
||||
Loss before income taxes
|
(28,911
|
)
|
|
(43,711
|
)
|
|
(42,410
|
)
|
|
(40,545
|
)
|
||||
Provision for (benefit from) income taxes
|
1,157
|
|
|
(703
|
)
|
|
3,525
|
|
|
5,426
|
|
||||
Net loss
|
$
|
(30,068
|
)
|
|
$
|
(43,008
|
)
|
|
$
|
(45,935
|
)
|
|
$
|
(45,971
|
)
|
Net loss per share, basic and diluted
|
$
|
(0.38
|
)
|
|
$
|
(0.53
|
)
|
|
$
|
(0.56
|
)
|
|
$
|
(0.55
|
)
|
|
Three Months Ended
|
||||||||||||||
|
Oct. 31,
2013 |
|
Jan. 31,
2014 |
|
Apr. 30,
2014 |
|
Jul. 31,
2014 |
||||||||
Revenue:
|
|
|
|
|
|
|
|
||||||||
Product
|
$
|
75,485
|
|
|
$
|
80,823
|
|
|
$
|
84,128
|
|
|
$
|
99,707
|
|
Services
|
52,695
|
|
|
60,245
|
|
|
66,572
|
|
|
78,524
|
|
||||
Total revenue
|
128,180
|
|
|
141,068
|
|
|
150,700
|
|
|
178,231
|
|
||||
Cost of revenue:
|
|
|
|
|
|
|
|
||||||||
Product
|
17,954
|
|
|
20,221
|
|
|
20,425
|
|
|
26,903
|
|
||||
Services
|
15,853
|
|
|
17,283
|
|
|
19,285
|
|
|
21,704
|
|
||||
Total cost of revenue
|
33,807
|
|
|
37,504
|
|
|
39,710
|
|
|
48,607
|
|
||||
Total gross profit
|
94,373
|
|
|
103,564
|
|
|
110,990
|
|
|
129,624
|
|
||||
Operating expenses:
|
|
|
|
|
|
|
|
||||||||
Research and development
|
19,893
|
|
|
24,253
|
|
|
27,837
|
|
|
32,830
|
|
||||
Sales and marketing
|
67,366
|
|
|
76,734
|
|
|
83,995
|
|
|
106,668
|
|
||||
General and administrative
|
14,125
|
|
|
19,733
|
|
|
23,717
|
|
|
15,574
|
|
||||
Legal settlement (Note 9)
|
—
|
|
|
20,000
|
|
|
121,173
|
|
|
—
|
|
||||
Total operating expenses
|
101,384
|
|
|
140,720
|
|
|
256,722
|
|
|
155,072
|
|
||||
Operating loss
|
(7,011
|
)
|
|
(37,156
|
)
|
|
(145,732
|
)
|
|
(25,448
|
)
|
||||
Interest expense
|
(8
|
)
|
|
(14
|
)
|
|
(13
|
)
|
|
(1,848
|
)
|
||||
Other income (expense), net
|
405
|
|
|
(170
|
)
|
|
430
|
|
|
(5,595
|
)
|
||||
Loss before income taxes
|
(6,614
|
)
|
|
(37,340
|
)
|
|
(145,315
|
)
|
|
(32,891
|
)
|
||||
Provision for (benefit from) income taxes
|
1,247
|
|
|
2,606
|
|
|
1,272
|
|
|
(833
|
)
|
||||
Net loss
|
$
|
(7,861
|
)
|
|
$
|
(39,946
|
)
|
|
$
|
(146,587
|
)
|
|
$
|
(32,058
|
)
|
Net loss per share, basic and diluted
|
$
|
(0.11
|
)
|
|
$
|
(0.55
|
)
|
|
$
|
(1.96
|
)
|
|
$
|
(0.41
|
)
|
ITEM 9.
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
ITEM 9A.
|
CONTROLS AND PROCEDURES
|
ITEM 9B.
|
OTHER INFORMATION
|
ITEM 10.
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
ITEM 11.
|
EXECUTIVE COMPENSATION
|
ITEM 12.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|
ITEM 13.
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|
ITEM 14.
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES
|
ITEM 15.
|
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|
1.
|
Consolidated Financial Statements
|
2.
|
Financial Statement Schedules
|
3.
|
Exhibits
|
PALO ALTO NETWORKS, INC.
|
|
By:
|
/s/ M
ARK
D. M
C
L
AUGHLIN
|
|
Mark D. McLaughlin
|
|
Chief Executive Officer and President
|
Signature
|
|
Title
|
|
Date
|
|
|
|
||
/s/ M
ARK
D. M
C
L
AUGHLIN
|
|
Chief Executive Officer, President and Director (Principal Executive Officer)
|
|
September 17, 2015
|
Mark D. McLaughlin
|
|
|
||
|
|
|
|
|
/s/ S
TEFFAN
C. T
OMLINSON
|
|
Chief Financial Officer (Principal Accounting and Financial Officer)
|
|
September 17, 2015
|
Steffan C. Tomlinson
|
|
|
||
|
|
|
||
/s/ N
IR
Z
UK
|
|
Chief Technical Officer and Director
|
|
September 17, 2015
|
Nir Zuk
|
|
|
||
|
|
|
||
/s/ A
SHEEM
C
HANDNA
|
|
Director
|
|
September 17, 2015
|
Asheem Chandna
|
|
|
||
|
|
|
||
/s/ J
OHN
M. D
ONOVAN
|
|
Director
|
|
September 17, 2015
|
John M. Donovan
|
|
|
||
|
|
|
|
|
/s/ C
ARL
E
SCHENBACH
|
|
Director
|
|
September 17, 2015
|
Carl Eschenbach
|
|
|
||
|
|
|
|
|
/s/ J
AMES
J. G
OETZ
|
|
Director
|
|
September 17, 2015
|
James J. Goetz
|
|
|
||
|
|
|
||
/s/ S
TANLEY
J. M
ERESMAN
|
|
Director
|
|
September 17, 2015
|
Stanley J. Meresman
|
|
|
||
|
|
|
||
/s/ D
ANIEL
J. W
ARMENHOVEN
|
|
Director
|
|
September 17, 2015
|
Daniel J. Warmenhoven
|
|
|
Exhibit
Number
|
|
Exhibit Description
|
|
Form
|
|
Incorporated by Reference
|
|
Filing Date
|
||
|
File No.
|
|
Exhibit
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
3.1
|
|
Restated Certificate of Incorporation of the Registrant.
|
|
10-K
|
|
001-35594
|
|
3.1
|
|
October 4, 2012
|
|
|
|
|
|
|
|
|
|
|
|
3.2
|
|
Amended and Restated Bylaws of the Registrant.
|
|
10-K
|
|
001-35594
|
|
3.2
|
|
October 4, 2012
|
|
|
|
|
|
|
|
|
|
|
|
4.1
|
|
Warrant to Purchase Stock by Juniper Networks, Inc.
|
|
8-K
|
|
001-35594
|
|
4.1
|
|
June 4, 2014
|
|
|
|
|
|
|
|
|
|
|
|
4.2
|
|
Indenture between the Registrant and U.S. Bank National Association, dated as of June 30, 2014.
|
|
8-K
|
|
001-35594
|
|
4.1
|
|
July 1, 2014
|
|
|
|
|
|
|
|
|
|
|
|
10.1*
|
|
Form of Indemnification Agreement between the Registrant and its directors and officers.
|
|
S-1/A
|
|
333-180620
|
|
10.1
|
|
July 9, 2012
|
|
|
|
|
|
|
|
|
|
|
|
10.2*
|
|
2005 Equity Incentive Plan and related form agreements under 2005 Equity Incentive Plan.
|
|
S-1/A
|
|
333-180620
|
|
10.2
|
|
July 9, 2012
|
|
|
|
|
|
|
|
|
|
|
|
10.3*
|
|
2012 Equity Incentive Plan and related form agreements under 2012 Equity Incentive Plan, as amended.
|
|
10-K
|
|
001-35594
|
|
10.3
|
|
September 18, 2014
|
|
|
|
|
|
|
|
|
|
|
|
10.4*
|
|
2012 Employee Stock Purchase Plan and related form agreements under 2012 Employee Stock Purchase Plan, as amended and restated.
|
|
10-Q
|
|
001-35594
|
|
10.2
|
|
November 25, 2014
|
|
|
|
|
|
|
|
|
|
|
|
10.5*
|
|
Employee Incentive Compensation Plan, as amended and restated.
|
|
10-Q
|
|
001-35594
|
|
10.2
|
|
November 25, 2014
|
|
|
|
|
|
|
|
|
|
|
|
10.6*
|
|
Offer Letter between the Registrant and Mark D. McLaughlin, dated July 21, 2011, as amended.
|
|
S-1
|
|
333-180620
|
|
10.6
|
|
April 6, 2012
|
|
|
|
|
|
|
|
|
|
|
|
10.7*
|
|
Offer Letter between the Registrant and Steffan C. Tomlinson, dated January 17, 2012.
|
|
S-1
|
|
333-180620
|
|
10.7
|
|
April 6, 2012
|
|
|
|
|
|
|
|
|
|
|
|
10.8*
|
|
Letter Agreement between the Registrant and Nir Zuk, dated December 19, 2011.
|
|
S-1
|
|
333-180620
|
|
10.8
|
|
April 6, 2012
|
|
|
|
|
|
|
|
|
|
|
|
10.9*
|
|
Letter Agreement between the Registrant and René Bonvanie, dated December 19, 2011.
|
|
S-1
|
|
333-180620
|
|
10.10
|
|
April 6, 2012
|
|
|
|
|
|
|
|
|
|
|
|
10.10*
|
|
Letter Agreement between the Registrant and Wilson Xu, dated September 4, 2014.
|
|
10-K
|
|
001-35594
|
|
10.29
|
|
September 18, 2014
|
|
|
|
|
|
|
|
|
|
|
|
10.11*
|
|
Offer Letter between the Registrant and Stanley J. Meresman, dated September 8, 2014.
|
|
8-K
|
|
001-35594
|
|
10.1
|
|
September 22, 2014
|
|
|
|
|
|
|
|
|
|
|
|
10.12*
|
|
Offer Letter between the Registrant and Daniel J. Warmenhoven, dated February 14, 2012.
|
|
S-1
|
|
333-180620
|
|
10.13
|
|
April 6, 2012
|
|
|
|
|
|
|
|
|
|
|
|
10.13*
|
|
Offer Letter between the Registrant and Mark F. Anderson, dated May 23, 2012.
|
|
S-1/A
|
|
333-180620
|
|
10.16
|
|
July 9, 2012
|
|
|
|
|
|
|
|
|
|
|
|
10.14*
|
|
Offer Letter between the Registrant and John M. Donovan, dated September 14, 2012.
|
|
8-K
|
|
001-35594
|
|
10.1
|
|
September 20, 2012
|
|
|
|
|
|
|
|
|
|
|
|
10.15*
|
|
Offer Letter between the Registrant and Carl Eschenbach, dated May 9, 2013.
|
|
8-K
|
|
001-35594
|
|
10.1
|
|
May 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
10.16
|
|
Lease between the Registrant and Santa Clara Office Partners LLC, dated October 20, 2010, as amended.
|
|
S-1
|
|
333-180620
|
|
10.14
|
|
April 6, 2012
|
|
|
|
|
|
|
|
|
|
|
|
10.17
|
|
Amendment No. 2 to Lease between the Registrant and Santa Clara Office Partners LLC, dated July 2, 2013.
|
|
10-K
|
|
001-35594
|
|
10.17
|
|
September 25, 2013
|
|
|
|
|
|
|
|
|
|
|
|
10.18
|
|
Lease between the Registrant and SI 34 LLC, dated September 17, 2012.
|
|
10-K
|
|
001-35594
|
|
10.16
|
|
October 4, 2012
|
|
|
|
|
|
|
|
|
|
|
|
Exhibit
Number
|
|
Exhibit Description
|
|
Form
|
|
Incorporated by Reference
|
|
Filing Date
|
||
|
File No.
|
|
Exhibit
|
|
||||||
10.19
|
|
Lease between the Registrant and SI 34 LLC, dated September 17, 2012.
|
|
10-K
|
|
001-35594
|
|
10.16
|
|
October 4, 2012
|
|
|
|
|
|
|
|
|
|
|
|
10.20**
|
|
Manufacturing Services Agreement between the Registrant and Flextronics Telecom Systems Ltd., dated September 20, 2010.
|
|
S-1
|
|
333-180620
|
|
10.15
|
|
April 6, 2012
|
|
|
|
|
|
|
|
|
|
|
|
10.21*
|
|
Amendment to Restricted Stock Agreement, dated as of March 8, 2013, by and between the Registrant and Nir Zuk.
|
|
8-K
|
|
001-35594
|
|
10.1
|
|
March 11, 2013
|
|
|
|
|
|
|
|
|
|
|
|
10.22*
|
|
Amendment to Restricted Stock Agreement, dated as of March 8, 2013, by and between the Registrant and Rajiv Batra.
|
|
8-K
|
|
001-35594
|
|
10.2
|
|
March 11, 2013
|
|
|
|
|
|
|
|
|
|
|
|
10.23
|
|
Settlement, Release and Cross-License Agreement, dated May 27, 2014, by and between the Registrant and Juniper Networks, Inc.
|
|
8-K
|
|
001-35594
|
|
10.1
|
|
May 28, 2014
|
|
|
|
|
|
|
|
|
|
|
|
10.24
|
|
Share Purchase Agreement between the Registrant, Cyvera Ltd., Palo Alto Networks Holding B.V., the shareholders of Cyvera Ltd. and Shareholder Representative Services LLC, dated March 22, 2014.
|
|
10-Q
|
|
001-35594
|
|
10.1
|
|
June 3, 2014
|
|
|
|
|
|
|
|
|
|
|
|
10.25
|
|
Amendment No. 1 to the Share Purchase Agreement between the Registrant, Cyvera Ltd., Palo Alto Networks Holding B.V., the shareholders of Cyvera Ltd. and Shareholder Representative Services LLC, dated April 9, 2014.
|
|
10-Q
|
|
001-35594
|
|
10.2
|
|
June 3, 2014
|
|
|
|
|
|
|
|
|
|
|
|
10.26
|
|
Purchase Agreement, dated June 24, 2014, by and among the Registrant and J.P. Morgan Securities LLC, RBC Capital Markets, LLC and Citigroup Global Markets Inc., as representatives of the initial purchasers named therein.
|
|
8-K
|
|
001-35594
|
|
10.1
|
|
June 26, 2014
|
|
|
|
|
|
|
|
|
|
|
|
10.27
|
|
Form of Convertible Note Hedge Confirmation.
|
|
8-K
|
|
001-35594
|
|
10.2
|
|
June 26, 2014
|
|
|
|
|
|
|
|
|
|
|
|
10.28
|
|
Form of Warrant Confirmation.
|
|
8-K
|
|
001-35594
|
|
10.3
|
|
June 26, 2014
|
|
|
|
|
|
|
|
|
|
|
|
10.29
|
|
Lease between the Registrant and Santa Clara Campus Property Owner I LLC, dated May 28, 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.30
|
|
Lease between the Registrant and Santa Clara Campus Property Owner I LLC, dated May 28, 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.31
|
|
Lease between the Registrant and Santa Clara Campus Property Owner I LLC, dated May 28, 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21.1
|
|
List of subsidiaries of the Registrant.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23.1
|
|
Consent of Independent Registered Public Accounting Firm.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24.1
|
|
Power of Attorney (contained in the signature page to this Annual Report on Form 10-K).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.1
|
|
Certification of the Chief Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.2
|
|
Certification of the Chief Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.1†
|
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exhibit
Number
|
|
Exhibit Description
|
|
Form
|
|
Incorporated by Reference
|
|
Filing Date
|
||
|
File No.
|
|
Exhibit
|
|
||||||
32.2†
|
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.INS
|
|
XBRL Instance Document.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.SCH
|
|
XBRL Taxonomy Schema Linkbase Document.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.CAL
|
|
XBRL Taxonomy Calculation Linkbase Document.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.DEF
|
|
XBRL Taxonomy Definition Linkbase Document.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.LAB
|
|
XBRL Taxonomy Labels Linkbase Document.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.PRE
|
|
XBRL Taxonomy Presentation Linkbase Document.
|
|
|
|
|
|
|
|
|
*
|
Indicates a management contract or compensatory plan or arrangement.
|
**
|
Registrant has omitted portions of the relevant exhibit and filed such exhibit separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under Rule 406 under the Securities Act of 1933, as amended.
|
†
|
The certifications attached as Exhibit 32.1 and Exhibit 32.2 that accompany this Annual Report on Form 10-K, are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of the Registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Annual Report on Form 10-K, irrespective of any general incorporation language contained in such filing.
|
|
|
|
Page
|
|
ARTICLE 1
|
|
|
REFERENCE
|
|
1.1
|
|
|
References
|
|
|
|
|
|
|
ARTICLE 2
|
|
|
LEASED PREMISES, TERM AND POSSESSION
|
|
2.1
|
|
|
Demise Of Leased Premises
|
|
2.2
|
|
|
Common Areas, Exclusive Use Area, and Bicycle Storage Area
|
|
2.3
|
|
|
Lease Commencement Date And Lease Term
|
|
2.4
|
|
|
Delivery Of Possession
|
|
2.5
|
|
|
Performance Of Tenant Improvement Work; Acceptance Of Possession
|
|
2.6
|
|
|
Surrender Of Possession
|
|
2.7
|
|
|
Accessibility
|
|
2.8
|
|
|
Milestones
|
|
|
|
|
|
|
ARTICLE 3
|
|
|
RENT
|
|
3.1
|
|
|
Base Monthly Rent
|
|
3.2
|
|
|
Additional Rent
|
|
3.3
|
|
|
Year-End Adjustments
|
|
3.4
|
|
|
Late Charge, And Interest On Rent In Default
|
|
3.5
|
|
|
Payment Of Rent
|
|
|
|
|
|
|
ARTICLE 4
|
|
|
USE OF LEASED PREMISES AND COMMON AREA
|
|
4.1
|
|
|
Permitted Use
|
|
4.2
|
|
|
General Limitations On Use
|
|
4.3
|
|
|
Noise And Emissions
|
|
4.4
|
|
|
Trash Disposal
|
|
4.5
|
|
|
Parking
|
|
4.6
|
|
|
Signs
|
|
4.7
|
|
|
Compliance With Laws And Restrictions
|
|
4.8
|
|
|
Compliance With Insurance Requirements
|
|
4.9
|
|
|
Landlord’s Right To Enter
|
|
4.10
|
|
|
Use Of Common Areas
|
|
4.11
|
|
|
Environmental Protection
|
|
4.12
|
|
|
Rules And Regulations
|
|
4.13
|
|
|
Reservations
|
|
4.14
|
|
|
Roof
|
|
4.15
|
|
|
Back-Up Generators and Energy Servers
|
|
|
|
|
|
|
ARTICLE 5
|
|
|
REPAIRS, MAINTENANCE, SERVICES AND UTILITIES
|
|
5.1
|
|
|
Repair And Maintenance
|
|
5.2
|
|
|
Utilities
|
|
5.3
|
|
|
Security
|
|
5.4
|
|
|
Energy And Resource Consumption
|
5.5
|
|
|
Limitation Of Landlord’s Liability
|
|
|
|
|
|
|
ARTICLE 6
|
|
|
ALTERATIONS AND IMPROVEMENTS
|
|
6.1
|
|
|
By Tenant
|
|
6.2
|
|
|
Ownership Of Improvements
|
|
6.3
|
|
|
Alterations Required By Law
|
|
6.4
|
|
|
Liens
|
|
|
|
|
|
|
ARTICLE 7
|
|
|
ASSIGNMENT AND SUBLETTING BY TENANT
|
|
7.1
|
|
|
By Tenant
|
|
7.2
|
|
|
Merger, Reorganization, or Sale of Assets
|
|
7.3
|
|
|
Landlord’s Election
|
|
7.4
|
|
|
Conditions To Landlord’s Consent
|
|
7.5
|
|
|
Assignment Consideration And Excess Rentals Defined
|
|
7.6
|
|
|
Payments
|
|
7.7
|
|
|
Good Faith
|
|
7.8
|
|
|
Effect Of Landlord’s Consent
|
|
|
|
|
|
|
ARTICLE 8
|
|
|
LIMITATION ON LANDLORD’S LIABILITY AND INDEMNITY
|
|
8.1
|
|
|
Limitation On Landlord’s Liability And Release
|
|
8.2
|
|
|
Tenant’s Indemnification Of Landlord
|
|
8.3
|
|
|
Landlord’s Indemnification Of Tenant
|
|
|
|
|
|
|
ARTICLE 9
|
|
|
INSURANCE
|
|
9.1
|
|
|
Tenant’s Insurance
|
|
9.2
|
|
|
Landlord’s Insurance
|
|
9.3
|
|
|
Mutual Waiver Of Subrogation
|
|
|
|
|
|
|
ARTICLE 10
|
|
|
DAMAGE TO LEASED PREMISES
|
|
10.1
|
|
|
Landlord’s Duty To Restore
|
|
10.2
|
|
|
Insurance Proceeds
|
|
10.3
|
|
|
Landlord’s Right To Terminate
|
|
10.4
|
|
|
Tenant’s Right To Terminate
|
|
10.5
|
|
|
Tenant’s Waiver
|
|
10.6
|
|
|
Abatement Of Rent
|
|
|
|
|
|
|
ARTICLE 11
|
|
|
CONDEMNATION
|
|
11.1
|
|
|
Tenant’s Right To Terminate
|
|
11.2
|
|
|
Landlord’s Right To Terminate
|
|
11.3
|
|
|
Restoration
|
|
11.4
|
|
|
Temporary Taking
|
|
11.5
|
|
|
Division Of Condemnation Award
|
|
11.6
|
|
|
Abatement Of Rent
|
|
11.7
|
|
|
Taking Defined
|
|
|
|
|
|
|
ARTICLE 12
|
|
|
DEFAULT AND REMEDIES
|
|
12.1
|
|
|
Events Of Tenant’s Default
|
12.2
|
|
|
Landlord’s Remedies
|
|
12.3
|
|
|
Landlord’s Default And Tenant’s Remedies
|
|
12.4
|
|
|
Limitation Of Tenant’s Recourse
|
|
12.5
|
|
|
Tenant’s Waiver
|
|
|
|
|
|
|
ARTICLE 13
|
|
|
GENERAL PROVISIONS
|
|
13.1
|
|
|
Taxes On Tenant’s Property
|
|
13.2
|
|
|
Holding Over
|
|
13.3
|
|
|
Subordination To Mortgages
|
|
13.4
|
|
|
Tenant’s Attornment Upon Foreclosure
|
|
13.5
|
|
|
Mortgagee Protection
|
|
13.6
|
|
|
Estoppel Certificate
|
|
13.7
|
|
|
Tenant’s Financial Information
|
|
13.8
|
|
|
Transfer By Landlord
|
|
13.9
|
|
|
Force Majeure
|
|
13.10
|
|
|
Notices
|
|
13.11
|
|
|
Attorneys’ Fees and Costs
|
|
13.12
|
|
|
Definitions
|
|
13.13
|
|
|
General Waivers
|
|
13.14
|
|
|
Miscellaneous
|
|
13.15
|
|
|
Further Development and Subdivision
|
|
13.16
|
|
|
Patriot Act Compliance
|
|
|
|
|
|
|
ARTICLE 14
|
|
|
LEGAL AUTHORITY BROKERS AND ENTIRE AGREEMENT
|
|
14.1
|
|
|
Legal Authority
|
|
14.2
|
|
|
Brokerage Commissions
|
|
14.3
|
|
|
Entire Agreement
|
|
14.4
|
|
|
Landlord’s Representations
|
|
|
|
|
|
|
ARTICLE 15
|
|
|
OPTIONS TO EXTEND
|
|
15.1
|
|
|
Options to Extend
|
|
15.2
|
|
|
Fair Market Rent
|
|
15.3
|
|
|
Tenant’s Election
|
|
15.4
|
|
|
Rent Arbitration
|
|
|
|
|
|
|
ARTICLE 16
|
|
|
EXPANSION RIGHT; RIGHT OF FIRST OFFER TO LEASE; RIGHT OF FIRST OFFER TO PURCHASE; RIGHT OF FIRST REFUSAL TO PURCHASE
|
|
16.1
|
|
|
Acknowledgment and Agreement
|
|
16.2
|
|
|
Sale
|
Tenant’s Representative:
|
Fayez Jangda
|
Phone Number:
|
[Redacted]
|
Landlord’s Representative:
|
Henry Bullock/Richard Holmstrom
|
Phone Number:
|
[Redacted]
|
Targeted Commencement Date:
|
May 1, 2017
|
Intended Term:
|
One hundred thirty-two (132) months
|
Lease Expiration Date:
|
One hundred thirty-two (132) months from the Lease Commencement Date (defined in Paragraph 2.3 below), unless earlier terminated by Landlord in accordance with the terms of this Lease, or extended by Tenant pursuant to Article 15. Notwithstanding the foregoing or any other provision of this Lease, if the Lease Commencement Date is other than the first calendar day of a calendar month, then the Lease Expiration Date shall be one hundred thirty-two (132) months from the last calendar day of the calendar month in which the Lease Commencement Date occurs (unless earlier terminated by Landlord in accordance with the terms of this Lease, or extended by Tenant pursuant to Article 15).
|
Options to Extend:
|
Three (3) option(s) to extend, each for a term of six (6) years.
|
First Month’s Prepaid Rent:
|
None
|
Tenant’s Security Deposit:
|
None
|
Late Charge Amount:
|
Four Percent (4%) of the Delinquent Amount
|
Tenant’s Required Liability Coverage:
|
$5,000,000 Combined Single Limit
|
Tenant’s Broker:
|
Cornish & Carey Commercial, dba Newmark Cornish & Carey
|
Landlord’s Broker:
|
Colliers International
|
Project:
|
That certain real property situated in the City of Santa Clara, County of Santa Clara, State of California, identified as Assessor’s Parcel Nos.:
(1) 216-31-084, with a current street address of 3355 Scott Boulevard (shown on the Parcel Map as “Parcel A” and on the Site Plan as “Building A”),
(2) 216-31-085, with a current street address of 3325 Scott Boulevard (shown on the Parcel Map as “Parcel B” and on the Site Plan as “Building B and Building D”),
(3) 216-31-086, with a current street address of 3315 Scott Boulevard (shown on the Parcel Map as “Parcel C” and on the Site Plan as “Building C”),
(4) 216-31-082, with a street address to be assigned by the City of Santa Clara (shown on the Parcel Map as “Parcel D” and on the Site Plan as “Building E, Building F, and a portion of Building H”),
(5) 216-31-083, with a street address to be assigned by the City of Santa Clara (shown on the Parcel Map as “Parcel E” and on the Site Plan as “Parking Structure - P1”), and
(6) 216-31-077
1
, with a current street address of 3535 Garrett Drive (shown on the Parcel Map as “Parcel 2” and on the Site Plan as “Building G,”
|
|
|
______________
1
As of the Effective Date of this lease, APN 216-31-077 is under contract to be purchased by Landlord, with close of escrow expected to occur as provided in Paragraph 16.6 of the Building F and H Lease.
|
|
“Parking Structure - P2” and a portion of “Building H”).
which real property is shown on the current parcel map attached hereto as Exhibit A-1 (the “Parcel Map”) and on the preliminary Site Plan attached hereto as Exhibit A-2 (the “Site Plan”). The Parcel Map and the Site Plan are subject to approval by the City of Santa Clara and any other governmental or quasi-governmental agencies with jurisdiction (being collectively defined for such purposes as the “City”). The Site Plan attached hereto as Exhibit A-2 has been approved by Landlord and Tenant and Landlord will not initiate any proposed changes thereto without Tenant’s consent, which may be withheld in Tenant’s reasonable discretion. Landlord shall use its best efforts to obtain the City’s approval of the Site Plan without additional changes, but Tenant hereby consents to City-required changes to the Site Plan, if any, unless the same constitute Material Site Plan Changes; and Tenant’s reasonable consent shall be required for any Material Site Plan Changes. As used herein, “Material Site Plan Changes” means changes which result in the Site Plan (i) not reflecting Buildings E, F, and H in generally the same locations surrounding a large, outdoor courtyard which courtyard shall have materially the same size and configuration as shown on Exhibit A-4, and including a basketball court, amphitheater, outdoor seating areas, and load docks, (ii) materially and adversely impacting Tenant’s ability to use such courtyard and amenities located therein or (iii) an aggregate reduction of the rentable square footage of Building F, Building H, and Building E in excess of 13,000 rentable square feet. Landlord is in the process of adjusting the Parcel Map, with the objective of finalizing the Parcel Map and obtaining approval of the it and the Site Plan by the City, such that the final Site Plan will be the same as the Site Plan attached hereto as Exhibit A-2, and the Parcel Map will be substantially as set forth on Exhibit A-3 (the “Target Parcel Map”). Landlord shall use commercially reasonable efforts to obtain all necessary approvals for and file or record the final Parcel Map in a form substantially consistent with
|
|
the Target Parcel Map at Landlord’s sole cost and expense as soon as reasonably practicable. Tenant acknowledges that interim lot line adjustments and parcel mergers will be required prior to finalizing the Parcel Map. Landlord will provide Tenant with copies of all lot line adjustments, parcel mergers, tentative maps and final maps concurrently with their submission to the City of Santa Clara; provided, however, that Tenant’s consent to any of the foregoing will not be required so long as the Required Conditions are satisfied.
After the final Parcel Map has been approved and recorded, Landlord and Tenant agree to enter into an amendment to this Lease setting forth the final definitions of the Property and the Project (e.g., replacing the Site Plan and the Parcel Map with the final versions thereof, assigning the revised Assessor’s Parcel Numbers and street addresses, etc.).
Construction will commence on Building F, Building H, Parking Structure – P1 and Building E after the Effective Date of this Lease. Building D, Building G, and Parking Structure – P2 have not yet been constructed and Landlord may elect not to construct them; provided however that (i) if Tenant exercises the Expansion Option pursuant to and in accordance with Article 16 of the Building F and H Lease, or (ii) if Tenant exercises its right of first refusal pursuant to and in accordance with Article 16 of the Building F and H Lease and such right of first refusal and the Acceptable Proposal (as defined in Article 16 of the Building F and H Lease) to which the right of first refusal relates contain an obligation for Landlord to construct Building G and Parking Structure – P2, then Landlord will be obligated to construct Building G and Parking Structure – P2 as provided in Article 16- of the Building F and H Lease. Landlord reserves the right to adjust the boundaries of the Project at any time, provided that the Required Conditions are satisfied. The Site Plan and Landlord’s proposed adjustments to the applicable Assessor’s Parcel Map are subject to approval by the City of Santa Clara and acquisition of “Parcel 2” - 3535 Garrett Drive (which Parcel is currently under binding contract to be purchased by Landlord).
|
Property:
|
The term “Property” means that certain legal parcel of real property (currently identified as Assessor’s Parcel Nos. 216-31-82 and a portion of Assessor’s Parcel 216-31-077
2
), on which will be situated Building E, Building F, Building H and the Exclusive Use Area (subject to footnote 3 below), substantially as delineated on the Site Plan and the Target Parcel Map. The Property may consist of more than one legal parcel, so long as no portion of the Property is shared with any other Project tenant(s). As noted above, Landlord is currently in the process of adjusting the boundaries of the legal parcels comprising the Property (which may also entail obtaining different Assessor’s Parcel Numbers) and reserves the right to adjust the boundaries of the Property at any time, provided that the Required Conditions are satisfied. Upon completion and City approval of the Target Parcel Map, the Property will have situated upon it Building F and the entirety of Building H, and Building E will be situated on its own, separate legal parcel.
|
Building E:
|
That certain building to be constructed on the Property as shown outlined on the Site Plan as “Building E” (“Building E”), which Building is estimated to contain approximately 290,000 rentable square feet of space (+/-5,000 rentable square feet), which rentable square footage will be determined in accordance with this Lease by utilizing the Building Owners and Managers Association International Single Tenant Full Building Standard Method for Measuring Floor Area in Office Buildings ANSI Z65-1-1996, pages 10 and 11 (the “BOMA Method”).
|
Building:
|
Building E.
|
Other Buildings:
|
(a) Those certain buildings currently constructed in the Project (but outside the Property) commonly known as 3355 Scott Boulevard (“Building A”), containing approximately 144,790 rentable square
|
|
|
______________
2
See footnote no. 1.
|
|
feet of space, 3325 Scott Boulevard (“Building B”), containing approximately 157,729 rentable square feet of space, and 3315 Scott Boulevard (“Building C”), containing approximately 157,205 rentable square feet of space, and, for purposes of this Lease, agreed to contain said number of rentable square feet, and
(b)(i) That certain building to be constructed in the Project (but outside the Property) with a street address to be assigned by the City of Santa Clara, and denoted on the Site Plan as “Building D” (“Building D”), containing approximately 245,000 rentable square feet of space, (ii) that certain building to be constructed on the Property with a street address to be assigned by the City of Santa Clara, and denoted on the Site Plan as “Building F” (“Building F”), containing approximately 310,000 rentable square feet of space (+/- 5,000 rentable square feet), as more particularly set forth in the Building F and H Lease, (iii) that certain building to be constructed on the Project (but outside the Property) after Tenant exercises the Expansion Option (or its right of first refusal if applicable as described in the definition of “Project” above) pursuant to and in accordance with Article 16 of the Building F and H Lease, which will have a street address to be assigned by the City of Santa Clara (“Building G”), which Building is shown outlined on the Site Plan (and denoted thereon as “Building G”), currently estimated to contain approximately 300,000 (but not greater than 310,000) rentable square feet of space, which rentable square footage will be determined in accordance with this Lease by utilizing the BOMA Method, and (iv) that certain building to be constructed on the Property (and on what is currently a portion of the parcel listed above as Assessor's Parcel No. 216-31-077 and the parcel listed above as 216-31-082), with a street address to be assigned by the City of Santa Clara (defined herein as "Building H" or "Amenities Building H"), which Building is shown outlined on the Site Plan (and denoted thereon as "Building H"), estimated to contain approximately 30,000 rentable square feet of space, which rentable square footage will be determined in accordance with this Lease by
|
|
the BOMA Method. As part of the process of adjusting the Parcel Map referred to above, Landlord shall submit an application for a lot line adjustment (the "Amenities Building Lot Line Adjustment") to cause Building H
3
to fall entirely within the boundaries of the Property (as adjusted)
(b)(ii) such other buildings as may be built on the Project from time to time. As noted above, Landlord is not obligated to construct Building G (except as and to the extent provided in Article 16 of the Building F and H Lease). In addition, if Tenant does not elect its Expansion Option pursuant to Article 16 of the Building F and H Lease, Landlord shall have the right to redesign Building G, reconfigure its location, or elect not to build it, subject to satisfaction of the Required Conditions.
|
Building F and H Lease:
|
That certain Lease dated as of the date of this Lease, entered into by and between Landlord and Tenant for the entirety of Building F and Building H (the “Building F and H Lease”).
|
Bridge Space Lease:
|
That certain Lease dated as of the date of this Lease, entered into by and between Landlord and Tenant for approximately 121,953 rentable square feet of space in Building B (the “Bridge Space Lease”).
|
Building G Lease:
|
The term “Building G Lease” is defined in Paragraph 16.1 of the Building F and H Lease.
|
Exclusive Use Areas:
|
The “Exclusive Use Areas” shall mean the areas denoted on Exhibit A-4 as “Exclusive Use Areas.”
|
Common Areas:
|
The “Common Areas” shall mean the areas within the Project exterior to the Building and the Other Buildings not reserved for the exclusive use of Landlord, Tenant or any other tenant, including, without limitation, plazas, walkways, private roadways, loading docks, parking areas, parking structures, and landscaped areas. Until the Site Plan and Target Parcel Map have been finalized and approved by the City, Landlord reserves the right to make changes to the Common Areas as it deems reasonably necessary;
provided, however
, that from
|
|
|
______________
3
The basketball court as shown on the Site Plan will ultimately straddle the Property and the adjacent property and will be primarily located on the adjacent property.
|
|
and after the date that the Site Plan and Target Parcel Map have been finalized and approved by the City, Landlord may not make changes to the Exclusive Use Areas except to the extent required by Law (including a governmental agency). Common Areas shall not include the interior of any Other Buildings. The Common Areas shall include the Exclusive Use Areas and all portions of the Project exterior to the Building, unless expressly limited to a smaller area (e.g., to the Common Areas of the Property).
|
Parking:
|
With respect to the Leased Premises, Tenant shall be entitled to utilize 3.3 unreserved and unassigned parking spaces for each 1,000 net rentable square feet within Building E (as the same may change from time to time in accordance with the terms of this Lease or an amendment hereto), such spaces to be located in the parking area of the Common Areas. Parking is provided to Tenant by Landlord without additional charge for the entire Lease Term including any extension periods. Tenant shall have certain exclusive parking rights as described in Paragraph 4.5 below (and in Paragraph 16.1 of the Building F and H Lease, if applicable). All spaces to which Tenant has exclusive parking rights shall count toward Tenant’s overall parking allocation as described in the first sentence of this definition
|
Required Conditions:
|
The term “Required Conditions” is defined in Paragraph 2.2(a) below).
|
HVAC:
|
Heating, ventilating, and/or air conditioning.
|
Leased Premises:
|
The Building, and all interior space located within the Building and shown on the floor plan attached hereto as Exhibit B, estimated to contain approximately 290,000 rentable square feet (+/- 5,000 rentable square feet), which rentable square footage will be determined by utilizing the BOMA Method. Within thirty (30) days after the Lease Commencement Date, Landlord will cause the Leased Premises to be measured in accordance with the BOMA Method and Paragraph 2.1(b) below, and the resulting rentable square footage shall thereafter be the rentable square footage of the Leased Premises for all purposes under this Lease;
|
|
provided, however
, that, except with respect to changes in the Site Plan approved or deemed to be approved by Tenant, in no event shall the rentable square footage of the Leased Premises be less than 285,000 nor more than 295,000 rentable square feet.
|
Work Letter:
|
The term “Work Letter” shall mean the Work Letter attached as Exhibit C to and made a part of this Lease, the terms and provisions of which are hereby incorporated into this Lease.
|
Construction Period:
|
The term “Construction Period” shall mean the period from the Effective Date of this Lease to the date that Landlord delivers the Leased Premises to Tenant with the Landlord Work Substantially Complete, regardless of the occurrence of any Tenant Delay and without regard to the effect of any provision of this Lease pursuant to which the date of Substantial Completion of the Landlord Work is deemed to occur in advance of its actual occurrence.
|
Tenant's Building Share:
|
The term “Tenant’s Building Share” shall mean the percentage obtained by dividing the rentable square footage of the Leased Premises at the time of calculation by the rentable square footage of the Building at the time of calculation. Such percentage shall be 100% for all purposes under this Lease, unless otherwise agreed in a written amendment to this Lease signed by Landlord and Tenant.
|
Tenant’s Project Share:
|
The term “Tenant’s Project Share” shall mean the percentage obtained by dividing the rentable square footage of the Leased Premises at the time of calculation by the rentable square footage of the Building and the Other Buildings (excluding Building D, Building G, and any other Building not yet constructed, unless and until each such Building is completely constructed and ready for occupancy) at the time of calculation. Such percentage is currently 26.61%. In the event that any portion of the Project is sold by Landlord, or if new improvements are constructed on the Project (e.g., Building D, Building G, or other improvements), or if the rentable square footage of the Leased Premises, the Building, or the Other Buildings is
|
|
otherwise changed (other than by mere re-measurement after the determination of the rentable square footage pursuant to Paragraph 2.1(b) below), Tenant’s Project Share shall be recalculated to equal the percentage described in the first sentence of this paragraph, so that the aggregate Tenant’s Project Share of all tenant space in the Project shall equal 100% (calculated as if the Building and the Other Buildings were fully occupied). Landlord and Tenant agree that any mere re-measurement after the determination of the rentable square footage pursuant to Paragraph 2.1(b) below (as opposed to an actual physical change) shall not result in a change in rentable square footage.
|
Tenant’s Amortization Payment:
|
As used herein, the term “Tenant’s Amortization Payment” shall mean the amount (as such amount may vary from time to time as new items are amortized and amortization periods expire) of the monthly amortization payments being paid by Tenant to Landlord pursuant to this Lease.
|
Standard Interest Rate:
|
The term “Standard Interest Rate” shall mean the greater of (a) 6%, or (b) the sum of that rate quoted by Wells Fargo Bank, N.T. & S. A., from time to time as its prime rate, plus two percent (2%), but in no event more than the maximum rate of interest not prohibited or made usurious.
|
Default Interest Rate:
|
The term “Default Interest Rate” shall mean the Standard Interest Rate, plus five percent (5%), but in no event more than the maximum rate of interest not prohibited or made usurious.
|
Base Monthly Rent:
|
The term “Base Monthly Rent” shall mean the following:
|
Period
|
Base Monthly Rent per rentable
square foot*
|
Base Monthly
Rent**
|
Months 1-12
|
$0.00
|
$0.00 (abated)
|
Months 13-24
|
$3.02
|
$874,640.00
|
*Rounded
|
**Based upon the Leased Premises containing 290,000 rentable square feet of space, and subject to measurement as described in the “Leased Premises” definition above and adjustment.
|
Permitted Use:
|
General office, research and development, electronics laboratories, and other legal uses ancillary thereto, to the extent all such uses are in compliance with all Laws and Restrictions.
|
GAAP:
|
The term “GAAP” shall mean United States generally accepted accounting principles.
|
Exhibits:
|
The term “Exhibits” shall mean the Exhibits of this Lease which are described as follows:
|
|
Lease which are described as follows:
|
|
Exhibit A-1 –Parcel Map
|
|
Exhibit A-2 – Site Plan
|
|
Exhibit A-3 – Target Parcel Map
|
|
Exhibit A-4 – Exclusive Use Area
|
|
Exhibit A-5 – Bicycle Storage Area
|
|
Exhibit A-6 - PAN Visitor Parking Spaces
|
|
Exhibit B – Floor Plan
|
|
Exhibit C – Work Letter
|
|
Exhibit D – Exclusive Use Area Conceptual Plan
|
|
Exhibit E – Lease Commencement Date Certificate
|
|
Exhibit F – Lump Sum Payment Amendment
|
|
Exhibit G – Building Signage Exhibit
|
|
Exhibit H – Landlord Signage Illustration
|
|
Exhibit I – Rules and Regulations
|
|
Exhibit J-1 – Subordination, Non-Disturbance and Attornment Provisions (Current Financing)
|
|
Exhibit J-2 – Subordination, Non-Disturbance and Attornment Provisions (Future Financing)
|
|
Exhibit K – Form of Tenant Estoppel Certificate
|
|
Exhibit L – Amortization Categories and Periods
|
By:
|
Menlo Equities Development Company IX LLC, a California limited liability company,
its Manager |
Period
|
Base Monthly Rent
|
|
|
[Months __-__
|
$0.00
|
Months __**-24
|
$874,640.00
|
Months 25-36
|
$900,879.20
|
Months 37-48
|
$921,148.98
|
Months 49-60
|
$939,571.96
|
Months 61-72
|
$958,363.40
|
Months 73-84
|
$977,530.67
|
Months 85-96
|
$977,081.28
|
Months 97-108
|
$1,017,022.91
|
Months 109-120
|
$
1,037,363.37
|
Months 121-132
|
$1,058,110.63
|
NOTICE:
|
THIS SUBORDINATION AGREEMENT RESULTS IN YOUR SECURITY INTEREST IN THE PROPERTY BECOMING SUBJECT TO AND OF LOWER PRIORITY THAN THE LIEN OF SOME OTHER OR LATER SECURITY INSTRUMENT.
|
A.
|
Pursuant to the terms and provisions of a lease dated [DATE OF LEASE] (“
Lease
”), Mortgagor granted to Tenant a leasehold estate in and to [[a portion of]] the property described on Exhibit A attached hereto and incorporated herein by this reference (which property, together with all improvements now or hereafter located on the property, is defined as the “
Property
”).
|
B.
|
Mortgagor has executed, or proposes to execute, that certain Deed Of Trust (“
Security
Instrument
”) securing, among other things, that certain Promissory Note dated [DATE OF NOTE] (“
Note
”) in the principal sum of [LOAN AMOUNT ($NUMBERS)], in favor
|
C.
|
As a condition to Lender making the Loan secured by the Security Instrument, Lender requires that the Security Instrument be unconditionally and at all times remain a lien on the Property, prior and superior to all the rights of Tenant under the Lease and that the Tenant specifically and unconditionally subordinate the Lease to the lien of the Security Instrument.
|
D.
|
Mortgagor and Tenant have agreed to the subordination, attornment and other agreements herein in favor of Lender.
|
Mortgagor:
|
[OWNER NAME
STREET ADDRESS CITY, STATE ZIP]
Attention: [CONTACT NAME]
|
Tenant:
|
[TENANT NAME
TENANT ADDRESS 1 TENANT ADDRESS 2 TENANT CITY, STATE ZIP]
Attention: [TENANT CONTACT]
|
Lender:
|
Wells Fargo Bank, National Association
CRE – San Francisco Gold ([Redacted]) 420 Montgomery Street, 6th Floor San Francisco, CA 94104
Attention: Ivane Tatt
Loan #: [Redacted]
|
With a copy to:
|
Wells Fargo Bank, National Association
WLS Minneapolis Loan Center 608 2nd Avenue South, 11th Floor Minneapolis, MN 55402
Attention: Jessica Bistodeau
|
NOTICE:
|
THIS SUBORDINATION AGREEMENT RESULTS IN YOUR SECURITY INTEREST IN THE PROPERTY BECOMING SUBJECT TO AND OF LOWER PRIORITY THAN THE LIEN OF SOME OTHER OR LATER SECURITY INSTRUMENT.
|
Mortgagor:
|
[OWNER NAME
STREET ADDRESS CITY, STATE ZIP]
Attention: [CONTACT NAME]
|
Tenant:
|
[TENANT NAME
TENANT ADDRESS 1 TENANT ADDRESS 2 TENANT CITY, STATE ZIP]
Attention: [TENANT CONTACT]
|
Lender:
|
Wells Fargo Bank, National Association
CRE – San Francisco Gold ([Redacted]) 420 Montgomery Street, 6th Floor San Francisco, CA 94104
Attention: Ivane Tatt
Loan #: [Redacted]
|
With a copy to:
|
Wells Fargo Bank, National Association
WLS Minneapolis Loan Center 608 2nd Avenue South, 11th Floor Minneapolis, MN 55402
Attention: Jessica Bistodeau
|
Category
|
|
Useful Life
|
|
|
|
HVAC Equipment per ASHRAE standards
|
|
|
1. Split systems
|
|
15 years
|
2. Air Handlers
|
|
25 years
|
3. Heat Pumps
|
|
18 years
|
4. Roof Top Air Conditioners
|
|
15 years
|
5. Boilers
|
|
25 years
|
6. Furnaces, Burners
|
|
18 years
|
7. Ductwork
|
|
30 years
|
8. Dampers
|
|
20 years
|
9. Fans
|
|
20 years
|
10. Coils
|
|
18 years
|
11. Heat Exchangers
|
|
20 years
|
12. Compressors
|
|
15 years
|
13. Cooling Towers
|
|
28 years
|
14. Energy management system
|
|
15 years
|
Single Ply roof overlay 45 mil
|
|
15 years
|
Parking lot seal coat/repairs
|
|
4 years
|
Exterior paint
|
|
6 years
|
Landscaping
|
|
20 years
|
Signage
|
|
20 years
|
Carpeting
|
|
8 years
|
Restrooms
|
|
20 years
|
Lobby redo
|
|
20 years
|
Building structure
|
|
39 years
|
|
|
|
Page
|
|
ARTICLE 1
|
|
|
REFERENCE
|
|
1.1
|
|
|
References
|
|
|
|
|
|
|
ARTICLE 2
|
|
|
LEASED PREMISES, TERM AND POSSESSION
|
|
2.1
|
|
|
Demise Of Leased Premises
|
|
2.2
|
|
|
Common Areas, Exclusive Use Area, and Bicycle Storage Area
|
|
2.3
|
|
|
Lease Commencement Date And Lease Term
|
|
2.4
|
|
|
Delivery Of Possession
|
|
2.5
|
|
|
Performance Of Tenant Improvement Work; Acceptance Of Possession
|
|
2.6
|
|
|
Surrender Of Possession
|
|
2.7
|
|
|
Accessibility
|
|
2.8
|
|
|
Milestones
|
|
|
|
|
|
|
ARTICLE 3
|
|
|
RENT
|
|
3.1
|
|
|
Base Monthly Rent
|
|
3.2
|
|
|
Additional Rent
|
|
3.3
|
|
|
Year-End Adjustments
|
|
3.4
|
|
|
Late Charge, And Interest On Rent In Default
|
|
3.5
|
|
|
Payment Of Rent
|
|
|
|
|
|
|
ARTICLE 4
|
|
|
USE OF LEASED PREMISES AND COMMON AREA
|
|
4.1
|
|
|
Permitted Use
|
|
4.2
|
|
|
General Limitations On Use
|
|
4.3
|
|
|
Noise And Emissions
|
|
4.4
|
|
|
Trash Disposal
|
|
4.5
|
|
|
Parking
|
|
4.6
|
|
|
Signs
|
|
4.7
|
|
|
Compliance With Laws And Restrictions
|
|
4.8
|
|
|
Compliance With Insurance Requirements
|
|
4.9
|
|
|
Landlord’s Right To Enter
|
|
4.10
|
|
|
Use Of Common Areas
|
|
4.11
|
|
|
Environmental Protection
|
|
4.12
|
|
|
Rules And Regulations
|
|
4.13
|
|
|
Reservations
|
|
4.14
|
|
|
Roof
|
|
4.15
|
|
|
Back-Up Generators and Energy Servers
|
|
|
|
|
|
|
ARTICLE 5
|
|
|
REPAIRS, MAINTENANCE, SERVICES AND UTILITIES
|
|
5.1
|
|
|
Repair And Maintenance
|
5.2
|
|
|
Utilities
|
|
5.3
|
|
|
Security
|
|
5.4
|
|
|
Energy And Resource Consumption
|
|
5.5
|
|
|
Limitation Of Landlord’s Liability
|
|
|
|
|
|
|
ARTICLE 6
|
|
|
ALTERATIONS AND IMPROVEMENTS
|
|
6.1
|
|
|
By Tenant
|
|
6.2
|
|
|
Ownership Of Improvements
|
|
6.3
|
|
|
Alterations Required By Law
|
|
6.4
|
|
|
Liens
|
|
|
|
|
|
|
ARTICLE 7
|
|
|
ASSIGNMENT AND SUBLETTING BY TENANT
|
|
7.1
|
|
|
By Tenant
|
|
7.2
|
|
|
Merger, Reorganization, or Sale of Assets
|
|
7.3
|
|
|
Landlord’s Election
|
|
7.4
|
|
|
Conditions To Landlord’s Consent
|
|
7.5
|
|
|
Assignment Consideration And Excess Rentals Defined
|
|
7.6
|
|
|
Payments
|
|
7.7
|
|
|
Good Faith
|
|
7.8
|
|
|
Effect Of Landlord’s Consent
|
|
|
|
|
|
|
ARTICLE 8
|
|
|
LIMITATION ON LANDLORD’S LIABILITY AND INDEMNITY
|
|
8.1
|
|
|
Limitation On Landlord’s Liability And Release
|
|
8.2
|
|
|
Tenant’s Indemnification Of Landlord
|
|
8.3
|
|
|
Landlord’s Indemnification Of Tenant
|
|
|
|
|
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ARTICLE 9
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INSURANCE
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9.1
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Tenant’s Insurance
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9.2
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Landlord’s Insurance
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9.3
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Mutual Waiver Of Subrogation
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ARTICLE 10
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DAMAGE TO LEASED PREMISES
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10.1
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Landlord’s Duty To Restore
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10.2
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Insurance Proceeds
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10.3
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Landlord’s Right To Terminate
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10.4
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Tenant’s Right To Terminate
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10.5
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Tenant’s Waiver
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10.6
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Abatement Of Rent
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ARTICLE 11
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CONDEMNATION
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11.1
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Tenant’s Right To Terminate
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11.2
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Landlord’s Right To Terminate
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11.3
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Restoration
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11.4
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Temporary Taking
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11.5
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Division Of Condemnation Award
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11.6
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Abatement Of Rent
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11.7
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Taking Defined
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ARTICLE 12
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DEFAULT AND REMEDIES
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12.1
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Events Of Tenant’s Default
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12.2
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Landlord’s Remedies
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12.3
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Landlord’s Default And Tenant’s Remedies
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12.4
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Limitation Of Tenant’s Recourse
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12.5
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Tenant’s Waiver
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ARTICLE 13
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GENERAL PROVISIONS
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13.1
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Taxes On Tenant’s Property
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13.2
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Holding Over
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13.3
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Subordination To Mortgages
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13.4
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Tenant’s Attornment Upon Foreclosure
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13.5
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Mortgagee Protection
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13.6
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Estoppel Certificate
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13.7
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Tenant’s Financial Information
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13.8
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Transfer By Landlord
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13.9
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Force Majeure
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13.10
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Notices
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13.11
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Attorneys’ Fees and Costs
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13.12
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Definitions
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13.13
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General Waivers
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13.14
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Miscellaneous
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13.15
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Further Development and Subdivision
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13.16
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Patriot Act Compliance
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ARTICLE 14
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LEGAL AUTHORITY BROKERS AND ENTIRE AGREEMENT
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14.1
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Legal Authority
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14.2
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Brokerage Commissions
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14.3
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Entire Agreement
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14.4
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Landlord’s Representations
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ARTICLE 15
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OPTIONS TO EXTEND
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15.1
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Options to Extend
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15.2
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Fair Market Rent
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15.3
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Tenant’s Election
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15.4
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Rent Arbitration
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ARTICLE 16
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EXPANSION RIGHT; RIGHT OF FIRST OFFER TO LEASE; RIGHT OF FIRST OFFER TO PURCHASE; RIGHT OF FIRST REFUSAL TO PURCHASE
|
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16.1
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Expansion Right
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16.2
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Right of First Refusal to Lease
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16.3
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Right of First Offer to Lease
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16.4
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Right of First Offer to Purchase
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16.5
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Right of First Refusal to Purchase (Unsolicited Purchase Proposal)
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16.6
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Condition Subsequent Related to 3535 Garrett
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16.7
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Effect of Sale or Transfer of Parcels
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Tenant’s Representative:
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Fayez Jangda
|
Phone Number:
|
[Redacted]
|
Landlord’s Representative:
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Henry Bullock/Richard Holmstrom
|
Phone Number:
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[Redacted]
|
Targeted Commencement Date:
|
May 1, 2017
|
Intended Term:
|
One hundred thirty-two (132) months
|
Lease Expiration Date:
|
One hundred thirty-two (132) months from the Lease Commencement Date (defined in Paragraph 2.3 below), unless earlier terminated by Landlord in accordance with the terms of this Lease, or extended by Tenant pursuant to Article 15. Notwithstanding the foregoing or any other provision of this Lease, if the Lease Commencement Date is other than the first calendar day of a calendar month, then the Lease Expiration Date shall be one hundred thirty-two (132) months from the last calendar day of the calendar month in which the Lease Commencement Date occurs (unless earlier terminated by Landlord in accordance with the terms of this Lease, or extended by Tenant pursuant to Article 15).
|
Options to Extend:
|
Three (3) option(s) to extend, each for a term of six (6) years.
|
First Month’s Prepaid Rent:
|
None
|
Tenant’s Security Deposit:
|
None
|
Late Charge Amount:
|
Four Percent (4%) of the Delinquent Amount
|
Tenant’s Required Liability Coverage:
|
$5,000,000 Combined Single Limit
|
Tenant’s Broker:
|
Cornish & Carey Commercial, dba Newmark
|
|
Cornish & Carey
|
Landlord’s Broker:
|
Colliers International
|
Project:
|
That certain real property situated in the City of Santa Clara, County of Santa Clara, State of California, identified as Assessor’s Parcel Nos.:
(1) 216-31-084, with a current street address of 3355 Scott Boulevard (shown on the Parcel Map as “Parcel A” and on the Site Plan as “Building A”),
(2) 216-31-085, with a current street address of 3325 Scott Boulevard (shown on the Parcel Map as “Parcel B” and on the Site Plan as “Building B and Building D”),
(3) 216-31-086, with a current street address of 3315 Scott Boulevard (shown on the Parcel Map as “Parcel C” and on the Site Plan as “Building C”),
(4) 216-31-082, with a street address to be assigned by the City of Santa Clara (shown on the Parcel Map as “Parcel D” and on the Site Plan as “Building E, Building F, and a portion of Building H”),
(5) 216-31-083, with a street address to be assigned by the City of Santa Clara (shown on the Parcel Map as “Parcel E” and on the Site Plan as “Parking Structure - P1”), and
(6) 216-31-077
1
, with a current street address of 3535 Garrett Drive (shown on the Parcel Map as
|
|
|
______________
1
As of the Effective Date of this lease, APN 216-31-077 is under contract to be purchased by Landlord, with close of escrow expected to occur as provided in Paragraph 16.6 of this Lease.
|
|
“Parcel 2” and on the Site Plan as “Building G,” “Parking Structure - P2” and a portion of “Building H”).
which real property is shown on the current parcel map attached hereto as Exhibit A-1 (the “Parcel Map”) and on the preliminary Site Plan attached hereto as Exhibit A-2 (the “Site Plan”). The Parcel Map and the Site Plan are subject to approval by the City of Santa Clara and any other governmental or quasi-governmental agencies with jurisdiction (being collectively defined for such purposes as the “City”). The Site Plan attached hereto as Exhibit A-2 has been approved by Landlord and Tenant and Landlord will not initiate any proposed changes thereto without Tenant’s consent, which may be withheld in Tenant’s reasonable discretion. Landlord shall use its best efforts to obtain the City’s approval of the Site Plan without additional changes, but Tenant hereby consents to City-required changes to the Site Plan, if any, unless the same constitute Material Site Plan Changes; and Tenant’s reasonable consent shall be required for any Material Site Plan Changes. As used herein, “Material Site Plan Changes,” means changes which result in the Site Plan (i) not reflecting Buildings E, F, and H in generally the same locations surrounding a large, outdoor courtyard which courtyard shall have materially the same size and configuration as shown on Exhibit A-4, and including a basketball court, amphitheater, outdoor seating areas, and load docks, (ii) materially and adversely impacting Tenant’s ability to use such courtyard and amenities located therein or (iii) an aggregate reduction of the rentable square footage of the Buildings and Building E in excess of 13,000 rentable square feet. Landlord is in the process of adjusting the Parcel Map, with the objective of finalizing the Parcel Map and obtaining approval of the it and the Site Plan by the City, such that the final Site Plan will be the same as the Site Plan attached hereto as Exhibit A-2, and the Parcel Map will be substantially as set forth on Exhibit A-3 (the “Target Parcel Map”). Landlord shall use commercially reasonable efforts to obtain all necessary approvals for and file or record the final Parcel Map in a form substantially consistent with
|
|
the Target Parcel Map at Landlord’s sole cost and expense as soon as reasonably practicable. Tenant acknowledges that interim lot line adjustments and parcel mergers will be required prior to finalizing the Parcel Map. Landlord will provide Tenant with copies of all lot line adjustments, parcel mergers, tentative maps and final maps concurrently with their submission to the City of Santa Clara; provided, however, that Tenant’s consent to any of the foregoing will not be required so long as the Required Conditions are satisfied.
After the final Parcel Map has been approved and recorded, Landlord and Tenant agree to enter into an amendment to this Lease setting forth the final definitions of the Property and the Project (e.g., replacing the Site Plan and the Parcel Map with the final versions thereof, assigning the revised Assessor’s Parcel Numbers and street addresses, etc.).
Construction will commence on the Buildings, Parking Structure – P1 and Building E after the Effective Date of this Lease. Building D, Building G, and Parking Structure – P2 have not yet been constructed and Landlord may elect not to construct them; provided however that (i) if Tenant exercises the Expansion Option pursuant to and in accordance with Article 16 below, or (ii) if Tenant exercises its right of first refusal pursuant to and in accordance with Article 16 below and such right of first refusal and the Acceptable Proposal (as defined in Article 16) to which the right of first refusal relates contain an obligation for Landlord to construct Building G and Parking Structure – P2, then Landlord will be obligated to construct Building G and Parking Structure – P2 as provided in Article 16. Landlord reserves the right to adjust the boundaries of the Project at any time, provided that the Required Conditions are satisfied. The Site Plan and Landlord’s proposed adjustments to the applicable Assessor’s Parcel Map are subject to approval by the City of Santa Clara and acquisition of “Parcel 2” - 3535 Garrett Drive (which Parcel is currently under binding contract to be purchased by Landlord).
|
Property:
|
The term “Property” means that certain legal parcel of real property (currently identified as Assessor’s Parcel Nos. 216-31-82 and a portion of Assessor’s Parcel 216-31-077
2
), on which will be situated Building E, Building F, Building H and the Exclusive Use Area (subject to footnote 3 on the following page), substantially as delineated on the Site Plan and the Target Parcel Map. The Property may consist of more than one legal parcel, so long as no portion of the Property is shared with any other Project tenant(s). As noted above, Landlord is currently in the process of adjusting the boundaries of the legal parcels comprising the Property (which may also entail obtaining different Assessor’s Parcel Numbers) and reserves the right to adjust the boundaries of the Property at any time, provided that the Required Conditions are satisfied. Upon completion and City approval of the Target Parcel Map, the Property will have situated upon it Building F and the entirety of Amenities Building H, and Building E will be situated on its own, separate legal parcel.
|
Building F:
|
That certain building to be constructed on the Property as shown outlined on the Site Plan as “Building F” (“Building F”), which Building is estimated to contain approximately 310,000 rentable square feet of space (+/-5,000 rentable square feet), which rentable square footage will be determined in accordance with this Lease by utilizing the Building Owners and Managers Association International Single Tenant Full Building Standard Method for Measuring Floor Area in Office Buildings ANSI Z65-1-1996, pages 10 and 11 (the “BOMA Method”).
|
Amenities Building H:
|
That certain building to be constructed on the Property (and on what is currently a portion of the parcel listed above as Assessor’s Parcel No. 216-31-077 and the parcel listed above as 216-31-082), with a street address to be assigned by the City of Santa Clara (the “Amenities Building H”), which Building is shown outlined on the Site Plan (and denoted thereon as “Building H”), estimated to contain approximately 30,000 rentable square feet
|
|
|
______________
2
See footnote no. 1.
|
|
of space, which rentable square footage will be determined in accordance with this Lease by the BOMA Method. As part of the process of adjusting the Parcel Map referred to above, Landlord shall submit an application for a lot line adjustment (the “Amenities Building Lot Line Adjustment”) to cause Amenities Building H
3
The basketball court as shown on the Site Plan will ultimately straddle the Property and the adjacent property and will be primarily located on the adjacent property. to fall entirely within the boundaries of the Property (as adjusted).
|
Buildings:
|
Building F and Amenities Building H.
|
Other Buildings:
|
(a) Those certain buildings currently constructed in the Project (but outside the Property) commonly known as 3355 Scott Boulevard (“Building A”), containing approximately 144,790 rentable square feet of space, 3325 Scott Boulevard (“Building B”), containing approximately 157,729 rentable square feet of space, and 3315 Scott Boulevard (“Building C”), containing approximately 157,205 rentable square feet of space, and, for purposes of this Lease, agreed to contain said number of rentable square feet, and
(b)(i) That certain building to be constructed in the Project (but outside the Property) with a street address to be assigned by the City of Santa Clara, and denoted on the Site Plan as “Building D” (“Building D”), containing approximately 245,000 rentable square feet of space, (ii) that certain building to be constructed on the Property with a street address to be assigned by the City of Santa Clara, and denoted on the Site Plan as “Building E” (“Building E”), containing approximately 290,000 rentable square feet of space (+/- 5,000 rentable square feet), as more particularly set forth in the Building E Lease, and (iii) that certain building to be constructed on the Project (but outside the Property) after Tenant exercises the Expansion Option (or its right of first refusal if applicable as described in the definition of “Project” above) pursuant to and in accordance with Article 16 below, which will have a street address to be assigned by the City of Santa Clara (the “Building G”), which Building is shown outlined on the Site
|
|
|
______________
3
The basketball court as shown on the Site Plan will ultimately straddle the Property and the adjacent property and will be primarily located on the adjacent property.
|
|
Plan (and denoted thereon as “Building G”), currently estimated to contain approximately 300,000 (but not greater than 310,000) rentable square feet of space, which rentable square footage will be determined in accordance with this Lease by utilizing the BOMA Method.
(b)(ii) such other buildings as may be built on the Project from time to time. As noted above, Landlord is not obligated to construct Building G (except as and to the extent provided in Article 16 below). In addition, if Tenant does not elect its Expansion Option pursuant to Article 16 below, Landlord shall have the right to redesign Building G, reconfigure its location, or elect not to build it, subject to satisfaction of the Required Conditions.
|
Building E Lease:
|
That certain Lease dated as of the date of this Lease, entered into by and between Landlord and Tenant for the entirety of Building E (the “Building E Lease”).
|
Building E Premises:
|
The premises leased by Tenant pursuant to the Building E Lease (the “Building E Premises”).
|
Bridge Space Lease:
|
That certain Lease dated as of the date of this Lease, entered into by and between Landlord and Tenant for approximately 121,953 rentable square feet of space in Building B (the “Bridge Space Lease”).
|
Building G Lease:
|
The term “Building G Lease” is defined in Paragraph 16.1 below.
|
Exclusive Use Areas:
|
The “Exclusive Use Areas” shall mean the areas denoted on Exhibit A-4 as “Exclusive Use Areas.”
|
Common Areas:
|
The “Common Areas” shall mean the areas within the Project exterior to the Buildings and the Other Buildings not reserved for the exclusive use of Landlord, Tenant or any other tenant, including, without limitation, plazas, walkways, private roadways, loading docks, parking areas, parking structures, and landscaped areas. Until the Site Plan and Target Parcel Map have been finalized and approved by the City, Landlord reserves the right to make changes to the Common Areas as it deems reasonably necessary; provided, however, that from
|
|
and after the date that the Site Plan and Target Parcel Map have been finalized and approved by the City, Landlord may not make changes to the Exclusive Use Areas except to the extent required by Law (including a governmental agency). Common Areas shall not include the interior of any Other Buildings. The Common Areas shall include the Exclusive Use Areas and all portions of the Project exterior to the Buildings, unless expressly limited to a smaller area (e.g., to the Common Areas of the Property).
|
Parking:
|
With respect to the Leased Premises, Tenant shall be entitled to utilize 3.3 unreserved and unassigned parking spaces for each 1,000 net rentable square feet within Building F (as the same may change from time to time in accordance with the terms of this Lease or an amendment hereto), such spaces to be located in the parking area of the Common Areas. Parking is provided to Tenant by Landlord without additional charge for the entire Lease Term including any extension periods. Tenant shall have certain exclusive parking rights as described in Paragraph 4.5 below (and in Paragraph 16.1 below, if applicable). All spaces to which Tenant has exclusive parking rights shall count toward Tenant’s overall parking allocation as described in the first sentence of this definition
|
Required Conditions:
|
The term “Required Conditions” is defined in Paragraph 2.2(a) below).
|
HVAC:
|
Heating, ventilating, and/or air conditioning.
|
Leased Premises:
|
The Buildings, and all interior space located within the Buildings and shown on the floor plan attached hereto as Exhibit B, estimated to contain approximately 340,000 rentable square feet (+/- 8,000 rentable square feet), which rentable square footage will be determined by utilizing the BOMA Method. Within thirty (30) days after the Lease Commencement Date, Landlord will cause the Leased Premises to be measured in accordance with the BOMA Method and Paragraph 2.1(b) below, and the resulting rentable square footage shall thereafter be the rentable square footage of the Leased Premises for all purposes under this Lease;
|
|
provided, however,
that, except with respect to changes in the Site Plan approved or deemed to be approved by Tenant, in no event shall the rentable square footage of the Leased Premises be less than 305,000 nor more than 315,000 rentable square feet with respect to Building F, or less than 27,000 nor more than 33,000 rentable square feet with respect to Amenities Building H.
|
Work Letter:
|
The term “Work Letter” shall mean the Work Letter attached as Exhibit C to and made a part of this Lease, the terms and provisions of which are hereby incorporated into this Lease.
|
Construction Period:
|
The term “Construction Period” shall mean the period from the Effective Date of this Lease to the date that Landlord delivers the Leased Premises to Tenant with the Landlord Work Substantially Complete, regardless of the occurrence of any Tenant Delay and without regard to the effect of any provision of this Lease pursuant to which the date of Substantial Completion of the Landlord Work is deemed to occur in advance of its actual occurrence.
|
Tenant’s Building Share:
|
The term “Tenant’s Building Share” shall mean the percentage obtained by dividing the rentable square footage of the Leased Premises at the time of calculation by the rentable square footage of the Buildings at the time of calculation. Such percentage shall be 100% for all purposes under this Lease, unless otherwise agreed in a written amendment to this Lease signed by Landlord and Tenant.
|
Tenant’s Project Share:
|
The term “Tenant’s Project Share” shall mean the percentage obtained by dividing the rentable square footage of the Leased Premises at the time of calculation by the rentable square footage of the Buildings and the Other Buildings (excluding Building D, Building G, and any other Building not yet constructed, unless and until each such Building is completely constructed and ready for occupancy) at the time of calculation. Such percentage is currently 31.20%. In the event that any portion of the Project is sold by Landlord, or if new improvements are constructed on the Project (e.g.,
|
|
Building D, Building G, or other improvements), or if the rentable square footage of the Leased Premises, the Buildings, or the Other Buildings is otherwise changed (other than by mere re-measurement after the determination of the rentable square footage pursuant to Paragraph 2.1(b) below), Tenant’s Project Share shall be recalculated to equal the percentage described in the first sentence of this paragraph, so that the aggregate Tenant’s Project Share of all tenant space in the Project shall equal 100% (calculated as if the Buildings and the Other Buildings were fully occupied). Landlord and Tenant agree that any mere re-measurement after the determination of the rentable square footage pursuant to Paragraph 2.1(b) below (as opposed to an actual physical change) shall not result in a change in rentable square footage.
|
Tenant’s Amortization Payment:
|
As used herein, the term “Tenant’s Amortization Payment” shall mean the amount (as such amount may vary from time to time as new items are amortized and amortization periods expire) of the monthly amortization payments being paid by Tenant to Landlord pursuant to this Lease.
|
Standard Interest Rate:
|
The term “Standard Interest Rate” shall mean the greater of (a) 6%, or (b) the sum of that rate quoted by Wells Fargo Bank, N.T. & S. A., from time to time as its prime rate, plus two percent (2%), but in no event more than the maximum rate of interest not prohibited or made usurious.
|
Default Interest Rate:
|
The term “Default Interest Rate” shall mean the Standard Interest Rate, plus five percent (5%), but in no event more than the maximum rate of interest not prohibited or made usurious.
|
Base Monthly Rent:
|
The term “Base Monthly Rent” shall mean the following:
|
|
Period
|
Base Monthly Rent per rentable
square foot*
|
Base Monthly
Rent**
|
|
Months 1-12
|
$0.00
|
$0.00 (abated)
|
|
Months 13- 24
|
$3.02
|
$1,025,440.00
|
|
Months 25- 36
|
$3.11
|
$1,056,203.20
|
|
Months 37- 48
|
$3.18
|
$1,079,967.77
|
|
Months 49- 60
|
$3.24
|
$1,101,567.13
|
|
Months 61- 72
|
$3.30
|
$1,123,598.47
|
|
Months 73- 84
|
$3.37
|
$1,146,070.44
|
|
Months 85- 96
|
$3.44
|
$1,168,991.85
|
|
Months 97- 108
|
$3.51
|
$1,192,371.69
|
|
Months 109- 120
|
$3.58
|
$1,216,219.12
|
|
Months 121- 132
|
$3.65
|
$1,240,543.50
|
|
|
|
|
|
*Rounded
|
||
|
**Based upon the Leased Premises containing 340,000 rentable square feet of space, and subject to measurement as described in the “Leased Premises” definition above and adjustment.
|
|
Exhibit A-1 –Parcel Map
|
|
Exhibit A-2 – Site Plan
|
|
Exhibit A-3 – Target Parcel Map
|
|
Exhibit A-4 – Exclusive Use Area
|
|
Exhibit A-5 – Bicycle Storage Area
|
|
Exhibit A-6 – PAN Visitor Parking Spaces
|
|
Exhibit B – Floor Plan
|
|
Exhibit C – Work Letter
|
|
Exhibit D – Exclusive Use Area Conceptual Plan
|
|
Exhibit E – Lease Commencement Date Certificate
|
|
Exhibit F – Lump Sum Payment Amendment
|
|
Exhibit G – Building Signage Exhibit
|
|
Exhibit H – Landlord Signage Illustration
|
|
Exhibit I – Rules and Regulations
|
|
Exhibit J-1 – Subordination, Non-Disturbance and Attornment Provisions (Current Financing)
|
|
Exhibit J-2 – Subordination, Non-Disturbance and Attornment Provisions (Future Financing)
|
|
Exhibit K – Form of Tenant Estoppel Certificate
|
|
Exhibit L – Amortization Categories and Periods
|
|
Exhibit M – Existing Superior Rights
|
By:
|
Menlo Equities Development Company IX LLC, a California limited liability company,
its Manager |
Period
|
Base Monthly Rent
|
|
|
[Months __-__
|
$0.00
|
Months __**-24
|
$1,025,440.00
|
Months 25-36
|
$1,056,203.20
|
Months 37-48
|
$1,079,967.77
|
Months 49-60
|
$1,101,567.13
|
Months 61-72
|
$1,123,598.47
|
Months 73-84
|
$1,146,070.44
|
Months 85-96
|
$1,168,991.85
|
Months 97-108
|
$1,192,371.69
|
Months 109-120
|
$1,216,219.12
|
Months 121-132
|
$1,240,543.50
|
NOTICE:
|
THIS SUBORDINATION AGREEMENT RESULTS IN YOUR SECURITY INTEREST IN THE PROPERTY BECOMING SUBJECT TO AND OF LOWER PRIORITY THAN THE LIEN OF SOME OTHER OR LATER SECURITY INSTRUMENT.
|
A.
|
Pursuant to the terms and provisions of a lease dated [DATE OF LEASE] (“
Lease
”), Mortgagor granted to Tenant a leasehold estate in and to [[a portion of]] the property described on Exhibit A attached hereto and incorporated herein by this reference (which property, together with all improvements now or hereafter located on the property, is defined as the “
Property
”).
|
B.
|
Mortgagor has executed, or proposes to execute, that certain Deed Of Trust (“
Security
Instrument
”) securing, among other things, that certain Promissory Note dated [DATE
|
C.
|
As a condition to Lender making the Loan secured by the Security Instrument, Lender requires that the Security Instrument be unconditionally and at all times remain a lien on the Property, prior and superior to all the rights of Tenant under the Lease and that the Tenant specifically and unconditionally subordinate the Lease to the lien of the Security Instrument.
|
D.
|
Mortgagor and Tenant have agreed to the subordination, attornment and other agreements herein in favor of Lender.
|
Mortgagor:
|
[OWNER NAME
STREET ADDRESS CITY, STATE ZIP]
Attention: [CONTACT NAME]
|
Tenant:
|
[TENANT NAME
TENANT ADDRESS 1 TENANT ADDRESS 2 TENANT CITY, STATE ZIP]
Attention: [TENANT CONTACT]
|
Lender:
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Wells Fargo Bank, National Association
CRE – San Francisco Gold ([Redacted]) 420 Montgomery Street, 6th Floor San Francisco, CA 94104
Attention: Ivane Tatt
Loan #: [Redacted]
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With a copy to:
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Wells Fargo Bank, National Association
WLS Minneapolis Loan Center 608 2nd Avenue South, 11th Floor Minneapolis, MN 55402
Attention: Jessica Bistodeau
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NOTICE:
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THIS SUBORDINATION AGREEMENT RESULTS IN YOUR SECURITY INTEREST IN THE PROPERTY BECOMING SUBJECT TO AND OF LOWER PRIORITY THAN THE LIEN OF SOME OTHER OR LATER SECURITY INSTRUMENT.
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Mortgagor:
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[OWNER NAME
STREET ADDRESS CITY, STATE ZIP]
Attention: [CONTACT NAME]
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Tenant:
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[TENANT NAME
TENANT ADDRESS 1 TENANT ADDRESS 2 TENANT CITY, STATE ZIP]
Attention: [TENANT CONTACT]
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Lender:
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Wells Fargo Bank, National Association
CRE – San Francisco Gold ([Redacted]) 420 Montgomery Street, 6th Floor San Francisco, CA 94104
Attention: Ivane Tatt
Loan #: [Redacted]
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With a copy to:
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Wells Fargo Bank, National Association
WLS Minneapolis Loan Center 608 2nd Avenue South, 11th Floor Minneapolis, MN 55402
Attention: Jessica Bistodeau
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Category
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Useful Life
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HVAC Equipment per ASHRAE standards
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1. Split systems
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15 years
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2. Air Handlers
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25 years
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3. Heat Pumps
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18 years
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4. Roof Top Air Conditioners
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15 years
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5. Boilers
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25 years
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6. Furnaces, Burners
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18 years
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7. Ductwork
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30 years
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8. Dampers
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20 years
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9. Fans
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20 years
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10. Coils
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18 years
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11. Heat Exchangers
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20 years
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12. Compressors
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15 years
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13. Cooling Towers
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28 years
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14. Energy management system
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15 years
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Single Ply roof overlay 45 mil
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15 years
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Parking lot seal coat/repairs
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4 years
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Exterior paint
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6 years
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Landscaping
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20 years
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Signage
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20 years
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Carpeting
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8 years
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Restrooms
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20 years
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Lobby redo
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20 years
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Building structure
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39 years
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Fourth Floor
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Akamai Technologies
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41,049 SF through March 16, 2024
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Two (2) 5-Year Options to Extend
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Third Floor
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|||||||||||
Akamai Technologies
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41,049 SF through March 16, 2024
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Two (2) 5-Year Options to Extend
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Second Floor
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Akamai Technologies
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39,287 SF through March 16, 2024
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Two (2) 5-Year Options to Extend
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First Floor
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|||||||
Pivot Interiors
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Gym & Cafeteria Space
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||||||||||
23,405 SF through February 28, 2025
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|||||||
One (1) 5-Year Options to Extend
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Fourth Floor
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Palo Alto Networks (est. Start May 1, 2016)
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41,235 SF through April 31, 2021 (est.)
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Third Floor
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Palo Alto Networks (est. Start May 1, 2016)
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41,235 SF through April 31, 2021 (est.)
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Second Floor
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Palo Alto Networks (est. Start May 1, 2016)
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39,483 SF through April 31, 2021 (est.)
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First Floor
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|||||||||||
Lenovo
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35,776 SF through August 31, 2021
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Two (2) 5-Year Options to Extend
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Fourth Floor
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||||||||
Hitachi America (est. Start Jul.1, 2015)
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||||||||
41,252 SF through October 31, 2025 (est.)
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||||||||
Two (2) 5-Year Options to Extend
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||||||||
Third Floor
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||||||||
Move, Inc. (est. Start Oct. 1, 2015)
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||||||||
41,252 SF through September 30, 2025 (est.)
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||||||||
One (1) 5- OR 10-Year Option to Extend
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Second Floor - 100
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Second Floor - 200
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Move, Inc. (est. Start Oct. 1, 2015)
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VACANT
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est. 11,203 SF - Same Exp. as 3rd Floor
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28,280 SF
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Same as Third Floor
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Subject to expansion rights from Aruba Networks & Move, Inc.
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|||||||
First Floor
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||||||||
Aruba Networks (est. Start Mar. 1, 2017)
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||||||||
35,191 SF through February 28, 2028 (est.)
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||||||||
Two (2) 5-Year Options to Extend
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Sixth Floor
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|||||||||||
VACANT
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|||||||||||
40,813 SF (est.)
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Subject to expansion rights from Aruba Networks
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|||||||||||
Fifth Floor
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|||||||||||
Aruba Networks (est. Start Mar. 1, 2017)
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40,813 SF through Feb. 28, 2028 (est.)
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|||||||||||
Two (2) 5-Year Options to Extend
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|||||||||||
Fourth Floor
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|||||||||||
Aruba Networks (est. Start Mar. 1, 2017)
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|||||||||||
40,813 SF through Feb. 28, 2028 (est.)
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|||||||||||
Two (2) 5-Year Options to Extend
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|||||||||||
Third Floor
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|||||||||||
Aruba Networks (est. Start Mar. 1, 2017)
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|||||||||||
40,813 SF through Feb. 28, 2028 (est.)
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|||||||||||
Two (2) 5-Year Options to Extend
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|||||||||||
Second Floor
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|||||||||||
Aruba Networks (est. Start Mar. 1, 2017)
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40,813 SF through Feb. 28, 2028 (est.)
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|||||||||||
Two (2) 5-Year Options to Extend
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|||||||||||
First Floor
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|||||||||||
Aruba Networks (est. Start Mar. 1, 2017)
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40,813 SF through Feb. 28, 2028 (est.)
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Two (2) 5-Year Options to Extend
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Page
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Article 1
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REFERENCE
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1.1
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References
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Article 2
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LEASED PREMISES, TERM AND POSSESSION
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2.1
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Demise Of Leased Premises
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2.2
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Right To Use Common Areas
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2.3
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Lease Commencement Date And Lease Term
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2.4
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Delivery Of Possession
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2.5
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Performance Of Tenant Improvement Work; Acceptance Of Possession
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2.6
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Surrender Of Possession
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Article 3
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RENT
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3.1
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Base Monthly Rent
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3.2
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Additional Rent
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3.3
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Year-End Adjustments
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3.4
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Late Charge, And Interest On Rent In Default
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3.5
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Payment Of Rent
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Article 4
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USE OF LEASED PREMISES AND COMMON AREA
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4.1
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Permitted Use
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4.2
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General Limitations On Use
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4.3
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Noise And Emissions
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4.4
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Trash Disposal
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4.5
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Parking
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4.6
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Signs
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4.7
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Compliance With Laws And Restrictions
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4.8
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Compliance With Insurance Requirements
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4.9
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Landlord’s Right To Enter
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4.10
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Use Of Common Areas
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4.11
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Environmental Protection
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4.12
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Rules And Regulations
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4.13
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Reservations
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Article 5
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REPAIRS, MAINTENANCE, SERVICES AND UTILITIES
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5.1
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Repair And Maintenance
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(a)
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Tenant’s Obligations
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(b)
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Landlord’s Obligation
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5.2
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Utilities
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5.3
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Security
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5.4
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Energy And Resource Consumption
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5.5
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Limitation Of Landlord’s Liability
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Article 6
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ALTERATIONS AND IMPROVEMENTS
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6.1
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By Tenant
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6.2
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Ownership Of Improvements
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6.3
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Alterations Required By Law
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6.4
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Liens
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Article 7
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ASSIGNMENT AND SUBLETTING BY TENANT
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7.1
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By Tenant
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7.2
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Merger, Reorganization, or Sale of Assets
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7.3
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Landlord’s Election
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7.4
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Conditions To Landlord’s Consent
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7.5
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Assignment Consideration And Excess Rentals Defined
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7.6
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Payments
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7.7
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Good Faith
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7.8
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Effect Of Landlord’s Consent
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Article 8
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LIMITATION ON LANDLORD’S LIABILITY AND INDEMNITY
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8.1
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Limitation On Landlord’s Liability And Release
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8.2
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Tenant’s Indemnification Of Landlord
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Article 9
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INSURANCE
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9.1
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Tenant’s Insurance
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9.2
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Landlord’s Insurance
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9.3
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Mutual Waiver Of Subrogation
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Article 10
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DAMAGE TO LEASED PREMISES
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10.1
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Landlord’s Duty To Restore
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10.2
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Insurance Proceeds
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10.3
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Landlord’s Right To Terminate
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10.4
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Tenant’s Right To Terminate
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10.5
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Tenant’s Waiver
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10.6
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Abatement Of Rent
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Article 11
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CONDEMNATION
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11.1
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Tenant’s Right To Terminate
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11.2
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Landlord’s Right To Terminate
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11.3
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Restoration
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11.4
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Temporary Taking
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11.5
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Division Of Condemnation Award
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11.6
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Abatement Of Rent
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11.7
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Taking Defined
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Article 12
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DEFAULT AND REMEDIES
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12.1
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Events Of Tenant’s Default
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12.2
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Landlord’s Remedies
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12.3
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Landlord’s Default And Tenant’s Remedies
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12.4
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Limitation Of Tenant’s Recourse
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12.5
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Tenant’s Waiver
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Article 13
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GENERAL PROVISIONS
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13.1
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Taxes On Tenant’s Property
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13.2
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Holding Over
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13.3
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Subordination To Mortgages
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13.4
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Tenant’s Attornment Upon Foreclosure
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13.5
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Mortgagee Protection
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13.6
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Estoppel Certificate
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13.7
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Tenant’s Financial Information
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13.8
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Transfer By Landlord
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13.9
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Force Majeure
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13.10
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Notices
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13.11
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Attorneys’ Fees and Costs
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13.12
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Definitions
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(a)
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Real Property Taxes
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(b)
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Landlord’s Insurance Costs
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(c)
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Property Maintenance Costs
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(d)
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Property Operating Expenses
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(e)
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Law
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(f)
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Lender
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(g)
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Rent
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(h)
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Restrictions
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13.13
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General Waivers
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13.14
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Miscellaneous
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13.15
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Patriot Act Compliance.
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Article 14
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LEGAL AUTHORITY BROKERS AND ENTIRE AGREEMENT
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14.1
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Legal Authority
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14.2
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Brokerage Commissions
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14.3
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Entire Agreement
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14.4
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Landlord’s Representations
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Article 15
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OPTIONS TO EXTEND
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15.1
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Option to Extend
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15.2
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Further Options to Extend
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Tenant’s Representative:
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Fayez Jangda
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Phone Number:
Landlord’s Representative:
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[Redacted]
Henry Bullock/Richard Holmstrom
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Phone Number:
Intended Commencement Date:
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[Redacted]
May 1, 2016, subject to Paragraph 2.3 hereof
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Intended Term:
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Sixty (60) months
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Lease Expiration Date:
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Sixty (60) months from the Lease Commencement Date (defined in Paragraph 2.3 below), unless earlier terminated by Landlord or Tenant in accordance with the terms of this Lease, or extended by Tenant pursuant to Article 15. Notwithstanding the foregoing or any other provision of this Lease, if the Lease Commencement Date is other than the first calendar day of a calendar month, then the Lease Expiration Date shall be sixty (60) months from the last calendar day of the calendar month in which the Lease Commencement Date occurs (unless earlier terminated by Landlord or Tenant in accordance with the terms of this Lease, or extended by Tenant pursuant to Article 15).
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Options to Extend:
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One (1) option to extend for a term coterminous with the Building F Lease and, provided such option has been properly exercised, three (3) options to extend, each for a term of six (6) years.
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First Month’s Prepaid Rent:
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None
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Tenant’s Security Deposit:
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None
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Late Charge Amount:
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Four Percent (4%) of the Delinquent Amount
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Tenant’s Required Liability Coverage:
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$5,000,000 Combined Single Limit
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Tenant’s Broker:
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Cornish & Carey Commercial, dba Newmark Cornish & Carey
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Landlord’s Broker:
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Colliers International
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Project:
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That certain real property situated in the City of Santa Clara, County of Santa Clara, State of California, identified as: Assessor’s Parcel Nos. 216-31-082, 216-31-083, 216-31-084, 216-31-085, and 216-31-086, which real property is shown on the preliminary Site Plan attached hereto as Exhibit A (the “Site Plan”) and is commonly known as or otherwise described as follows (respectively): 3345 Scott Boulevard (shown on the Site Plan as “Building D”), 3335 Scott Boulevard (shown on the Site Plan as “Building E”), 3355 Scott Boulevard (shown on the Site Plan as “Building A”), 3325 Scott Boulevard (shown on the Site Plan as “Building B”), 3315 Scott Boulevard (shown on the Site Plan as “Building C”). Landlord shall not be obligated to construct any other buildings or improvements except as provided in the Other Leases. Landlord reserves the right to adjust the boundaries of the Project at any time, provided that any such adjustment shall not reduce the number of parking spaces to which Tenant has the right to park as provided in this Lease, nor impair ingress or egress to or from the Property or the Leased Premises.
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Property:
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That certain separate legal parcel of real property currently identified as Assessor’s Parcel No. 216-31-085, on which is situated the Building as delineated on the Site Plan, with a street address of 3325 Scott Boulevard, Santa Clara, California. Landlord reserves the right to adjust the boundaries of the Property at any time, provided that any such adjustment shall not reduce the number of parking spaces to which Tenant has the right to park as provided in this Lease, nor impair ingress or egress to or from the Property or the Leased Premises.
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Building:
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That certain building on the Property in which the Leased Premises are located commonly known as 3325 Scott Boulevard, Santa Clara, California (the “Building”), which Building is shown outlined on Exhibit A hereto (and denoted thereon as “Building B”), containing approximately 157,729 rentable square feet of space, which rentable square footage has been determined by Landlord’s method of measurement (the “Measurement Method”), which has been explained to Tenant, which is illustrated on Exhibit A-1 attached hereto, and which Building, for purposes of this Lease, is agreed to contain said number of rentable square feet. Such rentable area calculation includes, without limitation, a proportionate share of the common Building lobby, and the cafeteria and fitness center in the Other Building located at 3355 Scott Boulevard allocated across the rentable square footage of the Building and the Other Buildings.
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Other Buildings:
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Those certain buildings currently constructed in the Project commonly known as 3355 Scott Boulevard, containing approximately 144,790 rentable square feet of space, and 3315 Scott Boulevard, containing approximately 157,205 rentable square feet of space, as such rentable square footage amounts were determined based on the Measurement Method and, for purposes of this Lease, agreed to contain said number of rentable square feet, together with such other buildings as may be built on the Project from time to time, including without limitation the buildings to be constructed pursuant to the Other Leases.
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Other Leases:
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Each lease between Landlord (or its affiliate) and Tenant (or its affiliate), including without limitation (i) that certain lease for “Building E” (as defined in such lease) to be entered into between Landlord (or its affiliate) and Tenant (the “Building E Lease”), (ii) that certain lease for “Building F”, and “Amenities Building H” (each as defined in such lease) to be entered into between Landlord (or its affiliate) and Tenant (the “Building F Lease”), and (iv) that certain lease that may be entered into between Landlord (or its affiliate) and Tenant for “Building G” as further provided in the Building F Lease (the “Building G Lease”).
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Common Areas:
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The “Common Areas” shall mean the areas within the Project which are located outside the Leased Premises, such as common lobbies, electrical closets, pedestrian walkways, parking areas, circulation roads and ways, parking structures and surface parking areas, landscaped areas, open areas and enclosed trash disposal areas which, at the time in question, are not for the exclusive use of a tenant of the Building or of the other buildings on the Project.
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Parking:
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With respect to the Leased Premises, Tenant shall be entitled to utilize 3.3 unreserved and unassigned parking spaces for each 1,000 net rentable square feet of Leased Premises (as the same may change from time to time in accordance with the terms of this Lease or an amendment hereto), such spaces to be located in the parking area of the Common Areas. Parking is provided to Tenant by Landlord without additional charge for the entire Lease Term including any extension periods.
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Building Standard Hours:
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The term “Building Standard Hours” means from 7:00 a.m. and 7:00 p.m. Monday through Friday and on Saturdays from 8:00 a.m. to noon, excluding Sundays and New Year’s Day, Presidents Day, Memorial Day, Independence Day, Labor Day, Thanksgiving, Christmas and such other holidays as are generally recognized in the vicinity of the Project.
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HVAC:
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Heating, ventilating, and/or air conditioning.
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Leased Premises:
|
The approximately 41,235 rentable square foot space located on the fourth floor of the Building, the approximately 41,235 rentable square foot space located on the third floor of the Building, and the approximately 39,483 rentable square foot space located on the second floor of the building, each as shown on the floor plan attached hereto as Exhibit B, plus the load factor associated therewith, consisting of an aggregate of approximately 121,953rentable square feet, which rentable square footage has been determined based on the Measurement Method and, for purposes of this Lease, the Leased Premises is agreed to contain said number of rentable square feet. The Building, the Other Buildings (except pursuant to the applicable leases of the Other Buildings), and the Leased Premises are not subject to re-measurement unless, pursuant to a written amendment to this Lease, space is subtracted therefrom or additional space is added thereto. Recognizing that both Landlord and Tenant have agreed to the foregoing rentable square footage number and have agreed that there will be no re-measurement except as expressly provided above, Landlord has given Tenant the opportunity to measure the Building, the Other Buildings, and the Leased Premises and has encouraged Tenant to do so, and Tenant hereby confirms that it has elected, in its sole discretion and without reliance on any representation by Landlord or its agents or any brokers, not to measure the Building, or the Leased Premises.
|
|
MDM/ST
Initials |
Tenant’s Building Share:
|
The term “Tenant’s Building Share” shall mean the percentage obtained by dividing the rentable square footage of the Leased Premises at the time of calculation by the rentable square footage of the Building at the time of calculation. Such percentage is currently 77.32%. In the event that the rentable square footage of the Leased Premises or the Building is changed (by a written amendment to this Lease memorializing the physical addition or subtraction of space), Tenant’s Building Share shall be recalculated to equal the percentage described in the first sentence of this paragraph, so that the aggregate Tenant’s Building Share of all tenants of the Building shall equal 100%, and upon Landlord’s or Tenant’s request, the parties shall execute a written amendment to this Lease memorializing such change. Tenant’s Building Share is subject to adjustment as set forth in Paragraphs 13.12(b) and 13.12 (c).
|
Tenant’s Project Share:
|
The term “Tenant’s Project Share” shall mean the percentage obtained by dividing the rentable square footage of the Leased Premises at the time of calculation by the rentable square footage of the Building and the Other Buildings at the time of calculation. Such percentage is currently 26.53%. In the event that any portion of the Project is sold by Landlord, or additional buildings are constructed, or the rentable square footage of the Leased Premises, the Building, or the Other Buildings is otherwise changed, Tenant’s Project Share shall be recalculated to equal the percentage described in the first sentence of this paragraph, so that the aggregate Tenant’s Project Share of all tenants of the Project shall equal 100%. Tenant’s Project Share is subject to adjustment as set forth in Paragraphs 13.12(b) and 13.12 (c).
|
Tenant’s Amortization Payment:
|
As used herein, the term “Tenant’s Amortization Payment” shall mean the amount (as such amount may vary from time to time as new items are amortized and amortization periods expire) of the monthly amortization payments being paid by Tenant to Landlord pursuant to this Lease.
|
Standard Interest Rate:
|
The term “Standard Interest Rate” shall mean the greater of (a) 6%, or (b) the sum of that rate quoted by Wells Fargo Bank, N.T. & S. A., from time to time as its prime rate, plus two percent (2%), but in no event more than the maximum rate of interest not prohibited or made usurious.
|
Default Interest Rate:
|
The term “Default Interest Rate” shall mean the Standard Interest Rate, plus five percent (5%), but in no event more than the maximum rate of interest not prohibited or made usurious.
|
Base Monthly Rent:
|
The term “Base Monthly Rent” shall mean the following:
|
|
Period
|
Base Monthly Rent
|
|
Months 1-12
|
$359,761.35
|
|
Months 13-24
|
$368,755.38
|
|
Months 25-36
|
$377,974.27
|
|
Months 37-48
|
$387,423.63
|
|
Months 49-60
|
$397,109.22
|
Permitted Use:
|
General office, research and development, electronics laboratories, and other legal uses ancillary thereto, to the extent all such uses are in compliance with all Laws and Restrictions.
|
GAAP:
|
The term “GAAP” shall mean United States generally accepted accounting principles.
|
Exhibits:
|
The term “Exhibits” shall mean the Exhibits of this Lease which are described as follows:
|
|
Exhibit A - Site Plan showing the Project and delineating the Building in which the Leased Premises are located.
|
|
Exhibit A-1 – Measurement Method Illustration.
|
|
Exhibit B – Floor Plan
|
|
Exhibit C – Plans and Specifications for Landlord’s Work
|
|
Exhibit D – Lease Commencement Date Certificate
|
|
Exhibit E – Building Signage Exhibit
|
|
Exhibit F – Available Rooftop Space
|
|
Exhibit G – Subordination, Non-Disturbance and Attornment Provisions
|
|
Exhibit H – Form of Tenant Estoppel Certificate
Exhibit I— Landlord’s Signage
Exhibit J—Rules and Regulations
Exhibit K—Amortization Periods
|
|
TENANT:
PALO ALTO NETWORKS, INC. , a Delaware corporation
|
Dated: May 28, 2015
|
By:
/s/ MARK D. MCLAUGHLIN
Printed Name: President and CEO
Title: President
By:
/s/ STEFFAN C. TOMLINSON
Printed Name: Chief Financial Officer
Title: Chief Financial Officer
|
|
LANDLORD:
SANTA CLARA CAMPUS PROPERTY OWNER I LLC, a Delaware limited liability company
|
|
By: Santa Clara Campus Partners LLC,
a Delaware limited liability company,
its Sole Member
By: Menlo Equities Development Company IX LLC,
a California limited liability company,
its Manager
By: Menlo Equities V LLC,
a California limited liability company,
its Manager
By: Menlo Legacy Holdings L.P.,
a California limited partnership,
its Managing Member
|
Dated: May 28, 2015
|
By:
/s/ HENRY D. BULLOCK
Henry D. Bullock, President
|
|
|
•
|
Open office with 4 conference rooms with glass sidelights and building standard doors.
|
•
|
Elevator lobby with overhead elevator smoke doors per code.
|
•
|
Open ceiling except conference rooms (2x2 Dunne Second Look).
|
•
|
HVAC: Overhead distribution, IDF room split system with 5 tons cooling capacity, new zones for conference rooms, T-stats as required with rigid duct for open ceiling. Tie controls to BMS.
|
•
|
Electrical: Power distribution, fire alarm and new lighting, all per new Title 24. Switching, convenience outlets, floor boxes in new conference rooms, junction boxes in the ceiling at 20' for future furniture in the open office area. Standard linear pendant light fixtures which meet Title 24 requirements.
|
•
|
Fire Sprinklers: Dropped heads at conference rooms.
|
•
|
Drywall (Level 4 finish) all exterior precast walls; core walls and 4 conference room walls.
|
•
|
Painting: Painting of all new partitions, existing core partitions, metal deck and fire sprinklers.
|
•
|
Carpet: Carpet and rubber base in all new conference rooms, open office area and lobby.
|
•
|
Levelor Mark 1 Blinds at exterior windows.
|
NOTICE:
|
THIS SUBORDINATION AGREEMENT RESULTS IN YOUR SECURITY INTEREST IN THE PROPERTY BECOMING SUBJECT TO AND OF LOWER PRIORITY THAN THE LIEN OF SOME OTHER OR LATER SECURITY INSTRUMENT.
|
A.
|
Pursuant to the terms and provisions of a lease dated
DATE OF LEASE
("
Lease
"), Mortgagor granted to Tenant a leasehold estate in and to
[[
a portion of
]]
the property described on
Exhibit A
attached hereto and incorporated herein by this reference (which property, together with all improvements now or hereafter located on the property, is defined as the "
Property
").
|
B.
|
Mortgagor has executed, or proposes to execute, that certain Deed Of Trust ("
Security Instrument
") securing, among other things, that certain Promissory Note dated
DATE OF NOTE
("
Note
") in the principal sum of
LOAN AMOUNT
($
NUMBERS
), in favor of Lender ("Loan").
The Security Instrument has been or will be recorded concurrently herewith in the real property records where the Property is located.
|
C.
|
As a condition to Lender making the Loan secured by the Security Instrument, Lender requires that the Security Instrument be unconditionally and at all times remain a lien on
|
D.
|
Mortgagor and Tenant have agreed to the subordination, attornment and other agreements herein in favor of Lender.
|
(1)
|
SUBORDINATION
. Mortgagor and Tenant hereby agree that:
|
1.
|
Prior Lien
. The Security Instrument securing the Note in favor of Lender, and any modifications, renewals or extensions thereof (including, without limitation, any modifications, renewals or extensions with respect to any additional advances made subject to the Security Instrument), shall unconditionally be and at all times remain a lien on the Property prior and superior to the Lease;
|
2.
|
Subordination
. Lender would not make the Loan or approve the Lease without this agreement to subordinate; and
|
3.
|
Whole Agreement
. This Agreement shall be the whole agreement and only agreement with regard to the subordination of the Lease to the lien of the Security Instrument and shall supersede and cancel, but only insofar as would affect the priority between the Security Instrument and the Lease, any prior agreements as to such subordination, including, without limitation, those provisions, if any, contained in the Lease which provide for the subordination of the Lease to a deed or deeds of trust or to a mortgage or mortgages.
|
4.
|
Use of Proceeds
. Lender, in making disbursements pursuant to the Note, the Security Instrument or any loan agreements with respect to the Property, is under no obligation or duty to, nor has Lender represented that it will, see to the application of such proceeds by the person or persons to whom Lender disburses such proceeds, and any application or use of such proceeds for purposes other than those provided for in such agreement or agreements shall not defeat this agreement to subordinate in whole or in part; and
|
5.
|
Waiver, Relinquishment and Subordination
. Tenant intentionally and unconditionally subordinates all of Tenant's right, title and interest in and to the Property to the lien of the Security Instrument and understands that in reliance upon, and in consideration of, this waiver, relinquishment and subordination, specific loans and advances are being and will be made by Lender and, as part and parcel thereof, specific monetary and other obligations are being and will be entered into which would not be made or entered into but for said reliance upon this subordination.
|
(2)
|
ASSIGNMENT
. Tenant acknowledges and consents to the assignment of the Lease by Mortgagor in favor of Lender.
|
(3)
|
ESTOPPEL
. Tenant acknowledges and represents that:
|
1.
|
Entire Agreement
. The Lease constitutes the entire agreement between Mortgagor and Tenant with respect to the Property and Tenant claims no rights with respect to the Property other than as set forth in the Lease;
|
2.
|
No Prepaid Rent
. No deposits or prepayments of rent have been made in connection with the Lease, except as follows (if none, state "None"):
;
|
3.
|
No Default
. To Tenant's actual knowledge, as of the date hereof: (i) there exists no breach, default, or event or condition which, with the giving of notice or the passage of time or both, would constitute a breach or default under the Lease; and (ii) there are no existing claims, defenses or offsets against rental due or to become due under the Lease;
|
4.
|
Lease Effective
. The Lease has been duly executed and delivered by Tenant and, subject to the terms and conditions thereof, the Lease is in full force and effect, the obligations of Tenant thereunder are valid and binding and there have been no amendments, modifications or additions to the Lease, written or oral; and
|
5.
|
No Broker Liens
. Neither Tenant nor Mortgagor has incurred any fee or commission with any real estate broker which would give rise to any lien right under state or local law, except as follows (if none, state "None"):
.
|
(4)
|
ADDITIONAL AGREEMENTS
. Tenant covenants and agrees that, during all such times as Lender is the Beneficiary under the Security Instrument:
|
1.
|
Modification, Termination and Cancellation
. Any modification, amendment, termination or cancellation of the Lease (in whole or in part) and any payment to Mortgagor made in consideration thereof without Lender’s prior written consent shall not be binding on Lender and shall be deemed null and void; provided, however, that if the Lease is terminated without Lender’s prior written consent (except pursuant to the provisions of Paragraph 2.3(b) thereof
)
, the Lease shall be reinstated regardless of the timing of any foreclosure or other enforcement action under the Security Instrument. Tenant hereby agrees that, from and after the date hereof, in the event of any act or omission by the Landlord under the Lease which would give Tenant the right, either immediately or after the lapse of a period of time, to terminate the Lease, or to claim a partial or total eviction, Tenant will not exercise any such right until it has given Lender the opportunity to cure any such act or omission of Landlord in accordance with Section 4(2) below; provided, however, that, the foregoing shall not prevent Tenant from terminating the Lease pursuant to the provisions of Paragraph 2.3(b) of the Lease or within the time periods set forth in such section (without additional allowance for Lender cure periods, provided that Tenant has delivered to Lender concurrent notice of its intent to terminate). Lender’s consent to any modification or amendment of the Lease shall not be unreasonably withheld, conditioned or delayed and shall be deemed given if Lender fails to approve or disapprove the same within 10 business days after receipt of Mortgagor’s written request for approval, together with a draft of the proposed modification or amendment and such other information as shall be necessary for Lender’s review thereof, and provided that Mortgagor’s request for approval contains a prominent statement on the first page notifying Lender of the consequences of Lender’s failure to respond within such 10-business day period. For the avoidance of doubt, the foregoing sentence shall not apply to Lender’s consent to any termination of the Lease;
|
2.
|
Notice of Default
. Tenant will notify Lender in writing concurrently with any notice given to Mortgagor of any default by Mortgagor under the Lease, and Tenant agrees that Lender has the right (but not the obligation) to cure any breach or default specified in such notice within the time periods set forth below and Tenant will not declare a default of the Lease, as to Lender, if Lender cures such default within fifteen (15) days from and after the expiration of the time period provided in the Lease for the cure thereof by Mortgagor;
provided
,
however
, that if such default cannot with diligence be cured by Lender within such fifteen (15) day period, the commencement of action by Lender within such fifteen (15) day period to remedy the same followed by diligent pursuit of such action shall be deemed sufficient so long as Lender pursues such cure with diligence; provided, that such cure period shall not exceed one hundred eighty (180) days.
|
3.
|
No Advance Rents
. No advance payments or prepayments of rent more than one (1) month in advance of the time when the same become due under the Lease shall be binding on Lender unless such rent is actually received by Lender.
|
4.
|
Assignment of Rents
. Upon receipt by Tenant of written notice from Lender that Lender has elected to terminate the license granted to Mortgagor to collect rents, as provided in the Security Instrument, and directing the payment of rents by Tenant to Lender, Tenant shall comply with such direction to pay and shall not be required to determine whether Mortgagor is in default under the Loan and/or the Security Instrument, and Mortgagor agrees that any amount so paid by Tenant shall automatically be credited towards Tenant’s obligations under the Lease.
|
(5)
|
ATTORNMENT
. In the event of a foreclosure under the Security Instrument, Tenant agrees for the benefit of Lender (including for this purpose any transferee of Lender or any transferee of Mortgagor's title in and to the Property by Lender's exercise of the remedy of sale by foreclosure under the Security Instrument) as follows:
|
1.
|
Payment of Rent
. Tenant shall pay to Lender all rental payments required to be made by Tenant pursuant to the terms of the Lease for the duration of the term of the Lease;
|
2.
|
Continuation of Performance
. Tenant shall be bound to Lender in accordance with all of the provisions of the Lease for the balance of the term thereof, and Tenant hereby attorns to Lender as its landlord, such attornment to be effective and self-operative without the execution of any further instrument immediately upon Lender succeeding to Mortgagor's interest in the Lease and giving written notice thereof to Tenant;
|
3.
|
No Offset
. Lender shall not be liable for, nor subject to, any offsets or defenses which Tenant may have by reason of any act or omission of Mortgagor under the Lease, nor for the return of any sums which Tenant may have paid to Mortgagor under the Lease as and for security deposits, advance rentals or otherwise, except to the extent that such sums are actually delivered by Mortgagor to Lender; provided, however, that Lender or any such transferee shall be required to cure any continuing non-monetary defaults under the Lease; and
|
4.
|
Subsequent Transfer
. If Lender, by succeeding to the interest of Mortgagor under the Lease, should become obligated to perform the covenants of Mortgagor thereunder, then, upon any further transfer of Mortgagor's interest by Lender, all of such obligations shall terminate as to Lender.
|
(6)
|
NON-DISTURBANCE
. In the event of a foreclosure under the Security Instrument, so long as there shall then exist no breach, default, or event of default on the part of Tenant under the Lease, Lender agrees for itself and its successors and assigns that the leasehold interest of Tenant under the Lease shall not be extinguished or terminated by reason of such foreclosure, but rather the Lease shall continue in full force and effect and Lender shall recognize and accept Tenant as tenant under the Lease subject to the terms and provisions of the Lease except as modified by this Agreement
|
(7)
|
MISCELLANEOUS.
|
1.
|
Remedies Cumulative
. All rights of Lender herein to collect rents
on behalf of Mortgagor under the Lease are cumulative and shall be in addition to any and all other rights and remedies provided by law and by other agreements between Lender and Mortgagor or others.
|
2.
|
NOTICES
. All notices, demands, or other communications under this Agreement and the other Loan Documents shall be in writing and shall be delivered to the appropriate party at the address set forth below (subject to change from time to time by written notice to all other parties to this Agreement). All notices, demands or other communications shall be considered as properly given if delivered personally or sent by first class United States Postal Service mail, postage prepaid, or by Overnight Express Mail or by overnight commercial courier service, charges prepaid,
|
Mortgagor:
|
OWNER NAME
STREE ADDRESS
CITY, STATE ZIP
Attention:
CONTACT NAME
|
Tenant:
|
TENANT NAME
TENANT ADDRESS 1
TENANT ADDRESS 2
TENANT CITY, STATE ZIP
Attention:
TENANT CONTACT
|
Lender:
|
Wells Fargo Bank, National Association
CRE – San Francisco Gold ([Redacted])
420 Montgomery Street, 6
th
Floor
San Francisco, CA 94104
Attention: Ivane Tat
Loan #: [Redacted]
|
With a copy to:
|
Wells Fargo Bank, National Association
WLS Minneapolis Loan Center
608 2
nd
Avenue South, 11
th
Floor
Minneapolis, MN 55402
Attention: Jessica Bistodeau
|
3.
|
Heirs, Successors and Assigns
. Except as otherwise expressly provided under the terms and conditions herein, the terms of
this Agreement
shall bind and inure to the benefit of the heirs, executors, administrators, nominees, successors and assigns of the parties hereto.
|
4.
|
Headings
. All article, section or other headings appearing in this Agreement are for convenience of reference only and shall be disregarded in construing this Agreement.
|
5.
|
Counterparts
. To facilitate execution, this document may be executed in as many counterparts as may be convenient or required. It shall not be necessary that the signature of, or on behalf of, each party, or that the signature of all persons required to bind any party, appear on each counterpart. All counterparts shall collectively constitute a single document. It shall not be necessary in making proof of this document to produce or account for more than a single counterpart containing the respective signatures of, or on behalf of, each of the parties hereto. Any signature page to any counterpart may be detached from such counterpart without impairing the legal effect of the signatures thereon and thereafter attached to another counterpart identical thereto except having attached to it additional signature pages.
|
6.
|
Exhibits, Schedules and Riders
. All exhibits, schedules, riders and other items attached hereto are incorporated into this Agreement by such attachment for all purposes.
|
|
|
Useful Life
|
|
|
|
HVAC Equipment per ASHRAE standards
|
|
|
1. Split systems
|
|
15 years
|
2. Air Handlers
|
|
25 years
|
3. Heat Pumps
|
|
18 years
|
4. Roof Top Air Conditioners
|
|
15 years
|
5. Boilers
|
|
25 years
|
6. Furnaces, Burners
|
|
18 years
|
7. Ductwork
|
|
30 years
|
8. Dampers
|
|
20 years
|
9. Fans
|
|
20 years
|
10. Coils
|
|
18 years
|
11. Heat Exchangers
|
|
20 years
|
12. Compressors
|
|
15 years
|
13. Cooling Towers
|
|
28 years
|
14. Energy management system
|
|
15 years
|
Single Ply roof overlay 45 mil
|
|
15 years
|
Parking lot seal coat/repairs
|
|
4 years
|
Exterior paint
|
|
6 years
|
Landscaping
|
|
20 years
|
Signage
|
|
20 years
|
Carpeting
|
|
8 years
|
Restrooms
|
|
20 years
|
Lobby redo
|
|
20 years
|
Building structure
|
|
39 years
|
Name of Subsidiary
|
|
Jurisdiction of Incorporation
|
|
|
|
Palo Alto Networks (Australia) Pty Ltd
|
|
Australia
|
Palo Alto Networks (Brasil) Ltda.
|
|
Brazil
|
Palo Alto Networks (Canada) Inc.
|
|
Canada
|
Palo Alto Networks (Germany) GmbH
|
|
Germany
|
Palo Alto Networks (Malaysia), LLC
|
|
Delaware
|
Palo Alto Networks (Mexico) S. de R.L. de C.V.
|
|
Mexico
|
Palo Alto Networks (Netherlands) B.V.
|
|
Netherlands
|
Palo Alto Networks (Norway) AS
|
|
Norway
|
Palo Alto Networks (Singapore) PTE. LTD.
|
|
Singapore
|
Palo Alto Networks (UK) Limited
|
|
United Kingdom
|
Palo Alto Networks Belgium B.V.B.A.
|
|
Belgium
|
Palo Alto Networks FZ LLC
|
|
United Arab Emirates
|
Palo Alto Networks Godo Kaisha
|
|
Japan
|
Palo Alto Networks International, Inc.
|
|
Delaware
|
Palo Alto Networks Korea, Ltd.
|
|
South Korea
|
Palo Alto Networks, L.L.C.
|
|
Delaware
|
PAN C.V.
|
|
Netherlands
|
PAN LLC
|
|
Delaware
|
Cyvera Ltd., d/b/a Palo Alto Networks (Israel) Ltd.
|
|
Israel
|
Palo Alto Networks (Israel Services) Ltd.
|
|
Israel
|
Cyvera, Inc.
|
|
Delaware
|
Morta Security, Inc.
|
|
Delaware
|
Palo Alto Networks (India) Private Limited
|
|
India
|
Palo Alto Networks Holding B.V.
|
|
Netherlands
|
Palo Alto Networks (Singapore) Holding Company Pte. Ltd.
|
|
Singapore
|
Palo Alto Networks (Italy) S.R.L
|
|
Italy
|
PAN II LLC
|
|
Delaware
|
Palo Alto Networks C.V.
|
|
Netherlands
|
Palo Alto Networks (Switzerland) GmbH
|
|
Switzerland
|
Palo Alto Networks (Iberia), S.L.
|
|
Spain
|
Palo Alto Networks (RUS) LLC
|
|
Russia
|
CirroSecure, Inc.
|
|
Delaware
|
/s/ M
ARK
D. M
C
L
AUGHLIN
|
Mark D. McLaughlin
|
President, Chief Executive Officer and Director
|
/s/ S
TEFFAN
C. T
OMLINSON
|
Steffan C. Tomlinson
|
Chief Financial Officer
|
/s/ M
ARK
D. M
C
L
AUGHLIN
|
Mark D. McLaughlin
|
President, Chief Executive Officer and Director
|
/s/ S
TEFFAN
C. T
OMLINSON
|
Steffan C. Tomlinson
|
Chief Financial Officer
|