INPHI Corp (Form: 10-K, Received: 03/02/2020 16:14:16)

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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

(Mark One)
☑	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
Or
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-34942

Inphi Corporation

(Exact Name of Registrant as Specified in Its Charter)

Delaware		77-0557980
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

2953 Bunker Hill Lane, Suite 300, Santa Clara, California 95054

(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: (408) 217-7300

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

Title of Class	Trading Symbol(s)	Name of Exchange on Which Registered

Common Stock, $0.001 par value	IPHI	The New York Stock Exchange

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

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

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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Table of Contents

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

Large accelerated filer ☑

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of June 30, 2019, the aggregate market value of the Registrant’s common stock held by non-affiliates of the Registrant was approximately $2.2 billion, based on the closing price of $50.10 per share of common stock as reported on the New York Stock Exchange for June 28, 2019.

The total number of shares outstanding of the Registrant’s common stock, $0.001 par value per share, as of February 26, 2020 was 46,077,975.

DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates by reference certain information from the registrant’s definitive proxy statement for the 2020 Annual Meeting of Stockholders to be filed no later than 120 days after the conclusion of the registrant’s fiscal year ended December 31, 2019.

Table of Contents

INPHI CORPORATION

ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED December 31, 2019

TABLE OF CONTENTS

		Page

PART I
Item 1.	Business		1
Item 1A.	Risk Factors		7
Item 1B.	Unresolved Staff Comments		25
Item 2.	Properties		25
Item 3.	Legal Proceedings		25
Item 4.	Mine Safety Disclosures		25

PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		26
Item 6.	Selected Financial Data		28
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		30
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		44
Item 8.	Financial Statements and Supplementary Data		45
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		80
Item 9A.	Controls and Procedures		80
Item 9B.	Other Information		80

PART III
Item 10.	Directors, Executive Officers and Corporate Governance		80
Item 11.	Executive Compensation		81
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		81
Item 13.	Certain Relationships and Related Transactions, and Director Independence		81
Item 14.	Principal Accountant Fees and Services		81

PART IV
Item 15.	Exhibits, Financial Statement Schedules		81
Item 16.	Form 10-K Summary		87

Table of Contents

PART I

Item 1.

Business

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this report, the terms “may,” “might,” “will,” “objective,” “intend,” “should,” “could,” “can,” “would,” “expect,” “believe,” “estimate,” “predict,” “potential,” “plan,” “anticipate,” “seek,” “future,” “strategy,” “likely,” or the negative of these terms, and similar expressions are intended to identify forward-looking statements. These statements include statements regarding our anticipated trends and challenges in our business and the markets in which we operate, including the market for 25G to 600G high-speed analog semiconductor solutions, our competitive position, demand for our current products, our plans for future products and anticipated features and benefits thereof, expansion of our product offerings and business activities, our plans to expand international operations, enhancements of existing products, the benefits of outsourcing, our ability to forecast demand and its effects, the impact of U.S. government export restrictions on Huawei, our acquisitions and investments in other companies or technologies, including our acquisition of eSilicon Corporation and the anticipated benefits thereof, critical accounting policies and estimates, our expectations regarding our expenses and revenue, sources of revenue, our effective tax rate and tax benefits, the benefits of our products and services, our technological capabilities and expertise, our liquidity position and sufficiency thereof, including our anticipated cash needs and uses of cash, our ability to generate cash, our operating and capital expenditures and requirements and our needs for additional financing and potential consequences thereof, repatriation of cash balances from our foreign subsidiaries, our contractual obligations, our anticipated growth and growth strategies, including growing our end customer base, interest rate sensitivity, adequacy of our disclosure controls, and our legal proceedings and warranty claims. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these or any other forward-looking statements. These risks and uncertainties include, but are not limited to, those risks discussed below, as well as factors affecting our results of operations, our ability to manage our growth, our ability to sustain or increase profitability, demand for our solutions, the effect of changes in average selling prices for our products, our ability to compete, our ability to rapidly develop new technology and introduce new products, our ability to safeguard our intellectual property, our ability to qualify for tax holidays and incentives, trends in the semiconductor industry and fluctuations in general economic conditions, and the risks set forth throughout this report, including the risks set forth under Part I, “Item 1A, Risk Factors.” Readers are cautioned not to place undue reliance on these forward-looking statements, which are based on current expectations and reflect management's opinions only as of the date hereof. These forward-looking statements speak only as of the date of this Report. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based.

All references to “Inphi,” “we,” “us” or “our” mean Inphi Corporation.

Inphi®, iKON™, InphiNityCore™, Canopus™, ColorZ®, ColorZ-Lite™, iMB™, OmniConnect™, Polaris™, Tri-rate®, Vega™, M200 LightSpeed-III™, Porrima™ and the Inphi logo are among the trademarks, registered trademarks, or service marks owned by Inphi.

Overview

Our Company

In January 2020, we completed the acquisition of eSilicon Corporation (eSilicon) for approximately $215.0 million in cash, subject to certain adjustments including cash, debt and transaction expenses. A portion of the consideration has been placed in an escrow fund for up to 12 months (or up to 36 months in certain circumstances) following the closing for the satisfaction of certain indemnification obligations. We acquired eSilicon to accelerate our roadmap in developing electro-optics solutions for cloud and telecommunications customers.

We leverage our proprietary high-speed analog and mixed signal processing expertise and our deep understanding of system architectures to address data bottlenecks in current and emerging communications, enterprise network, computing and storage architectures. We develop these solutions as a result of our competitive strengths, including our system-level simulation capabilities, analog design expertise, strong relationships with industry leaders, extensive broad process technology experience and high-speed package modeling and design expertise. We use our core technology and strength in high-speed analog design to enable our customers to deploy next generation communications systems that operate with high performance at high-speed. We believe we are at the forefront of developing semiconductor solutions that deliver up to multi-Terabit speeds throughout the network infrastructure, including core, metro and the cloud.

We have ongoing, informal collaborative discussions with industry and technology leaders in Tier-1 cloud providers, telecom operators, network system original equipment manufacturers (OEMs) and optical module and component vendors to design architectures and products that solve bandwidth bottlenecks in existing and next generation communications systems. Although we generally do not have any formal collaboration agreements with these entities, we often engage in informal discussions with these entities with respect to anticipated technological challenges, next generation customer requirements and industry conventions and standards. We help define industry conventions and standards within the markets we target by collaborating with technology leaders, OEMs systems manufacturers and standards bodies. Our products are designed into systems sold by OEMs, including Tier-1 OEMs in the telecom and networking system markets worldwide. We believe we are one of a limited number of suppliers to these OEMs for the type of products we sell, and in some cases we may be the sole supplier for certain applications. We sell both directly to these OEMs and to other intermediary systems or module manufacturers that, in turn, sell to these OEMs.

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Our Business

Our semiconductor solutions leverage our deep understanding of high-speed analog and mixed signal processing and our system architecture knowledge to address data bottlenecks in current and emerging network and cloud architectures. We design and develop our products for the communications and computing markets, which typically have two to three year design cycles, and product life cycles of five or more years. We believe our leadership position in developing high-speed analog and mixed signal semiconductors is a result of the following core strengths:

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System-Level Simulation Capabilities. We design our high-speed analog and mixed signal semiconductor solutions to be critical components in complex systems. In order to understand and solve system problems, we work closely with systems vendors to develop proprietary component, channel and system simulation models. We use these proprietary simulation and validation tools to accurately predict system performance prior to fabricating the semiconductor or alternatively, to identify and optimize critical semiconductor parameters to satisfy customer system requirements. We use these simulation and validation capabilities to reduce our customers’ time to market and engineering investments, thus enabling us to establish differentiated design relationships with our customers.

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Analog Design Expertise. We believe that we are a leader in developing broadband analog and mixed signal semiconductors operating at high frequencies of up to 100 GHz. High-speed analog circuit design is extremely challenging because, as frequencies increase, semiconductors are increasingly sensitive to temperature, power supply noise, process variation and interaction with neighboring circuit elements. Development of components that work robustly at high frequencies requires an understanding of analog circuit design, including electromagnetic theory and practical experience in implementation and testing. Our analog design expertise has enabled us to design and commercially ship several first in the world technologies including the first 100G linear transimpedance amplifier (TIA) and the first 400G linear modulator driver that is now being widely deployed in volume globally in telecommunications networking infrastructures. We launched the world’s first 50/100/200/400G 4-level Pulse Amplitude Modulation (PAM4) interconnect ICs for cloud interconnects. The chipset solution included multiple variants of the PAM4 PHY IC based on a highly adaptable and scalable InphiNityCore™ digital signal processing (DSP) engine and the OmniConnect™ transmitter for copper and optics media along with a companion linear TIA for Nx50G PAM4 interfaces.

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Silicon Photonics Design Expertise. We have developed deep expertise in Silicon photonics (Sipho) and successfully commercialized the world first 100G dense wavelength division multiplexing (DWDM) Sipho-based solutions that consumes as little as 4.5W of power versus alternate solutions at 25W. This Sipho-based solution has been deployed in high volume at a Tier-1 cloud vendor and continues to gain market acceptance at Tier-1 OEMs for the enterprise and internet exchange customers.

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DSP Design Expertise. Our DSP algorithm engineers and digital designers are experts on low-power and low-latency DSP designs for equalization, estimation, clock recovery, carrier recovery, forward error correction, and coded modulation enabling the highest performance PAM4 and higher-order-modulation serdes, optical interconnects, and coherent modems. Our low-power and low-latency DSP application-specific integrated circuit provides a critical advantage for small-form factor pluggable modules, on board optics, in package optics or any other highly integrated electrical or electro-optical communication systems for high speed data center interconnect and fiber optic telecom networks.

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Strong Relationships with Industry Leaders. We develop many of our high-speed analog and mixed signal semiconductor solutions for applications and systems that are driven by industry leaders in the communications and cloud markets. Through our established relationships with industry leaders, we have repeatedly demonstrated the ability to address their technological challenges. As a result, we are designed into several of their current systems and believe we are well-positioned to develop high-speed analog and mixed signal semiconductor solutions for their emerging architectures. We have ongoing, informal collaborative discussions with communication, networking companies, and cloud companies in Tier-1 cloud providers, telecom operators, network system OEMs and optical module and component vendors to address their next generation 100G and beyond 100G efforts. Specifically, we engage in informal discussions with these entities with respect to anticipated technological challenges, next generation customer requirements and industry conventions and standards. As a result of our development efforts with industry leaders, we help define industry conventions and standards within the markets we target by collaborating with technology leaders, OEMs and systems manufacturers, as well as standards bodies such as the Institute of Electrical and Electronic Engineers (IEEE) and the Optical Internetworking Forum (OIF) to establish industry standards.

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Broad Process Technology. We employ process technology experts, device technologists and circuit designers who have extensive experience in many process technologies including CMOS, SiGe, Silicon photonics (Sipho) and III-V technologies such as gallium arsenides or indium phosphide. We have developed specific internal models and design kits for each process to support a uniform design methodology across all of our semiconductor solutions. For example, our products using 16 nanometer CMOS technology require development of accurate models for sub-circuits such as integrated phase lock loops, varactors and inductors. In addition, for Sipho and III-V materials-based processes, in-house model development is a necessity and we believe also provides a substantial competitive advantage because these processes have complex material and device interactions. Combined with our fabless manufacturing strategy, our design expertise, proprietary model libraries and uniform design methodology allow us to use the best possible materials and substrates to design and develop our semiconductor solutions. We believe that our ability to design high-speed analog and mixed signal semiconductors in a wide range of materials and process technologies allows us to provide superior performance, power, cost and reliability for a specific set of market requirements.

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High-Speed Package Modeling and Design. We have developed deep expertise in high-speed package modeling and design, since introducing the first high-speed 50 GHz MUX and DEMUX product in 2001. At high frequencies, the interaction between an analog device, its package and the external environment can significantly affect product performance. Accurately modeling and developing advanced packaging allows semiconductor solutions to address this challenge. Due to the advanced nature of this work, there is a limited supply of engineers with experience in high-speed package modeling and design, and therefore, this required expertise can be difficult to acquire for companies that have not invested in developing such a skill set. We have developed an infrastructure to simulate electrical, mechanical and thermal properties of devices and packages that we integrate within our semiconductor design process and implement at our third-party packaging providers. Modeling is an inherently iterative process, and since our model libraries are used extensively by our circuit designers, the accuracy and value of these models increases over time. Our current packaging and modeling techniques enable us to deliver semiconductors that are energy efficient, offer high-speed processing and enable advanced signal integrity, all in a small footprint.

We believe that our system-level simulation capabilities, our analog design and broad process technology design capabilities as well as our strengths in packaging enable us to differentiate ourselves by delivering advanced high-speed analog and mixed signal processing solutions. For example, we believe we are the first vendor who has successfully commercialized DSP base 100G Ethernet PHYs running PAM4 standard CMOS process.

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We believe the key benefits that our solutions provide to our customers are as follows:

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High Performance. Our high-speed analog and mixed signal semiconductor solutions are designed to meet the specific technical requirements of our customers in their respective end markets. In many cases, our close design relationships and deep engineering expertise put us in a position where we are one of a limited group of semiconductor vendors that can provide the necessary solution. For instance, in the broadband communications market, we believe our products achieve the highest signal integrity and attain superior signal transmission distance at required error-free or low error rates.

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Low Power and Small Footprint. In each of the end markets that we serve, the power budget of the overall system is a key consideration for systems designers. Power consumption greatly impacts system operation cost, footprint and cooling requirements, and is increasingly becoming a point of focus for our customers. We believe that our high-speed analog and mixed signal processing solutions enable our customers to implement system architectures that reduce overall system power consumption. We also believe that, at high frequencies, our high-speed analog and mixed signal semiconductor devices typically consume less power than competitors’ standard designs, which often incorporate power-consuming digital signal processing to perform data transfer functions, thereby further reducing overall system power consumption. In addition, in many of our applications, we are able to design and deliver semiconductors that have a smaller footprint and therefore reduce the overall system size.

•

Faster Time to Market. Our customers compete in markets that require high-speed, reliable semiconductors that can be integrated into their systems as soon as new market opportunities develop. To meet our customers’ time-to-market requirements, we work closely with them early in their design cycles and are actively involved in their development processes. Over the past ten years, we have developed methodologies and simulation environments that accurately predict the behavior of complex integrated circuits within various communications systems. In addition, we have developed an extensive internal library of proven building block circuits such as amplifiers, phase frequency detectors and transmitters that are reused to shorten design cycles and reduce risk.

Products

Our leading edge, high-speed, mixed signal semiconductor solutions equate to the planes, trains and trucks used by physical delivery services to quickly and reliably speed information from place to place.

Our telecommunication solutions are our planes, working across distances of 100s to 1000s kilometers. Products include our coherent transimpedance amplifiers, drivers and DSPs which set the gold standard for leading edge performance, quality, and reliability. Our data center edge interconnect solutions are our trains, delivering a large amount of packages, across 80 km distances. Our ColorZ® is the industry's first 100G DWDM solution in QSFP28 form factor, utilizing advanced silicon photonics and PAM4 modulation, to deliver up to 4Tb/s of bandwidth over a single fiber. Our inside data center interconnects are our trucks, working across hundreds of meters up to kilometers. Our PAM interconnects along with accompanying TIAs and drivers deliver low power, cost effective solutions for cloud and enterprise customers.

As of December 31, 2019, we have a wide range of products in our portfolio, including products that have commercially shipped, products for which we have shipped engineering samples and products under development, that perform a wide range of functions such as amplifying, encoding, multiplexing, demultiplexing, and retiming signals at speeds up to 400 Gbps. These products are key enablers for servers, routers, switches, storage and other equipment that process, store and transport data traffic. We introduced 22 and 45 new products in 2019 and 2018, respectively. We design and develop our products for the communications and computing markets, which typically have two to three year design cycles, and product life cycles as long as five years or more.

We introduced ColorZ® in 2016 and began to ship in commercial volume in 2017. Sales of ColorZ® comprised 15%, 18% and 17% of our total revenue in 2019, 2018 and 2017, respectively. In 2012, we introduced and began to ship in commercial volume a dual, differential input linear transimpedance/variable-gain amplifier that we identify as product number IN3250TA-SO2D. Sales of IN3250TA-SO2D product comprised 10% of our total revenue in 2017. There were no other products that generated more than 10% of our total revenue in 2019, 2018 or 2017.

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Customers

We sell our products directly to OEMs and indirectly to OEMs through module manufacturers, original design manufacturers (ODMs) and sub-systems providers. We work closely with technology leaders to design architectures and products that help solve bandwidth bottlenecks in and between systems. These technology leaders often design our products into reference designs, which they provide to their customers and suppliers. In the networking market, we work closely with OEMs to deliver high performance communication links. These OEMs design our products into their systems and then require their ODM and electronics manufacturing services suppliers to purchase and use that specific product from us. We also work directly with optical module manufacturers to design our products into their modules, which they sell to OEMs.

We work closely with our customers throughout design cycles that often last two to three years and we are able to develop long-term relationships with them as our technology becomes embedded in their products. As a result, we believe we are well-positioned to not only be designed into their current systems, but also to continually develop next generation high-speed analog and mixed signal semiconductor solutions for their future products. During the year ended December 31, 2019, we sold our products to approximately 100 customers.

Sales to customers in Asia accounted for 64%, 57% and 62% of our total revenue in 2019, 2018 and 2017, respectively. Because many of our customers or their OEM manufacturers are located in Asia, we anticipate that a majority of our future revenue will continue to come from sales to that region. Although a large percentage of our sales are made to customers in Asia, we believe that a significant number of the systems designed by these customers and incorporating our semiconductor products are then sold to end-users outside Asia.

We currently rely, and expect to continue to rely, on a limited number of customers for a significant portion of our revenue. In the year ended December 31, 2019, we believe that sales to Microsoft Corporation (Microsoft) and Huawei Technologies Co., Ltd. (Huawei), directly and indirectly, through subcontractors, accounted for approximately 14% and 11% of our total revenue, respectively, and that our 10 largest direct customers collectively accounted for approximately 70% of our total revenue. We sell products to Fabrinet Co., Ltd. (Fabrinet), a subcontractor who sells to various end customers. Included in the 10 largest direct customers are sales to Fabrinet, which accounted for approximately 11% of our total revenue for the year ended December 31, 2019. We believe, in the aggregate, sales to Cisco Systems, Inc. (Cisco), including its subcontractors was significant but less than 10% of our total revenue for the year ended December 31, 2019. In the year ended December 31, 2018, we believe that sales to Microsoft, Huawei, and Cisco, directly and indirectly, through subcontractors, accounted for approximately 18%, 14% and 11% of our total revenue, respectively, and that our 10 largest direct customers collectively accounted for approximately 74% of our total revenue. We sell products to Cyberlink Electronics Limited (Cyberlink), a distributor who sells to various end customers. Included in the 10 largest direct customers are sales to Cyberlink which accounted for approximately 11% of our total revenue for the year ended December 31, 2018. In the year ended December 31, 2017, we believe that sales to Microsoft, Huawei, and Cisco, directly and indirectly, through subcontractors, accounted for approximately 17%, 14%, and 11% of our total revenue, respectively and that our 10 largest direct customers collectively accounted for approximately 70% of our total revenue. No other single customer directly or indirectly accounted for more than 10% of our total revenue in 2019, 2018 or 2017.

Sales and Marketing

Our design cycle from initial engagement to volume shipment is typically two to three years, with product life cycles in the markets we serve ranging from five to 10 years or more. For many of our products, early engagement with our customers’ technical staff is necessary for success. To ensure an adequate level of early engagement, our application and development engineers work closely with our customers to identify and propose solutions to their systems challenges.

In addition to our direct customers, we work closely with technology leaders in Tier-1 cloud providers, telecom operators, network system OEMs and optical module and component vendors for the cloud, networking and communications market to anticipate and solve next generation challenges facing our customers. As part of the sales and product development process, we often design our products in close collaboration with these industry leaders and help define their architecture. We also participate actively in setting industry standards with organizations such as IEEE and OIF to have a voice in the definition of future market trends.

We sell our products worldwide through multiple channels, including our direct sales force and a network of sales representatives and distributors. For the year ended December 31, 2019, we derived 87% of our total revenue from sales by our direct sales team and third-party sales representatives and 13% of our sales were made through third-party distributors. We operate marketing representative offices in China, Japan, Taiwan, Germany, and the United States and employ marketing personnel that meet with our customers locally and interact with our channel partners locally. Our channel network includes more than one hundred sales and support professionals to support our products and customers. All of these sales professionals are sales agents and are employed by our distributors and sales representatives. We believe these distributors and sales representatives have the requisite technical experience in our target markets and are able to leverage existing relationships and understanding of our customers’ products to effectively sell our products. Given the breadth of our target markets, customers and products, we provide our direct and indirect sales teams with regular training and share product information with our customers and sales teams using web-based tools.

Manufacturing

We operate a fabless business model and use third-party foundries and assembly and test manufacturing contractors to manufacture, assemble and test our semiconductor products. We also inspect and test certain parts in our Irvine and Westlake Village, California facilities. This outsourced manufacturing approach allows us to focus our resources on the design, sale and marketing of our products. In addition, we believe outsourcing many of our manufacturing and assembly activities provides us the flexibility needed to respond to new market opportunities, simplifies our operations and significantly reduces our capital requirements.

We subject our third-party manufacturing contractors to qualification requirements in order to meet the high quality and reliability standards required of our products. We carefully qualify critical partners and processes before applying the technology to our products. Our engineers work closely with our foundries and other contractors to increase yield, lower manufacturing costs and improve product quality.

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Wafer Fabrication. We currently utilize a wide range of semiconductor processes to develop and manufacture our products. Each of our foundries tends to specialize in a particular semiconductor wafer process technology. We choose the semiconductor process and foundry that we believe provides the best combination of performance attributes for any particular product. For most of our products, we utilize a single foundry for semiconductor wafer production. Our international headquarters in Singapore purchases all wafer material and owns the material until the manufacturing process is complete and the product is shipped to a customer either inside or outside North America or to physical inventory locations for the respective region. Our principal foundries are Taiwan Semiconductor Manufacturing Company Ltd. (TSMC) in Taiwan, WIN Semiconductors Corp. (WIN Semiconductors) in Taiwan, TowerJazz Semiconductor Ltd. (TowerJazz) in North America and GlobalFoundries in North America.

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Package and Assembly. Upon the completion of processing at the foundry, the finished wafers are shipped to our third-party assemblers for packaging and assembly. Currently, our principal packaging and assembly contractors are STATS ChipPAC Ltd. (STATS ChipPAC) in Korea, Kyocera Corporation (Kyocera) in Japan, Tong Hsing Electronics Industries Ltd. (Tong Hsing) in Taiwan, Amkor Technology in Korea, LuxNet Corporation (LuxNet) in Taiwan and ASE Technology (ASE) in Taiwan and Malaysia.

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Test. At the last stage of integrated circuit production, our third-party test service providers test the packaged and assembled integrated circuits. Currently, STATS ChipPAC in Korea, ISE Labs, Inc. (ISE Labs) in North America, Giga Solution Tech Co., Ltd. (Giga Solution) in Taiwan, WIN Semiconductors in Taiwan, ASEM Technology in Malaysia and Presto Engineering in North America are our test partners. We also perform testing in our Irvine and Westlake Village, California facilities.

We are committed to maintaining the highest level of quality in our products. Our objective is that our products meet all of our customer requirements, are delivered on-time and function reliably throughout their useful lives. As part of our total quality assurance program, our quality management system has been certified to ISO 9001:2008 standards. Our manufacturing partners are also ISO 9001 certified.

Research and Development

We focus our research and development efforts on developing products that address bandwidth bottlenecks in networks and minimize latency in computing environments. We believe that our continued success depends on our ability to both introduce improved versions of our existing products and to develop new products for the markets that we serve. We devote a portion of our resources to expanding our core technology including efforts in system-level simulation, high-speed analog design, supporting a broad range of process technologies and high-speed package modeling and design.

We develop models that are used as an input to a combination of proprietary and commercially available simulation tools. We use these tools to predict overall system performance based on the performance of our product. After our product is manufactured, we perform system measurements and refine our model set to improve the model’s accuracy and predictive ability. As a result, our models and simulation tools have improved over time and we have been able to accurately predict overall system performance prior to fabricating a part.

We have assembled a core team of experienced engineers and systems designers in eight design centers located in the United States, Canada, Germany, Singapore, United Kingdom and Argentina. Our technical team typically has, on average, more than 21 years of industry experience with more than 50% having advanced degrees (master’s degree and above) and more than 20% having Ph.Ds. These engineers and designers are involved in advancing our core technologies, as well as applying these core technologies to our product development activities across a number of areas including telecommunications transport systems, enterprise networking equipment, data centers and enterprise servers, storage platforms, test and measurement and military systems.

Competition

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

Currently, our competitors range from large, international companies offering a wide range of semiconductor products to smaller companies specializing in narrow markets. Our primary competitors include Acacia Communications, Inc., Broadcom Ltd., Integrated Device Technology, Inc., M/A-COM Technology Solutions Inc., MaxLinear, Inc., NTT Electronics Corporation, Qorvo, Inc. and Semtech Corp. as well as other smaller analog and mixed signal processing companies. We expect competition in our target markets to increase in the future as existing competitors improve or expand their product offerings.

Our ability to compete successfully depends on elements both within and outside of our control, including industry and general economic trends. During past periods of downturns in our industry, competition in the markets in which we operate intensified as our customers reduced their purchase orders. Many of our competitors are significantly larger, have greater financial, technical, marketing, distribution, customer support and other resources, are more established than we are, and have significantly better brand recognition and broader product offerings with which to withstand similar adverse economic or market conditions in the future. These factors may materially and adversely affect our current and future target markets and our ability to compete successfully in those markets.

We compete or plan to compete in different target markets to various degrees on the basis of a number of principal competitive factors, including:

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product performance;

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power budget;

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features and functionality;

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customer relationships;

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size;

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ease of system design;

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product roadmap;

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reputation and reliability;

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customer support; and

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price.

We believe we compete favorably with respect to each of these factors. We maintain our competitive position through our ability to successfully design, develop and market complex high-speed analog and mixed signal solutions for the customers that we serve.

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Intellectual Property

We rely on a combination of intellectual property rights, including patents, trade secrets, copyrights and trademarks, and contractual protections, to protect our core technology and intellectual property. As of December 31, 2019, we had 893 issued and allowed patents and other patent applications pending in the United States. The 780 issued and allowed patents in the United States expire in the years beginning in 2020 through 2038. Many of our issued patents and pending patent applications relate to high-speed circuit and package designs.

We may not receive competitive advantages from any rights granted under our patents, and our patent applications may not result in the issuance of any patents. In addition, any future patent may be opposed, contested, circumvented, designed around by a third party or found to be unenforceable or invalidated. Others may develop technologies that are similar or superior to our proprietary technologies, duplicate our proprietary technologies or design around patents owned or licensed by us.

In addition to our own intellectual property, we also use third-party licensors for certain technologies embedded in our semiconductor solutions. These are typically non-exclusive contracts provided under paid-up licenses. These licenses are generally perpetual or automatically renewed for so long as we continue to pay any maintenance fees that may be due. To date, maintenance fees have not constituted a significant portion of our annual capital expenditures. We have entered into a number of licensing arrangements pursuant to which we license third-party technologies. We do not believe our business is dependent to any significant degree on any individual third-party license.

We generally control access to and use of our confidential information through the use of internal and external controls, including contractual protections with employees, contractors and customers. We rely in part on United States and international copyright laws to protect our mask work. All employees and consultants are required to execute confidentiality agreements in connection with their employment and consulting relationships with us. We also require them to agree to disclose and assign to us all inventions conceived or made in connection with the employment or consulting relationship.

Despite our efforts to protect our intellectual property, unauthorized parties may still copy or otherwise obtain and use our software, technology or other information that we regard as proprietary intellectual property. In addition, we intend to expand our international operations, and effective patent, copyright, trademark and trade secret protection may not be available or may be limited in foreign countries.

The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights and positions, which has resulted in protracted and expensive litigation for many companies. We have in the past received and, particularly as a public company, we expect that in the future we may receive, communications from various industry participants alleging our infringement of their patents, trade secrets or other intellectual property rights. Any lawsuits could subject us to significant liability for damages, invalidate our proprietary rights and harm our business and our ability to compete. Any litigation, regardless of success or merit, could cause us to incur substantial expenses, reduce our sales and divert the efforts of our technical and management personnel. In the event we receive an adverse result in any litigation, we could be required to pay substantial damages, seek licenses from third parties, which may not be available on reasonable terms or at all, cease sale of products, expend significant resources to develop alternative technology or discontinue the use of processes requiring the relevant technology.

Cybersecurity

We have designed and implemented and continue to maintain a security program consisting of policies, procedures, and technology meant to maintain the privacy, security and integrity of our information, systems, and networks. Among other things, the program includes controls designed to limit and monitor access to authorized systems, networks, and data, prevent inappropriate access or modification, and monitor for threats or vulnerability.

Employees

At December 31, 2019, we employed 685 full-time equivalent employees, including 451 in research, product development and engineering, 61 in sales and marketing, 64 in general and administrative management and 109 in manufacturing engineering and operations. We consider relations with our employees to be good and have never experienced a work stoppage. None of our employees are either represented by a labor union or subject to a collective bargaining agreement, except for certain employees in Argentina.

Other

We were incorporated in Delaware in November 2000 as TCom Communications, Inc. and changed our name to Inphi Corporation in February 2001. Our principal executive offices are located at 2953 Bunker Hill Lane, Suite 300, Santa Clara, California 95054. Our telephone number at that location is (408) 217-7300. Our website address is www.inphi.com. Information on our website is not part of this report and should not be relied upon in determining whether to make an investment decision. The inclusion of our website address in this report does not include or incorporate by reference into this report any information on our website.

We electronically file our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act) with the Securities and Exchange Commission (SEC). The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is http://www.sec.gov. You may obtain a free copy of our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports with the SEC on our website.

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Item 1A.

Risk Factors

Risks Related to Our Business

Our revenue and operating results can fluctuate from period to period, which could cause our share price to fluctuate.

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

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the receipt, reduction or cancellation of orders by customers;

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fluctuations in the levels of component inventories held by our customers;

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the gain or loss of significant customers;

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changes in orders or purchasing patterns from one or more of our major customers;

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market acceptance of our products and our customers’ products;

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our ability to develop, introduce and market new products and technologies on a timely basis;

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the timing and extent of product development costs;

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new product announcements and introductions by us or our competitors;

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incurrence of research and development and related new product expenditures;

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cyclical fluctuations in our markets;

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fluctuations in our manufacturing yields;

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significant warranty claims, including those not covered by our suppliers;

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changes in our product mix or customer mix;

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intellectual property disputes;

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the impact of the business acquisitions and dispositions we make; and

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loss of key personnel or the inability to attract qualified engineers.

As a result of these and other factors, the results of any prior quarterly or annual periods should not be relied upon as indications of our future revenue or operating performance. Fluctuations in our revenue and operating results could cause our share price to decline.

We incurred net losses in the past. We may incur net losses in the future.

As of December 31, 2019, we had an accumulated deficit of $242.8 million. We have incurred net losses in the past and may incur net losses in the future. We generated a net loss of $72.9 million, $95.8 million and $74.9 million for the years ended December 31, 2019, 2018 and 2017, respectively.

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We depend on a limited number of customers for a substantial portion of our revenue, and the loss of, or a significant reduction in sales to, one or more of our major customers could negatively impact our revenue and operating results. In addition, if we offer more favorable prices to attract or retain customers, our average selling prices and gross margins would decline.

In the year ended December 31, 2019, we believe that sales to Microsoft and Huawei, directly and indirectly, through subcontractors, accounted for approximately 14% and 11% of our total revenue, respectively, and that our 10 largest direct customers collectively accounted for approximately 70% of our total revenue. We sell products to Fabrinet, a subcontractor who sells to various end customers. Included in the 10 largest direct customers are sales to Fabrinet, which accounted for approximately 11% of our total revenue for the year ended December 31, 2019. We believe, in the aggregate, sales to Cisco, including its subcontractors was significant but less than 10% of our total revenue for the year ended December 31, 2019. In the year ended December 31, 2018, we believe that sales to Microsoft, Huawei, and Cisco, directly and indirectly, through subcontractors, accounted for approximately 18%, 14% and 11% of our total revenue, respectively, and that our 10 largest direct customers collectively accounted for approximately 74% of our total revenue. We sell products to Cyberlink, a distributor who sells to various end customers. Included in the 10 largest direct customers are sales to Cyberlink which accounted for approximately 11% of our total revenue for the year ended December 31, 2018. In the year ended December 31, 2017, we believe that sales to Microsoft, Huawei, and Cisco, directly and indirectly, through subcontractors, accounted for approximately 17%, 14%, and 11% of our total revenue, respectively and that our 10 largest direct customers collectively accounted for approximately 70% of our total revenue. No other single customer directly or indirectly accounted for more than 10% of our total revenue in 2019, 2018 or 2017. We believe our operating results for the foreseeable future will continue to depend on sales to a relatively small number of customers. In the future, these customers may decide not to purchase our products at all, may purchase fewer products than they did in the past or may alter their purchasing patterns. Further, the amount of revenue attributable to any single customer or our customer concentration generally, may fluctuate in any given period.

In addition, our relationships with some customers may deter other potential customers who compete with these customers from buying our products. To attract new customers or retain existing customers, we may offer these customers favorable prices on our products. In that event, our average selling prices and gross margins would decline. The loss of a key customer, a reduction in sales to any key customer or our inability to attract new significant customers could negatively impact our revenue and materially and adversely affect our results of operations.

In January 2019, the U.S. Department of Justice indicted Huawei, certain of its subsidiaries and its chief financial officer, for theft of trade secrets, financial fraud, obstruction of justice and other charges. In May 2019, the U.S. Department of Commerce added Huawei and certain of its non-U.S. affiliates to the Entity List, imposing U.S. export license requirements for exports or re-exports to listed entities of all items subject to the Export Administration Regulations (EAR). In August 2019, additional Huawei non-U.S. affiliates were added to the Entity List. In conjunction with the initial May 2019 Entity List designation, the U.S. Department of Commerce issued a Temporary General License authorizing specific, limited transactions involving the export, reexport, and transfer of items to Huawei and certain of its affiliates. This Temporary General License was most recently renewed on February 13, 2020. We are currently unable to predict the outcome of this matter and therefore, cannot determine the likelihood of its impact on our business. However, due to the volume of our sales, directly and indirectly, to Huawei, our business, financial condition and results of operations could be materially and adversely affected pending and following the outcome of this matter and/or other related discussions between the governments of China and the United States of America.

We do not have long-term purchase commitments from our customers and if our customers cancel or change their purchase commitments, our revenue and operating results could suffer.

Substantially all of our sales to date have been made on a purchase order basis. We do not have any long-term commitments with any of our customers. As a result, our customers may cancel, change or delay product purchase commitments with little or no notice to us and without penalty. This in turn could cause our revenue to decline and materially and adversely affect our results of operations.

We may face claims of intellectual property infringement, which could be time-consuming, costly to defend or settle and result in the loss of significant rights and which could harm our relationships with our customers and distributors.

The semiconductor industry is characterized by companies that hold patents and other intellectual property rights and that vigorously pursue, protect and enforce intellectual property rights. From time to time, third parties may assert against us and our customers and distributors their patent and other intellectual property rights to technologies that are important to our business.

Claims that our products, processes or technology infringe third-party intellectual property rights, regardless of their merit or resolution, could be costly to defend or settle and could divert the efforts and attention of our management and technical personnel. For example, Netlist, Inc. filed a suit against us in the United States District Court, Central District of California, in September 2009, alleging that our iMB™ and certain other memory module components infringe three of Netlist’s patents. This litigation is ongoing.

Infringement claims also could harm our relationships with our customers or distributors and might deter future customers from doing business with us. We do not know whether we will prevail in these proceedings given the complex technical issues and inherent uncertainties in intellectual property litigation. If any pending or future proceedings result in an adverse outcome, we could be required to:

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

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pay substantial damages for infringement;

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

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

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

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

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

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Winning business is subject to lengthy competitive selection processes that require us to incur significant expenditures prior to generating any revenue or without any guarantee of any revenue related to this business. Even if we begin a product design, a customer may decide to cancel or change its product plans, which could cause us to generate no revenue from a product. If we fail to generate revenue after incurring substantial expenses to develop our products, our business and operating results would suffer.

We are focused on winning more competitive bid processes, known as “design wins,” that enable us to sell our high-speed analog and mixed signal semiconductor solutions for use in our customers’ products. These selection processes typically are lengthy and can require us to incur significant design and development expenditures and dedicate scarce engineering resources in pursuit of a single customer opportunity. We may not win the competitive selection process and may never generate any revenue despite incurring significant design and development expenditures. Failure to obtain a design win could prevent us from offering an entire generation of a product. This could cause us to lose revenue and require us to write-off obsolete inventory, and could weaken our position in future competitive selection processes. Even after securing a design win, we may experience delays in generating revenue from our products as a result of the lengthy development cycle typically required. Our customers generally take a considerable amount of time to evaluate our products. Our design cycle from initial engagement to volume shipment is typically two to three years.

The delays inherent in these lengthy sales cycles increase the risk that a customer will decide to cancel, curtail, reduce or delay its product plans or adopt a competing design from one of our competitors, causing us to lose anticipated revenue. In addition, any delay or cancellation of a customer’s plans could materially and adversely affect our financial results, as we may have incurred significant expense without generating any revenue. Finally, our customers’ failure to successfully market and sell their products could reduce demand for our products and materially and adversely affect our business, financial condition and results of operations. If we were unable to generate revenue after incurring substantial expenses to develop any of our products, our business would suffer.

Our customers require our products and our third-party contractors to undergo a lengthy and expensive qualification process which does not assure product sales. If we are unsuccessful or delayed in qualifying any of our products with a customer, our business and operating results would suffer.

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

The complexity of our products could result in undetected defects and we may be subject to warranty claims and product liability, which could result in a decrease in customers and revenue, unexpected expenses and loss of market share. In addition, our product liability insurance may not adequately cover our costs arising from product defects or otherwise.

Our products are sold as components or as modules for use in larger electronic equipment sold by our customers. A product usually goes through an intense qualification and testing period performed by our customers before being used in production. We primarily outsource our product testing to third parties and also perform some testing in our Irvine and Westlake Village, California facilities. We inspect and test parts, or have them inspected and tested in order to screen out parts that may be weak or potentially suffer a defect incurred through the manufacturing process. From time to time, we are subject to warranty or product liability claims that may require us to make significant expenditures to defend these claims or pay damage awards.

Generally, our agreements seek to limit our liability to the replacement of the part or to the revenue received for the product, but these limitations on liability may not be effective or sufficient in scope in all cases. If a customer’s equipment fails in use, the customer may incur significant monetary damages including an equipment recall or associated replacement expenses, as well as lost revenue. The customer may claim that a defect in our product caused the equipment failure and assert a claim against us to recover monetary damages. The process of identifying a defective or potentially defective product in systems that have been widely distributed may be lengthy and require significant resources. We may test the affected product to determine the root cause of the problem and to determine appropriate solutions. We may find an appropriate solution or a temporary fix while a permanent solution is being determined. If we are unable to determine the root cause, find an appropriate solution or offer a temporary fix, we may delay shipment to customers. As a result, we may incur significant replacement costs, customers may bring contract damage claims and our reputation may be harmed. In certain situations, circumstances might warrant that we consider incurring the costs or expense related to a recall of one of our products in order to avoid the potential claims that may be raised should the customer reasonably rely upon our product only to suffer a failure due to a design or manufacturing process defect. Defects in our products could harm our relationships with our customers and damage our reputation. Customers may be reluctant to buy our products, which could harm our ability to retain existing customers and attract new customers and our financial results. In addition, the cost of defending these claims and satisfying any arbitration award or judicial judgment with respect to these claims could harm our business prospects and financial condition. Although we carry product liability insurance, this insurance may not adequately cover our costs arising from defects in our products or otherwise.

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We rely on our relationships with industry and technology leaders to enhance our product offerings and our inability to continue to develop or maintain such relationships in the future would harm our ability to remain competitive.

We develop many of our semiconductor products for applications in systems that are driven by industry and technology leaders in the communications market. We also work with OEMs, system manufacturers and standards bodies to define industry conventions and standards within our target markets. We believe these relationships enhance our ability to achieve market acceptance and widespread adoption of our products. If we are unable to continue to develop or maintain these relationships, our semiconductor solutions would become less desirable to our customers, our sales would suffer and our competitive position could be harmed.

If we fail to accurately anticipate and respond to market trends or fail to develop and introduce new or enhanced products to address these trends on a timely basis, our ability to attract and retain customers could be impaired and our competitive position could be harmed.

We operate in industries characterized by rapidly changing technologies and industry standards as well as technological obsolescence. We have developed products that may have long product life cycles of 10 years or more. We believe that our future success depends on our ability to develop and introduce new technologies and products that generate new sources of revenue to replace, or build upon, existing product revenue streams that may be dependent upon limited product life cycles. If we are not able to repeatedly introduce, in successive years, new products that ship in volume, our revenue will likely not grow and may decline significantly and rapidly. For example, we introduced ColorZ® in 2016 and began to ship in commercial volume in 2017. Sales of ColorZ® comprised 15%, 18% and 17% of our total revenue in 2019, 2018 and 2017, respectively. In 2012, we introduced and began to ship in commercial volume a dual, differential input linear transimpedance/variable-gain amplifier that we identify as product number IN3250TA-SO2D. Sales of IN3250TA-SO2D product comprised 10% of our total revenue in 2017. There were no other products that generated more than 10% of our total revenue in 2019, 2018 or 2017.

The IN3250TA-SO2D product matured in 2017 and as a result, sales of these products declined and were supplanted in part by newer parts which we developed. This underscores the importance of the need for us to continually develop and introduce new products to diversify our revenue base as well as generate new revenue to replace and build upon the success of previously introduced products which may be rapidly maturing.

To compete successfully, we must design, develop, market and sell new or enhanced products that provide increasingly higher levels of performance and reliability while meeting the cost expectations of our customers. The introduction of new products by our competitors, the delay or cancellation of a platform for which any of our semiconductor solutions are designed, the market acceptance of products based on new or alternative technologies or the emergence of new industry standards could render our existing or future products uncompetitive from a pricing standpoint, obsolete and otherwise unmarketable. Our failure to anticipate or timely develop new or enhanced products or technologies in response to technological shifts could result in decreased revenue and our competitors winning design wins. In particular, we may experience difficulties with product design, manufacturing, marketing or certification that could delay or prevent our development, introduction or marketing of new or enhanced products. Although we believe our products are fully compliant with applicable industry standards, proprietary enhancements may not in the future result in full conformance with existing industry standards under all circumstances. Due to the interdependence of various components in the systems within which our products and the products of our competitors operate, customers are unlikely to change to another design, once adopted, until the next generation of a technology. As a result, if we fail to introduce new or enhanced products that meet the needs of our customers or penetrate new markets in a timely fashion, and our designs do not gain acceptance, we will lose market share and our competitive position, very likely on an extended basis, and our operating results will be adversely affected.

If sufficient market demand for 100G/200G/400G solutions does not develop or develops more slowly than expected, or if we fail to accurately predict market requirements or market demand for 100G/200G/400G solutions, our business, competitive position and operating results would suffer.

We are currently investing significant resources to develop semiconductor solutions supporting 100G/200G/400G data transmission rates in order to increase the number of such solutions in our product line. If we fail to accurately predict market requirements or market demand for 100G/200G/400G semiconductor solutions, or if our 100G/200G/400G semiconductor solutions are not successfully developed or competitive in the industry, our business will suffer. If 100G/200G/400G networks are deployed to a lesser extent or more slowly than we currently anticipate, we may not realize any benefits from our investment. As a result, our business, competitive position, market share and operating results would suffer.

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Our target markets may not grow or develop as we currently expect and are subject to market risks including new competition, any of which could materially harm our business, revenue and operating results.

To date, a substantial portion of our revenue has been attributable to demand for our products in the communications and cloud markets and the growth of these overall markets. These markets have fluctuated in size and growth in recent times. Our operating results are impacted by various trends in these markets. These trends include the deployment and broader market adoption of next generation technologies, such as 100G and 100Gbe CMOS CDR and SerDes, in data centers, communications and enterprise networks, timing of next generation network upgrades, the introduction and broader market adoption of next generation server platforms and the timing of enterprise upgrades. We are unable to predict the timing or direction of the development of these markets with any accuracy. In addition, because some of our products are not limited in the systems or geographic areas in which they may be deployed, we cannot always determine with accuracy how, where or into which applications our products are being deployed. If our target markets do not grow or develop in ways that we currently expect, demand for our semiconductor products may decrease and our business, revenue, and operating results could suffer.

We rely on a limited number of third parties to manufacture, assemble and test our products, and the failure to manage our relationships with our third-party contractors successfully could adversely affect our ability to market and sell our products and our reputation. Our revenue and operating results would suffer if these third parties fail to deliver products or components in a timely manner and at reasonable cost or if manufacturing capacity is reduced or eliminated as we may be unable to obtain alternative manufacturing capacity.

We operate an outsourced manufacturing business model. As a result, we rely on third-party foundry wafer fabrication and assembly and test capacity. We also perform testing in our Irvine and Westlake Village, California facilities. We generally use a single foundry for the production of each of our various semiconductors. Currently, our principal foundries are GlobalFoundries, TSMC, TowerJazz, and WIN Semiconductors. We also use third-party contract manufacturers for a significant majority of our assembly and test operations, including Kyocera, ASE, Giga Solution, ISE Labs, Presto, Tong Hsing, LuxNet and STATS ChipPAC.

Relying on third-party manufacturing, assembly and testing presents significant risks to us, including the following:

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failure by us, our customers or their end customers to qualify a selected supplier;

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capacity shortages during periods of high demand;

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reduced control over delivery schedules and quality;

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shortages of materials;

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misappropriation of our intellectual property;

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limited warranties on wafers or products supplied to us; and

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potential increases in prices.

The ability and willingness of our third-party contractors to perform is largely outside our control. If one or more of our contract manufacturers or other outsourcers fails to perform its obligations in a timely manner or at satisfactory quality levels, our ability to bring products to market and our reputation could suffer. For example, if that manufacturing capacity is reduced or eliminated at one or more facilities, including as a response to the recent worldwide decline in the semiconductor industry, or any of those facilities are unable to keep pace with the growth of our business, we could have difficulties fulfilling our customer orders and our revenue could decline. In addition, if these third parties fail to deliver quality products and components on time and at reasonable prices, we could have difficulties fulfilling our customer orders, our revenue could decline and our business, financial condition and results of operations would be adversely affected.

Additionally, as many of our fabrication and assembly and test contractors are located in the Pacific Rim region, principally in Taiwan, our manufacturing capacity may be similarly reduced or eliminated due to natural disasters, including earthquakes, political unrest, war, labor strikes, work stoppages or public health crises. This could cause significant delays in shipments of our products until we are able to shift our manufacturing, assembly or testing from the affected contractor to another third-party vendor. There can be no assurance that alternative manufacturing capacity could be obtained on favorable terms, if at all.

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Our costs may increase substantially if the wafer foundries that supply our products do not achieve satisfactory product yields or quality.

The wafer fabrication process is an extremely complicated process where the slightest changes in the design, specifications or materials can result in material decreases in manufacturing yields or even the suspension of production. From time to time, our third-party wafer foundries have experienced, and are likely to experience, manufacturing defects and reduced manufacturing yields related to errors or problems in their manufacturing processes or the interrelationship of their processes with our designs. In some cases, our third-party wafer foundries may not be able to detect these defects early in the fabrication process or determine the cause of such defects in a timely manner. We may incur substantial research and development expense for prototype or development stage products as we qualify the products for production.

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

We do not have any long-term supply contracts with our contract manufacturers or suppliers, and any disruption in our supply of products or materials could have a material adverse effect on our business, revenue and operating results.

We currently do not have long-term supply contracts with any of our third-party contract manufacturers. We make substantially all of our purchases on a purchase order basis, and our contract manufacturers are not required to supply us products for any specific period or in any specific quantity. We expect that it would take approximately nine to 12 months to transition from our current foundry or assembly services to new providers. Such a transition would likely require a qualification process by our customers or their end customers. We generally place orders for products with some of our suppliers several months prior to the anticipated delivery date, with order volumes based on our forecasts of demand from our customers. Accordingly, if we inaccurately forecast demand for our products, we may be unable to obtain adequate and cost-effective foundry or assembly capacity from our third-party contractors to meet our customers’ delivery requirements, or we may accumulate excess inventories. On occasion, we have been unable to adequately respond to unexpected increases in customer purchase orders and therefore, were unable to benefit from this incremental demand. None of our third-party contract manufacturers have provided any assurance to us that adequate capacity will be available to us within the time required to meet additional demand for our products.

Our foundry vendors and assembly and test vendors may allocate capacity to the production of other companies’ products while reducing deliveries to us on short notice. In particular, other customers that are larger and better financed than us or that have long-term agreements with our foundry vendor or assembly and test vendors may cause our foundry vendor or assembly and test vendors to reallocate capacity to those customers, decreasing the capacity available to us. We do not have long-term supply contracts with our third-party contract manufacturers and if we enter into costly arrangements with suppliers that include nonrefundable deposits or loans in exchange for capacity commitments, commitments to purchase specified quantities over extended periods or investment in a foundry, our operating results could be harmed. We may not be able to make any such arrangement in a timely fashion or at all, and any arrangements may be costly, reduce our financial flexibility, and not be on terms favorable to us. Moreover, if we are able to secure foundry capacity, we may be obligated to use all of that capacity or incur penalties. These penalties may be expensive and could harm our financial results. To date, we have not entered into such arrangements with our suppliers. If we need another foundry or assembly and test subcontractor because of increased demand, or if we are unable to obtain timely and adequate deliveries from our providers, we might not be able to cost effectively and quickly retain other vendors to satisfy our requirements.

Many of our customers depend on us as the sole source for a number of our products. If we are unable to deliver these products as the sole supplier or as one of a limited number of suppliers, our relationships with these customers and our business would suffer.

A number of our customers do not have alternative sources for our semiconductor solutions and depend on us as the sole supplier or as one of a limited number of suppliers for these products. Since we outsource our manufacturing to third-party contractors, our ability to deliver our products is substantially dependent on the ability and willingness of our third-party contractors to perform, which is largely outside our control. Failure to deliver our products in sufficient quantities or at all to our customers that depend on us as a sole supplier or as one of a limited number of suppliers may be detrimental to their business and, as a result, our relationship with such customer would be negatively impacted. If we are unable to maintain our relationships with these customers after such failure, our business and financial results may be harmed.

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If we are unable to attract, train and retain qualified personnel, particularly our design and technical personnel, we may not be able to execute our business strategy effectively.

Our future success depends on our ability to attract and retain qualified personnel, including our management, sales and marketing, and finance, and particularly our design and technical personnel. We do not know whether we will be able to retain all of these personnel as we continue to pursue our business strategy. Historically, we have encountered difficulties in hiring qualified engineers because there is a limited pool of engineers with the expertise required in our field, especially in the San Francisco Bay Area where our headquarters are located. Competition for these personnel is intense in the semiconductor industry. As the source of our technological and product innovations, our design and technical personnel represent a significant asset. The loss of the services of one or more of our key employees, especially our key design and technical personnel, or our inability to attract and retain qualified design and technical personnel, could harm our business, financial condition and results of operations.

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

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

We face intense competition and expect competition to increase in the future. If we fail to compete effectively, it could have an adverse effect on our revenue, revenue growth rate, if any, and market share.

The global semiconductor market in general, and the communications and computing markets in particular, are highly competitive. We compete or plan to compete in different target markets to various degrees on the basis of a number of principal competitive factors, including product performance, power budget, features and functionality, customer relationships, size, ease of system design, product roadmap, reputation and reliability, customer support and price. We expect competition to increase and intensify as more and larger semiconductor companies enter our markets. Increased competition could result in price pressure, reduced profitability and loss of market share, any of which could materially and adversely affect our business, revenue and operating results.

Currently, our competitors range from large, international companies offering a wide range of semiconductor products to smaller companies specializing in narrow markets. Our primary competitors include Acacia Communications, Inc., Broadcom Ltd., Integrated Device Technology, Inc., M/A-COM Technology Solutions Inc., MaxLinear, Inc., NTT Electronics Corporation, Qorvo, Inc. and Semtech Corp. as well as other analog and mixed signal processing companies. We expect competition in the markets in which we participate to increase in the future as existing competitors improve or expand their product offerings.

Our ability to compete successfully depends on elements both within and outside of our control, including industry and general economic trends. During past periods of downturns in our industry, competition in the markets in which we operate intensified as our customers reduced their purchase orders. Many of our competitors have substantially greater financial and other resources with which to withstand similar adverse economic or market conditions in the future. These developments may materially and adversely affect our current and future target markets and our ability to compete successfully in those markets.

We use a significant amount of intellectual property in our business. Monitoring unauthorized use of our intellectual property can be difficult and costly and if we are unable to protect our intellectual property, our business could be adversely affected.

Our success depends in part upon our ability to protect our intellectual property. To accomplish this, we rely on a combination of intellectual property rights, including patents, copyrights, trademarks and trade secrets in the United States and in selected foreign countries where we believe filing for such protection is appropriate. Effective protection of our intellectual property rights may be unavailable, limited or not applied for in some countries. Some of our products and technologies are not covered by any patent or patent application, as we do not believe patent protection of these products and technologies is critical to our business strategy at this time. Failure to timely seek patent protection on products or technologies generally precludes us from seeking future patent protection on these products or technologies. We cannot guarantee that:

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any of our present or future patents or patent claims will not lapse or be invalidated, circumvented, challenged or abandoned;

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our intellectual property rights will provide competitive advantages to us;

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our ability to assert our intellectual property rights against potential competitors or to settle current or future disputes will not be limited by our agreements with third parties;

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any of our pending or future patent applications will be issued or have the coverage originally sought;

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our intellectual property rights will be enforced in jurisdictions where competition may be intense or where legal protection may be weak;

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any of the trademarks, copyrights, trade secrets or other intellectual property rights that we presently employ in our business will not lapse or be invalidated, circumvented, challenged or abandoned; or

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we will not lose the ability to assert our intellectual property rights against or to license our technology to others and collect royalties or other payments.

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In addition, our competitors or others may design around our protected patents or technologies. Effective intellectual property protection may be unavailable or more limited in one or more relevant jurisdictions relative to those protections available in the United States, or may not be applied for in one or more relevant jurisdictions. If we pursue litigation to assert our intellectual property rights, an adverse decision in any of these legal actions could limit our ability to assert our intellectual property rights, limit the value of our technology or otherwise negatively impact our business, financial condition and results of operations.

Monitoring unauthorized use of our intellectual property is difficult and costly. Unauthorized use of our intellectual property may have occurred or may occur in the future. Although we have taken steps to minimize the risk of this occurring, any such failure to identify unauthorized use and otherwise adequately protect our intellectual property would adversely affect our business. Moreover, if we are required to commence litigation, whether as a plaintiff or defendant, not only would this be time-consuming, but we would also be forced to incur significant costs and divert our attention and efforts of our employees, which could, in turn, result in lower revenue and higher expenses.

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

In addition, we have a number of third-party patent and intellectual property license agreements. Some of these license agreements require us to make one-time payments or ongoing royalty payments. We cannot guarantee that the third-party patents and technology we license will not be licensed to our competitors or others in the semiconductor industry. In the future, we may need to obtain additional licenses, renew existing license agreements or otherwise replace existing technology. We are unable to predict whether these license agreements can be obtained or renewed or the technology can be replaced on acceptable terms, or at all.

Average selling prices of our products generally decrease over time, which could negatively impact our revenue and gross margins.

Our operating results may be impacted by a decline in the average selling prices of our semiconductors. If competition increases in our target markets, we may need to reduce the average unit price of our products in anticipation of competitive pricing pressures, new product introductions by us or our competitors and for other reasons. With respect to our new product offerings following our acquisition of eSilicon, we expect to offer higher volumes of products that have lower margins. If we are unable to offset any reductions in our average selling prices by increasing our sales volumes or introducing new products with higher margins, our revenue and gross margins will suffer. To maintain our revenue and gross margins, we must develop and introduce new products and product enhancements on a timely basis and continually reduce our costs as well as our customers’ costs. Failure to do so would cause our revenue and gross margins to decline.

We are subject to order and shipment uncertainties, and differences between our estimates of customer demand and product mix and our actual results could negatively affect our inventory levels, sales and operating results.

Our revenue is generated on the basis of purchase orders with our customers rather than long-term purchase commitments. In addition, our customers can cancel purchase orders or defer the shipments of our products under certain circumstances. Our products are manufactured using semiconductor foundries according to our estimates of customer demand, which requires us to make separate demand forecast assumptions for every customer, each of which may introduce significant variability into our aggregate estimates. It is difficult for us to forecast the demand for our products, in part because of the complex supply chain between us and the end-user markets that incorporate our products. Due to our lengthy product development cycle, it is critical for us to anticipate changes in demand for our various product features and the applications they serve to allow sufficient time for product development and design. We have limited visibility into future customer demand and the product mix that our customers will require, which could adversely affect our revenue forecasts and operating margins. Moreover, because some of our target markets are relatively new, many of our customers have difficulty accurately forecasting their product requirements and estimating the timing of their new product introductions, which ultimately affects their demand for our products. Our failure to accurately forecast demand can lead to product shortages that can impede production by our customers and harm our customer relationships. Conversely, our failure to forecast declining demand or shifts in product mix can result in excess or obsolete inventory. For example, some of our customers may cancel purchase orders or delay the shipment of their products that incorporate our products as a result of component shortages they may experience due to earthquakes and tsunamis in Japan or Taiwan, or likewise with respect to flooding in Thailand, which may result in excess or obsolete inventory and impact our sales and operating results. In addition, the rapid pace of innovation in our industry could also render significant portions of our inventory obsolete. Excess or obsolete inventory levels could result in unexpected expenses or increases in our reserves that could adversely affect our business, operating results and financial condition. In contrast, if we were to underestimate customer demand or if sufficient manufacturing capacity were unavailable, we could forego revenue opportunities, potentially lose market share and damage our customer relationships. In addition, any significant future cancellations or deferrals of product orders or the return of previously sold products due to manufacturing defects could materially and adversely impact our profit margins, increase our write-offs due to product obsolescence and restrict our ability to fund our operations.

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We rely on third-party sales representatives and distributors to assist in selling our products. If we fail to retain or find additional sales representatives and distributors, or if any of these parties fail to perform as expected, it could reduce our future sales.

For the year ended December 31, 2019, we derived approximately 87% of our total revenue from sales by our direct sales team and third-party sales representatives and 13% of our sales were made through third-party distributors. For the year ended December 31, 2018, we derived approximately 84% of our total revenue from sales by our direct sales team and third-party sales representatives and 16% of our sales were made through third-party distributors. For the year ended December 31, 2017, we derived approximately 82% of our total revenue from sales by our direct sales team and third-party sales representatives and 18% of our sales were made through third-party distributors. We are unable to predict the extent to which these third-party sales representatives and distributors will be successful in marketing and selling our products. Moreover, many of these third-party sales representatives and distributors also market and sell competing products, which may affect the extent to which they promote our products. Even where our relationships are formalized in contracts, our third-party sales representatives and distributors often have the right to terminate their relationships with us at any time. Our future performance will also depend, in part, on our ability to attract additional third-party sales representatives and distributors who will be able to market and support our products effectively, especially in markets in which we have not previously sold our products. If we cannot retain our current distributors or find additional or replacement third-party sales representatives and distributors, our business, financial condition and results of operations could be harmed. Additionally, if we terminate our relationship with a distributor, we may be obligated to repurchase unsold products. We record a reserve for estimated returns and price credits. If actual returns and credits exceed our estimates, our operating results could be harmed.

The facilities of our third-party contractors and distributors and a number of our facilities are located in regions that are subject to earthquakes and other natural disasters. Any catastrophic loss to any of these facilities would likely disrupt our operations and result in significant expenses and could adversely affect our business.

The facilities of our third-party contractors and distributors are subject to risk of catastrophic loss due to fire, flood or other natural or man-made disasters. A number of our facilities and those of our contract manufacturers are located in areas with above average seismic activity and also subject to typhoons and other Pacific storms. Several foundries that manufacture our wafers are located in Taiwan, Japan and California, and a majority of our third-party contractors who assemble and test our products are located in Asia. In addition, our headquarters are located in California. The risk of an earthquake in the Pacific Rim region or California is significant due to the proximity of major earthquake fault lines. Any catastrophic loss to any of these facilities would likely disrupt our operations, delay production, shipments and revenue and result in significant expenses to repair or replace the facility. In particular, any catastrophic loss at our California locations would materially and adversely affect our business.

We rely on third-party technologies for the development of our products and our inability to use such technologies in the future would harm our ability to remain competitive.

We rely on third parties for technologies that are integrated into our products, such as wafer fabrication and assembly and test technologies used by our contract manufacturers, as well as licensed architecture technologies. If we are unable to continue to use or license these technologies on reasonable terms, or if these technologies fail to operate properly, we may not be able to secure alternatives in a timely manner or at all, and our ability to remain competitive would be harmed. In addition, if we are unable to successfully license technology from third parties to develop future products, we may not be able to develop such products in a timely manner or at all.

Our business would be adversely affected by the departure of existing members of our senior management team and other key personnel.

Our success depends, in large part, on the continued contributions of our senior management team, in particular, the services of certain key personnel. Changes in our management team could negatively affect our operations and our relationships with our customers, employees and market leaders. In addition, we have not entered into non-compete agreements with members of our senior management team. The loss of any member of our senior management team or key personnel could harm our ability to implement our business strategy and respond to the rapidly changing market conditions in which we operate.

We may acquire businesses, enter into licensing arrangements or make investments in other companies or technologies that disrupt our business, are difficult to integrate, impair our operating results, dilute our stockholders’ ownership, increase our debt, divert management resources or cause us to incur significant expense.

As part of our business strategy, we have pursued and are likely to continue to pursue in the future acquisitions of businesses and assets, as well as technology licensing arrangements that we believe will complement our business, semiconductor solutions or technologies. For example, we acquired eSilicon in January 2020 to accelerate our roadmap in developing electro-optics solutions for cloud and telecommunications customers. We also acquired ClariPhy Communications, Inc. (ClariPhy) in December 2016 to help expand our optical networking platform portfolio. We also may pursue strategic alliances that leverage our core technology and industry experience to expand our product offerings or distribution, or make investments in other companies. Any acquisition involves a number of risks, many of which could harm our business, including:

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difficulty in integrating the operations, technologies, products, existing contracts, accounting and personnel of the acquired company or business;

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realizing the anticipated benefits of any acquisition;

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difficulty in transitioning and supporting customers, if any, of the acquired company;

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difficulty in transitioning and collaborating with suppliers, if any, of the acquired company;

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diversion of financial and management resources from existing operations;

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the risk that the price we pay or other resources that we devote may exceed the value we realize, or the value we could have realized if we had allocated the purchase price or other resources to another opportunity;

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potential loss of key employees, customers and strategic alliances from either our current business or the acquired company’s business;

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inability to successfully bring newly acquired products to market or achieve design wins with such products;

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fluctuations in industry trends that change the demand or purchasing volume of newly acquired products;

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assumption of unanticipated problems or latent liabilities, such as problems with the quality of the acquired products;

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inability to generate sufficient revenue to offset acquisition costs;

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dilutive effect on our stock as a result of any equity-based acquisitions;

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inability to successfully complete transactions with a suitable acquisition candidate; and

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in the event of international acquisitions, risks associated with accounting and business practices that are different from applicable U.S. practices and requirements.

Acquisitions also frequently result in the recording of goodwill and other intangible assets that are subject to potential impairments, which could harm our financial results. For example, during the year ended December 31, 2017, we abandoned a project related to certain developed technology and in-process research and development from the ClariPhy acquisition and recorded an impairment charge of $47.0 million. The abandonment of the project was primarily related to change in product roadmap that occurred during the year ended December 31, 2017. If we fail to properly evaluate acquisitions or investments, it may impair our ability to achieve the anticipated benefits of any such acquisitions or investments, and we may incur costs in excess of what we anticipate. The failure to successfully evaluate and execute acquisitions or investments or otherwise adequately address these risks could materially harm our business and financial results.

To finance any acquisitions or investments, we may choose to issue shares of our common stock or convertible debt as consideration, which could dilute the ownership of our stockholders. If the price of our common stock is low or volatile, we may not be able to acquire other companies for stock. In addition, newly-issued securities may have rights, preferences or privileges senior to those of existing stockholders. If we raise additional funds by obtaining loans from third parties, the terms of those financing arrangements may include negative covenants or other restrictions on our business that could impair our operating flexibility, and would also require us to incur interest expense. Additional funds may not be available on terms that are favorable to us, or at all.

The failure to successfully evaluate and execute acquisitions or investments or otherwise adequately address these risks could materially harm our business and financial results. We may not achieve all of the anticipated benefits of any of our acquisitions, including our acquisition of eSilicon, due to a number of factors including: unanticipated costs or liabilities associated with the acquisition, incurrence of acquisition-related costs, harm to our relationships with existing customers as a result of the acquisition, harm to our brands and reputation, the loss of key employees of the acquired company, significant impairments of anticipated goodwill and other intangible assets and the use of resources that are needed in other parts of our business.

We may not realize the anticipated benefits of our acquisitions, which in turn could harm our business and operating results.

We may not achieve all of the anticipated benefits of any of our acquisitions in a timely manner or at all, including our acquisition of eSilicon, due to a number of factors including: failure to successfully integrate the acquired business, the assumption of known and unknown costs or liabilities associated with the acquisitions, incurrence of acquisition-related costs, harm to our relationships with existing customers as a result of the acquisitions, harm to our brands and reputation, the loss of key employees of the acquired companies, negative market reaction thereto, inability to successfully extend and expand product offerings, significant impairments of anticipated goodwill and other intangible assets, the possibility that we paid more for the acquired companies than the value we will derive from the acquisitions, and the use of resources that are needed in other parts of our business.

If we are not able to successfully combine the business of eSilicon within the anticipated time frame, or at all, the anticipated cost savings and other benefits of the acquisition may not be realized fully or at all or may take longer to realize than expected, the combined businesses may not perform as expected and the value of the shares of our common stock may be adversely affected. In addition, if we are not able to realize higher volumes of sales for our eSilicon products which have lower margins, our revenue and gross margins will suffer.

Prior to the acquisition, we and eSilicon operated independently, and there can be no assurances that the businesses can be integrated successfully. It is possible that the integration process could result in the loss of our or eSilicon’s key employees, the disruption of either or both company’s ongoing businesses, higher than expected integration costs and an overall post-completion integration process that takes longer than originally anticipated. Specifically, issues that must be addressed to realize the anticipated benefits of the acquisition so the combined business performs as expected include, among other things:

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integrating the companies’ technologies, products and services;

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identifying and eliminating redundant and underperforming operations and assets;

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harmonizing the companies’ operating practices, employee development and compensation programs, internal controls and other policies, procedures and processes;

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addressing possible differences in business backgrounds, corporate cultures and management philosophies;

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consolidating the companies’ corporate, administrative and information technology infrastructure;

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managing the movement of certain businesses and positions to different locations;

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maintaining existing agreements with customers and vendors and avoiding delays in entering into new agreements with prospective customers and vendors; and

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consolidating our and eSilicon’s offices that are currently in or near the same location.

Lawsuits have been threatened and may be filed against us, eSilicon, their affiliates and their board of directors and executive officers challenging aspects of the merger. An adverse ruling in any such lawsuit may result in additional payments and costs.

We and eSilicon have received written communications from certain former stockholders of eSilicon demanding to inspect eSilicon’s books and records and indicating that such stockholders will be seeking appraisal of shares they held in eSilicon. Certain of these former eSilicon stockholders also have stated that they may assert claims against eSilicon’s directors and senior officers for alleged breaches of fiduciary duty and other violations in connection with the merger between eSilicon and our subsidiary. We are unaware of any petition for appraisal and/or lawsuit being filed by any former eSilicon stockholder.

We believe that the claims in such written communications are without merit, and plan to vigorously defend against lawsuits arising out of or relating to the merger agreement and/or the merger that may be filed in the future. However, any adverse ruling in such potential cases could result in additional payments. Even if the lawsuits are without merit, defending against these claims can result in substantial costs and divert management time and resources. An adverse judgment could result in monetary damages, which could have a negative impact on our liquidity and financial condition.

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We may sell one or more of our product lines, from time to time, as a result of our evaluation of our products and markets, and any divestiture could adversely affect our continuing business and our expenses, revenues, results of operation, cash flows and financial position.

We periodically evaluate our various product lines and may, as a result, consider the divestiture of one or more of those product lines. For example, in August 2016, we sold our memory product business to Rambus Inc. for $90 million in cash. Any divestiture could adversely affect our continuing business and expenses, revenues, results of operations, cash flows and financial position.

Divestitures of product lines have inherent risks, including the expense of selling the product line, the possibility that any anticipated sale will not occur, delays in closing any sale, the risk of lower-than-expected proceeds from the sale of the divested business, unexpected costs associated with the separation of the business to be sold from the seller’s information technology and other operating systems, and potential post-closing claims for indemnification or breach of transition services obligations of the seller. Expected cost savings, which are offset by revenue losses from divested businesses, may also be difficult to achieve or maximize due to the seller’s fixed cost structure, and a seller may experience varying success in reducing fixed costs or transferring liabilities previously associated with the divested business.

Our business is dependent on capital expenditures by service providers, and any downturn that they experience could negatively impact our business.

Our business depends on continued capital expenditures by communication service providers and is subject to the cyclicality of such expenditures. Our communications semiconductor products are sold primarily to network equipment vendors that in turn sell their equipment to service providers. If the demand for our customers’ products declines or fails to increase, as a result of lower capital expenditures by service providers or any other factors, demand for our products will be similarly affected. The global economic downturn caused a significant reduction in capital spending on communications network equipment. While we are beginning to see improvement, there are no guarantees that this growth will continue, which could result in market volatility or another downturn. If there is another downturn, our business, operating results and financial condition may be materially harmed.

Our high-speed interconnect and optical transport business has historically relied on a small number of key customers for a substantial portion of its revenue, and the loss of one or more of these key customers or the diminished demand for these products from one or more such key customers would significantly reduce our revenue and profits.

With respect to our high-speed interconnect and optical transport business, a small number of customers have historically accounted for a substantial portion of the revenues in any particular period. We anticipate that our relationships with these key customers will continue to be important to this business, and we expect that this customer concentration will increase in the future. We have no long-term volume purchase commitments from our key customers. These customers may decide not to purchase our products at all, may purchase fewer products than they did in the past or may otherwise alter their purchasing patterns. Reductions, delays and cancellation of orders from our key customers or the loss of one or more key customers would significantly reduce our revenue and profits.

The failure of our distributors to perform as expected could materially reduce our future revenue or negatively impact our reported financial results.

We relied on a number of distributors, in particular Cyberlink, Arrow Electronics, Inc. and Paltek Corporation, to help generate customer demand, provide technical support and other value-added services to its customers, fill customer orders and stock its products. These distributors do not sell those products exclusively, and to the extent they choose to emphasize a competitor’s products over our products, our results of operations could be harmed. Our contracts with these distributors may be terminated by either party with notice. Our distributors are located all over the world, and are of various sizes and financial conditions. Lower sales, lower earnings, debt downgrades, the inability to access capital markets and higher interest rates could potentially affect our distributors’ operations. Further, our distributors have contractual rights to return unsold inventory to us, and, if this were to happen, we could incur significant cost in finding alternative sales channels for these products or through write-offs. Any adverse condition experienced by our distributors could negatively impact their level of support for our products or the rate at which they make payments to us and, consequently, could harm our results of operations. We rely on accurate and timely sales reports from our distributors in order for our financial results to represent the actual sales that our distributors make for us in any given period. Any inaccuracies or delays in these reports could negatively affect our ability to produce accurate and timely financial reports and to recognize revenue. We also rely on distributors for sales forecasts, and any inaccuracies in such forecasts could impair the accuracy of our projections and planned operations.

Our portfolio of marketable securities is significant and subject to market, interest and credit risk that may reduce its value.

We maintain a significant portfolio of marketable securities. Changes in the value of this portfolio could adversely affect our earnings. In particular, the value of our investments may decline due to increases in interest rates, downgrades of money market funds, U.S. Treasuries, municipal bonds, corporate bonds, certificates of deposit, variable rate demand notes, commercial paper and asset-backed securities included in our portfolio, instability in the global financial markets that reduces the liquidity of securities included in our portfolio, declines in the value of collateral underlying the asset-backed securities included in our portfolio and other factors. Each of these events may cause us to record charges to reduce the carrying value of our investment portfolio or sell investments for less than our acquisition cost. Although we attempt to mitigate these risks by investing in high quality securities and continuously monitoring our portfolio’s overall risk profile, the value of our investments may nevertheless decline.

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Tax benefits that we receive may be terminated or reduced in the future, which would increase our costs.

We continue to expand our international presence to take advantage of the opportunity to recruit additional engineering design talent, as well as to more closely align our operations geographically with our customers and suppliers in Asia. In certain international jurisdictions, we have also entered into agreements with local governments to provide us with, among other things, favorable local tax rates if certain minimum criteria are met. These agreements may require us to meet several requirements as to investment, headcount and activities to retain this status. We currently believe that we will be able to meet all the terms and conditions specified in these agreements. However, if adverse changes in the economy or changes in technology affect international demand for our products in an unforeseen manner or if we fail to otherwise meet the conditions of the local agreements, or if we fail to extend the favorable local tax rate, we may be subject to additional taxes, which in turn would increase our costs.

Changes in our effective tax rate may harm our results of operations. A number of factors may increase our future effective tax rates, including:

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the jurisdictions in which profits are determined to be earned and taxed;

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the resolution of issues arising from tax audits with various tax authorities;

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changes in the measurement of our deferred tax assets and liabilities and in deferred tax valuation allowances;

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changes in the value of assets or services transferred or provided from one jurisdiction to another;

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adjustments to income taxes upon finalization of various tax returns;

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increases in expenses not deductible for tax purposes, including write-offs of acquired in-process research and development and impairments of goodwill in connection with acquisitions;

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changes in available tax credits;

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effect of tax rate on accounting for acquisitions and dispositions; and

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changes in tax laws, or the interpretation of such tax laws, and changes in U.S. generally accepted accounting principles.

We are subject to regulatory compliance requirements, including Section 404 of the Sarbanes-Oxley Act of 2002, which are costly to comply with, and our failure to comply with these requirements could harm our business and operating results.

As a public company, we incur significant legal, accounting and other expenses related to compliance with laws such as Section 404 of the Sarbanes-Oxley Act of 2002. Compliance with Section 404 requires that our management report on, and our independent registered public accounting firm attest to, the effectiveness of our internal control over financial reporting in our annual reports on Form 10-K. Section 404 compliance has in the past diverted, and may continue to divert, internal resources, and require a significant amount of time and effort. If we fail to comply with Section 404, or if in the future our Chief Executive Officer, Chief Financial Officer or independent registered public accounting firm determines that our internal control over financial reporting is not effective, we could be subject to sanctions or investigations by the New York Stock Exchange, the SEC, or other regulatory authorities.

Furthermore, investor perceptions of us may suffer, and this could cause a decline in the market price of our stock. Irrespective of compliance with Section 404, any failure of our internal controls could have a material adverse effect on our stated results of operations and harm our reputation.

The conditional conversion feature of our convertible senior notes, if triggered, may adversely affect our financial condition and operating results.

In the event the conditional conversion feature of our convertible senior notes is triggered, holders of notes will be entitled to convert such notes at any time during specified periods at their option. If one or more holders elect to convert their notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock, thereby incurring share dilution (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity. In addition, even if holders do not elect to convert their notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the convertible notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.

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

Under Accounting Standards Codification 470-20, Debt with Conversion and Other Options, which we refer to as ASC 470-20, an entity must separately account for the liability and equity components of the convertible debt instruments (such as our convertible notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. The effect of ASC 470-20 on the accounting for the convertible notes is that the equity component is required to be included in the additional paid-in capital section of stockholders’ equity on our consolidated balance sheet, and the value of the equity component would be treated as debt discount for purposes of accounting for the debt component of the convertible notes. As a result, we are required to record a greater amount of non-cash interest expense in current periods presented as a result of the amortization of the discounted carrying value of the convertible notes to their face amount over the term of the convertible notes. We will report lower net income in our financial results because ASC 470-20 will require interest to include both the current period’s amortization of the debt discount and the instrument’s non-convertible interest rate, which could adversely affect our reported or future financial results, the trading price of our common stock and the trading price of the convertible notes.

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

We are leveraged financially, which could adversely affect our ability to adjust our business to respond to competitive pressures and to obtain sufficient funds to satisfy our future growth, business needs and development plans.

We have substantial existing indebtedness. For example, in September 2016 and December 2015, we issued $287.5 million and $230.0 million, respectively, in aggregate principal of convertible senior notes. The degree to which we are leveraged could have negative consequences, including, but not limited to, the following:

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we may be more vulnerable to economic downturns, less able to withstand competitive pressures and less flexible in responding to changing business and economic conditions;

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our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate or other purposes may be limited;

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a substantial portion of our cash flows from operations in the future may be required for the payment of the principal amount of our existing indebtedness when it becomes due; and

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we may elect to make cash payments upon any conversion of the convertible notes, which would reduce our cash on hand.

Our ability to meet our payment obligations under our convertible notes depends on our ability to generate significant cash flow in the future. This, to some extent, is subject to general economic, financial, competitive, legislative, and regulatory factors as well as other factors that are beyond our control. There can be no assurance that our business will generate cash flow from operations, or that additional capital will be available to us, in an amount sufficient to enable us to meet our debt payment obligations and to fund other liquidity needs. If we are unable to generate sufficient cash flow to service our debt obligations, we may need to refinance or restructure our debt, sell assets, reduce or delay capital investments, or seek to raise additional capital. If we were unable to implement one or more of these alternatives, we may be unable to meet our debt payment obligations, which could have a material adverse effect on our business, results of operations, or financial condition.

Our business could be negatively impacted by information technology security events and other disruptions.

We face various cybersecurity threats, including threats to our information technology infrastructure and attempts to gain access to our proprietary or classified information, denial-of-service attacks, requests for money transfers, ransomware, as well as threats to the physical security of our facilities and employees. In addition, we face cyber threats from entities that may seek to target us through our customers, vendors, subcontractors, employees, and other third parties with whom we do business. Accordingly, we maintain information security partners and staff, policies and procedures for managing risk to our information systems, and conduct employee training on cybersecurity to mitigate persistent and continuously evolving cyber security threats. We have experienced cybersecurity threats such as viruses and attacks by hackers targeting our information technology systems. Although such events have not had a material impact to date on our financial condition, results of operations or liquidity or reputation, future threats could, among other things, cause harm to our business and our reputation; disrupt our operations; expose us to potential liability, regulatory actions and the loss of business; as well as impact our results of operations materially. Due to the evolving nature of these security threats, we cannot predict the potential impact of any future incident.

While we take measures to protect the security of, and prevent unauthorized access to, our systems and personal and proprietary information, the security controls for our systems, as well as other security practices we follow, may not prevent improper access to, or disclosure of, personally identifiable or proprietary information. Furthermore, data privacy is subject to frequently changing rules and regulations, which sometimes conflict among the various jurisdictions and countries in which we provide services. With the acquisition of eSilicon, we may be subject to the General Data Protection Regulation in Europe (GDPR). The GDPR and the California Consumer Privacy Act will result in increased compliance costs. Our failure to adhere to or successfully implement processes in response to these and other changing regulatory requirements in this area could result in legal liability or impairment to our reputation in the marketplace, which could have a material adverse effect on our business, financial condition and results of operations.

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Risks Related to Our Industry

We may be unable to make the substantial and productive research and development investments, which are required to remain competitive in our business.

The semiconductor industry requires substantial investment in research and development in order to develop and bring to market new and enhanced technologies and products. Many of our products originated with our research and development efforts and have provided us with a significant competitive advantage. Our research and development expenses were $183.9 million, $167.9 million and $200.5 million in 2019, 2018 and 2017, respectively. We are committed to investing in new product development in order to remain competitive in our target markets. We do not know whether we will have sufficient resources to maintain the level of investment in research and development required to remain competitive. In addition, there is no assurance that the technologies which are the focus of our research and development expenditures will become commercially successful.

Our business, financial condition and results of operations could be adversely affected by worldwide economic conditions, as well as political and economic conditions in the countries in which we conduct business.

Our business and operating results are impacted by worldwide economic conditions. Uncertainty about current global economic conditions may cause businesses to continue to postpone spending in response to tighter credit, unemployment or negative financial news. This in turn could have a material negative effect on the demand for our semiconductor products or the products into which our semiconductors are incorporated. Multiple factors relating to our international operations and to particular countries in which we operate could negatively impact our business, financial condition and results of operations. These factors include:

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changes in political, regulatory, legal or economic conditions;

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restrictive governmental actions, such as restrictions on the transfer or repatriation of funds and foreign investments and trade protection measures, including export duties and quotas and customs duties and tariffs;

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disruptions of capital and trading markets;

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changes in import or export requirements;

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transportation delays;

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civil disturbances or political instability;

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geopolitical turmoil, including terrorism, war or political or military coups;

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public health emergencies, such as the coronavirus outbreak in China and other countries;

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differing employment practices and labor standards;

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limitations on our ability under local laws to protect our intellectual property;

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local business and cultural factors that differ from our customary standards and practices;

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nationalization and expropriation;

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changes in tax or intellectual property laws;

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currency fluctuations relating to our international operating activities; and

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difficulty in obtaining distribution and support.

A significant portion of our products are manufactured, assembled and tested outside the United States. Any conflict or uncertainty in these countries, including due to natural disasters, public health concerns, political unrest or safety concerns, could harm our business, financial condition and results of operations. In addition, if the government of any country in which our products are manufactured or sold sets technical standards for products manufactured in or imported into their country that are not widely shared, it may lead some of our customers to suspend imports of their products into that country, require manufacturers in that country to manufacture products with different technical standards and disrupt cross-border manufacturing relationships which, in each case, could harm our business. For example, the United States and China trade negotiations, the United Kingdom’s exit from the European Union, United States federal government budget disruptions and market volatility as a result of political leadership in certain countries all could have an adverse impact on our operations and business. Further, in December 2019, an outbreak of the coronavirus surfaced in Wuhan, China, and cases have been reported in other countries, including Italy, where we currently have operations. This in turn has led to travel restrictions and is impacting international operations of various companies. At this point, the extent to which the coronavirus may impact our business is uncertain. These uncertainties make it difficult for us and our suppliers and customers to accurately plan future business activities.

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Changes in current or future laws or regulations or the imposition of new laws or regulations, including new or changed tax regulations, environmental laws, export control laws, anti-corruption laws and conflict minerals rules or new interpretations thereof, by federal or state agencies or foreign governments could impair our ability to compete in international markets.

Changes in current laws or regulations applicable to us, the imposition of new laws and regulations in the United States or other jurisdictions in which we do business, such as Argentina, Canada, China, Germany, Italy, Japan, Malaysia, Romania, Singapore, Spain, Taiwan, United Kingdom and Vietnam, any changes or uncertainties with respect to such laws or regulations or with respect to trade relations between the United States and any such jurisdictions or any adverse outcome as a result of a review or examination by the applicable taxing authority, could materially and adversely affect our business, financial condition and results of operations. For example, we have entered into agreements with local governments to provide us with, among other things, favorable local tax rates if certain minimum criteria are met, as discussed in our risk factor entitled “Tax benefits that we receive may be terminated or reduced in the future, which would increase our costs.” These agreements may require us to meet several requirements as to investment, headcount and activities to retain this status. If we fail to otherwise meet the conditions of the local agreements, we may be subject to additional taxes, which in turn would increase our costs. In addition, potential future U.S. tax legislation could impact the tax benefits we effectively realize under these agreements.

Due to environmental concerns, the use of lead and other hazardous substances in electronic components and systems is receiving increased attention. In response, the European Union passed the Restriction on Hazardous Substances (RoHS) Directive, legislation that limits the use of lead and other hazardous substances in electrical equipment. The RoHS Directive became effective July 1, 2006. We believe that our current product designs and material supply chains are in compliance with the RoHS Directive. If our product designs or material supply chains are deemed not to be in compliance with the RoHS Directive, we and our third-party manufacturers may need to redesign products with components meeting the requirements of the RoHS Directive and we may incur additional expense as well as loss of market share and damage to our reputation.

We are also subject to export control laws, regulations and requirements that limit which products we sell and where and to whom we sell our products. In some cases, it is possible that export licenses would be required from U.S. government agencies for some of our products in accordance with the Export Administration Regulations and the International Traffic in Arms Regulations. We may not be successful in obtaining the necessary export licenses in all instances. Any limitation on our ability to export or sell our products imposed by these laws would adversely affect our business, financial condition and results of operations. For example, in April 2018, the U.S. Department of Commerce added ZTE, a Chinese technology company, to the Denied Persons List, and in May 2019, added Huawei and certain of its non-U.S. affiliates to the Entity List. In July 2018, the U.S. Department of Commerce lifted such ban against ZTE but noted it would continue to monitor ZTE. In February 2020, the U.S. Department of Commerce extended a Temporary General License authorizing specific, limited engagements in transactions involved the export, reexport, and transfer of items to Huawei and certain of its affiliates. ZTE and Huawei have been our customers, with Huawei accounting for approximately 11% and 14% of our total revenue in the years ended December 31, 2019 and 2018, respectively, and we expect a reduction in revenue as a result of these matters, at least in the short-term. We are currently assessing the long-term impact of these matters. In addition, changes in our products or changes in export and import laws and implementing regulations may create delays in the introduction of new products in international markets, prevent our customers from deploying our products internationally or, in some cases, prevent the export or import of our products to certain countries altogether. While we are not aware of any other current export or import regulations which would materially restrict our ability to sell our products in other countries, any change in export or import regulations or related legislation, shift in approach to the enforcement or scope of existing regulations, or change in the countries, persons or technologies targeted by these regulations, could result in decreased use of our products by, or in our decreased ability to export or sell our products to, existing or potential customers with international operations. In such event, our business and results of operations could be adversely affected. In addition, we are subject to economic and trade sanctions programs that are administered by the U.S. Treasury Department’s Office of Foreign Assets Control, that prohibit or restrict transactions to or from or dealings with specified countries, their governments, and in certain circumstances, with individuals and entities that are specially-designated nationals of those countries, narcotics traffickers and terrorists or terrorist organizations. Violations of these trade control laws and sanctions regulations are punishable by civil penalties, including fines, denial of export privileges, injunctions, asset seizures, debarment from government contracts, and revocations or restrictions of licenses, as well as criminal fines and imprisonment.

We are also subject to risks associated with compliance with applicable anti-corruption laws, including the Foreign Corrupt Practices Act (FCPA), which generally prohibits companies and their employees and intermediaries from making payments to foreign officials for the purpose of obtaining or keeping business, securing an advantage, or directing business to another, and requires public companies to maintain accurate books and records and a system of internal accounting controls. Under the FCPA, companies may be held liable for actions taken by directors, officers, employees, agents, or other strategic or local partners or representatives. If we or our intermediaries fail to comply with the requirements of the FCPA or similar laws, governmental authorities in the United States and elsewhere could seek to impose civil and criminal fines and penalties which could have a material adverse effect on our business, results of operations and financial condition.

Our product or manufacturing standards could also be impacted by new or revised environmental rules and regulations or other social initiatives. For instance, the SEC adopted disclosure requirements in 2012 relating to the sourcing of certain minerals from the Democratic Republic of Congo and certain other adjoining countries. These rules, which required reporting starting in 2014, could adversely affect our costs, the availability of minerals used in our products and our relationships with customers and suppliers. Also, since our supply chain is complex, we may face reputational challenges with our customers, stockholders, and other stakeholders if we are unable to sufficiently verify the origins for any conflict minerals used in the products that we sell.

We are subject to the cyclical nature of the semiconductor industry, which has suffered and may suffer from future recessionary downturns.

The semiconductor industry is highly cyclical and is characterized by constant and rapid technological change, rapid product obsolescence and price erosion, evolving standards and wide fluctuations in product supply and demand. The industry experienced a significant downturn during the current global recession. These downturns have been characterized by diminished product demand, production overcapacity, high inventory levels and accelerated erosion of average selling prices. The most recent downturn and any future downturns could negatively impact our business and operating results. Furthermore, any upturn in the semiconductor industry could result in increased competition for access to third-party foundry and assembly capacity. We are dependent on the availability of this capacity to manufacture and assemble our integrated circuits. None of our third-party foundry or assembly contractors has provided assurances that adequate capacity will be available to us in the future.

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Our products must conform to industry standards in order to be accepted by end-users in our markets.

Our products comprise only a part of larger electronic systems. All components of these systems must uniformly comply with industry standards in order to operate efficiently together. These industry standards are often developed and promoted by larger companies who are industry leaders and provide other components of the systems in which our products are incorporated. In driving industry standards, these larger companies are able to develop and foster product ecosystems within which our products can be used. We work with a number of these larger companies in helping develop industry standards with which our products are compatible. If larger companies do not support the same industry standards that we do, or if competing standards emerge, market acceptance of our products could be adversely affected, which would harm our business.

Some industry standards may not be widely adopted or implemented uniformly, and competing standards may still emerge that may be preferred by our customers. Products for communications and computing applications are based on industry standards that are continually evolving. Our ability to compete in the future will depend on our ability to identify and ensure compliance with these evolving industry standards. The emergence of new industry standards could render our products incompatible with products developed by other suppliers or make it difficult for our products to meet the requirements of certain OEMs. As a result, we could be required to invest significant time and effort and to incur significant expense to redesign our products to ensure compliance with relevant standards. If our products are not in compliance with prevailing industry standards for a significant period of time, we could miss opportunities to achieve crucial design wins. We may not be successful in developing or using new technologies or in developing new products or product enhancements that achieve market acceptance. Our pursuit of necessary technological advances may require substantial time and expense.

Industry consolidation may lead to increased competition and may harm our operating results.

There has been a trend toward industry consolidation in our markets for several years. We expect this trend to continue as companies attempt to improve the leverage of growing research and development costs, strengthen or hold their market positions in an evolving industry or are unable to continue operations. Companies that are strategic alliance partners in some areas of our business may acquire or form alliances with our competitors, thereby reducing their business with us. We believe that industry consolidation may result in stronger competitors that are better able to compete as sole-source vendors for customers. This could lead to more variability in our operating results and could have a material adverse effect on our business, operating results and financial condition.

Risks Related to Our Common Stock

The trading price and volume of our common stock is subject to price volatility. This volatility may affect the price at which you could trade our common stock.

The trading price of our common stock has experienced wide fluctuations. For example, the closing sale prices for our common stock have ranged from $29.68 to $76.23 in the twelve-month period ended December 31, 2019. Volatility in the market price of our common stock may occur in the future in response to many risk factors discussed herein and others beyond our control, including but not limited to:

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actual or anticipated fluctuations in our financial condition and operating results;

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changes in the economic performance or market valuations of other companies that provide high-speed analog and mixed signal semiconductor solutions;

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loss of a significant amount of existing business;

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actual or anticipated changes in our growth rate relative to our competitors;

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actual or anticipated fluctuations in our competitors’ operating results or changes in their growth rates;

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issuance of new or updated research or reports by securities analysts;

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our announcement of actual results for a fiscal period that are higher or lower than projected results or our announcement of revenue or earnings guidance that is higher or lower than expected;

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regulatory developments in our target markets affecting us, our customers or our competitors;

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fluctuations in the valuation of companies perceived by investors to be comparable to us;

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share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;

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sales or expected sales of additional common stock or equity or equity-linked securities;

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terrorist attacks, health epidemics or natural disasters or other such events impacting countries where we or our customers have operations; and

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general economic and market conditions.

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Furthermore, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes or international currency fluctuations, may cause the market price of shares of our common stock to decline. In the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business. Each of these factors, among others, could harm the value of our common stock.

Due to the nature of our compensation program, our executive officers can sell shares of our common stock, often pursuant to trading plans established under Rule 10b5-1 of the Exchange Act, and certain of our executive officers currently have 10b5-1 trading plans in place. As a result, sales of common stock by our executive officers may not be indicative of their respective opinions of our performance at the time of sale or of our potential future performance. Nonetheless, the market price of our common stock may be affected by sales of shares by our executive officers.

If securities or industry analysts do not publish research or reports about our business, or if they change their recommendations regarding our stock adversely, our stock price and trading volume could decline.

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of the analysts who cover us downgrade our stock, our stock price would likely decline. If one or more of these analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

We may not be able to obtain capital when desired on favorable terms, if at all, or without dilution to our stockholders and our failure to raise capital when needed could prevent us from executing our growth strategy.

We believe that our existing cash and cash equivalents, investments in marketable securities, and cash flows from our operating activities, will be sufficient to meet our anticipated cash needs for at least the next 12 to 18 months. We operate in an industry, however, that makes our financial prospects difficult to evaluate. It is possible that we may not generate sufficient cash flow from operations or otherwise have the capital resources to meet our future capital needs. If this occurs, we may need additional financing to execute on our current or future business strategies, including to:

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invest in our research and development efforts by hiring additional technical and other personnel;

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expand our operating infrastructure;

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acquire complementary businesses, products, services or technologies; or

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otherwise pursue our strategic plans and respond to competitive pressures.

If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders could be significantly diluted, and these newly-issued securities may have rights, preferences or privileges senior to those of existing stockholders. If we raise additional funds by obtaining loans from third parties, the terms of those financing arrangements may include negative covenants or other restrictions on our business that could impair our operational flexibility, and would also require us to incur interest expense. There is no assurance that additional financing will be available on terms favorable to us, or at all. If adequate funds are not available or are not available on acceptable terms, if and when needed, our ability to fund our operations, take advantage of unanticipated opportunities, develop or enhance our products, or otherwise respond to competitive pressures could be significantly limited.

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Delaware law and our corporate charter and bylaws contain anti-takeover provisions that could delay or discourage takeover attempts that stockholders may consider favorable, which could also reduce the market price of our common stock.

Provisions in our restated certificate of incorporation and amended and restated bylaws may have the effect of delaying or preventing a change of control or changes in our management. These provisions include the following:

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the right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors;

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the classification of our board of directors so that only a portion of our directors are elected each year, with each director serving a three-year term;

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the requirement for advance notice for nominations for election to our board of directors or for proposing matters that can be acted upon at a stockholders’ meeting;

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the ability of our board of directors to alter our bylaws without obtaining stockholder approval;

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the ability of our board of directors to issue, without stockholder approval, up to 10,000,000 shares of preferred stock with rights set by our board of directors, which rights could be senior to those of common stock;

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the required approval of holders of at least two-thirds of the shares entitled to vote at an election of directors to adopt, amend or repeal our bylaws or amend or repeal the provisions of our certificate of incorporation regarding the election and removal of directors and the ability of stockholders to take action by written consent;

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the elimination of the right of stockholders to call a special meeting of stockholders and to take action by written consent; and

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designating the state and federal courts located within the State of Delaware as the exclusive forums for derivative actions, claims of breach of fiduciary duty by any director, officer or other employee, claims arising pursuant to any provisions of the Delaware General Corporation Law and claims governed by the internal affairs doctrine.

In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law. These provisions may prohibit or restrict large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us. These provisions in our restated certificate of incorporation and amended and restated bylaws and under Delaware law could discourage potential takeover attempts and could reduce the price that investors might be willing to pay for shares of our common stock in the future and result in the market price of our common stock being lower than they would without these provisions.

We do not currently intend to pay dividends on our common stock and, consequently, the ability to achieve a return on an investment in our stock will depend on appreciation in the price of our common stock.

We have never declared or paid any cash dividends on our common stock and do not currently intend to do so for the foreseeable future. We currently intend to invest our future earnings, if any, to fund our growth. The success of an investment in shares of our common stock will depend upon any future appreciation in their value. There is no guarantee that our common stock will appreciate in value.

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Item 1b.

Unresolved Staff Comments

None.

Item 2.

Properties

We lease 68,950 square feet of office space in Santa Clara, California, which currently serves as our principal executive office that will expire on March 31, 2020. In 2020, we will move to a 110,611 square feet office space in Santa Clara, California, which will expire on September 30, 2030. We also lease 42,197 square feet of office space in Westlake Village, California under a lease that will expire on December 31, 2024. We also lease 27,797 square feet of office in Irvine, California under a lease that will expire on July 31, 2019. We believe that our current facilities are sufficient to meet our needs for the foreseeable future. For additional information regarding our obligations under property leases, see Note 16 of Notes to our Consolidated Financial Statements, included in Part II, “Item 8, Financial Statements and Supplementary Data.”

Item 3.

Legal Proceedings

We are currently a party to the following legal proceedings:

Netlist, Inc. v. Inphi Corporation, Case No. 09-cv-6900 (C.D. Cal.)

On September 22, 2009, Netlist filed suit in the United States District Court, Central District of California (Court) asserting that we infringe U.S. Patent No. 7,532,537. Netlist filed an amended complaint on December 22, 2009, further asserting that we infringe U.S. Patent Nos. 7,619,912 and 7,636,274, collectively with U.S. Patent No. 7,532,537, the patents-in-suit, and seeking both unspecified monetary damages to be determined and an injunction to prevent further infringement. These infringement claims allege that the iMB™ and certain other memory module components infringe the patents-in-suit. We answered the amended complaint on February 11, 2010 and asserted we do not infringe the patents-in-suit and that the patents-in-suit are invalid. In 2010, we filed inter partes requests for reexamination with the United States Patent and Trademark Office (USPTO), asserting that the patents-in-suit are invalid. As a result of the proceedings at the USPTO, the Court has stayed the litigation, with the parties advising the Court on status every 120 days.

As to the proceeding at the USPTO, reexamination has been ordered for all of the patents that were alleged to infringe. At present, the USPTO has determined that almost all of the originally filed claims are not valid, and determined certain amended claims to be patentable. The Reexamination Certificate for U.S. Patent No. 7,532,537 was issued on August 2, 2016 based upon amended claims. The Reexamination Certificate for U.S. Patent No. 7,636,274 was issued on November 5, 2018, indicating all claims 1-97 were cancelled. The parties continue to assert their respective positions with respect to the reexamination proceeding for U.S. Patent No. 7,619,912.

While we intend to defend the foregoing USPTO proceedings and lawsuit vigorously, the USPTO proceedings and litigation, whether or not determined in our favor or settled, could be costly and time-consuming and could divert management’s attention and resources, which could adversely affect our business.

Based on the nature of USPTO proceedings and litigation, we are currently unable to predict the final outcome of this lawsuit and therefore, cannot determine the likelihood of loss nor estimate a range of possible loss. However, because of the nature and inherent uncertainties of litigation, should the outcome of these actions be unfavorable, our business, financial condition, results of operations or cash flows could be materially and adversely affected.

Claims Against eSilicon

Other Litigation Matters

We are not currently a party to any other material litigation. The semiconductor industry is characterized by frequent claims and litigation, including claims regarding patent and other intellectual property rights as well as improper hiring practices. We may from time to time become involved in litigation relating to claims arising from our ordinary course of business. These claims, even if not meritorious, could result in the expenditure of significant financial and managerial resources.

Item 4.

MINE SAFETY DISCLOSURES

Not applicable.

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PART II

Item 5.

Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market for Registrant’s Common Equity

Our common stock is traded on the New York Stock Exchange under the symbol “IPHI”. As of February 26, 2020, we had approximately 28 holders of record of our common stock. This number does not include the number of persons whose shares are in nominee or in “street name” accounts through brokers.

We have never declared or paid any cash dividends on shares of our capital stock. We expect to retain all of our earnings to finance the expansion and development of our business and we do not currently intend to pay any cash dividends on our capital stock in the foreseeable future. Our board of directors will determine future dividends, if any.

Directors and executive officers have currently and may from time to time in the future, establish pre-set trading plans in accordance with Rule 10b5-1 promulgated under the Exchange Act.

Securities Authorized for Issuance under Equity Compensation Plans

Information regarding the securities authorized for issuance under our equity compensation plans can be found under Part III, “Item 12, Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”

Share Performance Graph

The following information is not deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C under the Exchange Act or to the liabilities of Section 18 of the Exchange Act, and will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent we specifically incorporate it by reference into such a filing.

Set forth below is a line graph showing the cumulative total stockholder return (change in stock price plus reinvested dividends) assuming the investment of $100 on December 31, 2014 in each of our common stock, the S&P 500 Index and PHLX Semiconductor Index for the period commencing on December 31, 2014 and ending on December 31, 2019. The comparisons in the table are required by the SEC and are not intended to forecast or be indicative of future performance of our common stock.

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Item 6.

Selected Financial Data

The following selected financial data should be read together with Part II, “Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this report. The selected balance sheet data as of December 31, 2019 and 2018, and the selected statements of operations data for each of the years ended December 31, 2019, 2018, and 2017 have been derived from our audited consolidated financial statements included elsewhere in this report. The selected balance sheet data as of December 31, 2017, 2016 and 2015 have been derived from our audited consolidated financial statements not included in this report. Our statements of income (loss) have been retrospectively reclassified to present the results of operations of the memory product business as discontinued operations. Historical results are not necessarily indicative of the results to be expected in the future.

	Year Ended December 31,
	2019			2018			2017			2016			2015
	(in thousands, except share and per share data)
Consolidated Statement of Income (Loss) Data:

Revenue(1)	$	365,635		$	294,490		$	348,201		$	266,277		$	192,710
Cost of revenue(1) (2) (3)		152,814			129,345			151,698			85,581			72,694
Gross profit		212,821			165,145			196,503			180,696			120,016
Operating expenses:
Research and development(1) (2) (3)		183,875			167,924			200,539			108,013			87,774
Sales and marketing(1) (2)		47,722			43,080			42,381			26,534			21,462
General and administrative(1) (2)		30,672			28,302			23,782			21,201			20,322
Total operating expenses		262,269			239,306			266,702			155,748			129,558
Income (loss) from operations		(49,448	)		(74,161	)		(70,199	)		24,948			(9,542	)
Interest expense(4)		(34,920	)		(32,209	)		(29,842	)		(17,406	)		(783	)
Other income, net(5)		11,853			2,408			3,961			3,914			221
Income (loss) before income taxes from continuing operations		(72,515	)		(103,962	)		(96,080	)		11,456			(10,104	)
Provision (benefit) for income taxes(6)		396			(8,211	)		(21,176	)		(15,057	)		5,857
Net income (loss) from continuing operations		(72,911	)		(95,751	)		(74,904	)		26,513			(15,961	)
Discontinued operations:
Gain from sale		—			—			—			78,544			—
Income (loss) from discontinued operations		—			—			—			(3,802	)		4,535
Provision for income taxes		—			—			—			(1,799	)		(2,125	)
Net income from discontinued operations		—			—			—			72,943			2,410
Net income (loss)	$	(72,911	)	$	(95,751	)	$	(74,904	)	$	99,456		$	(13,551	)
Earnings per share:
Basic
Net income (loss) from continuing operations	$	(1.61	)	$	(2.19	)	$	(1.78	)	$	0.65		$	(0.41	)
Net income from discontinued operations		—			—			—			1.80		$	0.06
Basic earnings per share	$	(1.61	)	$	(2.19	)	$	(1.78	)	$	2.45		$	(0.35	)
Diluted
Net income (loss) from continuing operations	$	(1.61	)	$	(2.19	)	$	(1.78	)	$	0.60		$	(0.41	)
Net income from discontinued operations		—			—			—			1.65		$	0.06
Diluted earnings per share	$	(1.61	)	$	(2.19	)	$	(1.78	)	$	2.25		$	(0.35	)
Weighted-average shares used in computing earnings per share:
Basic		45,226,717			43,690,581			42,165,213			40,565,433			38,580,330
Diluted		45,226,717			43,690,581			42,165,213			44,124,881			38,580,330

(1)

On December 12, 2016, we completed the acquisition of ClariPhy for $303.7 million in cash. The results of operations of ClariPhy and estimated fair value of assets acquired and liabilities assumed were included in our consolidated financial statements from the acquisition date. The acquisition resulted in a significant change in our statement of operations in 2019, 2018 and 2017 which includes:

(i) charge to cost of goods sold resulting from the step-up inventory acquired from ClariPhy; and

(ii) charge to cost of goods sold and operating expenses from amortization of acquired intangibles.

Footnotes continued on the following page.

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	As of December 31,
	2019		2018		2017		2016		2015
	(in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	282,723	$	172,018	$	163,450	$	144,867	$	283,044
Investments in marketable securities		140,131		235,339		241,737		249,476		43,616
Working capital		263,848		446,837		457,062		433,250		344,897
Total assets		976,006		889,873		917,506		990,595		505,046
Convertible debt		476,178		447,825		421,431		396,857		171,701
Other liabilities		153,227		75,354		84,674		131,214		42,675
Total stockholders’ equity		346,601		366,694		411,401		462,524		290,670

Footnotes continued from the prior page.

(2)	Stock-based compensation expense is included in our results of operations as follows:

	Year Ended December 31,
	2019		2018		2017		2016		2015
	(in thousands)
Operating expenses:
Cost of revenue	$	6,208	$	2,527	$	2,045	$	1,796	$	1,359
Research and development		42,265		37,397		28,846		17,390		13,268
Sales and marketing		15,561		13,470		8,340		4,405		3,213
General and administrative		12,821		10,490		5,602		4,407		5,473
Discontinued operations		—		—		—		2,194		4,980

(3)	Cost of revenue and research and development expenses for the year ended December 31, 2017 included an impairment charge of $47.0 million as a result of abandonment of a project related to certain developed technology and in-process research and development from the ClariPhy acquisition.

(4)	The interest expense resulted mainly from convertible debt issued in December 2015 and September 2016.

(5)	Other income, net included an impairment charge of $7.0 million related to a non-marketable equity investment for the year ended December 31, 2018.

(6)	The benefit for income taxes for the year ended December 31, 2016 included the release of valuation allowance against deferred tax assets as a result of the acquisition of ClariPhy. The benefit for income taxes for the year ended December 31, 2017 included revaluation of deferred tax liabilities to the new federal tax rate of 21% and tax benefit from intercompany transfer of intellectual property rights. The benefit for income taxes for the year ended December 31, 2018 included partial release of federal valuation allowance resulting from the transfer of an acquired in-process research and development to developed technology in 2018 which allowed the related deferred tax liability to be considered a source of income for realizing deferred tax assets, as well as the revaluation of the foreign deferred tax liability on the in-process research and development based on the foreign tax rates applicable to the anticipated reversal periods.

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Item 7.

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

This Management’s Discussion and Analysis of Financial Condition and Results of Operations and this report contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this report, the terms “may,” “might,” “will,” “objective,” “intend,” “should,” “could,” “can,” “would,” “expect,” “believe,” “estimate,” “predict,” “potential,” “plan,” “anticipate,” “seek,” “future,” “strategy,” “likely,” or the negative of these terms, and similar expressions are intended to identify forward-looking statements. These statements include statements regarding our anticipated trends and challenges in our business and the markets in which we operate, including the market for 25G to 600G high-speed analog semiconductor solutions, demand for our current products, our plans for future products and anticipated features and benefits thereof, expansion of our product offerings and business activities, enhancements of existing products, our ability to forecast demand and its effects, the impact of U.S. government export restrictions on Huawei, our acquisitions and investments in other companies or technologies, including our acquisition of eSilicon, and the anticipated benefits thereof and increase in expenses related thereto, critical accounting policies and estimates, our expectations regarding our expenses and revenue, sources of revenue, our effective tax rate and tax benefits, the benefits of our products and services, our technological capabilities and expertise, our liquidity position and sufficiency thereof, including our anticipated cash needs and uses of cash, our ability to generate cash, our operating and capital expenditures and requirements and our needs for additional financing and potential consequences thereof, repatriation of cash balances from our foreign subsidiaries, our contractual obligations, our anticipated growth and growth strategies, including growing our end customer base, interest rate sensitivity, adequacy of our disclosure controls, our legal proceedings and warranty claims. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these or any other forward-looking statements. These risks and uncertainties include, but are not limited to, those risks discussed below, as well as factors affecting our results of operations, our ability to manage our growth, our ability to sustain or increase profitability, demand for our solutions, the effect of changes in average selling prices for our products, our ability to compete, our ability to rapidly develop new technology and introduce new products, our ability to safeguard our intellectual property, our ability to qualify for tax holidays and incentives, trends in the semiconductor industry and fluctuations in general economic conditions, and the risks set forth throughout this report, including the risks set forth under Part I, “Item 1A, Risk Factors.” Readers are cautioned not to place undue reliance on these forward-looking statements, which are based on current expectations and reflect management's opinions only as of the date hereof. These forward-looking statements speak only as of the date of this Report. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based.

The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes that are included elsewhere in this Annual Report on Form 10-K.

Overview

We are a fabless provider of high-speed analog and mixed signal semiconductor solutions for the communications and cloud markets. Our analog and mixed signal semiconductor solutions provide high signal integrity at leading-edge data speeds while reducing system power consumption. Our semiconductor solutions are designed to address bandwidth bottlenecks in networks, maximize throughput and minimize latency in computing environments and enable the rollout of next generation communications and cloud infrastructures. Our solutions provide a vital high-speed interface between analog signals and digital information in high-performance systems such as telecommunications transport systems, enterprise networking equipment and data centers. We provide 25G to 600G high-speed analog and mixed signal semiconductor solutions for the communications market. We have a wide range of products in our portfolio with many products sold in communication and cloud markets as of December 31, 2019. We have ongoing, informal collaborative discussions with industry and technology leaders in Tier-1 cloud providers, telecom operators, network system OEMs and optical module and component vendors to design architectures and products that solve bandwidth bottlenecks in existing and next generation communications systems. Although we do not have any formal agreements with these entities, we engage in informal discussions with these entities with respect to anticipated technological challenges, next generation customer requirements and industry conventions and standards. We help define industry conventions and standards within the markets we target by collaborating with technology leaders, OEMs, systems manufacturers and standards bodies.

The recent history of our product development and sales and marketing efforts is as follows:

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In 2015, we started sampling a new product in our 45GBaud Linear Coherent Product Family, IN4518SZ. The IN4518SZ is a quad linear differential to single-ended Mach-Zehnder Modulator Driver, pin-compatible with the linear driver IN3214SZ, for 200G coherent Optical interconnect applications. The IN4518SZ extends the reach of 200G coherent for telecommunication applications and enables one set of hardware to serve multiple segments in the telecommunication markets. We also announced the availability of the industry’s first, highly integrated, lowest power PAM4 chipset solutions for intra-data center and inter-data center cloud interconnects. The PAM4 chipset solution is a family of PAM4 PHY ICs for 40G (IN014020-XL), 50G (IN015050-SF), 100G (IN015025-CA), 400G (IN015025-CD) and a companion linear TIA (IN2860TA) to enable platform solutions for multi-rate PAM4 interconnects. We also started sampling IN3217SZ, a quad linear differential to single-ended Mach-Zehnder Modulator Driver in a Surface Mount Technology (SMT) package. The new SMT quad linear driver extends the product portfolio by utilizing cost effective packaging for higher volume 100G/200G coherent long haul and metro optical interconnect applications.

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In 2016, we completed the acquisition of ClariPhy Communications, Inc. With this acquisition, we are able to provide a complete coherent platform to our customers in telecommunicaton and cloud interconnect applications. We also introduced ColorZ® reference design, the industry’s first Silicon Photonics 100G PAM4 platform solution for 80 km DWDM Data Center Interconnect in QSFP28 form factor. Utilizing advanced Pulse Amplitude Modulation signaling, ColorZ® delivers up to 4Tb/s of bandwidth over a single fiber and allows multiple data centers located up to 80 km of each other to be connected and act like a single data center. We further introduced a highly integrated Silicon Photonics (SiPho) technology platform for 100Gbit/s data center applications. The single-chip SiPho optics includes multi-channel modulators, photodetectors, multiplexers, demultiplexers, optical power monitors and fiber coupling structures all integrated onto a single integrated circuit. We also announced the availability of the industry’s lowest power Clock and Data Recovery Retimer for module applications, IN012525-CQ CMOS CDR and 45GBaud Linear Coherent Product Family, the industry’s first linear ICs enabling 400G coherent solutions for next-generation telecommunication and cloud applications. We also announced the industry’s first 400GbE platform solution for next-generation 400G CFP8 modules. The platform solution includes our PAM4 DSP IC that supports IEEE P802.3bs 400G/s Ethernet standard alongside its companion market leading linear TIA and linear drivers for client based cloud interconnects. With the introduction of these new products, we are offering customers an end-to-end platform solution for moving data faster within and between data centers. We also announced the production availability of a new product in the 32GBaud Linear Coherent Product Family. The IN3217SZ, a quad linear Mach-Zehnder Modulator Driver in a SMT package, extends the product portfolio by utilizing cost effective packaging for the 100G/200G coherent long haul and metro optical interconnect applications. We also announced the sampling of IN6450TA, the world’s first 64GBaud dual channel linear TIA/VGA amplifier. The IN6450TA supports data rates of 400Gbps to 600Gbps on a single wavelength for long haul, metro, and data center interconnect networks using coherent technology.

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In 2017, we started sampling IN6417SZ, the industry’s first 64GBaud quad linear differential to single-ended Mach-Zehnder Modulator Driver in 14x9 mm Surface Mount Technology (SMT) package. This new 64GBaud SMT quad linear driver extends our 64G product portfolio for next-generation 400G/600G coherent, long haul, and metro optical interconnect applications. We introduced Polaris™, the industry’s first 16nm CMOS PAM4 platform solution for next-generation cloud deployments. The Polaris platform includes our highly integrated, lowest power PAM4 digital signal processing IC alongside its companion market leading, low power linear driver and TIA for data center connectivity. We announced the commercial availability and production ramp of ColorZ®, the industry’s first Silicon Photonics 100G PAM4 platform solution for 80 km DWDM Data Center Interconnect in QSFP28 form factor, and our IN6450TA, the world’s first 64GBaud dual channel linear TIA/VGA amplifier. We also announced the new Vega™ family of low power 50/100/200/400G PAM4 Gearbox and Retimer DSPs for system line cards. Leveraging our DSP-based PAM4, the new Gearbox and Retimer DSPs expand bandwidth capacity of next generation networks, delivering accelerated connectivity for wired network infrastructure at cloud-scale data centers, enterprise, and service providers. We also started sampling our M200, an ultra-low power, and high-performance Coherent DSP, supporting 100G and 200G data rates for telecommunication and cloud interconnect applications. We announced the expansion of our ColorZ® portfolio with ColorZ-Lite™, 100G DWDM in QSFP28 form factor for campus and data center interconnects. The addition of ColorZ-Lite™ offers campus and data centers a cost optimized solution for shorter distances up to 20 km. We also expanded our 16nm Polaris™ PAM4 DSP portfolio for next generation 50G-400G cloud deployments. The new Polaris™ PAM4 DSP now includes products supporting an integrated driver to address the growing demands for lower power and reduced cost solutions over short reach data center optical connectivity.

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In 2018, we announced our 16nm 400Gbps Porrima™ Single-Lambda PAM4 platform, the first complete 56GBaud platform solution for wired network infrastructure including hyperscale cloud data center, service provider and enterprise network. We also announced the production availability of the Polaris™ 16nm CMOS PAM4 platform. The Polaris platform is the industry’s first 16nm 28GBaud PAM4 DSP that includes integrated driver options for EML and VCSEL lasers to cover a broad range of optical interconnects from 50G to 400G. The platform also supports a family of discrete EML and VCSEL drivers and linear TIAs. We started shipping the production version of its M200 LightSpeed-III™, Coherent DSP with ultra-low power and high-performance supporting 100G and 200G data rates for telecommunication and cloud data center interconnect applications. We announced the expansion of its 16nm Porrima™ Single-Lambda PAM4 platform family, with the complete 100Gbps/56GBaud platform solution for 100G QSFP28 and SFP-DD DR/FR optical modules for wired network infrastructure including hyperscale cloud data center, service provider, wireless 5G and enterprise networks. We introduced the industry’s smallest form factor, lowest power and highest performance 64GBaud quad coherent TIA and driver. Paired up as a chipset, the new TIA and Driver will enable higher density line cards and pluggable solutions that are critical for next generation 400/600G telecommunication and cloud data center interconnect (DCI) applications.

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In 2019, we announced our Porrima™ Gen2 Single-Lambda PAM4 platform with integrated laser drivers that reduces optical module Bill of Material (BOM) cost and enables sub-10 watt 400Gbps QSFP-DD optical transceiver modules for wired network infrastructure – including hyperscale cloud data center, service provider and enterprise networks. We also announced first to production of a 100Gbps and 400Gbps Single-Lambda PAM4 platform for the next frontier of data center and cloud networking. Our Porrima™ PAM4 platform is a complete 56GBaud solution, with linear TIA and drivers, for the optical network infrastructure including mass-scale cloud data center, service provider and enterprise networks. We started sampling our new Canopus™ coherent DSP, the industry’s first merchant 7nm coherent DSP. Canopus paves the way for an industry-wide paradigm shift in deployment models by providing low power and high density QSFP-DD, OSFP and CFP2-DCO coherent pluggable modules for cloud and telecom customers. We started engineering sampling of ColorZ® II, the industry first 400ZR QSFP-DD pluggable coherent transceiver for cloud DCIs to major cloud operators and OEMs. COLORZ II enables large cloud operators to connect metro data centers at a fraction of the cost of traditional coherent transport systems and allows switch and router companies to offer the same density for both coherent DWDM and client optics in the same chassis. We believe our acquisition of eSilicon is expected to accelerate our strategic roadmap in developing electro-optics solutions for our cloud and telecommunications customers and expand our presence into strategic geographic regions for talent acquisition.

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Our products are designed into systems sold by OEMs, including Tier-1 OEMs in the telecom and networking system markets worldwide. We believe we are one of a limited number of suppliers to these OEMs for the types of products we sell, and in some cases we may be the sole supplier for certain applications. We sell both directly to these OEMs and to module manufacturers, ODMs, and subsystems providers that, in turn, sell to these OEMs. During the year ended December 31, 2019, we sold our products to approximately 100 customers. A significant portion of our revenue has been generated by a limited number of customers. In the year ended December 31, 2019, we believe that sales to Microsoft and Huawei, directly and indirectly, through subcontractors, accounted for approximately 14% and 11% of our total revenue, respectively. We sell products to Fabrinet, a subcontractor who sells to various end customers. Sales to Fabrinet, was 11% of our total revenue for the year ended December 31, 2019. We believe, in the aggregate, sales to Cisco, including its subcontractors was significant but less than 10% of our total revenue for the year ended December 31, 2019. In the year ended December 31, 2018, we believe that sales to Microsoft, Huawei, and Cisco, directly and indirectly, through subcontractors, accounted for approximately 18%, 14% and 11% of our total revenue, respectively. We sell products to Cyberlink, a distributor who sells to various end customers. Sales to Cyberlink was approximately 11% of our total revenue for the year ended December 31, 2018. In the year ended December 31, 2017, we believe that sales to Microsoft, Huawei, and Cisco, directly and indirectly, through subcontractors, accounted for approximately 17%, 14%, and 11% of our total revenue. Substantially all of our sales to date, including our sales to Microsoft, Huawei and Cisco, are made on a purchase order basis. Since the beginning of 2006, we have shipped more than 65 million high-speed analog and mixed signal semiconductors. Our total revenue was $365.6 million, $294.5 million and $348.2 million for the years ended December 31, 2019, 2018 and 2017, respectively. The increase in our revenue in 2019 was primarily due to increases in telecommunication and cloud products, partially offset by legacy products.

In April 2010, we received approval from the government of Singapore to set up an international headquarters from which to conduct our international operations. Because of its geographic alignment with suppliers and customers, we established our operations in Singapore to become a new international headquarters office for receiving and fulfilling orders for product shipped to locations outside the United States. In addition, we built a team of engineering capability in Singapore both for development as well as testing associated with manufacturing. International operations in Singapore commenced on May 1, 2010 and during 2010, we transitioned our international operations from the United States to our Singapore subsidiary.

Demand for new features changes rapidly. It is difficult for us to forecast the demand for our products, in part because of the complex supply chain between us and the end-user markets that incorporate our products. Due to our lengthy product development cycle, it is critical for us to anticipate changes in demand for our various product features and the applications they serve to allow sufficient time for product development and design. Our failure to accurately forecast demand can lead to product shortages that can impede production by our customers and harm our customer relationships. Conversely, our failure to forecast declining demand or shifts in product mix can result in excess or obsolete inventory.

Although revenue generated by each design win and the timing of the recognition of that revenue can vary significantly, we consider ongoing design wins to be a key factor in our future success. We consider a design win to occur when an OEM or contract manufacturer notifies us that it has selected our products to be incorporated into a product or system under development. The design win process is typically lengthy, and as a result, our sales cycles will vary based on the market served, whether the design win is with an existing or new customer and whether our product is under consideration for inclusion in a first or subsequent generation product. In addition, our customers’ products that incorporate our semiconductors can be complex and can require a substantial amount of time to define, design and produce in volume. As a result, we can incur significant design and development expenditures in circumstances where we do not ultimately recognize, or experience delays in recognizing revenue. Our customers generally order our products on a purchase order basis. We do not have any long-term purchase commitments (in excess of one year) from any of our customers. Once our product is incorporated into a customer’s design, however, we believe that our product is likely to continue to be purchased for that design throughout that product’s life cycle because of the time and expense associated with redesigning the product or substituting an alternative semiconductor. Our design cycle from initial engagement to volume shipment is typically two to three years. Product life cycles in the markets we serve typically range from five to 10 years or more and vary by application.

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Summary of Consolidated Financial Results

As discussed in more detail below, for the year ended December 31, 2019, compared to the year ended December 31, 2018, we delivered the following financial performance.

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Total revenue increased by $71.1 million, or 24% to $365.6 million.

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Gross profit as a percentage of revenue increased from 56% to 58%.

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Total operating expenses increased by $23.0 million, or 10% to $262.3 million.

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Loss from operations decreased by $24.7 million to $49.4 million.

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Provision for income taxes was $0.4 million in 2019 compared to benefit for income taxes of $8.2 million in 2018.

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Loss per share decreased by $0.58 to $1.61.

The increase in our revenue for the year ended December 31, 2019 was primarily the result of increases in telecommunication products and cloud products, partially offset by a decrease in legacy products.

Total operating expenses increased in 2019 due primarily to an increase in stock-based compensation expense due to higher equity awards and personnel costs. Our expenses mainly consist of personnel costs, which include compensation, benefits, payroll related taxes and stock-based compensation. From December 31, 2018 to December 31, 2019, our headcount increased by 105, mostly in the engineering department. We expect expenses to continue to increase in absolute dollars due to the acquisition of eSilicon and as we continue to invest resources to develop more products, to support the growth of our business. Other income increased due to an impairment charge of $7.0 million on an investment in non-marketable equity security recorded in 2018. Our loss per share decreased primarily due to an increase in gross margin and an increase in other income, partially offset by increases in operating expenses and provision for income taxes.

Our cash and cash equivalents were $282.7 million at December 31, 2019, compared with $172.0 million at December 31, 2018. Cash provided by operating activities was $96.9 million during the year ended December 31, 2019 compared to $78.2 million during the year ended December 31, 2018. Cash provided by investing activities was $63.0 million during the year ended December 31, 2019 compared to cash used in investing activities of $35.6 million during the year ended December 31, 2018. Cash used in financing activities was $49.3 million during the year ended December 31, 2019 compared to $33.9 million during the year ended December 31, 2018.

Critical Accounting Policies and Significant Management Estimates

Our consolidated financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP). In connection with the preparation of our consolidated financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

Our significant accounting policies are discussed in Note 1 of the Notes to our Consolidated Financial Statements. We believe that the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results, and they require our most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. We have reviewed these critical accounting estimates and related disclosures with our audit committee.

Revenue Recognition

Prior to January 1, 2018, we recognized revenue when there was persuasive evidence of an arrangement, delivery had occurred, the fee was fixed or determinable and collection was reasonably assured.

On January 1, 2018, we adopted Accounting Standards Update (ASU) 2014-09, Revenue from Contract with Customers (Topic 606), using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. The adoption of this guidance resulted in no cumulative effect adjustment as of January 1, 2018. Starting January 1, 2018, we recognize revenue on sales to distributors upon shipment and transfer of control (known as “sell-in” revenue recognition), rather than deferring recognition until distributors report that they have sold the products to their customers (known as “sell-through” revenue recognition). The impact on revenue for the year ended December 31, 2018 was an increase of $3.8 million. The impact on cost of revenue for the year ended December 31, 2018 was an increase of $0.8 million. Results for reporting periods beginning after January 1, 2018 are presented under the new revenue guidance, while prior periods were not retrospectively adjusted and continue to be reported in accordance with our historic revenue recognition accounting.

We recognize revenue when the control of the promised goods or services is transferred to customers in an amount that reflects the consideration we expect to receive in exchange for such goods or services.

Our products are fully functional at the time of shipment and do not require additional production, modification, or customization. We recognize revenue upon transfer of control at a point in time when title transfers either upon shipment to or receipt by the customer, net of accruals for estimated sales returns and allowances. Sales and other taxes we collect are excluded from revenue. The fee is based on specific products and quantities to be delivered at specified prices, which is evidenced by a customer purchase order or other persuasive evidence of an arrangement. Certain distributors may receive a credit for the price discounts associated with the distributors' customers that purchased those products. We estimate the extent of these distributor price discounts at each reporting period to reduce accounts receivable and revenue. Although we accrue an estimate of distributor price discount, we do not issue these discounts to the distributor until the inventory is sold to the distributors' customers. As of December 31, 2019 and 2018, the estimated price discount was $0.7 million and $1.6 million, respectively. Payment terms of customers are typically 30 to 60 days after invoice date. Our products are under warranty against defects in material and workmanship generally for a period of one or two years. We accrue for estimated warranty cost at the time of sale based on anticipated warranty claims and actual historical warranty claims experience including knowledge of specific product failures that are outside of our typical experience.

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Occasionally, we enter into license and development agreements with some of our customers and recognize revenue from these agreements upon completion and acceptance by the customer of contract deliverables by milestones or as services are provided, depending on the terms of the arrangement. Revenue is deferred for any amounts billed or received prior to completion of milestones or delivery of services. We believe the milestone method best depicts efforts expended to transfer services to the customers under most of our development agreements. Certain contracts may include multiple performance obligations in which we allocate revenues to each performance obligation based on observable evidence. When stand-alone selling prices are not directly observable, we use the adjusted market assessment approach or residual approach, if applicable.

We monitor collectability of accounts receivable primarily through review of the accounts receivable aging. Our policy is to record an allowance for doubtful accounts based on specific collection issues we have identified, aging of underlying receivables and historical experience of uncollectible balances. As of December 31, 2019 and 2018, our allowance for doubtful accounts was $1.2 million.

We have not made any material changes in the accounting methodology we use to record the allowance for doubtful accounts during the past three years. If actual results are not consistent with the assumptions and estimates used, for example, if the financial condition of the customer deteriorated, we may be required to record additional expense that could materially negatively impact our operating results. To date, however, substantially all of our receivables have been collected within the following quarter.

Inventory Valuation

We value our inventory, which includes materials, labor and overhead, at the lower of cost and net realizable value. Cost is computed using standard cost, which approximates actual cost, on a first-in, first-out basis. We periodically write-down our inventory to the lower of cost and net realizable value based on our estimates that consider historical usage and future demand. These factors are impacted by market and economic conditions, technology changes, new product introductions and changes in strategic direction. The calculation of our inventory valuation, specifically the write-down for excess or obsolete inventories, requires management to make assumptions and to apply judgment regarding forecasted customer demand and technological obsolescence that may turn out to be inaccurate. Inventory valuation reserves, once established, are not reversed until the related inventory has been sold or scrapped.

We have not made any material changes in the accounting methodology we use to record inventory reserves during the past three years. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions that we use to calculate our inventory reserve. However, if estimates regarding customer demand are inaccurate or changes in technology affect demand for certain products in an unforeseen manner, we may be exposed to losses or gains that could be material.

Product Warranty

Our products are under warranty against defects in material and workmanship generally for a period of one or two years. We accrue for estimated warranty cost at the time of sale based on anticipated warranty claims and actual historical warranty claims experience including knowledge of specific product failures that are outside of our typical experience. The warranty obligation is determined based on product failure rates, cost of replacement and failure analysis cost. We monitor product returns for warranty-related matters and monitor both a specific and general accrual for the related warranty expense based on specific circumstances and general historical experience. Our warranty obligation requires management to make assumptions regarding failure rates and failure analysis costs. If actual warranty costs differ significantly from these estimates, adjustments may be required in the future, which would adversely affect our gross margins and operating results. The warranty liability as of December 31, 2019 and 2018 was immaterial.

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Goodwill and Long-Lived Assets

Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the acquired net tangible and intangible assets. We evaluate goodwill on an annual basis in the fourth quarter or more frequently if we believe indicators of impairment exist. Significant management judgment is required in performing periodic impairment tests. To review for impairment, we first assess qualitative factors to determine whether events or circumstances lead to a determination that it is more likely than not that the fair value of any of our reporting unit is less than its carrying amount. Our qualitative assessment of the recoverability of goodwill, whether performed annually or based on specific events or circumstances, considers various macroeconomic, industry-specific and company-specific factors. Those factors include: (i) severe adverse industry or economic trends; (ii) significant company-specific actions, including exiting an activity in conjunction with restructuring of operations; (iii) current, historical or projected deterioration of our financial performance; or (iv) a sustained decrease in our market capitalization below our net book value. After assessing the totality of events and circumstances, if we determine that it is not more likely than not that the fair value of any of our reporting unit is less than its carrying amount, no further assessment is performed. If, however, we determine that it is more likely than not that the fair value of any of our reporting unit is less than its carrying amount, an impairment loss is recognized in an amount equal to the excess. If our actual results, or the plans and estimates used in future impairment analyses, are lower than the original estimates used to assess the recoverability of these assets, we could incur additional impairment charges.

We assess the impairment of long-lived assets, which consist primarily of property and equipment and intangible assets, including purchased in-process research and development, whenever events or changes in circumstances indicate that such assets might be impaired and the carrying value may not be recoverable. Events or changes in circumstances that may indicate that an asset is impaired include significant decreases in the market value of an asset, significant underperformance relative to expected historical or projected future results of operations, a change in the extent or manner in which an asset is utilized, significant declines in our overall estimated fair value for a sustained period, shifts in technology, loss of key management or personnel, changes in our operating model or strategy and competitive forces. If events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and the expected undiscounted future cash flows attributable to the asset are less than the carrying amount of the asset, an impairment loss equal to the excess of the asset’s carrying value over its fair value is recorded. Fair value is determined based on the present value of estimated expected future cash flows using a discount rate commensurate with the risk involved, quoted market prices or appraised values, depending on the nature of the assets. Assumptions and estimates about future values and remaining useful lives are complex and often subjective.

During the year ended December 31, 2017, we abandoned a project related to certain developed technology and in-process research and development that resulted in an impairment charge of $47.0 million. The abandonment of the project was primarily related to change in the product roadmap following the acquisition of ClariPhy. There was no evidence of additional impairment based on the annual impairment testing for the year ended December 31, 2019.

Stock-Based Compensation

We account for stock-based compensation in accordance with authoritative guidance which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors based on the grant date fair values of the awards. The fair value of stock option awards is estimated using the Black-Scholes option pricing model. The fair value of restricted stock units is based on the fair market value of our common stock on the date of grant. The performance-based stock units are subject to the achievement of a pre-established revenue goal and earnings per share on a non-GAAP basis. Once the goals are met, the performance-based stock units are subject to four years of vesting from the original grant date, contingent upon continuous service. The fair value of the performance-based stock units is calculated using the same method as our standard restricted stock units described above once the performance goals are met. The value of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our consolidated statements of operations. If the award has a market condition, we estimate the fair value using Monte Carlo simulation model and recognize compensation ratably over the service period. We elected to treat share-based payment awards with graded vesting schedules and time-based service conditions as a single award and recognize stock-based compensation expense on a straight-line basis (net of estimated forfeitures) over the requisite service period. Stock-based compensation expenses are classified in the consolidated statement of operations based on the department to which the related employee reports.

We account for stock options or awards issued to non-employees in accordance with the guidance consistent with our accounting of stock-based compensation awards to employees. Stock options or awards to non-employees are accounted for at grant date fair value using the Black-Scholes option pricing model or fair value of our stock. We recognize compensation cost for awards with performance conditions when achievement of those conditions are probable, rather than upon their achievement.

The Black-Scholes option pricing model requires management to make assumptions and to apply judgment in determining the fair value of our awards. The most significant assumptions and judgments include estimating the fair value of underlying stock, expected volatility and expected term. In addition, the recognition of stock-based compensation expense is impacted by estimated forfeiture rates.

We do not believe there is a reasonable likelihood that there will be material changes in the estimates and assumptions we use to determine stock-based compensation expense. In the future, if we determine that other valuation models are more reasonable, the stock-based compensation expense that we record in the future may differ significantly from what we have recorded using the Black-Scholes option or Monte Carlo simulation pricing models.

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Income Taxes

Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when and where the differences are expected to reverse. We recognize the deferred income tax effects of a change in tax rates in the period of enactment. We record a valuation allowance to reduce deferred tax assets to the amount that we believe is more likely than not to be realized. In assessing the need for a valuation allowance, we consider all positive and negative evidence, including scheduled reversals of deferred tax liabilities, historical levels of income, projections of future income, expectations and risk associated with estimates of future taxable income and ongoing prudent and practical tax planning strategies. To the extent that we believe it is more likely than not that some portion of our deferred tax assets will not be realized, we would increase the valuation allowance against deferred tax assets. The determination of recording or releasing a tax valuation allowance is made, in part, pursuant to an assessment performed by management regarding the likelihood that we will generate sufficient future taxable income against which the benefits of our deferred tax assets may or may not be realized. This assessment requires management to exercise significant judgment and make estimates with respect to our ability to generate revenue, gross profits, operating income and taxable income in future periods. Among other factors, management must make assumptions regarding current and projected overall business and semiconductor industry conditions, operating efficiencies, our ability to timely develop, introduce and consistently manufacture new products to meet our customers’ needs and specifications, our ability to adapt to technological changes and the competitive environment, which may impact our ability to generate taxable income and, in turn, realize the value of our deferred tax assets. Although we believe that the judgment we used is reasonable, actual results can differ due to a change in market conditions, changes in tax laws and other factors.

We have valuation allowance against deferred tax assets in certain tax jurisdictions for the years ended December 31, 2019, 2018 and 2017. The valuation allowance was established due to negative evidence that included our cumulative losses in the U.S. and various foreign subsidiaries, after considering permanent tax differences. During the year ended December 31, 2017, we released a portion of the federal and state valuation allowance against certain deferred tax assets that were deemed more likely than not to be realized. The valuation allowance release resulted in the recognition of an income tax benefit. During the year ended December 31, 2018, we released a portion of the federal valuation allowance against deferred tax assets as a result of the transfer of an acquired in-process research and development to developed technology in 2018, which allowed the related deferred tax liability to be considered a source of income for realizing deferred tax assets.

In accordance with the Financial Accounting Standards Board’s (FASB) guidance on Accounting for Uncertainty in Income Taxes, we perform a comprehensive review of uncertain tax positions regularly. The guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return. We determine the tax liability for uncertain tax positions based on a two-step process. The first step is to determine whether it is more likely than not based on technical merits that each income tax position would be sustained upon examination. The second step is to measure the tax benefit as the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement with a tax authority that has full knowledge of all relevant information. The assessment of each tax position requires significant judgment and estimates. We believe our tax return positions are fully supported, but tax authorities could challenge certain positions, which may not be fully sustained. All tax positions are periodically analyzed and adjusted as a result of events, such as the resolution of tax audits, issuance of new regulations or new case law, negotiations with tax authorities, and expiration of statutes of limitations.

On December 22, 2017, Public Law 115-97, informally referred to as the Tax Cuts and Jobs Act (Tax Reform Act) was signed into law. The Tax Reform Act contains significant changes to U.S. federal corporate income taxation, including a reduction of the corporate tax rate from 35% to 21% effective January 1, 2018, a one-time transition tax on deemed mandatory repatriation of accumulated earnings and profits of foreign subsidiaries in conjunction with the elimination of U.S. tax on dividend distributions from foreign subsidiaries, and a temporary 100% first-year depreciation deduction for certain capital investments. The effect of the tax law changes must be recognized in the period of enactment. As a result of the change in tax rate, our deferred tax assets and liabilities are required to be remeasured to reflect their value at a lower tax rate of 21%. SAB 118 allows for a measurement period of up to one year after the enactment date of the new tax legislation to finalize the recording of the related tax impacts. In accordance with SAB 118, as of December 31, 2017, we made a provisional estimate of the remeasurement of the federal deferred tax assets and liabilities as of December 31, 2017 to reflect the reduced U.S. statutory corporate tax rate to 21%, the mandatory repatriation income which was fully absorbed by the U.S. net operating loss, the related valuation allowance offset, and valuation allowance release on deferred tax assets for the federal alternative minimum tax credit that was made refundable by the Tax Reform Act. During 2018, we elected to account for GILTI as a period cost in the year the tax is incurred and made changes to its provisional estimates previously recorded for the mandatory repatriation upon filing of its 2017 U.S. income tax return. The change in the mandatory repatriation income was fully absorbed by the U.S. net operating loss, which is subject to valuation allowance, and resulted in no current tax liability. This measurement period adjustment had no net tax effect after the offsetting change to the valuation allowance. At December 31, 2018, we completed the accounting for all of the enactment-date income tax effects of the Tax Reform Act.

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Results of Operations and Key Operating Metrics

The following describes the line items in the statements of operations, which we consider to be our key operating metrics.

Revenue. We generate revenue from sales of our semiconductor products to end customers. A portion of our products is sold indirectly to customers through distributors. Occasionally, we enter into license and development agreements with some of our customers and recognize revenue from these agreements upon completion and acceptance by the customer of contract deliverables by milestones or as services are provided, depending on the terms of the arrangement.

We design and develop high-speed analog and mixed signal semiconductor solutions for the communications and cloud markets. Our revenue is driven by various trends in these markets. These trends include the deployment and broader market adoption of next generation 400G technologies in communications and enterprise networks and the timing of next generation network.

Our revenue is also impacted by changes in the number and average selling prices of our semiconductor products. Our products are typically characterized by a life cycle that begins with higher average selling prices and lower volumes, followed by broader market adoption, higher volumes, and average selling prices that are lower than initial levels.

We operate in industries characterized by rapidly changing technologies and industry standards as well as technological obsolescence. Our revenue growth is dependent on our ability to continually develop and introduce new products to meet the changing technology and performance requirements of our customers, diversify our revenue base and generate new revenue to replace, or build upon, the success of previously introduced products which may be rapidly maturing. As a result, our revenue is impacted to a more significant extent by product life cycles for a variety of products and to a much lesser extent, if any, by any single product. We introduced ColorZ® in 2016 and began to ship in commercial volume in 2017. Sales of ColorZ® comprised 15%, 18% and 17% of our total revenue in 2019, 2018 and 2017, respectively. In 2012, we introduced and began to ship in commercial volume a dual, differential input linear transimpedance/variable-gain amplifier that we identify as product number IN3250TA-SO2D. Sales of IN3250TA-SO2D product comprised 10% of our total revenue in 2017. There were no other products that generated more than 10% of our total revenue in 2019, 2018 or 2017.

The following table is based on the geographic location to which our product is initially shipped. In most cases this will differ from the ultimate location of the end-user of a product containing our technology. For sales to our distributors, their geographic location may be different from the geographic locations of the ultimate end customer. Sales by geography for the periods indicated were:

	Year Ended December 31,
	2019		2018		2017
	(in thousands)
China	$	164,715	$	113,684	$	114,168
United States		103,402		87,545		92,620
Thailand		54,468		40,884		45,205
Other		43,050		52,377		96,208
	$	365,635	$	294,490	$	348,201

Cost of revenue. Cost of revenue includes cost of materials such as wafers processed by third-party foundries, costs associated with packaging and assembly, testing and shipping, cost of personnel, including stock-based compensation, as well as equipment associated with manufacturing support, logistics and quality assurance, warranty costs, write-down of inventories, amortization of production mask costs, amortization and impairment of developed technology, amortization of step-up values of inventory, overhead and other indirect costs, such as allocated occupancy and information technology costs.

As some semiconductor products mature and unit volumes increase, their average selling prices may decline. These declines are often paired with improvements in manufacturing yields and lower wafer, assembly and test costs, which offset some of the margin reduction that results from lower prices. However, our gross profit, period over period, may fluctuate as a result of changes in average selling prices due to new product introductions or existing product transitions into larger scale commercial volumes, manufacturing costs as well as our product and customer mix.

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Research and development. Research and development expense includes personnel-related expenses, including salaries, stock-based compensation and employee benefits. It also includes pre-production engineering mask costs, software license expenses, prototype wafer, packaging and test costs, design and development costs, testing and evaluation costs, third-party fees paid to consultants, depreciation expense, impairment of in-process research and development, allocated facilities costs and other indirect costs. All research and development costs are expensed as incurred. We enter into development agreements with some of our customers. Recoveries from nonrecurring engineering services related to early stage technology are recorded as an offset to product development expense incurred in support of this effort and serve as a mechanism to partially recover development expenditures. These reimbursements are recognized upon completion and acceptance by the customer of contract deliverables or milestones. We expect research and development expense to increase in absolute dollars as we continue to invest resources to develop more products and enhance our existing product portfolio.

Sales and marketing. Sales and marketing expense consists primarily of salaries, stock-based compensation, employee benefits, travel, promotions, trade shows, marketing and customer support, commission payments to employees, depreciation expense and other indirect costs. We expect sales and marketing expense to increase in absolute dollars to support the growth of our business and promote our products to current and potential customers.

General and administrative. General and administrative expense consists primarily of salaries, stock-based compensation, employee benefits and expenses for executive management, legal, and finance. In addition, general and administrative expenses include fees for professional services and other indirect costs. We expect general and administrative expense to increase in absolute dollars due to the general growth of our business and the costs associated with continuing to be a public company for, among other things, SEC reporting and compliance, director fees, insurance, transfer agent fees and similar expenses.

Provision (benefit) for income taxes. For the year ended December 31, 2017, we recorded an income tax benefit of $21.2 million, which reflects an effective tax rate of 22%. The effective tax rate of 22% differs from the statutory rate of 34% primarily due to the effects of the Tax Reform Act that was enacted on December 22, 2017, change in valuation allowance, foreign income taxes provided at lower rates, geographic mix in profitability, unrecognized tax benefits, stock-based compensation adjustments, and recognition of research and development credits. The change in valuation allowance during the year ended December 31, 2017 included an income tax benefit of $1.1 million from the partial release of valuation allowance against certain federal and state deferred tax assets that were deemed more likely than not to be realized. For the year ended December 31, 2018, we recorded an income tax benefit of $8.2 million, which reflects an effective tax rate of 8%. The effective tax rate for the year ended December 31, 2018 differed from the statutory rate of 21% primarily due to the change in valuation allowance, foreign income taxes provided at lower rates, geographic mix in operating results, unrecognized tax benefits, recognition of federal and state research and development credits, and windfall tax benefits from stock-based compensation. In addition, the income tax benefit for the year ended December 31, 2018 included the partial release of federal valuation allowance resulting from the transfer of an acquired in-process research and development to developed technology in 2018 which allowed the related deferred tax liability to be considered a source of income for realizing deferred tax assets, as well as the revaluation of the foreign deferred tax liability on the in-process research and development based on the foreign tax rates applicable to the anticipated reversal periods, partially offset by income tax expense for the accrual of unrecognized tax benefit for foreign taxes. For the year ended December 31, 2019, we recorded an income tax expense of $0.4 million, which reflects an effective tax rate of (0.5%). The effective tax rate for the year ended December 31, 2019 differed from the statutory rate of 21% primarily due to the change in valuation allowance, foreign income taxes provided at lower rates, geographic mix in operating results, unrecognized tax benefits, recognition of federal and state research development credits, and windfall tax benefits from stock-based compensation.

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The following table sets forth a summary of our statement of income (loss) for the periods indicated:

	Year Ended December 31,
	2019			2018			2017
	(in thousands)
Revenue	$	365,635		$	294,490		$	348,201
Cost of revenue		152,814			129,345			151,698
Gross profit		212,821			165,145			196,503
Operating expenses:
Research and development		183,875			167,924			200,539
Sales and marketing		47,722			43,080			42,381
General and administrative		30,672			28,302			23,782
Total operating expenses		262,269			239,306			266,702
Loss from operations		(49,448	)		(74,161	)		(70,199	)
Interest expense		(34,920	)		(32,209	)		(29,842	)
Other income		11,853			2,408			3,961
Loss before income taxes		(72,515	)		(103,962	)		(96,080	)
Provision (benefit) for income taxes		396			(8,211	)		(21,176	)
Net loss	$	(72,911	)	$	(95,751	)	$	(74,904	)

The following table sets forth a summary of our statement of income (loss) as a percentage of each line item to the revenue:

	Year Ended December 31,
	2019			2018			2017
Revenue		100	%		100	%		100	%
Cost of revenue		42			44			44
Gross profit		58			56			56
Operating expenses:
Research and development		50			57			57
Sales and marketing		13			14			12
General and administrative		9			10			7
Total operating expenses		72			81			76
Loss from operations		(14	)		(25	)		(20	)
Interest expense		(9	)		(11	)		(9	)
Other income		3			1			1
Loss before income taxes		(20	)		(35	)		(28	)
Provision (benefit) for income taxes		—			(3	)		(6	)
Net loss		(20	)%		(32	)%		(22	)%

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Comparison of the Years Ended December 31, 2019, 2018 and 2017

Revenue

							Change
	Year Ended December 31,						2019					2018
	2019		2018		2017		Amount		%			Amount			%
	(dollars in thousands)
Revenue	$	365,635	$	294,490	$	348,201	$	71,145		24	%	$	(53,711	)		(15	)%

Revenue for the year ended December 31, 2019 increased by $71.1 million mainly due to increases in the number of units sold and average selling price (ASP). Revenue for the year ended December 31, 2019 increased primarily due to increases in revenue from cloud products by $61.0 million and telecommunication products by $21.0 million, partially offset by decreases in revenue from legacy products by $10.9 million. The number of units sold increased for the year ended December 31, 2019 by 9% due to higher cloud products sold. The ASP increased by 8% due to decreases in the number of units sold of lower ASP products, such as legacy products, because of larger shipments to customers in the first quarter of 2018 due to an end of life program initiated in 2017. In addition, non-product revenue increased by $18.0 million due to new license and nonrecurring engineering development agreements. The increase in direct cost associated with the non-product revenue, included in cost of revenue was $7.9 million for the year ended December 31, 2019.

Revenue for the year ended December 31, 2018 decreased by $53.7 million mainly due to a decrease in the number of units sold, partially offset by an increase in ASP. Revenue for the year ended December 31, 2018 decreased by $53.7 million primarily due to decline in revenue from telecommunication products by $62.5 million and Cortina legacy and transport products by $23.7 million. The decreases are partially offset by an increase in revenue from cloud products by $32.5 million. The ASP for the year ended December 31, 2018 increased by 55% due to product mix mainly from decrease in number of units sold of lower ASP products. The decline in revenue from telecommunication products was partly driven by China original equipment manufacturers (OEMs) due to an oversupply which peaked in 2017. The remaining decline in revenue came from North American and European OEMs which also reflected a similar market weakness in communication products. The decline in revenue from Cortina legacy and transport products was due to end of life programs for certain older products initiated in 2017, the last shipments of which were made in the first quarter of 2018.

The U.S. government export restrictions on Huawei were implemented in the middle of our third quarter of 2019, limiting revenue from that customer. However, the effect of this restriction was not material to our revenue from Huawei for the fourth quarter of 2019 insofar as our revenue was essentially flat when compared to the third quarter of 2019. Such restrictions may have inhibited potential growth in 2019, and in the future, we expect such restrictions to dampen potential growth between Huawei and us, as well as other U.S. suppliers, as Huawei has established internal goals to reduce its dependency on U.S. suppliers for any given product to less than 50%. In addition, the outbreak of the coronavirus may affect our business and our international operations, including our operations in Italy. However, the potential impact is difficult to estimate.

Cost of Revenue and Gross Profit

										Change
	Year Ended December 31,									2019					2018
	2019			2018			2017			Amount		%			Amount			%
	(dollars in thousands)
Cost of revenue	$	152,814		$	129,345		$	151,698		$	23,469		18	%	$	(22,353	)		(15	)%
Gross profit		212,821			165,145			196,503			47,676		29	%		(31,358	)		(16	)%
Gross profit as a percentage of revenue		58	%		56	%		56	%		—		2	%		—			—

Cost of revenue and gross profit for the year ended December 31, 2019 increased by $23.5 million and $47.8 million, respectively, mainly due to higher revenue as discussed above. Gross profit as percentage of revenue slightly increased from 56% to 58% due mainly to product and revenue mix.

Cost of revenue for the year ended December 31, 2018 decreased by $22.4 million due mainly to impairment of certain developed technology in 2017, amortization of inventory fair value step-up related to acquired ClariPhy inventories sold in 2017 and decrease in revenue. Gross profit as a percentage of revenue for the year ended December 31, 2018 was comparable to 2017.

Research and Development

							Change
	Year Ended December 31,						2019					2018
	2019		2018		2017		Amount		%			Amount			%
	(dollars in thousands)
Research and development	$	183,875	$	167,924	$	200,539	$	15,951		9	%	$	(32,615	)		(16	)%

Research and development expenses for the year ended December 31, 2019 increased by $16.0 million mainly due to an increase in equity awards which resulted in a $4.9 million increase in stock-based compensation. Information technology (IT), software tools expenses and allocated expenses increased by $6.0 million due to increased design activities and higher engineering activities. Testing, laboratory supplies, packaging, outside services and pre-production engineering mask costs increased by $4.0 million due to an increase in research and development activities.

Research and development expenses for the year ended December 31, 2018 decreased by $32.6 million primarily due to impairment of certain in-process research and development of $36.8 million in 2017. Salary and employee benefits decreased by $5.7 million due to completion of accrual of retention bonus of employees from the ClariPhy acquisition, reduction in employee headcount as a result of restructuring and vacation usage. In addition, testing, laboratory supplies, and consulting expenses increased by $4.5 million due to cost reduction efforts implemented. These decreases were partially offset by an increase in equity awards, which resulted in a $8.6 million increase in stock-based compensation expense. In addition, for the year ended December 31, 2017, we recorded reimbursement from a customer related to research and development of $3.0 million and none in 2018. Depreciation, IT and allocated expenses increased by $2.8 million due to an increase in equipment, information technology expenses and higher engineering activities of operations group.

We expect research and development expenses to increase due to our acquisition of eSilicon and our strategy to continue to expand our product offerings and enhance our existing product offerings.

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Sales and Marketing

							Change
	Year Ended December 31,						2019					2018
	2019		2018		2017		Amount		%			Amount		%
	(dollars in thousands)
Sales and marketing	$	47,722	$	43,080	$	42,381	$	4,642		11	%	$	699		2	%

Sales and marketing expenses for the year ended December 31, 2019 increased by $4.6 million primarily due to an increase in personnel costs, including stock-based compensation expenses of $3.1 million. In addition, commission expenses increased by $0.8 million due to higher revenue.

Sales and marketing expenses for the year ended December 31, 2018 increased by $0.7 million primarily due to an increase in personnel costs, including stock-based compensation expense of $3.2 million due to higher equity awards. The increase in the year ended December 31, 2018 was partially offset by a decrease in commission, supplies, travel and allocated expenses by $2.0 million, due to lower revenue and cost reduction efforts implemented.

General and Administrative

							Change
	Year Ended December 31,						2019					2018
	2019		2018		2017		Amount		%			Amount		%
	(dollars in thousands)
General and administrative	$	30,672	$	28,302	$	23,782	$	2,370		8	%	$	4,520		19	%

General and administrative expenses for the year ended December 31, 2019 increased by $2.4 million primarily due to an increase in salaries and stock-based compensation by $2.9 million, mainly due to higher equity awards. In addition, professional fees increased by $1.4 million due to higher outside legal fees in connection with the acquisition of eSilicon. The increases were partially offset by decreases in bad debts of $0.6 million and loss on settlement claims related to the ClariPhy acquisition of $1.8 million.

General and administrative expenses for the year ended December 31, 2018 increased by $4.5 million primarily due to an increase in salaries and stock-based compensation by $4.0 million due mainly to higher equity awards. During the year ended December 31, 2018, we recorded a bad debt expense of $0.6 million and a loss on a settlement of claims related to the ClariPhy acquisition of $2.2 million. The increases were partially offset by a decrease in professional, consulting fees and public company filing fees by $0.9 million due to higher fees in 2017 in relation to the acquisition of ClariPhy. In addition, allocated expenses such as facility, human resources and information technology expenses decreased by $0.8 million due to cost reduction efforts implemented.

Provision (benefit) for Income Taxes

									Change
	Year Ended December 31,								2019					2018
	2019		2018			2017			Amount		%			Amount		%
	(dollars in thousands)
Provision (benefit) for income taxes	$	396	$	(8,211	)	$	(21,176	)	$	8,607		(105	)%	$	12,965		(61	)%

For the year ended December 31, 2019, we recorded provision for income taxes of $0.4 million, which reflects an effective tax rate of (0.5%). The effective tax rate for the year ended December 31, 2019 differed from the statutory rate of 21% primarily due to the change in valuation allowance, foreign income taxes provided at lower rates, geographic mix in operating results, unrecognized tax benefits, recognition of federal and state research development credits, and windfall tax benefits from stock-based compensation.

For the year ended December 31, 2018, we recorded an income tax benefit of $8.2 million, which reflects an effective tax rate of 8%. The effective tax rate for the year ended December 31, 2018 differed from the statutory rate of 21% primarily due to the change in valuation allowance, foreign income taxes provided at lower rates, geographic mix in operating results, unrecognized tax benefits, recognition of federal and state research and development credits, and windfall tax benefits from stock-based compensation. In addition, the income tax benefit for the year ended December 31, 2018 included the partial release of federal valuation allowance resulting from the transfer of an acquired in-process research and development to developed technology in 2018 which allowed the related deferred tax liability to be considered a source of income for realizing deferred tax assets, as well as the revaluation of the foreign deferred tax liability on the in-process research and development based on the foreign tax rates applicable to the anticipated reversal periods, partially offset by income tax expense for the accrual of unrecognized tax benefit for foreign taxes.

For the year ended December 31, 2017, we recorded an income tax benefit of $21.2 million, which reflects an effective tax rate of 22%. The effective tax rate of 22% differs from the statutory rate of 34% primarily due to the effects of the Tax Reform Act that was enacted on December 22, 2017, change in valuation allowance, foreign income taxes provided at lower rates, geographic mix in profitability, unrecognized tax benefits, stock-based compensation adjustments, and recognition of research and development credits. The change in valuation allowance during the year ended December 31, 2017, included an income tax benefit of $1.1 million from the partial release of federal and state valuation allowance.

Our effective tax rate in the future will depend upon the proportion of our income before provision for income taxes earned in the United States and in jurisdictions with a tax rate lower than the U.S. statutory rate, as well as a number of other factors, including excess tax benefits from share-based compensation, settlement of tax contingency items, and the impact of new legislation.

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Liquidity and Capital Resources

As of December 31, 2019, we had cash and cash equivalents and investments in marketable securities of $422.9 million. Our primary uses of cash are to fund operating expenses, purchase inventory, acquire property and equipment and business acquisitions. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the changes in our outstanding accounts payable and accrued expenses. Our primary sources of cash are cash receipts on accounts receivable from our revenue. In 2016 and 2015, we issued convertible debt, which resulted in an increase in cash and cash equivalents. Aside from the growth in amounts billed to our customers, net cash collections of accounts receivable are impacted by the efficiency of our cash collections process, which can vary from period to period, depending on the timing of shipments and payment cycles of our major customers.

The consolidated statements of cash flows for the years ended December 31, 2018 and December 31, 2017 have been revised to correct prior period classification error as discussed in Note 1, “Organization and Summary of Significant Accounting Policies” to our consolidated financial statements included in this Annual Report on Form 10-K. Accordingly, the discussion below reflects the impact of those revisions.

The following table summarizes our cash flows for the periods indicated:

	Year Ended December 31,
	2019			2018			2017
	(in thousands)
Net cash provided by operating activities	$	96,944		$	78,159		$	77,308
Net cash provided by (used in) investing activities		63,017			(35,650	)		(24,653	)
Net cash used in financing activities		(49,256	)		(33,941	)		(34,072	)
Net increase in cash and cash equivalents	$	110,705		$	8,568		$	18,583

Net Cash Provided by Operating Activities

Net cash provided by operating activities in 2019 primarily reflected depreciation and amortization of $96.7 million, stock-based compensation expenses of $76.9 million, and accretion of convertible debt and amortization of issuance expenses of $28.4 million, partially offset by a net loss of $72.9 million, net unrealized gain on equity investment of $2.2 million, gain on sale of equity investment of $0.9 million, amortization of discount on marketable securities of $1.1 million, increases in accounts receivable of $1.5 million, inventories of $22.0 million and prepaid expenses and other assets of $2.7 million and decreases in deferred revenue of $1.7 million and accrued expenses of $0.8 million. Our accounts receivable increased due mainly to increase in revenue. Our inventories increased due to build-up of inventories for future shipments. Our prepaid expenses and other assets increased due to receivable from mask sharing arrangement. Our deferred revenue decreased due to services provided or milestone completions. Our accrued expenses decreased due to payments.

Net cash provided by operating activities in 2018 primarily reflected depreciation and amortization of $82.7 million, stock-based compensation expense of $63.9 million, impairment of non-marketable equity investment of $7.0 million, accretion of convertible debt and amortization of issuance expenses of $26.4 million, decrease in accounts receivable of $6.7 million and prepaid expenses and other assets of $0.5 million and increases in accounts payable of $2.0 million and deferred revenue of $5.0 million, partially offset by a net loss of $95.8 million, deferred income taxes of $8.6 million, net unrealized gain on equity investments of $2.4 million, increases in inventories of $1.3 million, decreases in accrued expenses of $4.9 million and other liabilities of $1.1 million, and change in income tax payable/receivable of $1.7 million. Our accounts receivable decreased due mainly to collections. Our prepaid and other assets decreased due to amortization. Our inventories and accounts payable increased due to an increase in production volume for shipment in the first quarter of 2019. Our deferred revenue increased due to billing to a customer in which revenue will be recognized in the future. Our accrued expenses decreased mainly due to the timing of payment of employee-related expenses. Other liabilities decreased due to payment of liability to a customer related to the ClariPhy acquisition.

Net Cash Provided by (Used in) Investing Activities

Net cash provided by investing activities in 2019 primarily consisted of sales and maturities of marketable securities of $371.5 million and proceeds from sale of an equity investment of $3.4 million, partially offset by purchases of marketable securities of $274.2 million, purchases of property and equipment of $29.5 million, purchases of intangible assets of $1.1 million and purchases of equity investments of $7.0 million.

Net cash used in investing activities in 2018 primarily consisted of purchases of marketable securities of $248.0 million, purchases of property and equipment of $31.7 million and purchases of equity investments of $12.8 million, partially offset by proceeds from maturities and sales of marketable securities of $254.5 million and proceeds from sale of equity investment of $2.4 million.

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Net Cash Used in Financing Activities

Net cash used in financing activities in 2019 primarily consisted of minimum tax withholding paid on behalf of employees for net share settlement of $33.6 million, payments of obligations related to purchase of intangible assets of $24.2 million and payment of equipment financing obligations of $0.4 million, partially offset by proceeds from exercises of stock options and employee stock purchase plan purchases of $9.0 million.

Net cash used in financing activities in 2018 primarily consisted of minimum tax withholding paid on behalf of employees for net share settlement of $19.1 million, payments related to purchase of intangible assets of $21.3 million and payment of equipment financing obligations of $0.5 million, partially offset by proceeds from exercise of stock options and employee stock purchase plan purchases of $6.6 million and repayment of long-term loan provided to a supplier of $0.4 million.

Operating and Capital Expenditure Requirements

Our principal sources of liquidity as of December 31, 2019 consisted of $422.9 million of cash, cash equivalents and investments in marketable securities. Based on our current operating plan, we believe that our existing cash and cash equivalents and investments in marketable securities from operations will be sufficient to finance our operational cash needs through at least the next 12 - 18 months. In the future, we expect our operating and capital expenditures to increase as we increase headcount, expand our business activities and grow our end customer base which will result in higher needs for working capital. Our ability to generate cash from operations is also subject to substantial risks described in Part I, “Item 1A, Risk Factors.” If any of these risks occur, we may be unable to generate or sustain positive cash flow from operating activities. We would then be required to use existing cash and cash equivalents to support our working capital and other cash requirements. If additional funds are required to support our working capital requirements, acquisitions or other purposes, we may seek to raise funds through equity or debt financing or from other sources. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders could be significantly diluted, and these newly-issued securities may have rights, preferences or privileges senior to those of existing stockholders. If we raise additional funds by obtaining loans from third parties, the terms of those financing arrangements may include negative covenants or other restrictions on our business that could impair our operating flexibility, and would also require us to incur interest expense. We can provide no assurance that additional financing will be available at all or, if available, that we would be able to obtain additional financing on terms favorable to us.

Contractual Obligations, Commitments and Contingencies

The following table summarizes our outstanding contractual obligations as of December 31, 2019:

	Payments due by period
	Total		Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years
	(in thousands)
Convertible debt	$	517,500	$	230,000	$	287,500		—		—
Interest payable on convertible debt		6,900		4,744		2,156		—		—
Operating lease obligations		52,949		4,455		12,525	$	12,339	$	23,630
Obligations related to software license intangibles		66,400		26,531		39,869		—		—
Obligations under service contract		3,592		1,508		1,625		459		—
Obligations under equipment financing		457		364		93		—		—

As of December 31, 2019, we recorded a liability for our uncertain tax position of $0.7 million. We are unable to reasonably estimate the timing of payments in individual years due to uncertainties in the timing of the effective settlement of tax positions.

We depend upon third-party subcontractors to manufacture our wafers. Our subcontractor relationships typically allow for the cancellation of outstanding purchase orders, but require payment of all expenses incurred through the date of cancellation. As of December 31, 2019, the total value of open purchase orders for wafers was approximately $14.9 million. As of December 31, 2019, we have a commitment to pay $0.5 million of mask costs.

Off-Balance Sheet Arrangements

Since our inception, we have not engaged in any off-balance sheet arrangements, such as the use of structured finance, special purpose entities or variable interest entities.

Recent Authoritative Accounting Guidance

See Note 1 of the Notes to our Consolidated Financial Statements for information regarding recently issued accounting pronouncements.

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Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Sensitivity

We had cash and cash equivalents and investments in marketable securities of $422.9 million and $407.4 million at December 31, 2019 and December 31, 2018, respectively, which was held for working capital purposes. Our exposure to market interest-rate risk relates primarily to our investment portfolio. We do not use derivative financial instruments to hedge the market risks of our investments. We manage our total portfolio to encompass a diversified pool of investment-grade securities to preserve principal and maintain liquidity. We place our investments with high-quality issuers, money market funds and debt securities. Our investment portfolio as of December 31, 2019 consisted of money market funds, U.S. treasury securities, municipal bonds, corporate bonds, variable rate demand notes, commercial paper and asset-backed securities. Investments in both fixed rate and floating rate instruments carry a degree of interest rate risk. Fixed rate securities may have their market value adversely impacted due to an increase in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates or if the decline in fair value of our publicly traded debt investments is judged to be other-than-temporary. We may suffer losses in principal if we are forced to sell securities that have declined in market value due to changes in interest rates. However, because any debt securities we hold are classified as available-for-sale, no gains or losses are realized in the income statement due to changes in interest rates unless such securities are sold prior to maturity or unless declines in value are determined to be other-than-temporary. These securities are reported at fair value with the related unrealized gains and losses, net of applicable taxes, included in accumulated other comprehensive income, reported in a separate component of stockholders' equity. Although we currently expect that our ability to access or liquidate these investments as needed to support our business activities will continue, we cannot ensure that this will not change. We believe that, if market interest rates were to change immediately and uniformly by 10% from levels at December 31, 2019, the impact on the fair value of these securities or our cash flows or income would not be material.

In a low interest rate environment, as short-term investments mature, reinvestment can occur at less favorable market rates. Given the short-term nature of certain investments, the current interest rate environment may negatively impact our investment income.

As of December 31, 2019, we had outstanding debt of $517.5 million in the form of convertible notes. The fair value of our convertible notes is subject to interest rate risk, market risk and other factors due to the convertible feature. The fair value of our convertible notes will generally increase as interest rates fall and decrease as interest rates rise. In addition, the fair value of our convertible notes will generally increase as our common stock price increases and will generally decrease as our common stock price declines in value. The interest and market value changes affect the fair value of our convertible notes but do not impact our financial position, cash flows or results of operations due to the fixed nature of the debt obligation.

Our cash and cash equivalents and investment in marketable securities at December 31, 2019 consisted of $395.8 million held domestically, with the remaining balance of $27.1 million held by foreign subsidiaries. There may be adverse tax effects upon repatriation of these funds to the United States. We do not plan to repatriate cash balances from foreign subsidiaries to fund our operations in the United States.

Foreign Currency Risk

To date, our international customer and vendor agreements have been denominated almost exclusively in United States dollars. Accordingly, we have limited exposure to foreign currency exchange rates and currently enter into immaterial foreign currency hedging transactions.

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Item 8.

Financial Statements and Supplementary Data

Index to Consolidated Financial Statements


Report of Independent Registered Public Accounting Firm	46
Consolidated Balance Sheets	47
Consolidated Statements of Income (Loss)	48
Consolidated Statements of Comprehensive Income (Loss)	49
Consolidated Statements of Stockholders’ Equity	50
Consolidated Statements of Cash Flows	51
Notes to Consolidated Financial Statements	52

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Inphi Corporation

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Inphi Corporation and its subsidiaries (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of income (loss), comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2019, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Changes in Accounting Principles

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019 and the manner in which it accounts for revenues from contracts with customers in 2018.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

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

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

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Inventory Valuation – Write-down for Excess or Obsolete Inventories

As described in Note 1 to the consolidated financial statements, inventories are stated at the lower of cost and net realizable value. As of December 31, 2019, the Company’s consolidated inventories balance was $55.0 million. Inventories are reduced for write-downs based on periodic reviews for evidence of slow-moving or obsolete parts. Management writes down the value of inventory based on the comparison between inventory on hand and forecasted customer demand for each specific product. Inventory write-downs are also established when conditions indicate the net realizable value is less than cost due to physical deterioration, technological obsolescence, changes in price level or other causes. As disclosed by management, the calculation of inventory valuation, specifically the write-down for excess or obsolete inventories, requires management to make assumptions and to apply judgment regarding forecasted customer demand and technological obsolescence.

The principal considerations for our determination that performing procedures relating to inventory valuation, specifically the write-down for excess or obsolete inventories, is a critical audit matter are there was significant judgment by management when estimating the write-down, including the assumption related to technological obsolescence. This in turn led to significant auditor judgment, subjectivity, and effort in performing procedures and evaluating evidence relating to the technological obsolescence assumption.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the Company’s inventory valuation, including controls over management’s write-down for excess or obsolete inventories. These procedures also included, among others, (i) evaluating the appropriateness of and testing management’s process for the write-down for excess or obsolete inventories, (ii) testing the completeness and accuracy of underlying data used by management, and (iii) evaluating the reasonableness of management’s technological obsolescence assumption. Evaluating management’s assumption related to technological obsolescence involved evaluating whether the assumption used by management was reasonable considering (i) historical customer purchasing patterns, (ii) customer contracts, (iii) industry trends, and (iv) whether the assumption was consistent with evidence obtained in other areas of the audit.

/s/ PricewaterhouseCoopers LLP

Los Angeles, California

March 2, 2020

We have served as the Company’s auditor since 2002.

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Inphi Corporation

Consolidated Balance Sheets

(in thousands, except share and per share amounts)

	*December 31,*
	*2019*			*2018*

Assets
Current assets:
Cash and cash equivalents	$	282,723		$	172,018
Investments in marketable securities		140,131			235,339
Accounts receivable, net		60,295			61,271
Inventories		55,013			33,052
Prepaid expenses and other current assets		17,463			9,600
Total current assets		555,625			511,280
Property and equipment, net		79,563			70,740
Goodwill		104,502			104,502
Intangible assets, net		168,290			180,447
Right of use assets, net		33,576			—
Other assets, net		34,450			22,904
Total assets	$	976,006		$	889,873
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	18,771		$	15,891
Deferred revenue		3,719			5,432
Accrued employee expenses		13,164			11,206
Other accrued expenses		5,125			7,595
Convertible debt		217,467			—
Other current liabilities		33,531			24,319
Total current liabilities		291,777			64,443
Convertible debt		258,711			447,825
Other long-term liabilities		78,917			10,911
Total liabilities		629,405			523,179
Commitments and contingencies (Note 16)

Stockholders’ equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued		—			—
Common stock, $0.001 par value; 500,000,000 shares authorized; 45,909,466 and 44,292,722 issued and outstanding at December 31, 2019 and 2018, respectively		46			44
Additional paid-in capital		587,862			536,157
Accumulated deficit		(242,807	)		(169,896	)
Accumulated other comprehensive income		1,500			389
Total stockholders’ equity		346,601			366,694
Total liabilities and stockholders’ equity	$	976,006		$	889,873

The accompanying notes are an integral part of these consolidated financial statements.

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Inphi Corporation

Consolidated Statements of Income (Loss)

(in thousands, except share and per share amounts)

	*Year Ended December 31,*
	*2019*			*2018*			*2017*
Revenue	$	365,635		$	294,490		$	348,201
Cost of revenue		152,814			129,345			151,698
Gross profit		212,821			165,145			196,503
Operating expenses:
Research and development		183,875			167,924			200,539
Sales and marketing		47,722			43,080			42,381
General and administrative		30,672			28,302			23,782
Total operating expenses		262,269			239,306			266,702
Loss from operations		(49,448	)		(74,161	)		(70,199	)
Interest expense		(34,920	)		(32,209	)		(29,842	)
Other income, net		11,853			2,408			3,961
Loss before income taxes		(72,515	)		(103,962	)		(96,080	)
Provision (benefit) for income taxes		396			(8,211	)		(21,176	)
Net loss	$	(72,911	)	$	(95,751	)	$	(74,904	)
Earnings per share:
Basic	$	(1.61	)	$	(2.19	)	$	(1.78	)
Diluted	$	(1.61	)	$	(2.19	)	$	(1.78	)
Weighted-average shares used in computing earnings per share:
Basic		45,226,717			43,690,581			42,165,213
Diluted		45,226,717			43,690,581			42,165,213

The accompanying notes are an integral part of these consolidated financial statements.

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Inphi Corporation

Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

	*Year Ended December 31,*
	*2019*			*2018*			*2017*
Net loss	$	(72,911	)	$	(95,751	)	$	(74,904	)

Other comprehensive income (loss):
Available for sale investments:
Change in unrealized gain or loss, net of $0, $0, and $0 tax expense in 2019, 2018 and 2017, respectively		1,173			(179	)		(9	)
Realized gain reclassified into earnings, net of tax		(62	)		(1	)		(1	)
Comprehensive loss	$	(71,800	)	$	(95,931	)	$	(74,914	)

The accompanying notes are an integral part of these consolidated financial statements.

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Inphi Corporation

Consolidated Statements of Stockholders’ Equity

(in thousands, except share amounts)

	*Common Stock*				*Additional Paid-in Capital*			*Retained Earnings (Accumulated Deficit)*			*Accumulated Other Comprehensive Income*			*Total Stock-holders’ Equity*
	*Shares*		*Amount*
Balance at December 31, 2016		41,303,363	$	41	$	459,928		$	1,976		$	579		$	462,524
Issuance of common stock from exercise of stock options		300,982		1		2,174			—			—			2,175
Issuance of common stock from restricted stock unit grants, net of shares withheld for tax		1,004,785		1		(27,776	)		—			—			(27,775	)
Issuance of common stock from employee stock purchase plan		171,099		—		5,776			—			—			5,776
Stock-based compensation expense		—		—		44,832			—			—			44,832
Cumulative effect of change in accounting principle		—		—		—			(1,217	)		—			(1,217	)
Net loss		—		—		—			(74,904	)		—			(74,904	)
Other comprehensive loss, net		—		—		—			—			(10	)		(10	)
Balance at December 31, 2017		42,780,229	$	43	$	484,934		$	(74,145	)	$	569		$	411,401
Issuance of common stock from exercise of stock options		187,742		—		719			—			—			719
Issuance of common stock from restricted stock unit grant, net of shares withheld for tax		1,041,258		1		(19,286	)		—			—			(19,285	)
Issuance of common stock from employee stock purchase plan		283,493		—		5,906			—			—			5,906
Stock-based compensation expense		—		—		63,884			—			—			63,884
Net loss		—		—		—			(95,751	)		—			(95,751	)
Other comprehensive loss, net		—		—		—			—			(180	)		(180	)
Balance at December 31, 2018		44,292,722	$	44	$	536,157		$	(169,896	)	$	389		$	366,694
Issuance of common stock from exercise of stock options		253,980		—		2,616			—			—			2,616
Issuance of common stock from restricted stock unit grant, net of shares withheld for tax		1,154,043		2		(34,140	)		—			—			(34,138	)
Issuance of common stock from employee stock purchase plan		208,721		—		6,374			—			—			6,374
Stock-based compensation expense		—		—		76,855			—			—			76,855
Net loss		—		—		—			(72,911	)		—			(72,911	)
Other comprehensive loss, net		—		—		—			—			1,111			1,111
Balance at December 31, 2019		45,909,466	$	46	$	587,862		$	(242,807	)	$	1,500		$	346,601

The accompanying notes are an integral part of these consolidated financial statements.

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Inphi Corporation

Consolidated Statements of Cash Flows

(in thousands)

	*Year Ended December 31,*
	*2019*			*2018*			*2017*
Cash flows from operating activities
Net loss	$	(72,911	)	$	(95,751	)	$	(74,904	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		96,694			82,719			77,855
Stock-based compensation		76,855			63,884			44,833
Gain from sale of an equity investment		(924	)		—			—
Loss (gain) on disposal of property and equipment		444			331			(174	)
Net unrealized gain on equity investments		(2,201	)		(2,441	)		—
Impairment of non-marketable equity investment		—			7,000			—
Impairment of intangible assets		—			—			47,014
Deferred income taxes		337			(8,628	)		(22,428	)
Accretion of convertible debt and amortization of issuance expenses		28,353			26,394			24,574
Amortization of premiums (discount) on marketable securities		(1,118	)		(583	)		1,040
Other noncash items		(46	)		2			(10	)
Changes in assets and liabilities:
Accounts receivable		(1,524	)		6,722			(17,392	)
Inventories		(21,961	)		(1,331	)		318
Prepaid expenses and other assets		(2,707	)		549			2,272
Income tax payable/receivable		279			(1,671	)		(638	)
Accounts payable		482			1,963			1,655
Accrued expenses		(805	)		(4,902	)		(554	)
Deferred revenue		(1,713	)		4,997			(3,195	)
Other liabilities		(590	)		(1,095	)		(2,958	)
Net cash provided by operating activities		96,944			78,159			77,308
Cash flows from investing activities
Purchases of property and equipment		(29,518	)		(31,713	)		(37,437	)
Proceeds from disposal of property and equipment		—			145			100
Purchases of marketable securities		(274,246	)		(248,038	)		(261,247	)
Sales of marketable securities		168,426			11,654			85,163
Maturities of marketable securities		203,068			242,825			182,299
Proceeds from sale of equity investments		3,424			2,414			—
Proceeds from sale of discontinued operations		—			—			10,690
Acquisition of business, net of cash acquired		—			—			(1,800	)
Purchases of intangible assets		(1,137	)		(126	)		(2,421	)
Purchases of equity investment in private companies		(7,000	)		(12,811	)		—
Net cash provided by (used in) investing activities		63,017			(35,650	)		(24,653	)
Cash flows from financing activities
Proceeds from exercise of stock options		2,616			719			2,214
Proceeds from employee stock purchase plan		6,374			5,906			5,776
Minimum tax withholding paid on behalf of employees for net share settlement		(33,596	)		(19,118	)		(27,673	)
Payments of obligations related to purchase of intangible assets		(24,221	)		(21,311	)		(13,688	)
Repayment of long-term loan		—			405			333
Payments of obligations related to equipment financing		(429	)		(542	)		(1,034	)
Net cash used in financing activities		(49,256	)		(33,941	)		(34,072	)
Net increase in cash and cash equivalents		110,705			8,568			18,583
Cash and cash equivalents at beginning of year		172,018			163,450			144,867
Cash and cash equivalents at end of year	$	282,723		$	172,018		$	163,450
Supplemental cash flow information
Income taxes paid (refund received)	$	(155	)	$	2,155		$	2,158
Interest paid		6,577			5,818			5,194
Supplemental disclosure of non-cash investing and financing activities
Software license intangible assets		57,406			20,066			2,888
Equity investment acquired as settlement of receivable from a customer		2,500			—			—

The accompanying notes are an integral part of these consolidated financial statements.

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Inphi Corporation

Notes to Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

1. Organization and Summary of Significant Accounting Policies

Inphi Corporation (the “Company”), a Delaware corporation, was incorporated in November 2000. The Company is a fabless provider of high-speed analog and mixed signal semiconductor solutions for the communications and cloud markets. The Company’s semiconductor solutions are designed to address bandwidth bottlenecks in networks, maximize throughput and minimize latency in computing environments and enable the rollout of next generation communications and cloud infrastructures. In addition, the semiconductor solutions provide a vital high-speed interface between analog signals and digital information in high-performance systems such as telecommunications transport systems, enterprise networking equipment and data centers.

The Company is subject to certain risks and uncertainties and believes changes in any of the following areas could have a material adverse effect on the Company’s future financial position or results of operations or cash flows: ability to sustain profitable operations due to losses incurred and accumulated deficit, dependence on a limited number of customers for a substantial portion of revenue, product defects, risks related to intellectual property matters, lengthy sales cycle and competitive selection process, lengthy and expensive qualification process, ability to develop new or enhanced products in a timely manner, market development of and demand for the Company’s products, reliance on third parties to manufacture, assemble and test products and ability to compete.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and include the accounts of the Company and subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Revisions

In connection with the preparation of the Company’s 2019 year-end consolidated financial statements, a classification error in the Company’s previously issued consolidated statements of cash flows was identified. Specifically, it was determined that payments made under the Company’s multi-year agreements for the purchase of internal use intangible assets should have been classified as use of cash for financing activities and not as use of cash for investing activities as originally presented. Such classification error had no impact on the Company’s consolidated balance sheets, statements of income (loss), statements of comprehensive income (loss) or statements of stockholders’ equity. The Company has concluded that such classification error did not result in the previously issued financial statements being materially misstated. However, the Company has revised the accompanying 2018 and 2017 consolidated statements of cash flows to correct for such classification error. The effect of the revisions on the consolidated statement of cash flows for the year ended December 31, 2018 was as follows: (i) cash used in investing activities decreased $21,311 from $56,961 to $35,650, and (ii) cash used in financing activities increased $21,311 from $12,630 to $33,941. The effect of the revisions on the consolidated statement of cash flows for the year ended December 31, 2017 was as follows: (i) cash used in investing activities decreased $13,688 from $38,341 to $24,653, and (ii) cash used in financing activities increased $13,688 from $20,384 to $34,072.

See also note 18 for further information regarding the impact of this classification error on the Company’s 2019 and 2018 unaudited interim condensed consolidated financial statements.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

On an ongoing basis, management evaluates its estimates, including those related to (i) the collectibility of accounts receivable and allowance for distributors’ price discounts; (ii) write-down for excess and obsolete inventories; (iii) warranty obligations; (iv) the value assigned to and estimated useful lives of long-lived assets; (v) the realization of tax assets and estimates of tax liabilities and tax reserves; (vi) the measurement of non-marketable equity securities; (vii) amounts recorded in connection with acquisitions; (viii) recoverability of intangible assets and goodwill; and (ix) the recognition and disclosure of fair value of convertible debt and contingent liabilities. These estimates are based on historical data and experience, as well as various other factors that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. The Company engages third party valuation specialists to assist with estimates related to the valuation of certain financial instruments and assets associated with various contractual arrangements, and valuation of assets acquired in connection with acquisitions. Such estimates often require the selection of appropriate valuation methodologies and models, and significant judgment in evaluating ranges of assumptions and financial inputs. Actual results may differ from those estimates under different assumptions or circumstances.

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Inphi Corporation

Notes to Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

Foreign Currency Translation

The Company and its subsidiaries use the U.S. dollar as its functional currency. Foreign currency assets and liabilities are remeasured into U.S. dollars at the end-of-period exchange rates except for non-monetary assets and liabilities, which are remeasured at historical exchange rates. Revenue and expenses are remeasured at the exchange rate in effect during the period the transaction occurred, except for those expenses related to balance sheet amounts, which are remeasured at historical exchange rates. Gains or losses from foreign currency transactions are included in the consolidated statements of income (loss) as part of “other income, net.” Foreign currency gain (loss) in 2019, 2018 and 2017 were ($453), ($135) and $22, respectively.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original or remaining maturity of three months or less at the date of purchase to be cash equivalents. The Company maintains its cash and cash equivalents with major financial institutions and, at times, such balances with any one financial institution may exceed Federal Deposit Insurance Corporation insurance limits. Cash equivalents primarily consist of money market funds.

Fair Market Value of Financial Instruments

The carrying amount reflected in the balance sheet for cash and cash equivalents, accounts receivable, prepaid and other current assets, accounts payable and other current liabilities, approximate fair value due to the short-term nature of these financial instruments.

Investments

Investments in marketable securities consist of available-for-sale securities. These investments are recorded at fair value with changes in fair value, net of applicable taxes, recorded as unrealized gains (losses) as a component of accumulated other comprehensive income in stockholders' equity. Realized gains and losses are included in Other income, net. The cost basis for realized gains and losses on available-for-sale securities is determined on a specific identification basis. The Company periodically evaluates whether declines in fair values of its investments below their book values are other-than-temporary. When the fair value is lower than the amortized cost, the Company considers whether: (1) it has the intent to sell the security; (2) it is more likely than not that it will be required to sell the security before recovery; or (3) it expects to recover the entire amortized cost basis of the security. If the Company intends to sell the security or it is more likely than not that it will be required to sell the security, the entire difference between the amortized cost and fair value is recognized in other income, net. If the Company does not intend to sell a security and it is not more likely than not that it will be required to sell the security but the security has suffered an impairment related to credit, the credit loss is bifurcated from the total decline in value and recorded in other income, net with the remaining portion recorded within accumulated other comprehensive income in stockholders’ equity. Investments are made based on the Company’s investment policy which restricts the types of investments that can be made. The Company classified available-for-sale securities as short-term as the investments are available to be used in current operations.

On January 1, 2018, the Company adopted ASU 2016-01, Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities, which changed the way the Company accounts for non-marketable equity investments. The Company adjusts the carrying value of non-marketable equity investments to fair value upon observable transactions for identical or similar investments of the same issuer or impairment (referred to as the measurement alternative). All gains and losses on non-marketable equity investments, realized and unrealized, are recognized in other income, net. There was no cumulative effect adjustment upon adoption of this guidance.

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Inphi Corporation

Notes to Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

Inventories

Inventories are stated at the lower of cost and net realizable value. Cost is computed using standard cost, which approximates actual cost, on a first-in, first-out basis. Inventories are reduced for write-downs based on periodic reviews for evidence of slow-moving or obsolete parts. The write-down is based on the comparison between inventory on hand and forecasted customer demand for each specific product. Once written down, inventory write-downs are not reversed until the inventory is sold or scrapped. Inventory write-downs are also established when conditions indicate the net realizable value is less than cost due to physical deterioration, technological obsolescence, changes in price level or other causes.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization is provided on property and equipment over the estimated useful lives on a straight-line basis. Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the related lease term. Repairs and maintenance are charged to expense as incurred. Useful lives by asset category are as follows:

Asset Category		*Years*
Office equipment		3
Software		3
Leasehold improvements		Shorter of lease term or estimated useful life
Production equipment		2 - 5
Computer equipment		5
Lab equipment		5
Furniture and fixtures		7

Intangible Assets

Intangible assets represent rights acquired for developed technology, customer relationships, trademarks, patents and in-process research and development (“IPR&D”) in connection with business acquisitions. Intangible assets with finite useful lives are amortized over periods ranging from one to ten years using a method that reflects the pattern in which the economic benefits of the intangible asset are consumed, or if that pattern cannot be reliably determined, using a straight-line amortization method. Acquired IPR&D is capitalized and amortization commences upon completion of the underlying projects. If any of the projects are abandoned, the Company would be required to impair the related IPR&D asset.

Impairment of Long-lived Assets and Goodwill

Long-lived Assets

The Company assesses the impairment of long-lived assets, which consist primarily of property and equipment and intangible assets, whenever events or changes in circumstances indicate that such assets might be impaired and the carrying value may not be recoverable. Events or changes in circumstances that may indicate that an asset is impaired include significant decreases in the market value of an asset, significant underperformance relative to expected historical or projected future results of operations, a change in the extent or manner in which an asset is utilized, significant declines in the estimated fair value of the overall Company for a sustained period, shifts in technology, loss of key management or personnel, changes in the Company’s operating model or strategy and competitive forces.

If events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and the expected undiscounted future cash flows attributable to the asset are less than the carrying amount of the asset, an impairment loss equal to the excess of the asset’s carrying value over its fair value is recorded. Fair value is determined based on the present value of estimated expected future cash flows using a discount rate commensurate with the risk involved, quoted market prices or appraised values, depending on the nature of the asset.

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Inphi Corporation

Notes to Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

Goodwill

Goodwill is recorded when consideration paid for a business acquisition exceeds the fair value of net tangible and intangible assets acquired. Goodwill is measured and tested for impairment on an annual basis during the fourth fiscal quarter or more frequently if the Company believes indicators of impairment exist.

To review for impairment, the Company first assesses qualitative factors to determine whether events or circumstances lead to a determination that it is more likely than not that the fair value of its reporting unit is less than its carrying amount. The qualitative assessment of the recoverability of goodwill, whether performed annually or based on specific events or circumstances, considers various macroeconomic, industry-specific and company-specific factors. Those factors include: (i) severe adverse industry or economic trends; (ii) significant company-specific actions, including exiting an activity in conjunction with restructuring of operations; (iii) current, historical or projected deterioration of its financial performance; or (iv) a sustained decrease in its market capitalization below its net book value. After assessing the totality of events and circumstances, if the Company determines that it is not more likely than not that the fair value of its reporting unit is less than its carrying amount, no further assessment is performed. If however, the Company determines that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, an impairment loss is recognized in an amount equal to the excess. There was no impairment of goodwill in 2019, 2018 and 2017.

Internal Use Software Costs

Certain external computer software costs acquired for internal use are capitalized. Training costs and maintenance are expensed as incurred, while upgrades and enhancements are capitalized if it is probable that such expenditures will result in additional functionality. Capitalized costs are included within property and equipment. If a cloud computing arrangement includes a software license, then the Company accounts for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the Company accounts for the arrangement as a service contract.

Revenue Recognition

Prior to January 1, 2018, the Company recognized revenue when there was persuasive evidence of an arrangement, delivery had occurred, the fee was fixed or determinable, and collection was reasonably assured.

On January 1, 2018, the Company adopted Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606), using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. The adoption of this guidance resulted in no cumulative effect adjustment as of January 1, 2018. Starting January 1, 2018, the Company recognizes revenue on sales to distributors upon shipment and transfer of control (known as “sell-in” revenue recognition), rather than deferring recognition until distributors report that they have sold the products to their customers (known as “sell-through” revenue recognition). The impact of the adoption on revenue and cost of revenue for the year ended December 31, 2018 was an increase of $3,778 and $779, respectively. Deferred revenue and inventories decreased by $3,778 and $779 as of December 31, 2018, respectively. Results for reporting periods beginning after January 1, 2018 are presented under the new revenue guidance, while prior periods were not retrospectively adjusted and continue to be reported in accordance with the Company’s historic revenue recognition accounting.

The following table shows revenue by geography, based on the receiving location of customers:

	*Year Ended December 31,*
	*2019*		*2018*		*2017*
	(in thousands)
China	$	164,715	$	113,684	$	114,168
United States		103,402		87,545		92,620
Thailand		54,468		40,884		45,205
Other		43,050		52,377		96,208
	$	365,635	$	294,490	$	348,201

The Company recognizes revenue when control of the promised goods or services is transferred to customers in an amount that reflects the consideration the Company expects to receive in exchange for such goods or services.

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Inphi Corporation

Notes to Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

Product Revenue

The Company’s products are fully functional at the time of shipment and do not require additional production, modification, or customization. The Company recognizes revenue upon transfer of control at a point in time when title transfers either upon shipment to or receipt by the customer, net of accruals for estimated sales returns and allowances. Sales and other taxes the Company collects are excluded from revenue. The fee is based on specific products and quantities to be delivered at specified prices, which is evidenced by a customer purchase order or other evidence of an arrangement. Certain distributors may receive a credit for price discounts associated with the distributors' customers that purchased those products. The Company estimates the extent of these distributor price discounts at each reporting period to reduce accounts receivable and revenue. Although the Company accrues an estimate of distributor price discounts, the Company does not issue these discounts to the distributor until the inventory is sold to the distributors' customers. As of December 31, 2019 and 2018, the estimated price discount was $656 and $1,634, respectively. Payment terms of customers are typically 30 to 60 days after invoice date. The Company’s products are under warranty against defects in material and workmanship generally for a period of one or two years. The Company accrues for estimated warranty costs at the time of sale based on anticipated warranty claims and actual historical warranty claims experience including knowledge of specific product failures that are outside of the Company’s typical experience.

Other Revenue

Occasionally, the Company enters into license and development agreements with some of its customers and recognizes revenue from these agreements upon completion and acceptance by the customer of contract deliverables or as services are provided, depending on the terms of the arrangement. Revenue is deferred for any amounts billed or received prior to transfer of control. The Company believes the milestone method best depicts the efforts expended to transfer services to the customers under most of the Company’s development agreements. Certain contracts may include multiple performance obligations for which the Company allocates revenues to each performance obligation based on relative stand-alone selling price. The Company determines stand-alone selling prices based on observable evidence. When stand-alone selling prices are not directly observable, the Company uses the adjusted market assessment approach or residual approach, if applicable.

The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less or (ii) contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed. The estimated revenue expected to be recognized in 2020 and 2021 related to performance obligations that are unsatisfied (or partially unsatisfied) as of December 31, 2019 was $12,338 and $7,790, respectively.

Revenue from non-product sales was approximately 7%, 3% and 3% of total revenue for the years ended December 31, 2019, 2018, and 2017, respectively.

The Company monitors the collectability of accounts receivable primarily through review of the accounts receivable aging. The Company’s policy is to record an allowance for doubtful accounts based on specific collection issues identified, aging of underlying receivables and historical experience of uncollectible balances.

Cost of Revenue

Cost of revenue includes cost of materials, such as wafers processed by third-party foundries, cost associated with packaging and assembly, testing and shipping, cost of personnel, including stock-based compensation, and equipment associated with manufacturing support, logistics and quality assurance, warranty cost, amortization and impairment of developed technology, amortization of step-up values of inventory, write-down of inventories, amortization of production mask costs, overhead and occupancy costs.

Warranty

The Company’s products are under warranty against defects in material and workmanship generally for a period of one or two years. The Company accrues for estimated warranty cost at the time of sale based on anticipated warranty claims and actual historical warranty claims experience including knowledge of specific product failures that are outside of the Company’s typical experience. The warranty obligation is determined based on product failure rates, cost of replacement and failure analysis cost. If actual warranty costs differ significantly from these estimates, adjustments may be required in the future. As of both December 31, 2019 and 2018, the warranty liability was immaterial.

Research and Development Expense

Research and development expense consists of costs incurred in performing research and development activities including salaries, stock-based compensation, employee benefits, occupancy costs, pre-production engineering mask costs, impairment of in-process research and development, overhead costs and prototype wafer, packaging and test costs. Research and development costs are expensed as incurred. The Company enters into development agreements with some of the Company’s customers. Recoveries from nonrecurring engineering services from early stage technology are recorded as an offset to product development expense incurred in support of this effort and serve as a mechanism to partially recover development expenditures. These reimbursements are recognized upon completion and acceptance by the customer of contract deliverables or milestones. The Company recorded approximately $0, $0 and $3,000 as offset to research and development expense for the years ended December 31, 2019, 2018 and 2017, respectively.

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Inphi Corporation

Notes to Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

Sales and Marketing Expense

Sales and marketing expense consists of salaries, stock-based compensation, employee benefits, travel, trade show costs, amortization of intangibles and others. The Company expenses sales and marketing costs as incurred. Advertising expenses for the years ended December 31, 2019, 2018 and 2017 were not material.

General and Administrative Expense

General and administrative expense consists of salaries, stock-based compensation, employee benefits and expenses for executive management, legal, finance and others. In addition, general and administrative expense includes fees for professional services and occupancy costs. These costs are expensed as incurred.

Income Taxes

The Company regularly performs a comprehensive review of uncertain tax positions. An uncertain tax position represents an expected treatment of a tax position taken in a filed tax return, or planned to be taken in a future tax return or claim, which has not been reflected in measuring income tax expense for financial reporting purposes. Until these positions are sustained by the taxing authorities, the Company does not recognize the tax benefits resulting from such positions and reports the tax effects as a liability for uncertain tax positions in the consolidated financial statements. The Company recognizes potential interest and penalties on uncertain tax positions within the provision (benefit) for income taxes on the consolidated statement of income (loss).

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Reform Act”) was signed into law. The Tax Reform Act contains significant changes to U.S. federal corporate income taxation, including a reduction of the corporate tax rate from 35% to 21% effective January 1, 2018, a one-time transition tax on deemed mandatory repatriation of accumulated earnings and profits of foreign subsidiaries in conjunction with the elimination of U.S. tax on dividend distributions from foreign subsidiaries, and a temporary 100% first-year depreciation deduction for certain capital investments. The effect of the tax law changes must be recognized in the period of enactment. As a result of the change in tax rate, the Company's deferred tax assets and liabilities were required to be remeasured to reflect their value at a lower tax rate of 21%. Staff Accounting Bulletin 118 (“SAB 118”) allows for a measurement period of up to one year after the enactment date of the new tax legislation to finalize the recording of the related tax impacts. In accordance with SAB 118, as of December 31, 2017, the Company made a provisional estimate of the remeasurement of the federal deferred tax assets and liabilities to reflect the reduced U.S. statutory corporate tax rate to 21%, the mandatory repatriation income which was fully absorbed by the U.S. net operating loss, the related valuation allowance offset, and valuation allowance release on deferred tax assets for the federal alternative minimum tax (“AMT”) credit that was made refundable by the Tax Reform Act. During 2018, the Company elected to account for global intangible low-taxed income (“GILTI”) as a period cost in the year the tax is incurred and made changes to its provisional estimates previously recorded for the mandatory repatriation upon filing of its 2017 U.S. income tax return. The change in the mandatory repatriation income was fully absorbed by the U.S. net operating loss, which is subject to valuation allowance, and resulted in no current tax liability. This measurement period adjustment had no net tax effect after the offsetting change to the valuation allowance. At December 31, 2018, the Company completed the accounting for all of the enactment-date income tax effects of the Tax Reform Act.

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Inphi Corporation

Notes to Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

Stock-Based Compensation

Stock-based compensation for stock option and restricted stock units issued to the Company’s employees is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which is the vesting period, on a straight-line basis or graded vesting basis for awards with performance or market-based conditions. The fair value of restricted stock units is based on the fair market value of the Company’s common stock on the date of grant. If the award has a market condition, the Company estimates the fair value using Monte Carlo simulation model and recognizes compensation ratably over the service period.

The Company has elected to treat share-based payment awards with graded vesting schedules and time-based service conditions as single awards and recognizes stock-based compensation expense on a straight-line basis (net of estimated forfeitures) over the requisite service period.

The Company recognizes non-employee stock-based compensation expense based on the estimated fair value of the equity instrument determined using the Black-Scholes option pricing model or fair value of the Company's common stock. Management believes that the fair value of the underlying stock award is more reliably measured than the fair value of the services received. The fair value of each non-employee variable stock award is re-measured each period until a commitment date is reached, which is generally the vesting date. Starting January 1, 2019, the Company adopted the new guidance for equity-classified share-based payment awards issued to nonemployees, and therefore no longer remeasures awards each period until a commitment date is reached. The stock-based compensation expense is measured on the grant date. The Company recognizes compensation cost for awards with performance conditions when achievement of those conditions are probable, rather than upon their achievement.

Earnings per Share

Basic earnings per share is calculated by dividing income allocable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is calculated by dividing the net income allocable to common stockholders by the weighted average number of common shares outstanding, adjusted for the effects of potentially dilutive common stock, which are comprised of stock options, restricted stock units, employee share purchase plan and the shares that could be issued upon conversion of the Company’s convertible debt. The capped call options in connection with the issuance of the convertible notes are excluded from the calculation of diluted earnings per share as their impact is always anti-dilutive.

Segment Information

The Company operates in one reportable segment related to the design, development and sale of high-speed analog connectivity components that operate to maintain, amplify and improve signal integrity at high-speeds in a wide variety of applications. The Company’s chief operating decision-maker is its Chief Executive Officer, who reviews financial and operational information on a consolidated basis for the purpose of evaluating relative performance, progress against strategic objectives and making decisions about investing resources.

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Inphi Corporation

Notes to Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued guidance that requires companies that lease assets (lessees) to recognize on the balance sheet the assets and liabilities for the rights and obligations created by leases with lease terms of more than 12 months. The FASB also issued additional updates to such guidance. For leases less than twelve months, an entity is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. The guidance requires entities to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach or allows entities to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company adopted this guidance on January 1, 2019. See note 7 in the notes to consolidated financial statements for further details.

In June 2016, the FASB issued guidance which requires the credit losses related to debt securities classified as available-for sale to be presented as an allowance rather than as a write-down. The guidance also requires that an entity measure and recognize expected credit losses for financial assets held at amortized cost and replaces the incurred loss impairment methodology in current GAAP with a methodology that requires consideration of a broader range of information to estimate credit losses. This guidance is effective for the Company beginning after December 15, 2019. The adoption of this guidance is not expected to have a material impact to the Company's consolidated financial statements.

In January 2017, the FASB issued guidance to simplify the measurement of goodwill by eliminating the Step 2 impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. The guidance requires an entity to compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The guidance becomes effective for goodwill impairment tests in fiscal years beginning after December 15, 2019, though early adoption is permitted. The Company adopted this guidance on January 1, 2019. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

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Inphi Corporation

Notes to Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

In February 2018, the FASB issued guidance that allows an option to reclassify from accumulated other comprehensive income to retained earnings any stranded tax effects resulting from the Tax Cuts and Jobs Act (the "Tax Act"). The guidance will be effective for fiscal years beginning after December 15, 2018. The Company adopted this guidance on January 1, 2019. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In June 2018, the FASB issued guidance to eliminate the separate guidance applicable to share-based payments to nonemployees. Under the new guidance, equity-classified share-based payment awards issued to nonemployees will be measured on the grant date, instead of being remeasured through the performance completion date (generally the vesting date), as required under the current guidance. The guidance also requires recognition of compensation cost for awards with performance conditions when achievement of those conditions are probable, rather than upon their achievement. Further, the guidance eliminates the requirement to reassess the classification of nonemployee awards under the financial instruments literature upon vesting. The guidance is effective for fiscal years beginning after December 15, 2018. The Company adopted this guidance on January 1, 2019. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements

In August 2018, the FASB issued guidance that eliminates certain disclosure requirements for fair value measurements for all entities, requires public entities to disclose certain new information and modifies some disclosure requirements. The new guidance will no longer require disclosure of the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will require disclosure of the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The guidance will be effective for fiscal years beginning after December 15, 2019. The adoption of this guidance is not expected to have a material impact to the Company's consolidated financial statements.

In August 2018, the FASB issued guidance requiring a customer in a cloud computing arrangement that is a service contract to follow the internal use software guidance in Accounting Standards Codification (ASC) 350-40 to determine which implementation costs to capitalize as assets. Capitalized implementation costs are expensed over the term of the hosting arrangement beginning when the module or component of the hosting arrangement is ready for its intended use. The guidance will be effective for fiscal years beginning after December 15, 2019. The adoption of this guidance is not expected to have a material impact to the Company's consolidated financial statements.

In November 2018, the FASB issued amendments to guidance on “Collaborative Arrangements” and “Revenue from Contracts with Customers”, that require transactions in collaborative arrangements to be accounted for under “Revenue from Contracts with Customers” if the counterparty is a customer for a good or service (or bundle of goods and services) that is a distinct unit of account. The amendments also preclude entities from presenting consideration from transactions with a collaborator that is not a customer together with revenue recognized from contracts with customers. The guidance will be effective for fiscal years beginning after December 15, 2019. The adoption of this guidance is not expected to have a material impact to the Company's consolidated financial statements.

In December 2019, the FASB issued guidance that simplifies the accounting for income taxes as part of FASB's overall initiative to reduce complexity in accounting standards. Amendments include removal of certain exceptions to the general principles of ASC 740, Income Taxes, and simplification in general other areas such as accounting for a franchise tax (or similar tax) that is partially based on income. The guidance will be effective for fiscal years beginning after December 15, 2020, though early adoption is permitted. The Company is currently evaluating the impact that this new guidance will have on its consolidated financial statements.

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2. Investments

The following table summarizes the investments by investment category:

	*December 31, 2019*
	*Cost*		*Gross Unrealized Gain*		*Gross Unrealized Loss*			*Fair Value*
Available-for-sale securities:
U.S. Treasury securities	$	3,752	$	7	$	—		$	3,759
Municipal bonds		6,062		57		—			6,119
Corporate notes/bonds		118,859		591		(1	)		119,449
Asset-backed securities		4,239		29		—			4,268
Commercial paper		6,464		1		(1	)		6,464
Certificate of deposit		72		—		—			72
Total investments	$	139,448	$	685	$	(2	)	$	140,131

	*December 31, 2018*
	*Cost*		*Gross Unrealized Gain*		*Gross Unrealized Loss*			*Fair Value*
Available-for-sale securities:
Municipal bonds	$	6,751	$	1	$	(19	)	$	6,733
Corporate notes/bonds		146,466		14		(354	)		146,126
Variable rate demand notes		8,900		—		—			8,900
Asset-backed securities		32,986		—		(63	)		32,923
Commercial paper		39,707		—		(6	)		39,701
Certificate of deposit		956		—		—			956
Total investments	$	235,766	$	15	$	(442	)	$	235,339

As of December 31, 2019, the Company had three investments that were in an unrealized loss position. The gross unrealized losses on these investments at December 31, 2019 were primarily due to changes in interest rates and determined to be temporary in nature.

The realized gain related to the Company’s available-for-sale investment, which was reclassified from accumulated other comprehensive income, was included in other income, net in the consolidated statements of income (loss).

Contractual maturities of available-for-sale securities at December 31, 2019 are presented in the following table:

	*Cost*		*Fair Value*
Due in one year or less	$	88,803	$	89,049
Due between one and five years		50,645		51,082
	$	139,448	$	140,131

The Company has a marketable equity investment in a company located in Taiwan. The fair value of the investment and unrealized loss as of December 31, 2019 was $1,662 and $332, respectively. The fair value of the investment and unrealized loss as of December 31, 2018 was $1,387 and $607, respectively. This investment is presented within other assets, net on the consolidated balance sheet. During the year ended December 31, 2019, the Company sold a marketable equity investment in a company located in the United States acquired in the same year for $3,424. The gain on sale of $924 was included in other income, net in the consolidated statements of income (loss).

The Company has non-marketable equity investments in privately held companies without readily determinable market values. Prior to January 1, 2018, the Company accounted for non-marketable equity investments at cost less impairment. Realized gains and losses on non-marketable equity investments sold or impaired were recognized in other income, net. On January 1, 2018, the Company adopted ASU 2016-01, Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities, which changed the way the Company accounts for non-marketable equity investments. The Company adjusts the carrying value of non-marketable equity investments to fair value upon observable transactions for identical or similar investments of the same issuer or impairment (referred to as the measurement alternative). All gains and losses on non-marketable equity investments, realized and unrealized, are recognized in other income, net. There was no cumulative effect adjustment upon adoption of this guidance. As of December 31, 2019, non-marketable equity investments had a carrying value of $25,792, of which $8,792 was remeasured to fair value based on observable transaction during the year ended December 31, 2019. As of December 31, 2018, non-marketable equity investments had a carrying value of $16,866, of which $6,066 was remeasured to fair value based on observable transaction during the year ended December 31, 2018. These investments are presented within other assets, net on the consolidated balance sheets. The unrealized gain recorded in other income, net and included as adjustment to the carrying value of non-marketable equity investments held was $1,926 and $3,066 for the years ended December 31, 2019 and 2018, respectively. During the year ended December 31, 2018, the Company recorded an impairment charge of $7,000 related to a certain investment in a private company because the investee was in receivership and the Company was not expected to recover its cost. The impairment charge was included in other income, net in the consolidated statements of income (loss).

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Inphi Corporation

Notes to Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

3. Concentrations

Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents, investments in marketable securities and trade accounts receivable. The Company extends differing levels of credit to customers and does not require collateral deposits. As of December 31, 2019 and 2018, the Company has allowance for doubtful accounts of $1,152. As of December 31, 2019 and 2018, the Company has allowance for distributors’ price discounts of $656 and $1,634, respectively.

The following table summarizes the significant customers’ (including distributors) accounts receivable and revenue as a percentage of total accounts receivable and total revenue, respectively:

	*December 31,*
Accounts Receivable	*2019*			*2018*
Customer A		15	%		13	%
Customer B		13			13
Customer C		*			*
Customer D		19			*
Customer E		*			*

Year Ended December 31,

Revenue

2019

2018

2017

Customer A

Customer B

Customer C

Customer D

Customer E

*	Less than 10% of total receivable or total revenue

Customer A is a subcontractor of a direct customer that would be a “Customer F” above. In the aggregate, revenue to Customer A and Customer F as a percentage of total revenue was approximately 14%, 18% and 17% for the years ended December 31, 2019, 2018 and 2017, respectively. Customer B is a subcontractor of a direct customer that would be a “Customer G” above. In the aggregate, revenue to Customer B and Customer G as a percentage of total revenue was approximately 11%, 14% and 14% for the years ended December 31, 2019, 2018 and 2017, respectively. In addition, the Company sells directly and indirectly through subcontractors to what would be a “Customer H” above. The Company believes, in the aggregate, revenue to Customer H, including its subcontractors as a percentage of total revenue was approximately 11% and 11% for the years ended December 31, 2018 and 2017, respectively. The Company believes, in the aggregate, revenue to Customer H, including its subcontractors was significant but less than 10% of the total revenue for the year ended December 31, 2019. Customers C and D are subcontractors and Customer E is a distributor, all of whom sell to various end customers.

4. Inventories

Inventories consist of the following:

	*December 31,*
	*2019*		*2018*
Raw materials	$	18,593	$	12,435
Work in process		19,081		13,602
Finished goods		17,339		7,015
	$	55,013	$	33,052

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Inphi Corporation

Notes to Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

5. Property and Equipment, net

Property and equipment consist of the following:

	*December 31,*
	*2019*			*2018*
Laboratory and production equipment	$	144,866		$	121,716
Office, software and computer equipment		37,241			30,190
Furniture and fixtures		1,617			1,558
Leasehold improvements		8,282			7,609
		192,006			161,073
Less accumulated depreciation		(112,443	)		(90,333	)
	$	79,563		$	70,740

Depreciation and amortization expense for the years ended December 31, 2019, 2018 and 2017 was $22,399, $20,227 and $20,631, respectively.

As of December 31, 2019 and 2018, computer software costs included in property and equipment were $7,339 and $6,879, respectively. Amortization expense of capitalized computer software costs was $384, $591 and $1,038, for the years ended December 31, 2019, 2018 and 2017, respectively.

Property and equipment not paid as of December 31, 2019 and 2018 was $4,728 and $2,580, respectively.

6. Intangible Assets

The following table presents details of intangible assets:

	*December 31, 2019*						*December 31, 2018*
	*Gross*		*Accumulated Amortization*		*Net*		*Gross*		*Accumulated Amortization*		*Net*
Developed technology	$	186,800	$	123,365	$	63,435	$	186,800	$	86,378	$	100,422
Customer relationships		70,540		31,409		39,131		70,540		21,681		48,859
Trade name		2,310		1,766		544		2,310		1,350		960
Patents		1,579		1,010		569		1,579		881		698
Software		74,022		9,411		64,611		61,406		31,898		29,508
	$	335,251	$	166,961	$	168,290	$	322,635	$	142,188	$	180,447

During the year ended December 31, 2018, the Company reclassified $60,500 of acquired in-process research and development to developed technology as the technology was commercialized.

During the year ended December 31, 2017, the Company abandoned a project related to certain developed technology and in-process research and development from the ClariPhy Communications, Inc. (ClariPhy) acquisition resulting in an impairment charge of $47,014, of which $10,174 was included in the cost of revenue and $36,840 was included in the research and development expenses in the consolidated statements of income (loss). The abandonment of the project was primarily related to the change in product roadmap that occurred during the year ended December 31, 2017.

The following table presents amortization of intangible assets for the years ended December 31, 2019, 2018 and 2017:

	*Year Ended December 31,*
	*2019*		*2018*		*2017*
Cost of revenue	$	36,987	$	32,845	$	28,502
Research and development		22,305		19,311		18,352
Sales and marketing		9,728		9,727		9,727
General and administrative		545		609		643
	$	69,565	$	62,492	$	57,224

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Inphi Corporation

Notes to Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

Based on the amount of intangible assets subject to amortization at December 31, 2019, the expected amortization expense for each of the next five fiscal years and thereafter is as follows:

2020	$	56,558
2021		52,469
2022		42,656
2023		15,769
2024		672
Thereafter		166
	$	168,290

The weighted-average amortization periods remaining by intangible asset category were as follows (in years):

Developed technology			3.0
Customer relationship			4.0
Trade name			2.0
Patents			7.6
Software			2.7

7. Leases

On January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), using the modified retrospective method through a cumulative adjustment to the beginning accumulated deficit balance. Prior comparative periods have not been restated under this method. The adoption of this guidance resulted in no cumulative effect adjustment as of January 1, 2019. However, total assets and liabilities increased by $10,670 as a result of the adoption. Based on the new guidance, for leases less than twelve months, an entity is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. The Company made this election, along with other available practical expedients. This guidance had a material impact on the consolidated balance sheets as of January 1, 2019, but did not have an impact on the consolidated statements of income (loss) and cash flows. The most significant impact was the recognition of right of use (“ROU”) asset and lease liabilities for operating leases related to facility leases.

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease ROU assets, other current liabilities and other long-term liabilities on the consolidated balance sheets. Finance leases are included in property and equipment, other current liabilities, and other long-term liabilities on the consolidated balance sheets. As of the adoption date and December 31, 2019, the Company does not have material finance leases.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of the leases do not provide an implicit rate, the Company uses the incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments and initial direct costs incurred, net of lease incentives. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise the option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components, which are generally accounted for separately.

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Inphi Corporation

Notes to Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

The Company has operating leases for office facilities. The leases have remaining lease terms of one year to ten years and some may include options to extend the lease for up to five years.

Information related to operating leases for the year ended December 31, 2019 are as follows:


Operating lease expense	$	5,094
Cash paid for leases	$	4,585
Right of use assets obtained in exchange for lease obligations	$	27,639

Weighted average remaining lease term and weighted average discount as of December 31, 2019 are as follows:

Weighted average remaining lease term (years)			8.52
Weighted average discount rate			3.9	%

Future minimum lease payments under non-cancellable leases as of December 31, 2019 are as follows:

2020	$	4,455
2021		6,174
2022		6,351
2023		6,266
2024		6,073
Thereafter		23,630
Total future minimum lease payments		52,949
Less: Imputed interest		8,006
Lease incentive recognized as offset to asset liability		1,324
Present value of lease obligations	$	43,619

As of December 31, 2019, the Company has additional operating leases for office facilities that have not yet commenced of $1,098. These operating leases will commence in the second quarter of 2020 with lease terms between three to five years.

As previously reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 and under legacy lease accounting (ASC 840), future minimum lease payments under non-cancelable leases and service agreements as of December 31, 2018 are as follows:

2019	$	4,588
2020		2,252
2021		1,883
2022		1,722
2023		1,615
2024 and thereafter		1,698
Total	$	13,758

For the years ended December 31, 2018 and 2017, operating lease expense was $5,742 and $6,865, respectively.

Table of Contents

Inphi Corporation

Notes to Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

8. Convertible Debt

The carrying value of the Company's long-term debt consists of the following:

	*December 31,*			*December 31,*
	*2019*			*2018*
Principal	$	517,500		$	517,500
Less:
Unamortized debt discount		(38,105	)		(64,222	)
Unamortized debt issuance costs		(3,217	)		(5,453	)
Net carrying amount of long-term debt		476,178			447,825
Less current portion of long-term debt		217,467			—
Long-term debt, non-current portion	$	258,711		$	447,825

In December 2015, the Company issued $230,000 of 1.125% convertible senior notes due 2020 (Convertible Notes 2015). The Convertible Notes 2015 will mature December 1, 2020, unless earlier converted or repurchased. Interest on the Convertible Notes 2015 is payable on June 1 and December 1 of each year, beginning on June 1, 2016. The initial conversion rate is 24.8988 shares of common stock per $1 principal amount of Convertible Notes 2015, which represents an initial conversion price of approximately $40.16 per share. The Convertible Notes 2015 will be subject to repurchase at the option of the holders following certain fundamental corporate changes, at a fundamental change in repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. The conversion rate will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. Certain corporate events that occur prior to the stated maturity date can cause the Company to increase the conversion rate for a holder.

Prior to the close of business on the business day immediately preceding June 1, 2020, holders may convert all or any portion of their Convertible Notes 2015 only under the following circumstances: (i) during any calendar quarter commencing after the calendar quarter ending on March 31, 2016 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (ii) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the “trading price” per $1 principal amount of notes, as determined following a request by a holder of notes in accordance with procedures specified in the indenture governing the Convertible Notes 2015, for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the common stock and the conversion rate on each such trading day; or (iii) upon the occurrence of specified corporate events. On or after June 1, 2020, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their notes at any time, regardless of the foregoing circumstances. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock, at the Company’s election. The Company's current intent is to settle the principal amount of the Convertible Notes 2015 in cash upon conversion. If the conversion value exceeds the principal amount, the Company would deliver shares of its common stock in respect to the remainder of its conversion obligation in excess of the aggregate principal amount (conversion spread).

The Convertible Notes 2015 are not redeemable at the Company’s option prior to maturity.

The Convertible Notes 2015 are governed by the terms of an indenture (Indenture 2015). The Indenture 2015 does not contain any financial or operating covenants, or restrictions on the payments of dividends, the incurrence of indebtedness or the issuance or repurchase of securities by the Company or any of its subsidiaries. The Indenture 2015 contains customary terms and covenants in events of default. If an event of default (other than certain events of bankruptcy, insolvency or reorganization involving the Company) occurs and is continuing, the trustee under the Indenture 2015 by notice to the Company, or the holders of at least 25% in principal amount of the outstanding Convertible Notes 2015 by notice to the Company and the trustee, may, and the trustee at the request of such holders shall, declare 100% of the principal of and accrued and unpaid interest, if any, on all the Convertible Notes 2015 to be due and payable. Upon the occurrence of certain events of bankruptcy, insolvency or reorganization involving the Company, 100% of the principal of and accrued and unpaid interest, if any, on all of the Convertible Notes 2015 will become due and payable automatically. Upon such a declaration of acceleration, such principal and accrued and unpaid interest, if any, will be due and payable immediately. Notwithstanding the foregoing, the Indenture 2015 provides that, to the extent the Company elects, the sole remedy for an event of default relating to certain failures by the Company to comply with certain reporting covenants in the Indenture 2015 consists exclusively of the right to receive additional interest on the Convertible Notes 2015. As of December 31, 2019, none of the conditions allowing holders of the Convertible Notes 2015 to convert had been met.

Table of Contents

Inphi Corporation

Notes to Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

In accounting for the issuance of the Convertible Notes 2015, the Company separated the Convertible Notes 2015 into liability and equity components. The carrying amount of the liability component was calculated by measuring the estimated fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the face value of the Convertible Notes 2015 as a whole. The excess of the face amount of the liability component over its carrying amount is amortized to interest expense over the term of the Convertible Notes 2015 using the effective interest method. The gross proceeds of $230,000 were accordingly allocated between long-term debt of $175,974 and stockholders' equity of $54,026. Issuance costs of $6,359, of which $6,007 were paid as of December 31, 2015 and the remainder paid in 2016, were allocated between long-term debt ($4,864) and equity ($1,495).

Interest expense for the Convertible Note 2015 are as follows:

	*Year Ended December 31,*
	*2019*		*2018*		*2017*
Contractual interest expense	$	2,586	$	2,587	$	2,588
Amortization of debt discount		11,645		10,833		10,079
Amortization of debt issuance costs		1,050		976		907
Total interest expense	$	15,281	$	14,396	$	13,574

In connection with the issuance of the Convertible Notes 2015, the Company entered into capped call transactions (Capped Call) in private transactions. Under the Capped Call, the Company purchased capped call options that in aggregate relate to 100% of the total number of shares of the Company's common stock underlying the Convertible Notes 2015, with a strike price approximately equal to the conversion price of the Convertible Notes 2015 and with a cap price equal to $52.06 per share. The capped calls were purchased for $17,802 and recorded as a reduction to additional paid-in-capital in accordance with ASC 815-40, Contracts in Entity’s Own Equity.

The purchased Capped Call allows the Company to receive shares of its common stock and/or cash from counterparties equal to the amounts of common stock and/or cash related to the excess of the market price per share of the common stock, as measured under the terms of the Capped Call over the strike price of the Capped Call during the relevant valuation period. The purchased Capped Call is intended to reduce the potential dilution to common stock upon future conversion of the Convertible Notes 2015 by effectively increasing the initial conversion price to $52.06 as well as to offset potential cash payments the Company is required to make in excess of the principal amount of the Convertible Notes 2015 in applicable events.

The Capped Call is a separate transaction entered into by the Company with the option counterparties, is not part of the terms of the Convertible Notes 2015 and will not change the holders' rights under the Convertible Notes 2015.

In September 2016, the Company issued $287,500 of 0.75% convertible senior notes due 2021 (Convertible Notes 2016 and together with the Convertible Notes 2015, the Convertible Notes). The Convertible Notes 2016 will mature September 1, 2021, unless earlier converted or repurchased. Interest on the Convertible Notes 2016 is payable on March 1 and September 1 of each year, beginning on March 1, 2017. The initial conversion rate is 17.7508 shares of common stock per $1 principal amount of Convertible Notes 2016, which represents an initial conversion price of approximately $56.34 per share. The Convertible Notes 2016 will be subject to repurchase at the option of the holders following certain fundamental corporate changes, at a fundamental change in repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. The conversion rate will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. Certain corporate events that occur prior to the stated maturity date can cause the Company to increase the conversion rate for a holder.

Prior to the close of business on the business day immediately preceding March 1, 2021, holders may convert all or any portion of their Convertible Notes 2016 only under the following circumstances: (i) during any calendar quarter commencing after the calendar quarter ending on December 31, 2016 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (ii) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the “trading price” per $1 principal amount of notes, as determined following a request by a holder of notes in accordance with procedures specified in the indenture governing the Convertible Notes 2016, for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the common stock and the conversion rate on each such trading day; or (iii) upon the occurrence of specified corporate events. On or after March 1, 2021, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their notes at any time, regardless of the foregoing circumstances. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock, at the Company’s election. The Company's current intent is to settle the principal amount of the Convertible Notes 2016 in cash upon conversion. If the conversion value exceeds the principal amount, the Company would deliver shares of its common stock in respect to the remainder of its conversion obligation in excess of the aggregate principal amount (conversion spread).

Table of Contents

Inphi Corporation

Notes to Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

The Convertible Notes 2016 are not redeemable at the Company’s option prior to maturity.

The Convertible Notes 2016 are governed by the terms of an indenture (Indenture 2016). The Indenture 2016 does not contain any financial or operating covenants, or restrictions on the payments of dividends, the incurrence of indebtedness or the issuance or repurchase of securities by the Company or any of its subsidiaries. The Indenture 2016 contains customary terms and covenants in events of default. If an event of default (other than certain events of bankruptcy, insolvency or reorganization involving the Company) occurs and is continuing, the trustee under the Indenture 2016 by notice to the Company, or the holders of at least 25% in principal amount of the outstanding Convertible Notes 2016 by notice to the Company and the trustee under the Indenture 2016, may, and the trustee at the request of such holders shall, declare 100% of the principal of and accrued and unpaid interest, if any, on all the Convertible Notes 2016 to be due and payable. Upon the occurrence of certain events of bankruptcy, insolvency or reorganization involving the Company, 100% of the principal of and accrued and unpaid interest, if any, on all of the Convertible Notes 2016 will become due and payable automatically. Upon such a declaration of acceleration, such principal and accrued and unpaid interest, if any, will be due and payable immediately. Notwithstanding the foregoing, the Indenture 2016 provides that, to the extent the Company elects, the sole remedy for an event of default relating to certain failures by the Company to comply with certain reporting covenants in the Indenture 2016 consists exclusively of the right to receive additional interest on the Convertible Notes 2016. As of December 31, 2019, none of the conditions allowing holders of the Convertible Notes 2016 to convert had been met.

In accounting for the issuance of the Convertible Notes 2016, the Company separated the Convertible Notes 2016 into liability and equity components. The carrying amount of the liability component was calculated by measuring the estimated fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the face value of the Convertible Notes 2016 as a whole. The excess of the face amount of the liability component over its carrying amount is amortized to interest expense over the term of the Convertible Notes 2016 using the effective interest method. The gross proceeds of $287,500 were accordingly allocated between long-term debt of $216,775 and stockholders' equity of $70,725. Issuance costs of $7,689, were allocated between long-term debt ($5,798) and equity ($1,891).

Interest expense for the Convertible Notes 2016 are as follows:

	*Year Ended December 31,*
	*2019*		*2018*		*2017*
Contractual interest expense	$	2,152	$	2,156	$	2,154
Amortization of debt discount		14,472		13,481		12,559
Amortization of debt issuance costs		1,186		1,104		1,029
Total interest expense	$	17,810	$	16,741	$	15,742

In connection with the issuance of the Convertible Notes 2016, the Company entered into capped call transactions (Capped Call 2016) in private transactions. Under the Capped Call 2016, the Company purchased capped call options that in aggregate relate to 100% of the total number of shares of the Company's common stock underlying the Convertible Notes 2016, with a strike price approximately equal to the conversion price of the Convertible Notes 2016 and with a cap price equal to approximately $73.03 per share. The capped calls were purchased for $22,540 and recorded as a reduction to additional paid-in-capital in accordance with ASC 815-40, Contracts in Entity’s Own Equity.

The purchased Capped Call 2016 allows the Company to receive shares of its common stock and/or cash from counterparties equal to the amounts of common stock and/or cash related to the excess of the market price per share of the common stock, as measured under the terms of the Capped Call 2016 over the strike price of the Capped Call 2016 during the relevant valuation period. The purchased Capped Call 2016 is intended to reduce the potential dilution to common stock upon future conversion of the Convertible Notes 2016 by effectively increasing the initial conversion price to approximately $73.03 as well as to offset potential cash payments the Company is required to make in excess of the principal amount of the Convertible Notes 2016 in applicable events.

The Capped Call 2016 is a separate transaction entered into by the Company with the option counterparties, is not part of the terms of the Convertible Notes 2016 and will not change the holders' rights under the Convertible Notes 2016.

Table of Contents

Inphi Corporation

Notes to Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

9. Other Liabilities

Other current liabilities consist of the following:

	*December 31,*
	*2019*		*2018*
Software license intangible asset liability	$	25,810	$	21,945
Operating lease liability		2,545		—
Others		5,176		2,374
	$	33,531	$	24,319

Other long-term liabilities consist of the following:

	*December 31,*
	*2019*		*2018*
Deferred rent	$	26	$	1,100
Income tax payable		692		706
Software license intangible asset liability		36,144		7,961
Operating lease liability		41,074		—
Others		981		1,144
	$	78,917	$	10,911

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Inphi Corporation

Notes to Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

10. Income Taxes

Loss before income taxes consists of the following:

	*Year Ended December 31,*
	*2019*			*2018*			*2017*
United States	$	(60,313	)	$	(71,978	)	$	(77,649	)
Foreign		(12,202	)		(31,984	)		(18,431	)
Total	$	(72,515	)	$	(103,962	)	$	(96,080	)

Income tax provision (benefit) consisted of the following:

	*Year Ended December 31,*
	*2019*			*2018*			*2017*
Current:
U.S. Federal	$	—		$	—		$	96
U.S. State		(11	)		42			51
Foreign		70			375			1,105
		59			417			1,252
Deferred:
U.S. Federal		—			(6,734	)		(11,312	)
U.S. State		—			—			(613	)
Foreign		337			(1,894	)		(10,503	)
		337			(8,628	)		(22,428	)
Total	$	396		$	(8,211	)	$	(21,176	)

Provision (benefit) for income taxes differed from the amounts computed by applying the U.S. federal income tax rate of 21% in 2019, 21% in 2018 and 34% in 2017 to loss before income taxes as a result of the following:

	*Year Ended December 31,*
	*2019*			*2018*			*2017*
Benefit at statutory rate	$	(15,228	)	$	(21,832	)	$	(32,562	)
State income taxes		(587	)		594			(585	)
Research and development credits		(16,933	)		(13,283	)		(12,983	)
Change in valuation allowance		31,917			13,757			40,028
Impact of foreign operations		(1,045	)		5,925			(1,951	)
Unrecognized tax benefits		6,725			5,340			3,596
Stock-based compensation		(4,731	)		(381	)		(10,248	)
Prior year return to provision adjustment		(1,167	)		1,422			1,105
Section 162(m)		1,046			—			—
Effect of U. S. tax law change		—			—			(4,602	)
Impairment of intangibles		—			—			(2,328	)
Other		399			247			(646	)
	$	396		$	(8,211	)	$	(21,176	)

Significant components of the Company’s net deferred taxes consist of the following:

	*December 31,*
	*2019*			*2018*
Deferred tax assets
Net operating loss carry forwards	$	48,481		$	39,888
Research and development credits		84,268			69,320
Stock-based compensation		8,884			9,055
Accrued expenses and allowances		1,897			2,334
Amortization and depreciation		—			1,408
Operating lease liability		7,345			—
Other temporary differences		6,884			6,411
Foreign tax credit		2,338			2,338
Valuation allowance		(123,989	)		(92,315	)
Total deferred tax assets		36,108			38,439
Deferred tax liabilities
Acquired intangible assets		(16,092	)		(22,593	)
Convertible debt		(6,444	)		(11,596	)
Amortization and depreciation		(2,123	)		—
Right of use asset		(6,806	)		—
Other deferred tax liabilities		(1,482	)		(603	)
Total deferred tax liabilities		(32,947	)		(34,792	)
Deferred tax assets, net	$	3,161		$	3,647

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Inphi Corporation

Notes to Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

On December 22, 2017, the Tax Reform Act was signed into law. The Tax Reform Act contains significant changes to U.S. federal corporate income taxation, including a reduction of the corporate tax rate from 35% to 21% effective January 1, 2018, a one-time transition tax on deemed mandatory repatriation of accumulated earnings and profits of foreign subsidiaries in conjunction with the elimination of U.S. tax on dividend distributions from foreign subsidiaries, and a temporary 100% first-year depreciation deduction for certain capital investments. In 2017, the Company recorded provisional amounts based on reasonable estimates for certain enactment-date effects of the Tax Reform Act in accordance with the guidance in SAB 118. In 2017, the Company recorded a net tax benefit related to the enactment-date effects of the Tax Reform Act that included the remeasurement of the federal deferred tax assets and liabilities, the tax effect of the one-time mandatory repatriation income, and related valuation allowance adjustments.

During 2018, the Company finalized the calculation of the deemed mandatory repatriation income upon filing its 2017 U.S. income tax return. The change in the mandatory repatriation income was fully absorbed by the U.S. net operating loss, which is subject to valuation allowance, and resulted in no current tax liability. These measurement period adjustments had no net tax effect after the offsetting change to the valuation allowance.

The Tax Reform Act subjects a U.S. shareholder to tax on GILTI earned by certain foreign subsidiaries. In January 2018, the FASB released guidance on the accounting for tax on the GILTI inclusion. Entities can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or account for GILTI as a period cost in the year the tax is incurred. The Company has elected to account for GILTI as a period cost in the year the tax is incurred. For the year ended December 31, 2019, the Company computed no GILTI inclusion as a result of current year aggregate loss of the Company’s foreign subsidiaries.

Valuation Allowance

The Company records a valuation allowance to reduce deferred tax assets to the amount the Company believes is more likely than not to be realized. The determination of recording or releasing tax valuation allowances is made, in part, pursuant to an assessment performed by management regarding the likelihood that the Company will generate sufficient future taxable income against which benefits of the deferred tax assets may or may not be realized. This assessment requires management to exercise significant judgment and make estimates with respect to the Company’s ability to generate revenue, gross profits, operating income and taxable income in future periods. Amongst other factors, management must make assumptions regarding overall current and projected business and semiconductor industry conditions, operating efficiencies, the Company’s ability to timely develop, introduce and consistently manufacture new products to customers’ specifications, acceptance of new products, customer concentrations, technological change and the competitive environment which may impact the Company’s ability to generate taxable income and, in turn, realize the value of the deferred tax assets.

At December 31, 2019, 2018 and 2017, the Company has a full valuation allowance recorded against the deferred tax assets of Canada, United Kingdom, and the U.S., with the exception of the federal refundable AMT credit. The Company has a partial valuation allowance against the deferred tax assets of Taiwan.

The valuation allowance increased $31,674, $13,777 and $39,907 in the years ended December 31, 2019, 2018 and 2017, respectively.

The net increase of $31,674 in the valuation allowance for the year ended December 31, 2019 is comprised of $31,917 increase charged to income tax provision and $243 decrease charged to other comprehensive income. The net increase of $13,777 in the valuation allowance for the year ended December 31, 2018 is comprised of $20 increase charged to other comprehensive income and $13,757 charged to income tax provision. The net increase of $39,907 in the valuation allowance for the year ended December 31, 2017 is comprised of $134 increase charged to other comprehensive income, $158 decrease charged to goodwill, and $39,931 increase charged to income tax provision. The valuation allowance charged to income tax provision included an income tax benefit from the partial release of the federal and state valuation allowance.

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Inphi Corporation

Notes to Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

General Income Tax Disclosures

The Company has net operating loss (“NOL”) carryforwards for federal and state income tax purposes of approximately $261,621 and $96,559, respectively at December 31, 2019, that will begin to expire in 2022 for federal income tax purposes and in 2026 for state income tax purposes. The Company’s federal NOL carryforward of $59,407 that was generated in 2018 and 2019 does not expire. At December 31, 2019, the Company has NOL carryforwards of $2,597 for its Taiwan subsidiary which begin to expire in 2020, and NOL carryforwards of $8,409 for the United Kingdom subsidiary, which do not expire. A full valuation allowance has been provided on U.S. NOL and United Kingdom NOL, and a partial valuation allowance has been provided on Taiwan NOL.

At December 31, 2019, the Company has federal and state research and development (“R&D”) tax credit carryforwards of $57,078 and $58,288, respectively. The federal tax credits will begin to expire in 2024. Some state tax credits will begin to expire in 2021 and some do not expire. At December 31, 2019, the Company has Canadian tax credits and research expenditure tax credit carryforwards for its Canadian subsidiary of $6,999 and $3,750, respectively. The tax credits will begin to expire in 2027, and the research expenditure claim carryforwards do not expire. A full valuation allowance has been provided on R&D tax credit and research expenditure claim carryforwards.

Pursuant to Internal Revenue Code of 1986, as amended (the “Code”) sections 382 and 383, use of the Company’s NOL and R&D credits generated prior to June 2004 are subject to an annual limitation due to a cumulative ownership percentage change that occurred in that period. The Company has had two changes in ownership, one in December 2000 and the second in June 2004, that resulted in an annual limitation on NOL and R&D credit utilization. The NOL and R&D credit carryover of Cortina, are also subject to annual limitation under the Code sections 382 and 383. The acquisition of Cortina caused an ownership change that resulted in an annual limitation, as well as Cortina’s legacy annual limitation amount from ownership changes prior to acquisition. The NOL and R&D credit carryforward which will expire unused due to annual limitations is not recognized for financial statement purposes and is not reflected in the above carryover amounts.

The Company’s NOL carryforwards include Cortina’s federal and state pre-acquisition NOL of $49,152 and $3,919, respectively. These NOL carryforwards will begin to expire in 2024 for federal and 2026 for state. The Company’s NOL carryforwards also include ClariPhy’s federal and state pre-acquisition NOL of $46,601 and $68,104, respectively. These NOL carryforwards will begin to expire in 2032 for federal and 2028 for state. The Company’s R&D credit carryforwards included Cortina’s federal and state pre-acquisition credits of $6,033 and $7,912, respectively. The federal R&D credit carryforward will begin to expire in 2027. While some state tax credits will begin to expire in 2021, most do not expire. The utilization of Cortina and ClariPhy’s pre-acquisition tax attributes is subject to certain annual limitations under the Code sections 382 and 383. No benefit for Cortina’s tax attributes was recorded upon the close of the acquisition, as the benefit from these tax attributes did not meet the "more-likely-than-not" standard.

The Company operates under tax holiday in Singapore. The Singapore tax holiday allows for a reduced income tax rate of 5% effective through April 2020, and the Company is currently pursuing a renewal of the reduced tax rate to apply subsequent to the current holiday period. The Singapore statutory rate is 17%. The tax holiday is conditional upon meeting certain employment, activities and investment thresholds. As of December 31, 2019, the Company believes it has met all of the required thresholds. The Company qualified for a tax incentive program in Argentina that reduced the income tax rate to 12%, starting January 1, 2018 through December 31, 2019, with a return to the full statutory rate of 30% in 2020. As a result of these reduced tax rates, foreign tax expense increased (decreased) by ($1,729), ($2,093) and $7,412 for the years ended December 31, 2019, 2018 and 2017, respectively. The effect of the tax holidays on diluted earnings per share was ($0.04), ($0.05) and $0.18 for the years ended December 31, 2019, 2018 and 2017, respectively.

The following table summarizes the changes in gross unrecognized tax benefits:

	*Year Ended December 31,*
	*2019*			*2018*			*2017*
Balance as of January 1	$	53,943		$	47,606		$	56,503
Increases based on tax positions related to the current year		7,926			5,747			4,656
Increases (decreases) based on tax positions of prior year		(518	)		708			(13,452	)
Statute of limitation expirations		(51	)		(118	)		(101	)
Balance as of December 31	$	61,300		$	53,943		$	47,606

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Inphi Corporation

Notes to Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

As of December 31, 2019, the Company had approximately $5,478 of unrecognized tax benefits that if recognized would affect the effective income tax rate. The Company believes that before the end of next year, it is reasonably possible that the gross unrecognized tax benefit may decrease by approximately $58 due to statute of limitation expiration in foreign jurisdictions.

The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense. The Company recorded $16, $17 and $16 in interest expense in the years ended December 31, 2019, 2018 and 2017, respectively. The Company had $56, $65, and $113 of interest expense and penalties accrued as of December 31, 2019, 2018 and 2017, respectively.

The Company files income tax returns in the U.S. federal jurisdiction, various states and certain foreign jurisdictions. The Company is no longer subject to U.S. federal income tax examinations for tax years ended on or before December 31, 2011 or to California state income tax examinations for tax years ended on or before December 31, 2010. However, to the extent allowed by law, the tax authorities may have the right to examine prior periods where net operating losses or tax credits were generated and carried forward, and make adjustments up to the amount of the net operating loss or credit carryforward.

The Company does not provide for U.S. income taxes on undistributed earnings of its controlled foreign corporations as the Company intends to reinvest these earnings indefinitely outside the United States. At December 31, 2019, foreign subsidiaries had cumulative undistributed earnings of $31,008 that, if repatriated, is expected to result in immaterial U.S. taxes.

The Company is currently under examination by the Inland Revenue Authority of Singapore (“IRAS”) for the years 2010, 2011 and 2012. The IRAS made an adjustment to the timing of deducting certain intercompany payments, the effect of which has been reflected in the provision and did not result in a material impact to the consolidated financial statements. As of the report date, the examination is ongoing.

The Company is currently under examination by the U.S. Internal Revenue Service for year 2016. The Company believes it has adequate reserve for its uncertain tax positions, however, there is no assurance that the taxing authorities will not propose adjustments that are different from the Company’s expected outcome and such adjustments may impact the provision for income taxes. The Internal Revenue Service examination is on-going as of the report date.

11. Earnings Per Share

The following securities were not included in the computation of diluted earnings per share as inclusion would have been anti-dilutive:

	*Year Ended December 31,*
	*2019*		*2018*		*2017*
Common stock options		1,032,485		1,208,643		1,456,610
Unvested restricted stock unit		2,772,991		2,871,135		2,935,500
Convertible debt		10,830,038		10,830,038		10,830,038
		14,635,514		14,909,816		15,222,148

12. Stock-Based Compensation

In June 2010, the Board of Directors (the “Board”) approved the Company’s 2010 Stock Incentive Plan (the “2010 Plan”), which became effective in November 2010. The 2010 Plan provides for the grants of restricted stock, stock appreciation rights and stock unit awards to employees, non-employee directors, advisors and consultants. The Compensation Committee administers the 2010 Plan, including the determination of the recipient of an award, the number of shares subject to each award, whether an option is to be classified as an incentive stock option or nonstatutory option, and the terms and conditions of each award, including the exercise and purchase prices and the vesting or duration of the award. Options granted under the 2010 Plan are exercisable only upon vesting. At December 31, 2019, 4,909,665 shares of common stock have been reserved for future grants under the 2010 Plan.

Stock Option Awards

The Company did not grant any stock options during the years ended December 31, 2019, 2018 and 2017.

The following table summarizes information regarding options outstanding:

	*Number of Shares*			*Weighted Average Exercise Price Per Share*		*Weighted Average Remaining Contractual Life*		*Aggregate Intrinsic Value*
Outstanding at December 31, 2018		1,159,121		$	12.94		2.62	$	22,267
Exercised		(253,980	)	$	10.30
Outstanding at December 31, 2019		905,141		$	13.68		1.81	$	54,616
Vested and Exercisable as of December 31, 2019		905,141		$	13.68		1.81	$	54,616

The intrinsic value of options outstanding, exercisable and vested and expected to vest is calculated based on the difference between the exercise price and the fair value of the Company’s common stock as of the respective balance sheet dates.

The total intrinsic value of options exercised during the years ended December 31, 2019, 2018 and 2017 was $12,008, $4,553 and $11,312, respectively. The intrinsic value of exercised options is calculated based on the difference between the exercise price and the fair value of the Company’s common stock as of the exercise date. Cash received from the exercise of stock options was $2,616, $719 and $2,214, respectively, for the years ended December 31, 2019, 2018 and 2017.

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Inphi Corporation

Notes to Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

Restricted Stock Units and Awards

The Company granted restricted stock units (“RSUs”) to members of the Board and its employees. Most of the Company’s outstanding RSUs vest over four years with vesting contingent upon continuous service. The Company estimates the fair value of RSUs using the market price of the common stock on the date of the grant. The fair value of these awards is amortized on a straight-line basis over the vesting period.

The following table summarizes information regarding outstanding restricted stock units:

				*Weighted*
				*Average*
				*Grant Date*
	*Number of*			*Fair Value*
	*Shares*			*Per Share*
Outstanding at December 31, 2018		4,051,685		$	34.68
Granted		1,965,231		$	47.85
Vested		(1,811,511	)	$	34.19
Canceled		(383,080	)	$	37.71
Outstanding at December 31, 2019		3,822,325		$	41.38
Expected to vest in the future as of December 31, 2019		3,742,887

The RSUs include performance-based stock units subject to achievement of pre-established revenue and earnings per share goals on non-GAAP basis. Once the goals are met, the performance-based stock units are subject to four years of vesting from the original grant date, contingent upon continuous service. The total performance-based units that vested for the year ended December 31, 2019 was 55,759. As of December 31, 2019, the total performance-based units outstanding was 72,053.

Market Value Stock Units

In January 2018, the compensation committee of the Board approved long-term market value stock unit (MVSU) awards to certain executive officers and employees, subject to certain market and service conditions in the maximum total amount of 702,000 units. Recipients may earn between 0% to 225% of the target number of shares based on the Company’s achievement of total shareholder return (TSR) in comparison to the TSR of companies in the S&P 500 Index over a period of approximately three years in length ending in the first calendar quarter of 2021 after reporting of fiscal year 2020 results. If the Company’s absolute TSR is negative for the performance period, then the maximum number of shares that may be earned is the target number of shares. The fair value of the MVSU awards was estimated using a Monte Carlo simulation model and compensation is being recognized ratably over the service period. The expected volatility of the Company’s common stock was estimated based on the historical average volatility rate over the three-year period. The dividend yield assumption was based on historical and anticipated dividend payouts. The risk-free interest rate assumption was based on observed interest rates consistent with three-year measurement period. The total amount of compensation to recognize over the service period, and the assumptions used to value the grants are as follows:

Total target shares		312,000
Fair value per share	$	55.81
Total amount to be recognized over the service period	$	17,413
Risk free interest rate		2.29	%
Expected volatility		47.52	%
Dividend yield		—

Employee Stock Purchase Plan

In December 2011, the Company adopted the Employee Stock Purchase Plan (“ESPP”). Participants purchase the Company's stock using payroll deductions, which may not exceed 15% of their total cash compensation. Pursuant to the terms of the ESPP, the "look-back" period for the stock purchase price is six months. Offering and purchase periods will begin on February 10 and August 10 of each year. Participants will be granted the right to purchase common stock at a price per share that is 85% of the lesser of the fair market value of the Company's common shares at the beginning or the end of each six-month period.

The ESPP imposes certain limitations upon an employee’s right to acquire common stock, including the following: (i) no employee shall be granted a right to participate if such employee immediately after the election to purchase common stock, would own stock possessing 5% or more to the total combined voting power or value of all classes of stock of the Company, and (ii) no employee may be granted rights to purchase more than $25 fair value of common stock for each calendar year. The maximum aggregate number of shares of common stock available for purchase under the ESPP is 2,750,000. Total common stock issued under the ESPP during the years ended December 31, 2019, 2018 and 2017 was 208,721, 283,493, and 171,099, respectively.

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Inphi Corporation

Notes to Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

The fair value of award under the employee stock purchase plan is estimated at the start of offering period using the Black-Scholes option pricing model with the following average assumptions for the years ended December 31, 2019, 2018 and 2017:

	*Year Ended December 31,*
	*2019*			*2018*			*2017*
Risk-free interest rate		2.26	%		2.01	%		0.94	%
Expected life (in years)		0.49			0.50			0.50
Dividend yield		—			—			—
Expected volatility		43	%		46	%		42	%
Estimated fair value	$	13.35		$	8.35		$	11.03

Stock-Based Compensation Expense

Stock-based compensation expense is included in the Company’s results of operations as follows:

	*Year Ended December 31,*
	*2019*		*2018*		*2017*
Cost of revenue	$	6,208	$	2,527	$	2,045
Research and development		42,265		37,397		28,846
Sales and marketing		15,561		13,470		8,340
General and administrative		12,821		10,490		5,602
	$	76,855	$	63,884	$	44,833

As of December 31, 2019, total unrecognized compensation cost related to unvested stock options and awards prior to the consideration of expected forfeitures, was approximately $125,015, which is expected to be recognized over a weighted-average period of 2.50 years.

13. Employee Benefit Plan

The Company has established a 401(k) tax-deferred savings plan (the “Plan”) which permits participants to make contributions by salary deduction pursuant to Section 401(k) of the Code. The Company may, at its discretion, make matching contributions to the Plan. Furthermore, the Company is responsible for administrative costs of the Plan. The Company accrued $1,976, $1,800 and $1,137 in contributions to the Plan for the years ended December 31, 2019, 2018 and 2017, respectively.

14. Fair Value Measurements

The guidance on fair value measurements requires fair value measurements to be classified and disclosed in one of the following three categories:

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

Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; or

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

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Inphi Corporation

Notes to Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

The Company measures its investments in marketable securities at fair value using the market approach which uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The Company has cash equivalents which consist of money market funds valued using the amortized cost method, in accordance with Rule 2a-7 under the 1940 Act which approximates fair value.

The convertible notes are carried on the consolidated balance sheets at their original issuance value including accreted interest, net of unamortized debt discount and issuance costs. The Convertible Notes are not marked to fair value at the end of each reporting period. As of December 31, 2019 and 2018, the fair value of Convertible Notes was determined on the basis of market prices observable for similar instruments and is considered Level 2 in the fair value hierarchy. The fair value of the Convertible Notes as of December 31, 2019 and 2018 was $845,296 and $512,428, respectively.

The following table presents information about assets required to be carried at fair value on a recurring basis:

December 31, 2019	*Total*		*Level 1*		*Level 2*
Assets
Cash equivalents:
Money market funds	$	190,598	$	67,494	$	123,104
Commercial paper		9,465		—		9,465
Municipal bonds		1,250		—		1,250
Investments in marketable securities:
U.S. Treasury securities		3,759		3,759		—
Municipal bonds		6,119		—		6,119
Corporate notes/bonds		119,449		—		119,449
Asset-backed securities		4,268		—		4,268
Commercial paper		6,464		—		6,464
Certificate of deposit		72		72		—
	$	341,444	$	71,325	$	270,119

December 31, 2018	*Total*		*Level 1*		*Level 2*
Assets
Cash equivalents:
Money market funds	$	740	$	38	$	702
Commercial paper		96,759		—		96,759
Investments in marketable securities:
Municipal bonds		6,733		—		6,733
Corporate notes/bonds		146,126		—		146,126
Variable rate demand notes		8,900		—		8,900
Asset-backed securities		32,923		—		32,923
Commercial paper		39,701		—		39,701
Certificate of deposit		956		956		—
	$	332,838	$	994	$	331,844

As discussed in Note 2, the Company has a marketable equity investment. The marketable equity investment is classified as Level 1 in the fair value hierarchy. As discussed in Note 2, the Company has non-marketable equity investments which are classified within Level 3 in the fair value hierarchy.

15. Segment and Geographic Information

The Company operates in one reportable segment. Revenue by region is classified based on the locations to which the product is transported, which may differ from the customer’s principal offices.

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Inphi Corporation

Notes to Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

The following table sets forth the Company’s revenue by geographic region:

	*Year Ended December 31,*
	*2019*		*2018*		*2017*
	(in thousands)
China	$	164,715	$	113,684	$	114,168
United States		103,402		87,545		92,620
Thailand		54,468		40,884		45,205
Other		43,050		52,377		96,208
	$	365,635	$	294,490	$	348,201

As of December 31, 2019, $33,826 of long-lived tangible assets are located outside the United States of which $27,750 are located in Taiwan. As of December 31, 2018, $32,631 of long-lived tangible assets are located outside the United States of which $28,428 are located in Taiwan.

16. Commitments and Contingencies

Leases

The Company has noncancelable service agreements, including software licenses, colocation and cloud services used in research and development activities expiring in various years through 2024.

Future minimum lease payments under noncancelable operating leases having initial terms in excess of one year are as follows:

	*December 31, 2019*
2020	$	1,508
2021		1,110
2022		515
2023		264
2024		195
	$	3,592

Noncancelable Purchase Obligations

The Company depends upon third party subcontractors to manufacture wafers. The Company’s subcontractor relationships typically allow for the cancellation of outstanding purchase orders, but require payment of all expenses incurred through the date of cancellation. As of December 31, 2019, the total value of open purchase orders for wafers was approximately $14,977. As of December 31, 2019, the Company has a commitment to pay mask costs of $542.

Legal Proceedings

Netlist, Inc. v. Inphi Corporation, Case No. 09-cv-6900 (C.D. Cal.)

On September 22, 2009, Netlist filed suit in the United States District Court, Central District of California (the “Court”), asserting that the Company infringes U.S. Patent No. 7,532,537. Netlist filed an amended complaint on December 22, 2009, further asserting that the Company infringes U.S. Patent Nos. 7,619,912 and 7,636,274, collectively with U.S. Patent No. 7,532,537, the patents-in-suit, and seeking both unspecified monetary damages to be determined and an injunction to prevent further infringement. These infringement claims allege that the iMB™ and certain other memory module components infringe the patents in-suit. The Company answered the amended complaint on February 11, 2010 and asserted that the Company does not infringe the patents-in-suit and that the patents-in-suit are invalid. In 2010, the Company filed inter partes requests for reexamination with the United States Patent and Trademark Office (the “USPTO”), asserting that the patents-in-suit are invalid. As a result of the proceedings at the USPTO, the Court has stayed the litigation, with the parties advising the Court on status every 120 days.

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Inphi Corporation

Notes to Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

As to the proceeding at the USPTO, reexamination has been ordered for all of the patents that Netlist alleged to infringe. At present, the USPTO has determined that almost all of the originally filed claims are not valid, and determined certain amended claims to be patentable. The Reexamination Certificate for U.S. Patent No. 7,532,537 was issued on August 2, 2016 based on amended claims. The Reexamination Certificate for U.S. Patent No. 7,636,274 was issued on November 5, 2018, indicating that all claims, 1 through 97, were cancelled. The parties continue to assert their respective positions with respect to the reexamination proceeding for U.S. Patent No. 7,619,912.

While the Company intends to defend the foregoing USPTO proceedings and lawsuit vigorously, the USPTO proceedings and litigation, whether or not determined in the Company’s favor or settled, could be costly and time-consuming and could divert management’s attention and resources, which could adversely affect the Company’s business.

Due to the nature of USPTO proceedings and litigation, the Company is currently unable to predict the final outcome of this lawsuit and therefore cannot determine the likelihood of loss nor estimate a range of possible loss. However, because of the nature and inherent uncertainties of litigation, should the outcome of these actions be unfavorable, the Company’s business, financial condition, results of operations or cash flows could be materially and adversely affected.

Claims Against eSilicon Corporation

In connection with the Company's acquisition of eSilicon Corporation (“eSilicon”) as discussed in Note 17, eSilicon and the Company have received written communications from certain former stockholders of eSilicon demanding to inspect eSilicon’s books and records and indicating that such stockholders will be seeking appraisal of shares they held in eSilicon. Certain of these former eSilicon stockholders also have stated that they may assert claims against eSilicon’s directors and senior officers for alleged breaches of fiduciary duty and other violations in connection with the merger between eSilicon and a subsidiary of the Company. The Company is unaware of any petition for appraisal and/or lawsuit being filed by any former eSilicon stockholder. The Company believes that the claims in such written communications are without merit, and plan to vigorously defend against lawsuits arising out of or relating to the merger agreement and/or the merger that may be filed in the future.

Indemnifications

In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to customers, vendors, lessors, investors, directors, officers, employees and other parties with respect to certain matters, including, but not limited to, losses arising out of the Company’s breach of such agreements, services to be provided by the Company, or from intellectual property infringement claims made by third-parties. These indemnifications may survive termination of the underlying agreement and the maximum potential amount of future payments the Company could be required to make under these indemnification provisions may not be subject to maximum loss clauses. The Company has not incurred material costs to defend lawsuits or settle claims related to these indemnifications. Accordingly, the Company has no liabilities recorded for these agreements as of December 31, 2019 and December 31, 2018.

17. Subsequent Events

In January 2020, the Company completed its acquisition of eSilicon for approximately $215,000 in cash, subject to certain adjustments including cash, debt and transaction expenses. A portion of the consideration has been placed in an escrow fund for up to 12 months (or up to 36 months in certain circumstances) following the closing for the satisfaction of certain indemnification obligations.

In February 2020, the compensation committee of the Board of Directors approved long-term grants to employees of 1,247,109 equity awards consisting of RSUs and MVSUs.

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Inphi Corporation

Notes to Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

18. Supplementary Financial Information (Unaudited)

Quarterly Results of Operations

	*Year Ended December 31, 2019*
	*Mar. 31, 2019*			*Jun. 30, 2019*			*Sept. 30, 2019*			*Dec. 31, 2019*
	(in thousands, except per share amounts)
Revenue	$	82,223		$	86,285		$	94,231		$	102,896
Gross profit		47,631			49,109			54,482			61,599
Net loss		(22,745	)		(20,578	)		(16,180	)		(13,408	)
Basic earnings per share		(0.51	)		(0.46	)		(0.36	)		(0.29	)
Diluted earnings per share		(0.51	)		(0.46	)		(0.36	)		(0.29	)

	*Year Ended December 31, 2018*
	*Mar. 31, 2018(1)*			*Jun. 30, 2018*			*Sept. 30, 2018*			*Dec. 31, 2018(2)*
	(in thousands, except per share amounts)
Revenue	$	60,136		$	69,814		$	78,009		$	86,531
Gross profit		32,546			39,611			43,462			49,526
Net loss		(22,991	)		(28,464	)		(22,665	)		(21,631	)
Basic earnings per share		(0.53	)		(0.65	)		(0.52	)		(0.49	)
Diluted earnings per share		(0.53	)		(0.65	)		(0.52	)		(0.49	)

As further described in note 1, in connection with the preparation of the Company’s 2019 year-end audited consolidated financial statements, the Company identified a classification error in its previously filed unaudited interim condensed consolidated statements of cash flows for the three, six and nine months ended March 31, 2019 and March 31, 2018, June 30, 2019 and June 30, 2018 and September 30, 2019 and September 30, 2018, respectively. Specifically, it was determined that payments made under the Company’s multi-year agreements for the purchase of internal use intangible assets should have been classified as use of cash for financing activities and not as use of cash for investing activities as originally presented.

Management has concluded that such classification error did not result in the previously issued unaudited interim condensed consolidated financial statements being materially misstated. The Company will, however, revise the 2019 unaudited quarterly condensed consolidated statements of cash flows in connection with the future filings of its 2020 Form 10-Qs to correct for such classification error.

(1)

The benefit for income taxes included partial release of federal valuation allowance resulting from the transfer of an acquired in-process research and development to developed technology in 2018 which allowed the related deferred tax liability to be considered a source of income for realizing deferred tax assets, as well as the revaluation of the foreign deferred tax liability on the in-process research and development based on the foreign tax rates applicable to the anticipated reversal periods.

(2)

The Company recorded a charge of $7,000 due to impairment of a non-marketable equity investment.

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Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9a.

Controls and Procedures

(a) Evaluation of disclosure controls and procedures. We maintain “disclosure controls and procedures,” as such term is defined in Rules 13a-15 (e) and 15d – 15(e) under the Exchange Act, that are designed to provide reasonable assurance that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Our disclosure controls and procedures have been designed to provide reasonable, not absolute assurance. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based on their evaluation as of the end of the period covered by this Annual Report on Form 10-K, our Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

(b) Management’s Annual Report on Internal Control over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2019. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework (2013). Based on the assessment using those criteria, our management concluded that as of December 31, 2019, our internal control over financial reporting was effective. The effectiveness of our internal control over financial reporting as of December 31, 2019 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included in Part II “Item 8, Financial Statements and Supplementary Data.”

(c) Changes in Internal Control over Financial Reporting. There has been no change in our “internal control over financial reporting” as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recent fiscal quarter that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9b.

Other Information

None.

PART III

Item 10.

Directors, Executive Officers and Corporate Governance

The information required by this item is incorporated by reference from the information under the captions “Election of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Corporate Governance” contained in our proxy statement to be filed with the SEC in connection with the solicitation of proxies for our 2019 Annual Meeting of Stockholders to be held on May 21, 2020 pursuant to Regulation 14A and no later than 120 days after December 31, 2019 (the Proxy Statement).

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Item 11.

Executive Compensation

The information required by this item is incorporated by reference from the information under the captions “Election of Directors,” “Compensation of Directors,” “Compensation Discussion and Analysis,” “Corporate Governance,” “Compensation Committee Report” and “Executive Compensation” contained in the Proxy Statement.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related STOCKholder Matters

The information required by this item with respect to security ownership of certain beneficial owners and management is incorporated by reference from the information under the captions “Equity Compensation Plan Information,” “Security Ownership of Certain Beneficial Owners and Management” and “Executive Compensation” contained in the Proxy Statement.

Item 13.

Certain Relationships and Related Transactions, and Director Independence

The information required by this item is incorporated by reference from the information under the captions “Corporate Governance” and “Certain Relationships and Related Person Transactions” contained in the Proxy Statement.

Item 14.

Principal Accountant Fees and Services

The information required by this item is incorporated by reference from the information under the captions “Audit Committee Report” and “Ratification of the Appointment of Independent Registered Public Accountants” contained in the Proxy Statement.

PART IV

Item 15.

Exhibits, Financial Statement Schedules

Financial Statements. See “Index to Consolidated Financial Statements” under Part II, “Item 8, Financial Statements and Supplementary Data.”

(a)

Documents filed as part of this report:

(1) Financial Statements

Reference is made to the Index to Consolidated Financial Statements of Inphi Corporation under Part II, “Item 8, Financial Statements and Supplementary Data.”

(2) Financial Statement Schedules

All financial statement schedules have been omitted because they are not applicable or not required or because the information is included elsewhere in the Consolidated Financial Statements or the Notes thereto.

(3) Exhibits

See Item 15(b) below. Each management contract or compensatory plan or arrangement required to be filed has been identified.

(b)

Exhibits

The exhibits listed in the Exhibit Index below are filed or incorporated by reference as part of this report.

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Exhibit Number		Description

2.1*		Agreement and Plan of Merger dated November 10, 2019 by and among the Registrant, Einstein Acquisition Sub, Inc., eSilicon Corporation, and Fortis Advisors LLC, solely in its capacity as Securityholders' Agent (incorporated by reference to exhibit 2.1 of the Registrant's Current Report on Form 8-K filed with the SEC on November 12, 2019).

2.2*		Amendment No. 1 to Agreement and Plan of Merger dated January 10, 2020 by and among the Registrant, Einstein Acquisition Sub, Inc., eSilicon Corporation, and Fortis Advisors LLC, a Delaware limited liability company, solely in its capacity as Securityholders' Agent (incorporated by reference to exhibit 2.2 of the Registrant's Current Report on Form 8-K filed with the SEC on January 13, 2020).

3(i)		Restated Certificate of Incorporation of the Registrant (incorporated by reference to exhibit 3(i) of the Registrant’s Annual Report on Form 10-K filed with the SEC on March 7, 2011).

3(ii)		Amended and Restated Bylaws of the Registrant (incorporated by reference to exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on October 20, 2015).

4.1		Specimen Common Stock Certificate (incorporated by reference to exhibit 4.1 filed with Registration Statement on Form S-1 (File No. 333-167564), as amended).

4.2		Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934.

4.3		Amended and Restated Investors' Rights Agreement dated August 12, 2010 (incorporated by reference to exhibit 4.2 of the Registrant’s Annual Report on Form 10-K filed with the SEC on March 7, 2011).

4.4		Indenture dated December 8, 2015 between the Registrant and Wells Fargo Bank, National Association, as trustee (including form of Note) (incorporated by reference to exhibit 4.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on December 8, 2015).

4.5		Indenture dated September 12, 2016 between the Registrant and Wells Fargo Bank, National Association, as trustee (including form of Note) (incorporated by reference to exhibit 4.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on September 12, 2016).

10.1+		Inphi Corporation 2000 Stock Option/Stock Issuance Plan (as amended on June 2, 2010) and related form stock option plan agreements (incorporated by reference to exhibit 10.1 filed with Registration Statement on Form S-1 (File No. 333-167564), as amended).

10.2+		Inphi Corporation 2010 Stock Incentive Plan and related form agreements (incorporated by reference to exhibit 10.2 of the Registrant’s Annual Report on Form 10-K filed with the SEC on March 7, 2011).

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10.3+		Form of Indemnification Agreement between the Registrant and its officers and directors (incorporated by reference to exhibit 10.3 filed with Registration Statement on Form S-1 (File No. 333-167564), as amended).

10.4+		Offer letter dated December 10, 2007 between John Edmunds and the Registrant, as amended (incorporated by reference to exhibit 10.6 to filed with Registration Statement on Form S-1 (File No. 333-167564), as amended).

10.5+		Offer letter dated October 3, 2007 between Ron Torten and the Registrant, as amended (incorporated by reference to exhibit 10.8 filed with Registration Statement on Form S-1 (File No. 333-167564), as amended).

10.6+		Offer letter dated February 1, 2012 between Ford Tamer and the Registrant (incorporated by reference to exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed with the SEC on February 3, 2012).

10.7+		Amended and Restated Severance and Change of Control Agreement, effective as of August 1, 2019, by and between Ford Tamer and the Registrant (incorporated by reference to exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the three months ended June 30, 2019).

10.8+		Amended and Restated Change of Control Severance Agreement, effective as of August 1, 2019, by and between John Edmunds and the Registrant (incorporated by reference to exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the three months ended June 30, 2019).

10.9+		Amended and Restated Severance and Change of Control Agreement, effective as of August 1, 2019, by and between Charlie Roach and the Registrant (incorporated by reference to exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the three months ended June 30, 2019).

10.10+		Form of Change of Control Severance Agreement for Executive Officers (incorporated by reference to exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for the three months ended June 30, 2019).

10.11		Lease Agreement dated June 4, 2010 by and between the Registrant and LBA Realty Fund III—Company VII, LLC (incorporated by reference to exhibit 10.12 filed with Registration Statement on Form S-1 (File No. 333-167564), as amended).

10.12		Lease Agreement dated September 20, 2012 by and between the Registrant and Bayland Corporation (incorporated by reference to exhibit 10.2 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended September 30, 2012).

10.13		Second Amendment to Lease Agreement dated September 30, 2012 by and between the Registrant and LBA Realty Fund III—Company VII, LLC (incorporated by reference to exhibit 10.3 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended September 30, 2012).

10.14+		Inphi Corporation Amended and Restated Employee Stock Purchase Plan, as amended and restated effective April 3, 2015 and as further amended and restated effective April 17, 2018 (incorporated by reference from Annex A to the Registrant’s definitive proxy statement filed on April 25, 2018).

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10.15		Base Capped Call Confirmation dated December 2, 2015 by and between Registrant and Morgan Stanley & Co. LLC (incorporated by reference to exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on December 8, 2015).

10.16		Base Capped Call Confirmation dated December 2, 2015 by and between Registrant and JPMorgan Chase Bank, National Association, London Branch (incorporated by reference to exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed with the SEC on December 8, 2015).

10.17		Additional Capped Call Confirmation dated December 4, 2015 by and between Registrant and Morgan Stanley & Co. LLC (incorporated by reference to exhibit 10.3 of the Registrant’s Current Report on Form 8-K filed with the SEC on December 8, 2015).

10.18		Additional Capped Call Confirmation dated December 4, 2015 between Registrant and JPMorgan Chase Bank, National Association, London Branch (incorporated by reference to exhibit 10.4 of the Registrant’s Current Report on Form 8-K filed with the SEC on December 8, 2015).

10.19		Base Capped Call Confirmation dated September 6, 2016 between the Registrant and Morgan Stanley & Co. LLC (incorporated by reference to exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on September 12, 2016).

10.20		Base Capped Call Confirmation dated September 6, 2016 between the Registrant and JPMorgan Chase Bank, National Association, London Branch (incorporated by reference to exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed with the SEC on September 12, 2016).

10.21		Additional Capped Call Confirmation dated September 7, 2016 between the Registrant and Morgan Stanley & Co. LLC (incorporated by reference to exhibit 10.3 of the Registrant’s Current Report on Form 8-K filed with the SEC on September 12, 2016).

10.22		Additional Capped Call Confirmation dated September 7, 2016 between the Registrant and JPMorgan Chase Bank, National Association, London Branch (incorporated by reference to exhibit 10.4 of the Registrant’s Current Report on Form 8-K filed with the SEC on September 12, 2016).

10.23+		Form of Stock Unit Agreement (U.S. and Non-U.S. Employees and Consultants) under the Inphi Corporation 2010 Stock Incentive Plan (incorporated by reference to exhibit 10.23 of the Registrant's Annual Report on Form 10-K filed with the SEC on February 28, 2018).

10.24+		Form of Stock Option Agreement (U.S. and Non-U.S. Employees and Consultants) under the Inphi Corporation 2010 Stock Incentive Plan (incorporated by reference to exhibit 10.2 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended September 30, 2016).

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10.25+		Form of Notice of Stock Unit Award and Stock Unit Agreement (incorporated by reference to exhibit 4.1 of the Registrant’s Registration Statement on Form S-8 filed with the SEC on January 11, 2017).

10.26+		Amended and Restated Inphi Corporation 2010 Stock Incentive Plan dated July 19, 2017 (incorporated by reference to exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended June 30, 2017).

10.27+		Inphi Corporation Annual Incentive Plan (incorporated by reference to exhibit 10.1 of the Registrant’s current report on Form 8-K filed with the SEC on January 22, 2018).

10.28		Third Amendment to Lease Agreement dated July 31, 2013 by and between the Registrant and LBA Realty Fund III—Company VII, LLC (incorporated by reference to exhibit 10.33 of the Registrant’s Annual Report on Form 10-K filed with the SEC on February 28, 2018).

10.29		Fourth Amendment to Lease Agreement dated August 10, 2016 by and between the Registrant and LBA Realty Fund III—Company VII, LLC (incorporated by reference to exhibit 10.34 of the Registrant’s Annual Report on Form 10-K filed with the SEC on February 28, 2018).

10.30		Fifth Amendment to Lease Agreement dated March 7, 2017 by and between the Registrant and LBA Realty Fund III—Company VII, LLC (incorporated by reference to exhibit 10.35 of the Registrant’s Annual Report on Form 10-K filed with the SEC on February 28, 2018).

10.31		First Amendment to Lease Agreement dated May 28, 2014 by and between the Registrant and Bayland Corporation (incorporated by reference to exhibit 10.36 of the Registrant’s Annual Report on Form 10-K filed with the SEC on February 28, 2018).

10.32		Second Amendment to Lease Agreement dated January 13, 2017 by and between the Registrant and Bayland Corporation (incorporated by reference to exhibit 10.37 of the Registrant’s Annual Report on Form 10-K filed with the SEC on February 28, 2018).

10.33		Third Amendment to Lease Agreement dated September 23, 2019 by and between the Registrant and Wilson Bunker Hill. LLC.

10.34		Lease Agreement dated October 24, 2019 by and between the Registrant and RTP55 OWNER, LLC.

10.35		First Amendment to Office Lease dated December 30, 2019 by and between the Registrant and RTP55 OWNER, LLC.

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21.1		List of Subsidiaries.

23.1		Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm.
24.1		Power of Attorney (see the signature page of this report).
31.1		Certificate of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1(1)		Certificate of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
32.2(1)		Certificate of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
101.INS		XBRL Instance Document- the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

+	Indicates management contract or compensatory plan.
*	The registrant hereby undertakes to furnish supplementally a copy of any omitted schedule or exhibit to such agreement to the SEC upon request.

(1) The material contained in Exhibit 32.1 and Exhibit 32.2 is not deemed “filed” with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language contained in such filing, except to the extent that the registrant specifically incorporates it by reference.

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Reference is made to Item 15(a)(2) above.

ITEM 16. FORM 10-K SUMMARY.

Not applicable.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

INPHI CORPORATION,

(Registrant)

By: /s/ Ford Tamer

Ford Tamer

President and Chief Executive Officer

(Principal Executive Officer)

By: /s/ John Edmunds

John Edmunds

Chief Financial Officer and Chief Accounting Officer

(Principal Financial Officer and Principal Accounting Officer)

March 2, 2020

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Ford Tamer and John Edmunds, and each of them, his or her true and lawful attorneys-in-fact, each with full power of substitution, for him or her in any and all capacities, to sign any amendments to this report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact or their substitute or substitutes may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name	Title	Date

/s/ Ford Tamer	Chief Executive Officer, President and Director	March 2, 2020
Ford Tamer	(Principal Executive Officer)

/s/ John Edmunds	Chief Financial Officer and Chief Accounting Officer	March 2, 2020
John Edmunds	(Principal Financial and Accounting Officer)

/s/ Diosdado P. Banatao	Chairman of the Board	March 2, 2020
Diosdado P. Banatao

/s/ Nicholas Brathwaite	Director	March 2, 2020
Nicholas Brathwaite

/s/ Chenming C. Hu	Director	March 2, 2020
Chenming C. Hu

/s/ David Liddle	Director	March 2, 2020
David Liddle

/s/ Bruce McWilliams	Director	March 2, 2020
Bruce McWilliams

/s/ Elissa Murphy	Director	March 2, 2020
Elissa Murphy

/s/ William J. Ruehle	Director	March 2, 2020
William J. Ruehle

/s/ Sam S. Srinivasan	Lead Director	March 2, 2020
Sam S. Srinivasan

Exhibit 4.2

INPHI CORPORATION

DESCRIPTION OF SECURITIES REGISTERED PURSUANT TO

SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934

Inphi Corporation, a Delaware corporation (“we”, “us” or “our”), has one class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934: our common stock, $0.001 par value per share. The general terms and provisions of our common stock are summarized below. This summary does not purport to be complete and is qualified in its entirety by reference to our restated certificate of incorporation and our amended and restated bylaws, each of which has been filed as an exhibit to our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”), as may be amended by a document filed with one of our periodic reports filed with the SEC subsequent to the date of that Annual Report.

Common Stock

We are authorized to issue 500,000,000 shares of common stock. Each holder of common stock is entitled to one vote for each share of common stock held on all matters submitted to a vote of stockholders and are not entitled to cumulative voting in the election of directors by our restated certificate of incorporation. This means that the holders of a majority of the voting shares can elect all of the directors then standing for election. Subject to preferences that may apply to shares of preferred stock outstanding at the time, the holders of outstanding shares of our common stock are entitled to receive dividends out of assets legally available at the times and in the amounts that our board of directors may determine from time to time. Upon our liquidation, dissolution or winding-up, the holders of common stock are entitled to share ratably in all assets remaining after payment of all liabilities and the liquidation preferences of any outstanding preferred stock. Holders of common stock have no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are fully paid and nonassessable.

Anti-Takeover Effects of Delaware Law and Our Certificate of Incorporation and Bylaws

The provisions of Delaware law, our restated certificate of incorporation and our amended and restated bylaws may have the effect of delaying, deferring or discouraging another party from acquiring control of us.

Delaware Law

We are subject to Section 203 of the Delaware General Corporation Law (“Section 203”). Section 203 generally prohibits a publicly-held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless:

●

prior to the date of the transaction, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder;

●

the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding (but not the outstanding voting stock owned by the interested stockholder) shares owned (a) by persons who are directors and also officers, and (b) by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or

●

upon or subsequent to the consummation of the transaction, the business combination is approved by the board and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder.

Section 203 defines a business combination to include:

●

any merger or consolidation involving the corporation and the interested stockholder;

●

any sale, transfer, pledge, or other disposition of 10% or more of the assets of the corporation to or with the interested stockholder;

●

subject to exceptions, any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation owned by the interested stockholder;

●

subject to exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; and

●

the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges, or other financial benefits provided by or through the corporation.

In general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with, controlling, or controlled by the entity or person.

Charter and Bylaws

Our restated certificate of incorporation and amended and restated bylaws provide that:

●

no action can be taken by stockholders except at an annual or special meeting of the stockholders called in accordance with our amended and restated bylaws, and stockholders may not act by written consent;

●

the classification of our board of directors so that only a portion of our directors is elected each year, with each director serving a three-year term;

●

the approval of holders of two-thirds of the shares entitled to vote at an election of directors will be required to adopt, amend or repeal our amended and restated bylaws or amend or repeal the provisions of our restated certificate of incorporation regarding the election and removal of directors and the ability of stockholders to take action by written consent or call a special meeting;

●

our board of directors will be expressly authorized to make, alter or repeal our amended and restated bylaws;

●

the Court of Chancery of the State of Delaware will have the sole and exclusive forum for derivative actions, claims of breach of a fiduciary duty, claims asserted under the Delaware General Corporation Law or claims governed by the internal affairs doctrine;

●

stockholders may not call special meetings of the stockholders or fill vacancies on the board;

●

stockholders must provide notice of nominations of directors or the proposal of business to be voted on at an annual meeting;

●

our board of directors will be authorized to issue preferred stock without stockholder approval, as described above;

●

directors may only be removed for cause; and

●

we will indemnify officers and directors against losses that they may incur in investigations and legal proceedings resulting from their services to us, which may include services in connection with takeover defense measures.

The New York Stock Exchange Listing Symbol

Our common stock is listed on The New York Stock Exchange under the symbol “IPHI.”

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is American Stock Transfer & Trust Company.

Exhibit 10.33

THIRD AMENDMENT TO LEASE

THIS THIRD AMENDMENT TO LEASE (this "Amendment") is made effective as of September 23, 2019 (the "Effective Date"), by and between WILSON BUNKER HILL, LLC, a Delaware limited liability company ("Lessor"), and INPHI CORPORATION, a Delaware corporation ("Lessee").

RECITALS

A. Lessor (as successor-in-interest to Bayland Corporation, a California corporation) and Lessee are parties to that certain lease entitled "Standard Office Lease - Gross" dated September 20, 2012 (the "Original Lease"), as amended by that certain First Amendment to Lease ("First Amendment") dated as of May 28, 2014 and as further amended by that certain Second Amendment to Lease ("Second Amendment") dated as of January 13, 2017 (as amended, the "Lease"), pursuant to which Lessee leases from Lessor the premises situated in Suites 208, 210, 300 and 400 in the building located at 2953 Bunker Hill, Santa Clara, California (the "Building"), consisting of approximately 68,950 rentable square feet as more particularly described in the Lease.

B. As of October 31, 2019 (the "Give Back Date"), Lessee desires to downsize the Premises by surrendering to Lessor approximately 6,650 rentable square feet of the Premises (commonly known as Suite 210 and as defined under the Second Amendment as the Suite 210 Expansion Premises, which shall be referred to herein as the "Give Back Space").

C. Lessor and Lessee desire to amend the Lease to reduce the size of the rentable area of the Existing Premises and to modify and acknowledge other provisions of the Lease, all as more particularly set forth herein and subject to the terms hereof.

AGREEMENT

NOW, THEREFORE, in consideration of the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Lessor and Lessee agree that the Lease is amended as follows:

1. DEFINED TERMS. Capitalized terms used and not otherwise defined herein shall have the same meanings ascribed to them in the Lease. From and after the date hereof, unless the context otherwise clearly requires, the use of the term "Lease" herein shall mean the Lease, as amended by this Amendment.

2. SURRENDER OF THE GIVE BACK SPACE; PREMISES; ACCESS.

a. Surrender of the Give Back Space. On the Give Back Date, Lessee shall surrender to Lessor possession and all rights to the Give Back Space. The Give Back Space shall be surrendered to Lessor in broom-clean condition, free of all of Lessee's personal property, and otherwise in the condition required under the terms of Section 7.2(b) (Lessee's Obligations) of the Original Lease and Section 11 of the Second Amendment, including restoration of the Give Back Space to restore any room(s) removed (collectively, the "Surrender Obligations").

b. Premises. The parties agree that after the Give Back Space is returned to Lessor as set forth herein, the measurement of the downsized Premises shall be approximately 62,300 rentable square feet, consisting of the Suite 208 Expansion Premises and the Existing Premises (the "Reduced Premises"), and, thereafter, all references to "Premises" in the Lease and in this Amendment shall be references to the Reduced Premises.

c. Lessor's Right of Access. Lessee shall pennit Lessor and its employees and agents, upon request of no less than one (1) business day, to conduct property tours and enter the Premises at reasonable times during normal business hours, to show the Premises to any prospective tenants. Lessee may, at its sole option, require that its representative be present during any such property tours.

3. TERM OF THE LEASE. Tenant acknowledges that, pursuant to Section 2 of the Second Amendment, the tenn of the Lease (i) with respect to the Existing Premises, consisting of Suites 300 and 400, expired on September 17, 2019, and (ii) with respect to the Suite 208 Expansion Premises, in Suite 208, shall expire on December 31, 2019. Any holding over by Lessee after the expiration of the term shall be a tenancy from month to month and, in accordance with the provisions of Section 26 to the Original Lease, rent payable shall be calculated at one hundred fifty percent (150%) of the rent payable for the month immediately preceding the termination date of the Lease.

4. BASE RENT.

(a) Effective as of September 17, 2019, in addition to all other charges payable pursuant to the Lease, Lessee shall pay the following installments of monthly Base Rent for the Premises, in accordance with the terms of Sections 4 and 26 of the Original Lease:

Term

Monthly Base Rent

September 17, 2019 - Give Back Date

$274,029.85

(b) As of November 1, 2019 (provided that the Give Back Space has been surrendered to Lessor in accordance with Section 2 above), in addition to all other charges payable pursuant to the Lease, Lessee shall pay the following installments of monthly Base Rent for the Premises, in accordance with the tenns of Sections 4 and 26 of the Original Lease:

Term

Monthly Base Rent

Give Back Date - December 31, 2019*

$249,291.85

*Such monthly Base Rent amount shall be modified at such time as Lessee surrenders Suites 300 and/or 400 in accordance with the Surrender Obligations.

(c) In the event Tenant has not surrendered possession of the Suite 208 Expansion Premises and the Existing Premises (located in Suites 300, 400 or 208) to Landlord in accordance with the Surrender Obligations on or prior to December 31, 2019, in addition to all other charges payable pursuant to the Lease, Lessee shall pay the following installments of monthly Base Rent for the Premises, in accordance with the terms of Sections 4 and 26 of the Original Lease:

Term

Monthly Base Rent

On a month to month basis effective

January 1, 2020*

$257,449.81

*Such monthly Base Rent amount shall be modified at such time as Lessee surrenders Suites 208, 300 and/or 400 in accordance with the Surrender Obligations.

5. CONDITION OF THE PREMISES. Lessor shall have no obligation to construct leasehold improvements for Lessee or to repair or refurbish any portion of the Premises. Neither Lessor nor its agents or representatives have made any representations or promises with respect to the Building, the Office Building Project or the Premises, except as specifically set forth in the Lease or this Amendment, and Lessee confirms that Lessee has accepted the same "AS IS", and that the Premises are suited for Lessee's use and is in good and satisfactory condition.

6. PARKING. As of the Give Back Date, Section 2.2 in the Original Lease, as amended in Section 10 of the First Amendment and as further amended in Section 9 of the Second Amendment, is hereby deleted in its entirety and shall be replaced with the following:

"Vehicle Parking: Subject to the rules and regulations attached hereto, and as established by Lessor from time to time, Lessee shall be entitled to rent and use 249 unreserved parking spaces in the Office Building Project."

Lessor and Lessee hereby agree to extend the term of that certain Parking License Agreement dated as of August 15, 2017 (the "License Agreement") to the date of expiration of the month-to month term hereunder with respect to the Existing Premises and the Suite 208 Expansion Premises, and Lessee shall continue to have a license to use the striped space described in the License Agreement.

7. DELETION OF LEASE PROVISIONS. Effective immediately, Section 56 of the Original Lease (Expansion Rights), Section 57 to the Original Lease (Option to Extend), Section 7 to the First Amendment (Extension Option) and Section 7 to the Second Amendment (Extension Option) are hereby deleted in their entirety and shall be of no further force or effect.

8. BROKERS. Lessee represents and warrants to Lessor that it has not engaged any broker, finder or other person who would be entitled to any commission or fees in respect of the negotiation, execution or delivery of this Amendment and shall indemnify, defend and hold harmless Lessor against any loss, cost, liability or expense incurred by Lessor as a result of any claim asserted by any such broker, finder or other person on the basis of any arrangements or agreements made or alleged to have been made by or on behalf of Lessee. The provisions of this section shall not apply to brokers with whom Lessor has an express written broker agreement.

9. SPECIFIC REPRESENTATIONS BY LESSEE. Lessee represents and warrants to Lessor that, as of the date hereof: (i) to Lessee's knowledge, Lessee is not in breach or default of any of its obligations under the Lease, and no events have occurred which with the passage of time and/or the giving of notice would constitute a breach or default by Lessee under the Lease; (ii) to Lessee's knowledge, Lessor is not in breach or default of any of its obligations under the Lease, and no events have occurred which with the passage of time and/or the giving of notice would constitute a breach or default by Lessor under the Lease; (iii) the Lease is in full force and effect and constitute the only agreements between Lessor and Lessee regarding the leasing of the Premises; (iv) to Lessee's knowledge, Lessee is not entitled to any credits, offsets, concessions or abatements under the Lease, or otherwise against the payment of rent or other charges under the Lease; (v) Lessee is not a party to any bankruptcy or similar proceeding; and (vi) Lessee holds the entire interest of the "Lessee" under the Lease, and has not assigned or sublet any interest therein.

10. NOTICES. All notices to Lessor shall be sent in accordance with Section 23 of the Original Lease to the following addresses:

If to Lessor:

WILSON BUNKER HILL, LLC

c/o Buchanan Street Partners

3501 Jamboree Road, Suite 4200

Newport Beach, California 92660

Attention: Timothy Ballard

With a copy to:

WILSON BUNKER HILL, LLC

c/o Buchanan Street Partners

3501 Jamboree Road, Suite 4200

Newport Beach, California 92660

Attention: Brian Payne

11. CONTINUING EFFECTIVENESS. The Lease, except as amended hereby, remains unamended, and, as amended hereby, remains in full force and effect.

12. COUNTERPARTS. This Amendment may be executed in counterparts, each of which shall constitute an original, and all of which, together, shall constitute one document.

13. ENTIRE AGREEMENT. This Amendment embodies the entire understanding between Lessor and Lessee with respect to its subject matter and can be changed only by an instrument in writing signed by Lessor and Lessee.

14. CORPORATE AND PARTNERSHIP AUTHORITY. If Lessee is a corporation or partnership, or is comprised of either or both of them, each individual executing this Amendment for the corporation or partnership represents that he or she is duly authorized to execute and deliver this Amendment for the corporation or partnership and that this Amendment is binding upon the corporation or partnership in accordance with its terms.

15. ATTORNEYS' FEES. The provisions of the Lease respecting attorneys' fees shall apply to this Amendment or, if the Lease does not contain an attorney's fees clause, then if legal action shall be commenced to enforce or declare the effect of any provision of this Amendment or of the Lease, the court as a part of its judgment shall award reasonable attorneys' fees and costs to the prevailing party.

16. EXECUTION BY BOTH PARTIES. Submission of this instrument for examination or signature by Lessee does not constitute a reservation of or option to lease, and it is not effective as an amendment to lease or otherwise until execution by and delivery to both Lessor and Lessee, and execution and delivery hereof.

17. ELECTRONIC SIGNATURES. Each party hereto, and their respective successors and assigns shall be authorized to rely upon the signatures of all of the parties hereto on this Amendment which are delivered by facsimile, telecopier or electronic mail transmission as constituting a duly authorized, irrevocable, actual, current delivery of this Amendment with original ink signatures of each person and entity.

(SIGNATURES ON NEXT PAGE)

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

LESSEE:

INPHI CORPORATION,

A Delaware corporation

By: /s/ John Edmunds

Name: John Edmunds

Its: SVP & CFO

LESSOR:

WILSON BUNKER HILL, LLC,

a Delaware limited liability company

By: Wilson Buchanan Manager, LLC, a

Delaware-limited liability company

Its Manager

By: /s/ Robert J. Doughery

Name: Robert J. Dougherty

Title: Vice President

S-1

Exhibit 10.34

RIOTECH OFFICE PARK

OFFICE LEASE

This Office Lease (this "Lease"), dated as of the Lease Date, is made by and between RTP55 OWNER, LLC, a Delaware limited liability company ("Landlord"), and INPHI CORPORATION, a Delaware corporation ("Tenant").

SUMMARY OF BASIC LEASE INFORMATION

TERMS OF LEASE			DESCRIPTION

1.	Lease Date:		October 24, 2019

2.	Premises; Buildings; Project (Article 1).

	2.1	Buildings; Project:	The "Building" or the "Buildings" (individually, or collectively, as the context may require) shall mean: (i) that certain two story building containing approximately 87,608 rentable square feet of space with an address of 110 Rio Robles, San Jose, California (the "110 Building"), and (ii) that certain one-story building containing approximately 48,301 rentable square feet of space with an address of 130-134 Rio Robles, San Jose, California (the "130 Building"). The term "Project" shall mean (a) the Buildings, (b) the buildings located at 30, 50, 70, and 90 Rio Robles and the building located at 3545 North 1^st Street, San Jose, California (the "Other Project Buildings"), (c) the Common Areas, (d) the surface parking areas located adjacent to the Building and the Other Project Buildings (collectively, the "Project Parking Facilities"), and (e) the land (which is improved with landscaping and other improvements) upon which the Building, the Other Project Buildings and the Common Areas are located.

	2.2	Premises:	Approximately 110,562 rentable square feet of space comprised of (i) all of the 87,608 rentable square feet of space in the 110 Building, and (ii) 22,954 rentable square feet of space in the 130 Building, as further set forth in Exhibit A to this Lease.

3.	Lease Term (Article 2).

	3.1	Length of Term:	Approximately one hundred twenty-six (126) full calendar months.

	3.2	Lease Commencement Date:	The earlier to occur of (i) the date upon which Tenant first commences to conduct business in any portion of the Premises, and (ii) the date that is six (6) months following the Delivery Date (as that term is defined in Section 1.1 of the Tenant Work Letter attached hereto as Exhibit B to this Lease).

	3.3	Lease Expiration Date:	The last day of the one hundred and twenty-sixth (126^th) full calendar month of the Lease Term.

4.	Base Rent (Article 3):		Base Rent shall be paid in monthly installments in the following amounts for the following periods of time.

Lease Year	Annual Base Rent	Monthly Installment of Base Rent	Approximate Monthly Rental Rate per Rentable Square Foot
1 **	$3,316,860.00*	$276,405.00*	$2.50
2	$3,416,365.80	$284,697.15	$2.58
3	$3,518,856.72	$293,238.06	$2.65
4	$3,624,422.40	$302,035.20	$2.73
5	$3,733,155.12	$311,096.26	$2.81
6	$3,845,149.80	$320,429.15	$2.90
7	$3,960,504.24	$330,042.02	$2.99
8	$4,079,319.36	$339,943.28	$3.08
9	$4,201,698.96	$350,141.58	$3.17
10	$4,327,749.96	$360,645.83	$3.26
11	N/A	$371,465.20	$3.36

*Subject to the Base Rent Abatement set forth in Section 3.2 below.

**The Base Rent for the period commencing on the Lease Commencement Date and expiring twelve (12) months thereafter is calculated based on the Premises being deemed to contain only 87,608 rentable square feet, notwithstanding that Tenant is leasing the entire Premises (consisting of 110,562 rentable square feet). Tenant shall have no obligation to pay Operating Expenses or Tax Expenses which arise or accrue during such twelve (12) month period with respect to Tenant's 130 Building Share only.

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5.	Operating Expenses and Tax Expenses (Article 4):	This is a "TRIPLE NET" lease and as such, the provisions contained in this Lease are intended to pass on to Tenant and reimburse Landlord for the costs and expenses reasonably associated with this Lease and the Project, and Tenant's operation therefrom. To the extent such costs and expenses payable by Tenant cannot be charged directly to, and paid by, Tenant, such costs and expenses shall be paid by Landlord but reimbursed by Tenant as Additional Rent.

6.	Tenant's Share (Article 4):	With respect to the 110 Building, 100% ("Tenant's 110 Building Share"). With respect to the 130 Building, 47.52% ("Tenant's 130 Building Share"). With respect to the Project, approximately 29.27% ("Tenant's Project Share"), which is the percentage obtained by dividing (a) the number of rentable square feet in the Premises as stated above by (b) the 376,989 rentable square feet in the Project. Tenant's 110 Building Share, Tenant's 130 Building Share and Tenant's Project Share may collectively be referred to herein as "Tenant's Share". Tenant's Share of Operating Expenses and Tax Expenses shall be allocated as set forth in Section 4.3 of this Lease.

7.	Permitted Use (Article 5):	General office, research and development ("R&D"), product testing and storage use and ancillary uses, all of which shall be consistent with an office/R&D building, applicable Laws and Landlord's rules and regulations for the Project and the terms and conditions of this Lease.

8.	Security Deposit (Article 21):	$350,000.00.

9.	Parking Passes (Article 28)	Tenant shall have the right to utilize up to 409 unreserved parking passes (i.e., 3.7 passes for every 1,000 rentable square feet of the Premises). Tenant's parking rights are subject to the terms of Article 28 below.

10.	Address of Tenant (Section 29.18):	Inphi Corporation 2953 Bunker Hill Lane, Suite 300 Santa Clara, CA 95054 Attention: John Edmunds (Prior to Lease Commencement Date) and

		Inphi Corporation 110 Rio Robles Drive San Jose, California 95124 Attention: John Edmunds (After Lease Commencement Date)

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11.	Address of Landlord (Section 29.18):	See Section 29.18 of the Lease.

12.	Broker(s) (Section 29.24):	CBRE, INC. (representing Landlord) And Colliers International, Inc. (representing Tenant)

13.	Tenant Improvement Allowance (Exhibit B):	$8,000,362.00 (i.e., $72.36 per rentable square foot in the Premises)..

The foregoing Summary of Basic Lease Information (the "Summary") is incorporated into and made a part of the Lease identified above. If any conflict exists between the Summary and the Lease, then the Lease shall control.

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ARTICLE 1

PREMISES, BUILDING, PROJECT, AND COMMON AREAS

1.1 Premises, Building, Project and Common Areas.

1.1.1 The Premises. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the Premises for the Lease Term. The parties hereto agree that the lease of the Premises is upon and subject to the terms, covenants and conditions herein set forth, and Tenant covenants as a material part of the consideration for this Lease to keep and perform each and all of such terms, covenants and conditions by it to be kept and performed and that this Lease is made upon the condition of such performance. The parties hereto hereby acknowledge that the purpose of Exhibit A is to show the approximate location of the Premises in the Building, only, and such Exhibit is not meant to constitute an agreement, representation or warranty as to the construction of the Premises, the precise area thereof or the specific location of the Common Areas, as that term is defined in Section 1.1.2, below, or the elements thereof or of the accessways to the Premises or the Project. Except as specifically set forth in this Lease and in the Tenant Work Letter (the "Tenant Work Letter"), Tenant shall accept the Premises in its existing, "as is" condition, and Landlord shall not be obligated to provide or pay for any improvement work or services related to the improvement of the Premises. Tenant also acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty regarding the condition of the Premises, the Building or the Project or with respect to the suitability of any of the foregoing for the conduct of Tenant's business, except as specifically set forth in this Lease and the Tenant Work Letter. The taking of possession of the Premises by Tenant shall conclusively establish that Tenant has accepted the Premises in its condition as of the date of such occupancy and that the Premises and the Building were at such time in good and sanitary order, condition and repair.

1.1.2 Common Areas. Tenant shall have the non-exclusive right to use in common with Landlord and other tenants in the Project, and subject to the Rules and Regulations (as that term is defined in Article 5 of this Lease), those portions of the Project which are provided, from time to time, for use in common by Landlord, Tenant and any other tenants of the Project, including, without limitation, the Project Parking Facilities (such areas, together with such other portions of the Project designated by Landlord, in its discretion, including certain areas designated for the exclusive use of certain tenants, or to be shared by Landlord and certain tenants, are collectively referred to herein as the "Common Areas"). The manner in which the Common Areas are maintained and operated shall be at the reasonable discretion of Landlord and the use thereof shall be subject to such reasonable, non-discriminatory rules, regulations and restrictions as Landlord may make from time to time. Landlord reserves the right to close temporarily, make alterations or additions to, or change the location of elements of the Project (including the Common Areas).

1.2 Stipulation of Rentable Square Feet of Premises, Building and Project. For purposes of this Lease, "rentable square feet" of the Premises shall be deemed as set forth in Section 2.2 of the Summary, the rentable square feet of the Building shall be deemed as set forth in Section 2.1 of the Summary, and the rentable square feet of the Project shall be deemed as set forth in Section 6 of the Summary, each of which shall be final and binding.

1.3 Right of First Refusal. Landlord hereby grants to the Original Tenant and its "Permitted Transferee Assignee" (as that term is defined in Section 14.8 below), a one-time right of first refusal (the "Right of First Refusal") with respect to the 22,347 rentable square feet within the remainder of the 130 Building shown on Exhibit A-2 attached hereto (the "First Refusal Space"). As of the date hereof, the First Refusal Space is vacant and such Right of First Refusal shall commence only upon Landlord's reasonable determination ("Availability Determination") that Landlord and another potential tenant have reached agreement on the terms pertaining to such tenant's lease of all or any portion of the First Refusal Space that both Landlord and the potential tenant are willing to accept, as certified to, in good faith, by Landlord in the First Refusal Notice.

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1.3.1 Procedure for Offer; Procedure for Acceptance. Subject to the TCCs of this Section 1.3, Landlord shall notify Tenant (the "First Refusal Notice") promptly following the Availability Determination and pursuant to such First Refusal Notice, Landlord shall offer to lease to Tenant the entire First Refusal Space, which First Refusal Notice shall also specify the increase to the Security Deposit required in connection with Tenant's lease of the First Refusal Space. Landlord's determination of the amount of the increase to the Security Deposit shall be made by reviewing the extent of financial security then generally being imposed in comparable transactions from tenants of comparable financial condition and credit history to the then existing financial condition and credit history of Tenant (with appropriate adjustments to account for differences in the then-existing financial condition of Tenant and such other tenants); provided that in no event shall the increased amount of the Security Deposit be less than the last month of Base Rent payable by Tenant during the First Refusal Term. If Tenant wishes to exercise Tenant's Right of First Refusal, then within eight (8) business days of delivery of the First Refusal Notice to Tenant, Tenant shall have the right to deliver notice to Landlord ("Tenant's First Refusal Exercise Notice") of Tenant's election to exercise its right of first refusal with respect to the entire First Refusal Space. If Tenant does not deliver Tenant's First Refusal Exercise Notice within the eight (8) business day period, then Landlord shall be free to enter into a lease ("Third Party Lease") for the space described in the First Refusal Notice to anyone to whom Landlord desires on any terms Landlord desires and Tenant's Right of First Refusal shall terminate.

1.3.2 Expansion Commencement Date; Expiration Date. The commencement date of the Lease Term (the "First Refusal Commencement Date") with respect to the First Refusal Space shall be the date set forth in the First Refusal Notice, but not less than six (6) full calendar months after Landlord’s delivery of the First Refusal Space to Tenant for the purpose of constructing Tenant's improvements therein. Tenant's lease of the First Refusal Space shall expire coterminously with the remainder of the Premises on the Lease Expiration Date. The term of Tenant's lease of the First Refusal Space shall be referred to herein as the "First Refusal Term".

1.3.3 First Refusal Rent. Commencing as of the First Refusal Commencement Date, and continuing throughout the First Refusal Term, Tenant shall pay Base Rent with respect to the First Refusal Space, in the same per rentable square foot amount as is then applicable to the initial Premises, and otherwise in accordance with the terms of Article 4 below. In addition, Tenant shall be entitled to receive Base Rent abatement applicable to the next Base Rent due and owing under this Lease with respect to the First Refusal Space after the First Refusal Commencement Date in the number of months equal to (a) six (6), and (b) a percentage (such percentage is the "First Refusal Percentage"), which may be expressed as a fraction, the numerator of which shall have a number equal to the total number of full calendar months in the First Refusal Term, and the denominator of which shall be ninety (90). Commencing as of the First Refusal Commencement Date, and continuing throughout the Lease Term, Tenant shall pay Tenant's Share of Direct Expenses with respect to the First Refusal Space, that arise or accrue during such period in accordance with the terms of Article 4 below, provided, however, "Tenant's 130 Building Share" shall increase to 100%, and Tenant's Project Share shall increase to 36.05% (i.e, the percentage obtained by dividing the number of rentable square feet in the First Refusal Space and the initial Premises as stated above by the 376,989 rentable square feet in the Project).

1.3.4 Construction of First Refusal Space. The construction of improvements in the First Refusal Space shall comply with the terms of the Tenant Work Letter, provided, however, (i) in lieu of the Tenant Improvement Allowance specified in the Tenant Work Letter in connection with the Premises, Tenant shall be entitled to a tenant improvement allowance equal to the $65.00 per rentable square foot of the First Refusal Space multiplied by the First Refusal Percentage (the "First Refusal Improvement Allowance"), (ii) for purposes hereof, all references in the Tenant Work Letter to (A) the "Premises" shall be deemed to refer to the "First Refusal Space", (B) the "Lease Commencement Date" shall be deemed to refer to the "First Refusal Commencement Date", and (C) the "Tenant Improvement Allowance" shall be deemed to refer to the "First Refusal Improvement Allowance", (iii) the terms of Section 1.2 of the Tenant Work Letter shall not apply.

1.3.5 Parking for the Expansion Premises. In connection with the First Refusal Space, Tenant shall have the right to rent up to 3.7 parking passes for each 1,000 rentable square feet of the First Refusal Space (or such higher ratio as designated by Landlord in the First Refusal Notice), all of which parking passes shall otherwise be subject to the terms and conditions of this Lease.

1.3.6 Amendment to Lease. If Tenant timely exercises Tenant's right to lease First Refusal Space as set forth herein, then, within fifteen (15) business days thereafter, Landlord and Tenant shall use commercially reasonable efforts to execute an amendment adding such First Refusal Space to this Lease (the "First Refusal Amendment") upon the same terms and conditions as the initial Premises, except as otherwise set forth in this Section 1.3. Concurrently with Landlord's and Tenant's mutual execution and delivery of the First Refusal Amendment, Tenant shall provide an increase to the Security Deposit in the amount specified in the First Refusal Notice and first month's Base Rent applicable to the First Refusal Space. Notwithstanding the foregoing, the failure of Landlord and Tenant to execute and deliver such amendment shall not affect an otherwise valid exercise of Tenant's first refusal right or the parties' rights and responsibilities in respect thereof.

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1.3.7 Termination of Right of First Refusal. The Right of First Refusal shall be personal to the Original Tenant and its Permitted Transferee Assignee, and may only be exercised by the Original Tenant or its Permitted Transferee Assignee (and not any assignee, sublessee or other transferee of Tenant's interest in this Lease) if Tenant is not then in default under this Lease. The Right of First Refusal granted herein shall terminate upon (i) Tenant's failure to timely exercise its Right of First Refusal, (ii) Tenant's monetary or material default under this Lease (beyond the applicable notice and cure periods) more than twice during the Lease Term, (iii) the date of Tenant's Transfer (as defined in Section 14.1 below) of more than twenty-five percent (25%) of the Premises, (iv) the date that Tenant vacates or abandons more than twenty-five percent (25%), in the aggregate, of the Premises for more than thirty (30) consecutive days, other than as a result of Alterations performed pursuant to Article 8 below or relating to a Casualty pursuant to Article 11 below, and (v) the date when less than thirty-six (36) months remain in the Lease Term, unless Tenant delivers its Option Exercise Notice (as defined in Section 2.2.3 below) as to any then-remaining extension option (and with respect to the entire Premises) concurrently with Tenant's notice of its election to lease the First Refusal Space (the parties acknowledging that Tenant shall be entitled to deliver its Option Exercise Notice concurrently therewith, notwithstanding the "earlier of" time period restriction set forth in Section 2.2.3 below).

1.4 Right of First Refusal for 90 Building. Landlord hereby grants to the Original Tenant and its Permitted Transferee Assignee, a one-time right of first refusal (the "90 Building Right of First Refusal") with respect to the 54,074 rentable square feet (the "90 Building First Refusal Space") within the building located at 90 Rio Robles, San Jose, California (the "90 Building"). As of the date hereof, the 90 Building First Refusal Space is vacant.

1.4.1 Procedure for Offer; Procedure for Acceptance. Subject to the TCCs of this Section 1.4, Landlord shall notify Tenant (the "90 Building First Refusal Notice") promptly following Landlord's reasonable determination that Landlord and another potential tenant have reached agreement on the Economic Terms pertaining to such tenant's lease of all or any portion of the 90 Building First Refusal Space that both Landlord and the potential tenant are willing to accept, as certified to, in good faith, by Landlord in the 90 Building First Refusal Notice ("Third Party Agreement"), and pursuant to such 90 Building First Refusal Notice, Landlord shall offer to lease to Tenant the entire 90 Building First Refusal Space, on the Economic Terms set forth in the Third Party Agreement, which 90 Building First Refusal Notice shall also specify the increase to the Security Deposit required in connection with Tenant's lease of the 90 Building First Refusal Space. The term "Economic Terms" shall mean (a) the rental rate (including additional rent applicable thereto); (b) the amount of any improvement allowance or the value of any work to be performed by Landlord in connection with the lease of such 90 Building First Refusal Space; (c) the amount of free rent; (d) the amount of parking passes available for Tenant to rent and (e) any other monetary concessions applicable to Tenant's lease of the 90 Building First Refusal Space. Landlord's determination of the amount of the increase to the Security Deposit shall be made by reviewing the extent of financial security then generally being imposed in comparable transactions from tenants of comparable financial condition and credit history to the then existing financial condition and credit history of Tenant (with appropriate adjustments to account for differences in the then-existing financial condition of Tenant and such other tenants); provided that in no event shall the increased amount of the Security Deposit be less than the last month of Base Rent payable by Tenant during the First Refusal Term. If Tenant wishes to exercise Tenant's 90 Building Right of First Refusal, then within three (3) business days of delivery of the 90 Building First Refusal Notice to Tenant, Tenant shall have the right to deliver notice to Landlord ("Tenant's First Refusal Exercise Notice") of Tenant's election to exercise its 90 Building Right of First Refusal with respect to the entire 90 Building First Refusal Space. If Tenant does not deliver Tenant's First Refusal Exercise Notice within the three (3) business day period, then Landlord shall be free to enter into a lease ("Third Party Lease") for the space described in the 90 Building First Refusal Notice to anyone to whom Landlord desires on any terms Landlord desires and Tenant's 90 Building Right of First Refusal shall terminate.

1.4.2 Expansion Commencement Date; Expiration Date. The commencement date of the Lease Term (the "First Refusal Commencement Date") with respect to the 90 Building First Refusal Space shall be the date set forth in the 90 Building First Refusal Notice. Tenant's lease of the 90 Building First Refusal Space shall expire on the date set forth in the 90 Building First Refusal Notice. The term of Tenant's lease of the 90 Building First Refusal Space shall be referred to herein as the "First Refusal Term".

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1.4.3 First Refusal Rent. Commencing as of the First Refusal Commencement Date, and continuing throughout the First Refusal Term, Tenant shall pay rent with respect to the 90 Building First Refusal Space, in accordance with the terms set forth in the 90 Building First Refusal Notice.

1.4.4 Construction of 90 Building First Refusal Space. Except as otherwise expressly identified in the 90 Building First Refusal Notice, Tenant shall take the 90 Building First Refusal Space in its "as is" condition.

1.4.5 Amendment to Lease. If Tenant timely exercises Tenant's right to lease 90 Building First Refusal Space as set forth herein, then, within fifteen (15) business days thereafter, Landlord and Tenant shall use commercially reasonable efforts to execute an amendment adding such 90 Building First Refusal Space to this Lease (the "First Refusal Amendment") upon the same terms and conditions as the initial Premises, except as otherwise set forth in this Section 1.4. Concurrently with Landlord's and Tenant's mutual execution and delivery of the First Refusal Amendment, Tenant shall provide an increase to the Security Deposit in the amount specified in the 90 Building First Refusal Notice and first month's Base Rent applicable to the 90 Building First Refusal Space. Notwithstanding the foregoing, the failure of Landlord and Tenant to execute and deliver such amendment shall not affect an otherwise valid exercise of Tenant's first refusal right or the parties' rights and responsibilities in respect thereof.

1.4.6 Termination of 90 Building Right of First Refusal. The 90 Building Right of First Refusal shall be personal to the Original Tenant and its Permitted Transferee Assignee, and may only be exercised by the Original Tenant or its Permitted Transferee Assignee (and not any assignee, sublessee or other transferee of Tenant's interest in this Lease) if Tenant is not then in default under this Lease. The 90 Building Right of First Refusal granted herein shall terminate upon (i) Tenant's failure to timely exercise its 90 Building Right of First Refusal, (ii) Tenant's monetary or material default under this Lease (beyond the applicable notice and cure periods) more than twice during the Lease Term, (iii) the date of Tenant's Transfer of more than twenty-five percent (25%) of the Premises, (iv) the date that Tenant vacates or abandons more than twenty-five percent (25%), in the aggregate, of the Premises for more than thirty (30) consecutive days, other than as a result of Alterations performed pursuant to Article 8 below or relating to a Casualty pursuant to Article 11 below, and (v) the date when less than thirty-six (36) months remain in the Lease Term, unless Tenant delivers its Option Exercise Notice as to any then-remaining extension option (and with respect to the entire Premises) concurrently with Tenant's notice of its election to lease the 90 Building First Refusal Space (the parties acknowledging that Tenant shall be entitled to deliver its Option Exercise Notice concurrently therewith, notwithstanding the "earlier of" time period restriction set forth in Section 2.2.3 below).

ARTICLE 2

LEASE TERM

2.1 In General. The terms and provisions of this Lease shall be effective as of the date of this Lease. The Lease Term shall commence on the Lease Commencement Date, and shall terminate on the Lease Expiration Date unless this Lease is sooner terminated as hereinafter provided. Tenant shall substantially complete construction of the Tenant Improvements prior to the Lease Commencement Date. For purposes of this Lease, the term "Lease Year" shall mean each consecutive twelve (12) month period during the Lease Term: provided, however, that (i) the first Lease Year shall commence on the Lease Commencement Date and if the Lease Commencement Date is the first day of a calendar month, then the first Lease Year shall end on the last day of the month immediately preceding the first anniversary of the Lease Commencement Date, and if the Lease Commencement Date is other than the first day of a calendar month, then the first Lease Year shall end on the last day of the eleventh (11^th) calendar month following the date in which the Lease Commencement Date occurs, (ii) the second and each succeeding Lease Year shall commence on the first day of the next calendar month; and (iii) the last Lease Year shall end on the Lease Expiration Date (even if such last Lease Year consists of less than twelve (12) months). At any time during the Lease Term, Landlord may deliver to Tenant a notice in the form as set forth in Exhibit C, attached hereto, as a confirmation only of the information set forth therein, which Tenant shall execute and return to Landlord within five (5) business days of receipt thereof; however, the failure of the parties to execute such letter shall not defer the Lease Commencement Date or otherwise invalidate this Lease.

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2.2 Option Terms.

2.2.1 Option Right. Landlord hereby grants to the originally named Tenant herein (the "Original Tenant") and any Permitted Transferee Assignee, two (2) options to extend the Lease Term for the entire Premises for a period of five (5) years each (each an "Option Term"). The options to extend shall be exercisable only by notice delivered by Tenant to Landlord as provided in Section 2.2.3, below, provided that, as of the date of delivery of such notice, Tenant has not received notice of default under this Lease (which then remains uncured). Upon the proper exercise of the option to extend, and provided that, at Landlord's option, as of the end of the then-current Lease Term, Tenant is not in default under this Lease (beyond the applicable notice and cure period), the Lease Term shall be extended for a period of five (5) years. The rights contained in this Section 2.2 shall be personal to the Original Tenant and its Permitted Transferee Assignee and may only be exercised by the Original Tenant or its Permitted Transferee Assignee (and not any other assignee or any sublessee or Transferee of Tenant's interest in this Lease) if the Original Tenant and any "Permitted Transferee" (as that term is defined in Section 14.8 below) has not Transferred any portion of the Premises within the 130 Building and has not Transferred more than fifty percent (50%) of the Premises within the 110 Building. In the event that Tenant fails to timely and appropriately exercise its option to extend in accordance with the terms of this Section 2.2, then the option to extend granted to Tenant pursuant to the terms of this Section 2.2 shall automatically terminate and shall be of no further force or effect. Tenant shall have no right to exercise its second option to extend the Lease Term if Tenant fails to timely and appropriately exercise its first option to extend in accordance with the terms of this Section 2.2.

2.2.1.1 Tenant's Right to Reduce Then Existing Premises. Tenant shall have the right to include in its Option Exercise Notice (as that term is defined in Section 2.2.3 below) its election (the "Reduction Notice") to reduce the size of the then existing Premises pursuant to the terms and conditions of this Section 2.2.1.1 (the "Reduction Right"), and describes the area of the then existing Premises which Tenant elects to no longer lease (the "Downsized Space"), which Downsized Space shall, if at all, include only the portion of the Premises within the 130 Building. The "Reduced Premises" shall be comprised of all of the Premises other than the Downsized Space (i.e., the entirety of the portion of the Premises within the 130 Building) (i.e., Tenant may renew as to the entire Premises or renew as to just the entirety of the Premises in the 110 Building and none of its Premises in the 130 Building). If Tenant timely exercises the Reduction Right as set forth herein, and if Tenant elects to exercise the renewal right set forth in this Section 2.2, then Landlord and Tenant shall execute an amendment to the Lease, as amended, setting forth the rentable square footage of the Reduced Premises, and proportionately adjusting the Base Rent, Tenant's Share, Tenant's parking allocation, and all other terms of this lease that are based on the rentable square footage of the Premises effective as of the first (1st) day of the applicable Option Term, within twenty (20) days after Landlord's receipt of the Option Exercise Notice. If Tenant elects to exercise the Reduction Right pursuant to the terms of this Section 2.2.1.1, then Landlord and Tenant shall be relieved of their respective obligations under the Lease, as amended, with respect to the Downsized Space as of the first (1st) day of the applicable Option Term, except for those obligations set forth in this Lease which specifically survive the expiration or earlier termination of this Lease, including, without limitation, the payment by Tenant of all amounts owed by Tenant under this Lease prior to the first (1st) day of the applicable Option Term, with respect to the Downsized Space. In the event that Tenant fails to vacate, and surrender and deliver to Landlord exclusive possession of the Downsized Space, free of all subleases, prior to the first (1st) day of the applicable Option Term in the condition required by this Lease, then, except as may otherwise be agreed to by the parties at such time, the provisions of Article 16 of this Lease shall apply with respect to the Downsized Space. If Tenant fails to timely exercise the Reduction Right pursuant to the terms of this Section 2.2.1.1, then such Reduction Right shall terminate and be of no further force or effect with respect to the then-current extension option (but shall remain applicable to any remaining extension option, if any).

2.2.2 Option Rent. The Rent payable by Tenant during the applicable Option Term (the "Option Rent") shall be equal to the Market Rent, as such Market Rent is determined pursuant to Exhibit F, attached hereto.

2.2.3 Exercise of Options. The options contained in this Section 2.2 shall be exercised by Tenant, if at all, and only in the following manner: (i) Tenant shall deliver written notice (the "Option Exercise Notice") to Landlord not more than fifteen (15) months nor less than eleven (11) months prior to the expiration of the then-current Lease Term, stating that Tenant is interested in exercising its option; (ii) Landlord shall, within thirty (30) days following Landlord's receipt of the Option Exercise Notice, deliver notice (the "Option Rent Notice") to Tenant setting forth the Option Rent; and (iii) if Tenant wishes to exercise such option, whether or not Tenant has delivered an Option Exercise Notice, Tenant shall, on or before the date occurring on the earlier of (a) thirty (30) days after Tenant's receipt of the Option Rent Notice and (b) the date that is nine (9) months prior to the expiration of the then-current Lease Term, deliver written notice thereof to Landlord ("Option Exercise Notice"), and upon, and concurrent with, such exercise, Tenant may, at its option, accept or reject the Option Rent set forth in the Option Rent Notice. If Tenant exercises its option to extend the Lease but fails to accept or reject the Option Rent set forth in the Option Rent Notice, then Tenant shall be deemed to have accepted the Option Rent set forth in the Option Rent Notice. If Tenant delivers the Option Exercise Notice on a timely basis as required by subsection (iii) above, without prior delivery of the Option Exercise Notice, then the Option Rent shall be determined in accordance with Section 2.2.4 below.

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2.2.4 Determination of Option Rent. In the event Tenant timely and appropriately exercises its option to extend the Lease but rejects the Option Rent set forth in the Option Rent Notice pursuant to Section 2.2.3, above, then Landlord and Tenant shall attempt to agree upon the Option Rent using their best good-faith efforts. If Landlord and Tenant fail to reach agreement upon the Option Rent applicable to the Option Term on or before the date that is ninety (90) days prior to the expiration of the initial Lease Term (the "Outside Agreement Date"), then the Option Rent shall be determined by arbitration pursuant to the terms of this Section 2.2.4. Each party shall make a separate determination of the Option Rent, within five (5) days following the Outside Agreement Date, and such determinations shall be submitted to arbitration in accordance with Sections 2.2.4.1 through 2.2.4.4, below.

2.2.4.1 Landlord and Tenant shall each appoint one arbitrator who shall by profession be a MAI appraiser, real estate broker or real estate lawyer who shall have been active over the five (5) year period ending on the date of such appointment in the appraising and/or leasing of single and two-story office/R&D properties in the vicinity of the Building. The determination of the arbitrators shall be limited solely to the issue area of whether Landlord's or Tenant's submitted Option Rent is the closest to the actual Option Rent as determined by the arbitrators, taking into account the requirements of Section 2.2.2 of this Lease. Each such arbitrator shall be appointed within fifteen (15) days after the Outside Agreement Date. Landlord and Tenant may consult with their selected arbitrators prior to appointment and may select an arbitrator who is favorable to their respective positions (including an arbitrator who has previously represented Landlord and/or Tenant, as applicable). The arbitrators so selected by Landlord and Tenant shall be deemed "Advocate Arbitrators."

2.2.4.2 The two Advocate Arbitrators so appointed shall be specifically required pursuant to an engagement letter within ten (10) days of the date of the appointment of the last appointed Advocate Arbitrator to agree upon and appoint a third arbitrator ("Neutral Arbitrator") who shall be qualified under the same criteria set forth hereinabove for qualification of the two Advocate Arbitrators except that (i) neither the Landlord nor Tenant nor either parties' Advocate Arbitrator may, directly or indirectly, consult with the Neutral Arbitrator prior or subsequent to his or her appearance, and (ii) the Neutral Arbitrator cannot be someone who has represented Landlord and/or Tenant during the five (5) year period prior to such appointment. The Neutral Arbitrator shall be retained via an engagement letter jointly prepared by Landlord's counsel and Tenant's counsel.

2.2.4.3 Within ten (10) days following the appointment of the Neutral Arbitrator, Landlord and Tenant shall enter into an arbitration agreement (the "Arbitration Agreement") which shall set forth the following:

2.2.4.3.1 Each of Landlord's and Tenant's best and final and binding determination of the Option Rent exchanged by the parties pursuant to Section 2.2.4, above;

2.2.4.3.2 An agreement to be signed by the Neutral Arbitrator, the form of which agreement shall be attached as an exhibit to the Arbitration Agreement, whereby the Neutral Arbitrator shall agree to undertake the arbitration and render a decision in accordance with the terms of this Lease, as modified by the Arbitration Agreement, and shall require the Neutral Arbitrator to demonstrate to the reasonable satisfaction of the parties that the Neutral Arbitrator has no conflicts of interest with either Landlord or Tenant;

2.2.4.3.3 Instructions to be followed by the Neutral Arbitrator when conducting such arbitration;

2.2.4.3.4 That Landlord and Tenant shall each have the right to submit to the Neutral Arbitrator (with a copy to the other party), on or before the date that occurs fifteen (15) days following the appointment of the Neutral Arbitrator, an advocate statement (and any other information such party deems relevant) prepared by or on behalf of Landlord or Tenant, as the case may be, in support of Landlord's or Tenant's respective determination of Option Rent (the "Briefs");

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2.2.4.3.5 That within five (5) business days following the exchange of Briefs, Landlord and Tenant shall each have the right to provide the Neutral Arbitrator (with a copy to the other party) with a written rebuttal to the other party's Brief (the "First Rebuttals"); provided, however, such First Rebuttals shall be limited to the facts and arguments raised in the other party's Brief and shall identify clearly which argument or fact of the other party's Brief is intended to be rebutted;

2.2.4.3.6 That within five (5) business days following the parties' receipt of each other's First Rebuttal, Landlord and Tenant, as applicable, shall each have the right to provide the Neutral Arbitrator (with a copy to the other party) with a written rebuttal to the other party's First Rebuttal (the "Second Rebuttals"); provided, however, such Second Rebuttals shall be limited to the facts and arguments raised in the other party's First Rebuttal and shall identify clearly which argument or fact of the other party's First Rebuttal is intended to be rebutted;

2.2.4.3.7 The date, time and location of the arbitration, which shall be mutually and reasonably agreed upon by Landlord and Tenant, taking into consideration the schedules of the Neutral Arbitrator, the Advocate Arbitrators, Landlord and Tenant, and each party's applicable consultants, which date shall in any event be within forty-five (45) days following the appointment of the Neutral Arbitrator;

2.2.4.3.8 That no discovery shall take place in connection with the arbitration, other than to verify the factual information that is presented by Landlord or Tenant;

2.2.4.3.9 That the Neutral Arbitrator shall not be allowed to undertake an independent investigation or consider any factual information other than presented by Landlord or Tenant, except that the Neutral Arbitrator shall be permitted to visit the Project and the buildings containing the Comparable Transactions;

2.2.4.3.10 The specific persons that shall be allowed to attend the arbitration;

2.2.4.3.11 Tenant shall have the right to present oral arguments to the Neutral Arbitrator at the arbitration for a period of time not to exceed three (3) hours ("Tenant's Initial Statement");

2.2.4.3.12 Following Tenant's Initial Statement, Landlord shall have the right to present oral arguments to the Neutral Arbitrator at the arbitration for a period of time not to exceed three (3) hours ("Landlord's Initial Statement");

2.2.4.3.13 Following Landlord's Initial Statement, Tenant shall have up to two (2) additional hours to present additional arguments and/or to rebut the arguments of Landlord ("Tenant's Rebuttal Statement");

2.2.4.3.14 Following Tenant's Rebuttal Statement, Landlord shall have up to two (2) additional hours to present additional arguments and/or to rebut the arguments of Tenant;

2.2.4.3.15 That, not later than ten (10) days after the date of the arbitration, the Neutral Arbitrator shall render a decision (the "Ruling") indicating whether Landlord's or Tenant's submitted Option Rent is closer to the Option Rent;

2.2.4.3.16 That following notification of the Ruling, Landlord's or Tenant's submitted Option Rent determination, whichever is selected by the Neutral Arbitrator as being closer to the Option Rent shall become the then applicable Option Rent; and

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2.2.4.3.17 That the decision of the Neutral Arbitrator shall be binding on Landlord and Tenant.

If a date by which an event described in Section 2.2.4.3, above, is to occur falls on a weekend or a holiday, the date shall be deemed to be the next business day.

2.2.5 In the event that the Option Rent shall not have been determined pursuant to the terms hereof prior to the commencement of the applicable Option Term, Tenant shall be required to pay the Option Rent, initially provided by Landlord to Tenant, and upon the final determination of the Option Rent, the payments made by Tenant shall be reconciled with the actual amounts due, and the appropriate party shall make any corresponding payment to the other party.

ARTICLE 3

BASE RENT

3.1 In General. Tenant shall pay, without prior notice or demand, to Landlord or Landlord's agent at the management office of the Project, or, at Landlord's option, at such other place as Landlord may from time to time designate in writing, by a check, ACH or wire transfer for currency which, at the time of payment, is legal tender for private or public debts in the United States of America, Base Rent in advance on or before the first day of each and every calendar month during the Lease Term, without any setoff or deduction whatsoever. The Base Rent for the first full month of the Lease Term which occurs after the expiration of any free rent period shall be paid at the time of Tenant's execution of this Lease, however, if the Lease Commencement Date is not the first day of a calendar month, then the Base Rent payment for such fractional calendar month at the beginning of the Lease Term shall be due by Tenant on the Lease Commencement Date. If any Rent payment date (including the Lease Commencement Date) falls on a day of the month other than the first day of such month or if any payment of Rent is for a period which is shorter than one month, the Rent for any fractional month shall accrue on a daily basis for the period from the date such payment is due to the end of such calendar month or to the end of the Lease Term at a rate per day which is equal to 1/365 of the applicable annual Rent. All other payments or adjustments required to be made under the terms of this Lease that require proration on a time basis shall be prorated on the same basis.

3.2 Base Rent Abatement. Provided that no Event of Default is then occurring and continuing, subject to the terms of this Section 3.2 below, during the six (6) month period commencing on the first (1st) day of the first (1^st) full calendar month of the Lease Term and ending on the last day of the sixth (6^th) full calendar month of the Lease Term (the "110 Building Base Rent Abatement Period"), Tenant shall not be obligated to pay any Base Rent otherwise attributable to the portion of the Premises consisting of 87,608 rentable square feet of space in the 110 Building, and during the twelve (12) month period commencing on the first (1st) day of the first (1^st) full calendar month of the Lease Term and ending on the last day of the twelfth (12^th) full calendar month of the Lease Term (the "130 Building Base Rent Abatement Period"), Tenant shall not be obligated to pay any Base Rent otherwise attributable to the portion of the Premises consisting of 22,954 rentable square feet of space in the 130 Building (collectively, the "Base Rent Abatement"). Landlord and Tenant acknowledge that the aggregate amount of the Base Rent Abatement equals $2,002,740.00. Tenant acknowledges and agrees that during such Base Rent Abatement Period, such abatement of Base Rent for the Premises shall have no effect on the calculation of any future increases in Base Rent or Direct Expenses payable by Tenant pursuant to the terms of this Lease, which increases shall be calculated without regard to such Base Rent Abatement. Additionally, Tenant shall be obligated to pay all "Additional Rent" (as that term is defined in Section 4.1 of this Lease) during the Base Rent Abatement Period, except as otherwise set forth in Section 4.1 below). Tenant acknowledges and agrees that the foregoing Base Rent Abatement has been granted to Tenant as additional consideration for entering into this Lease, and for agreeing to pay the Rent and perform the terms and conditions otherwise required under this Lease. The abatement of Base Rent provided for herein is conditioned upon Tenant's full and timely performance of all of its obligations under this Lease. If at any time following the date hereof this Lease is terminated for any reason other than a default by Landlord or an event of Casualty or condemnation, then the dollar amount of the unapplied portion of abatement of Base Rent provided for herein as of the date of such termination shall be converted to a credit to be applied to the Base Rent applicable at the end of the Lease Term, and Tenant shall immediately be obligated to begin paying Base Rent, in addition to all other amounts due to Landlord under the Lease, for the Premises in full.

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ARTICLE 4

ADDITIONAL RENT

4.1 General Terms. In addition to paying the Base Rent specified in Article 3 of this Lease, Tenant shall pay "Tenant's Share" of the annual "Direct Expenses," as those terms are defined in Section 6 of the Summary and Section 4.2.1 below, respectively, of this Lease; provided, however, that in no event shall Tenant have any obligation to pay Tenant's 130 Building Share prior to the first (1^st) anniversary of the Lease Commencement Date, but Tenant shall pay Tenant's 110 Building Share during such period. Such payments by Tenant, together with any and all other amounts payable by Tenant to Landlord pursuant to the terms and conditions of this Lease, are hereinafter collectively referred to as the "Additional Rent," and the Base Rent and the Additional Rent are herein collectively referred to as "Rent." All amounts due under this Article 4 as Additional Rent shall be payable for the same periods and in the same manner as the Base Rent. Without limitation on other obligations of Tenant which survive the expiration of the Lease Term, the obligations of Tenant to pay the Additional Rent provided for in this Article 4 shall survive the expiration of the Lease Term.

4.2 Definitions of Key Terms Relating to Additional Rent. As used in this Article 4, the following terms shall have the meanings hereinafter set forth:

4.2.1 "Direct Expenses" shall mean Operating Expenses, and Tax Expenses, as that term is defined in Section 4.2.4.1 below.

4.2.2 "Expense Year" shall mean each calendar year in which any portion of the Lease Term falls, through and including the calendar year in which the Lease Term expires, provided that Landlord, upon notice to Tenant, may change the Expense Year from time to time to any other twelve (12) consecutive month period, and, in the event of any such change, Tenant's Share of Direct Expenses shall be equitably adjusted for any Expense Year involved in any such change.

4.2.3 "Operating Expenses" shall mean all expenses, costs and amounts of every kind and nature which Landlord pays or accrues during any Expense Year because of or in connection with the ownership, management, maintenance, security, repair, replacement, restoration or operation of the Project, or any portion thereof. Without limiting the generality of the foregoing, Operating Expenses shall specifically include any and all of the following: (i) the cost of supplying all utilities (except to the extent Tenant and the other tenants of the Project pay for such utilities directly on a submetered or metered basis), the cost of operating, repairing, maintaining, and renovating the utility, telephone, mechanical, sanitary, storm drainage, and elevator systems, and the cost of maintenance and service contracts in connection therewith; (ii) the cost of licenses, certificates, permits and inspections and the cost of contesting any governmental enactments which may affect Operating Expenses, and the costs incurred in connection with a governmentally mandated transportation system management program, or similar program; (iii) the cost of all insurance carried by Landlord in connection with the Project as reasonably determined by Landlord; (iv) the cost of landscaping, relamping, and all supplies, tools, equipment and materials used in the operation, repair and maintenance of the Project, or any portion thereof; (v) payments under any easement, license, operating agreement, declaration, restrictive covenant, or instrument pertaining to the sharing of costs by the Building or Project, including, without limitation, any covenants, conditions and restrictions affecting the Project, development agreements, development and disposition agreements, and reciprocal easement agreements affecting the Project, and any agreements with transit agencies affecting the Project (collectively, "Underlying Documents"); (vi) subject to exclusion (22) below fees and other costs, including reasonable management and/or incentive fees, consulting fees, legal fees and accounting fees, of all contractors and consultants in connection with the management, operation, maintenance and repair of the Project; (vii) payments under any equipment rental agreements and the fair rental value of any management office space; (viii) subject to item (f), below, wages, salaries and other compensation and benefits, including taxes levied thereon, of all persons engaged in the operation, maintenance and security of the Project; (ix) costs under any instrument pertaining to the sharing of costs by the Project, including as relating to any business improvement district; (x) operation, repair, maintenance and replacement of all systems and equipment and components thereof of the Project; (xi) the cost of janitorial, alarm, security and other services, replacement of wall and floor coverings, ceiling tiles and fixtures in Common Areas, maintenance and replacement of curbs and walkways, repair to roofs and re-roofing; (xii) amortization (including interest on the unamortized cost) over its useful life as Landlord shall reasonably determine, in accordance with sound real estate management and accounting principles, consistently applied, of the cost of acquiring or the rental expense of personal property used in the maintenance, operation and repair of the Project, or any portion thereof; (xiii) the cost of capital improvements or other costs incurred in connection with the Project (A) which are reasonably anticipated to reduce Operating Expenses, or to reduce current or future Operating Expenses or to enhance the safety or security of the Project or its occupants, (B) that are required to comply with present or anticipated conservation programs, (C) which are replacements or modifications of nonstructural items located in the Common Areas required to keep the Common Areas in good order or condition, (D) that are required by Law or (E) to replace items which Landlord would be obligated to maintain under this Lease; provided, however, that any capital expenditure shall be amortized (including interest on the amortized cost) over its useful life as Landlord shall reasonably determine in accordance with sound real estate and management and accounting practices, consistently applied, except that any capital expenditure that is reasonably anticipated to reduce Operating Expenses may be amortized (including interest on the unamortized cost) over its recovery payback period to the extent of actual savings, if shorter; (xiv) costs, fees, charges or assessments imposed by, or resulting from any mandate imposed on Landlord by, any federal, state or local government for fire and police protection, trash removal, community services, or other services which do not constitute Tax Expenses; and (xv) costs incurred in connection with the parking areas servicing the Project, as well as costs incurred in connection with the provision of any shuttle service serving the Project for the purpose of facilitating access to public transportation. Notwithstanding the foregoing, for purposes of this Lease, Operating Expenses shall not, however, include:

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(1) costs, including legal fees, space planners' fees, advertising and promotional expenses (except as otherwise set forth above), and brokerage fees incurred in connection with the original construction or development, or original or future leasing of the Project, and costs, including permit, license and inspection costs, incurred with respect to the installation of tenant improvements made for new tenants initially occupying space in the Project after the Lease Commencement Date or incurred in renovating or otherwise improving, decorating, painting or redecorating vacant space for tenants or other occupants of the Project (excluding, however, such costs relating to any Common Areas);

(2) except as set forth in items (xii), (xiii), and (xiv) above, depreciation, interest and principal payments on mortgages and other debt costs, if any, penalties and interest, costs of capital repairs and alterations, and costs of capital improvements and equipment;

(3) costs for which the Landlord is reimbursed by insurance by its carrier or any tenant's carrier or by anyone else, and electric power costs for which any tenant directly contracts with the local public service company;

(4) any bad debt loss, rent loss, or reserves for bad debts or rent loss;

(5) costs associated with the operation of the business of the partnership or entity which constitutes the Landlord, as the same are distinguished from the costs of operation of the Project (which shall specifically include, but not be limited to, accounting costs associated with the operation of the Project). Costs associated with the operation of the business of the partnership or entity which constitutes the Landlord include costs of partnership accounting and legal matters, costs of defending any lawsuits with any mortgagee (except as the actions of the Tenant may be in issue), costs of selling, syndicating, financing, mortgaging or hypothecating any of the Landlord's interest in the Project, and costs incurred in connection with any disputes between Landlord and its employees, between Landlord and Project management, or between Landlord and other tenants or occupants;

(6) the wages and benefits of any employee who does not devote substantially all of his or her employed time to the Project unless such wages and benefits are prorated to reflect time spent on operating and managing the Project vis-a-vis time spent on matters unrelated to operating and managing the Project; provided, that in no event shall Operating Expenses for purposes of this Lease include wages and/or benefits attributable to personnel above the level of Project or portfolio manager (and in all cases shall be subject to the terms of this clause (f));

(7) except for a Project management fee to the extent allowed pursuant to item (vi), above, overhead and profit increment paid to the Landlord or to subsidiaries or affiliates of the Landlord for services in the Project to the extent the same exceeds the costs of such services rendered by qualified, unaffiliated third parties on a competitive basis;

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(8) any compensation paid to clerks, attendants or other persons in commercial concessions operated by the Landlord, provided that any compensation paid to any concierge or parking attendants at the Project shall be includable as an Operating Expense;

(9) rentals and other related expenses incurred in leasing air conditioning systems, elevators or other equipment which if purchased the cost of which would be excluded from Operating Expenses as a capital cost, except equipment not affixed to the Project which is used in providing janitorial or similar services and, further excepting from this exclusion such equipment rented or leased to remedy or ameliorate an emergency condition in the Project;

(10) all costs, items and services for which Tenant or any other tenant or other occupant in the Project directly reimburses Landlord or which Landlord provides selectively to one or more tenants (other than Tenant) without reimbursement;

(11) any costs expressly excluded from Operating Expenses elsewhere in this Lease;

(12) rent for any office space occupied by Project management personnel to the extent the size or rental rate of such office space exceeds the size or fair market rental value of office space occupied by management personnel of Comparable Buildings (as that term is defined in Section 4 of Exhibit F), with adjustment where appropriate for the size of the applicable project;

(13) costs arising from the gross negligence or willful misconduct of Landlord;

(14) costs incurred to comply with laws (including laws relating to Hazardous Material) which violation of law was in existence in the Building or on the Project prior to the Lease Commencement Date; and costs incurred to remove, remedy, contain, or treat Hazardous Material, which Hazardous Material is brought into the Building or onto the Project after the date hereof by Landlord or any other tenant of the Project;

(15) amount paid as ground rental for the Project by the Landlord;

(16) interest, principal, penalties, points and fees on debts or amortization on any mortgage or mortgages or any other debt instrument encumbering the Building or the Project;

(17) interest, fines or penalties for late payment or violations of applicable Laws by Landlord, except to the extent incurring such expense is caused by a corresponding late payment or violation of an applicable Law by Tenant, in which event Tenant shall be responsible for the full amount of such expense;

(18) legal fees and costs, settlements, judgments or awards paid or incurred because of disputes between Landlord and Tenant, Landlord and other tenants or prospective occupants or prospective tenants/occupants or providers of goods and services to the Project;

(19) advertising and promotional expenditures, and costs of signs in or on the Building identifying the owner of the Building or other tenants’ signs;

(20) tax penalties incurred as a result of Landlord’s negligence, inability or unwillingness to make payments and/or to file any tax or informational returns when due;

(21) costs arising from latent defects in the base, shell or core of the Building or improvements installed by Landlord or repair thereof;

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(22) fees payable by Landlord for management of the Project in excess of three percent (3%) (the "Management Fee Cap") of Landlord's gross rental revenues, which, to the extent that such fees calculated on such basis, are adjusted and grossed up to reflect a one hundred percent (100%) occupancy of the Project with all tenants paying full rent (as contrasted with free rent, partial rent, abated rent or similarly discounted rent), including base rent, pass-throughs, and parking fees (but excluding the cost of after-hours services or utilities) from the Project for any calendar year or portion thereof;

(23) costs arising from Landlord’s charitable or political contributions;

(24) the cost of acquiring sculptures, paintings or other objects of fine art in the Building or the Project;

(25) any finder’s fees, brokerage commissions, job placement costs or job advertising cost, other than with respect to any maintenance or administrative personnel serving the Project, once per year;

(26) the costs of any flowers, gifts, balloons, etc. provided to any prospective tenants, Tenant, other tenants, and occupants of the Project;

(27) the cost of any magazine, newspaper, trade or other subscriptions;

(28) the cost of training or incentive programs, other than with respect to any maintenance or administrative personnel serving the Project; and

(29) the costs of repairing and maintaining the foundation, floor ceiling slabs, roof structure (excluding the roof-membrane) and exterior concrete wall of the Building.

4.2.4 Taxes.

4.2.4.1 "Tax Expenses" shall mean all federal, state, county, or local governmental or municipal taxes, fees, charges or other impositions of every kind and nature, whether general, special, ordinary or extraordinary, (including, without limitation, real estate taxes, general and special assessments, transit taxes, leasehold taxes or taxes based upon the receipt of rent, including gross receipts or sales taxes applicable to the receipt of rent, unless required to be paid by Tenant, personal property taxes imposed upon the fixtures, machinery, equipment, apparatus, systems and equipment, appurtenances, furniture and other personal property used by Landlord in connection with the Project, or any portion thereof, and including estimated amounts based on pending but uncompleted reassessments of the Project, as reasonably determined by Landlord), which shall be paid or accrued during any Expense Year (without regard to any different fiscal year used by such governmental or municipal authority) because of or in connection with the ownership, leasing and operation of the Project, or any portion thereof. Tax Expenses shall include, without limitation:

(1) Any tax on the rent, right to rent or other income from the Project, or any portion thereof, or as against the business of leasing the Project, or any portion thereof;

(2) Any assessment, tax, fee, levy or charge in addition to, or in substitution, partially or totally, of any assessment, tax, fee, levy or charge previously included within the definition of real property tax, it being acknowledged by Tenant and Landlord that Proposition 13 was adopted by the voters of the State of California in the June 1978 election ("Proposition 13") and that assessments, taxes, fees, levies and charges may be imposed by governmental agencies for such services as fire protection, street, sidewalk and road maintenance, refuse removal and for other governmental services formerly provided without charge to property owners or occupants, and, in further recognition of the decrease in the level and quality of governmental services and amenities as a result of Proposition 13, Tax Expenses shall also include any governmental or private assessments or the Project's contribution towards a governmental or private cost-sharing agreement for the purpose of augmenting or improving the quality of services and amenities normally provided by governmental agencies;

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(3) Any assessment, tax, fee, levy, or charge allocable to or measured by the area of the Premises or the Rent payable hereunder, including, without limitation, any business or gross income tax or excise tax with respect to the receipt of such rent, or upon or with respect to the possession, leasing, operating, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises, or any portion thereof; and

(4) Any assessment, tax, fee, levy or charge, upon this transaction or any document to which Tenant is a party, creating or transferring an interest or an estate in the Premises.

4.2.4.2 Any costs and expenses (including, without limitation, reasonable attorneys' fees) incurred in attempting to protest, reduce or minimize Tax Expenses shall be included in Tax Expenses in the Expense Year such expenses are paid. Refunds of Tax Expenses shall be credited against Tax Expenses and refunded to Tenant regardless of when received, based on the Expense Year to which the refund is applicable, provided that in no event shall the amount to be refunded to Tenant for any such Expense Year exceed the total amount paid by Tenant as Tax Expenses under this Article 4 for such Expense Year. If Tax Expenses for any period during the Lease Term or any extension thereof are increased after payment thereof for any reason, including, without limitation, error or reassessment by applicable governmental or municipal authorities, Tenant shall pay Landlord upon demand Tenant's Share of any such increased Tax Expenses included by Landlord as Tax Expenses pursuant to the terms of this Lease. Notwithstanding anything to the contrary contained in this Section 4.2.4 (except as set forth in Section 4.2.4.1, above), there shall be excluded from Tax Expenses (i) all excess profits taxes, franchise taxes, gift taxes, capital stock taxes, inheritance and succession taxes, estate taxes, federal and state income taxes, and other taxes to the extent applicable to Landlord's general or net income (as opposed to rents, receipts or income attributable to operations at the Project), (ii) any items included as Operating Expenses, and (iii) any items paid by Tenant under Section 4.5 of this Lease. Notwithstanding anything to the contrary set forth in this Lease, except as set forth in Section 4.2.4.3 below, only Landlord may institute proceedings to reduce Tax Expenses and the filing of any such proceeding by Tenant without Landlord's consent shall constitute an Event of Default (as that term is defined in Section 19.1 below) under this Lease. Notwithstanding the foregoing, except as set forth in Section 4.2.4.3 below, Landlord shall not be obligated to file any application or institute any proceeding seeking a reduction in Tax Expenses.

4.2.4.3 Tenant's Right to Contest Tax Expenses. Notwithstanding anything to the contrary in this Lease, except as otherwise set forth in this Section 4.2.4.3, below, Tenant shall not have the right to institute proceedings to reduce Tax Expenses or file any such proceeding without Landlord's consent. Tenant may request from Landlord whether or not Landlord intends to file an appeal of any portion of Tax Expenses which are appealable by Landlord (the "Appealable Tax Expenses") for any tax fiscal year. Landlord shall deliver written notice to Tenant within ten (10) days after such request indicating whether Landlord intends to file an appeal of Appealable Tax Expenses for such tax fiscal year. If Landlord indicates that Landlord will not file an appeal of such Tax Expenses, then Tenant may provide Landlord with written notice ("Appeals Notice") at least thirty (30) days prior to the final date in which an appeal must be filed, requesting that Landlord file an appeal. Upon receipt of the Appeals Notice, but subject to the terms and conditions of this Section 4.2.4.3 below, Landlord shall promptly file such appeal and thereafter Landlord shall diligently prosecute such appeal to completion. Tenant may at any time in its sole discretion direct Landlord to terminate an appeal it previously elected pursuant to an Appeals Notice. In the event Tenant provides an Appeals Notice to Landlord and the resulting appeal reduces the Tax Expenses for the tax fiscal year in question as compared to the original bill received for such tax fiscal year and such reduction is greater than the costs for such appeal, then the costs for such appeal shall be included in Tax Expenses and passed through to Tenant when funds are actually received. Alternatively, if the appeal does not result in a reduction of Tax Expenses for such tax fiscal year or if the reduction of Tax Expenses is less than the costs of the appeal, then Tenant shall reimburse Landlord, within thirty (30) days after written demand, for any and all costs reasonably incurred by Landlord which are not covered by the reduction in connection with such appeal. Tenant's failure to timely deliver an Appeals Notice shall waive Tenant's rights to request an appeal of the applicable Tax Expenses for such tax fiscal year. In addition, Tenant's obligations to reimburse Landlord for the costs of the appeal pursuant to this Section shall survive the expiration or earlier termination of this Lease in the event the appeal is not concluded until after the expiration or earlier termination of this Lease. Upon request, Landlord agrees to keep Tenant apprised of all tax protest filings and proceedings undertaken by Landlord to obtain a reduction or refund of Tax Expenses.

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4.3 Method of Allocation.

4.3.1 Allocation of Direct Expenses. The parties acknowledge that the Building is a part of a multi-building project and that the costs and expenses incurred in connection with the Project (i.e., the Direct Expenses) should be shared between the tenants of the Building and the tenants of the other buildings in the Project. Accordingly, Direct Expenses are determined annually for the Project as a whole, and Landlord also makes a separate determination of Direct Expenses that are allocable to a particular Building.

4.3.2 Cost Pools. Landlord shall have the right, from time to time, to equitably and reasonably allocate some or all of the Direct Expenses for the Project among different portions or occupants of the Project (the "Cost Pools"), in Landlord's reasonable discretion. Such Cost Pools may include, but shall not be limited to, the office space tenants of the Project and the retail space tenants of the Project, or may be implemented to reflect that certain services or amenities are not provided to certain types of space at the Project, in which event Tenant's Share of such services or amenities may be equitably adjusted to reflect the space to which such services or amenities are generally provided or attributable. The Direct Expenses within each such Cost Pool shall be reasonably allocated and charged to the tenants within such Cost Pool in an equitable manner.

4.4 Calculation and Payment of Additional Rent. Tenant shall pay to Landlord, in the manner set forth in Section 4.4.1, below, and as Additional Rent, Tenant's Share of Direct Expenses for each Expense Year.

4.4.1 Statement of Actual Direct Expenses and Payment by Tenant. Landlord shall give to Tenant within one hundred twenty (120) days following the end of each Expense Year, a statement (the "Statement") which shall state the Direct Expenses incurred or accrued for the particular Expense Year, and which shall indicate the amount of Tenant's Share of Direct Expenses. Upon receipt of the Statement for each Expense Year commencing or ending during the Lease Term, Tenant shall pay, within thirty (30) days after receipt of the Statement, the full amount of Tenant's Share of Direct Expenses for such Expense Year, less the amounts, if any, paid during such Expense Year as "Estimated Direct Expenses," as that term is defined in Section 4.4.2, below, and if Tenant paid more as Estimated Direct Expenses than the actual Tenant's Share of Direct Expenses (an "Excess"), Tenant shall receive a credit in the amount of such Excess against Rent next due under this Lease. The failure of Landlord to timely furnish the Statement for any Expense Year shall not prejudice Landlord or Tenant from enforcing its rights under this Article 4, except as set forth in the last sentence of this Section 4.4.1. Even though the Lease Term has expired and Tenant has vacated the Premises, when the final determination is made of Tenant's Share of Direct Expenses for the Expense Year in which this Lease terminates, if Tenant's Share of Direct Expenses is greater than the amount of Estimated Direct Expenses previously paid by Tenant to Landlord, Tenant shall, within thirty (30) days after receipt of the Statement, pay to Landlord such amount, and if Tenant paid more as Estimated Direct Expenses than the actual Tenant's Share of Direct Expenses (again, an Excess), Landlord shall, within thirty (30) days, deliver a check payable to Tenant in the amount of such Excess. The provisions of this Section 4.4.1 shall survive the expiration or earlier termination of the Lease Term. Notwithstanding the immediately preceding sentence, Tenant shall not be responsible for Tenant's Share of any Direct Expenses attributable to any Expense Year which are first billed to Tenant more than twenty-four (24) months following the expiration of any Expense Year (i.e. December 31 of the second year following the Expense Year), provided that in any event Tenant shall be responsible for Tenant's Share of Direct Expenses which (x) were levied by any governmental authority or by any public utility companies, and (y) Landlord had not previously received an invoice therefor and which are currently due and owing (i.e., costs invoiced for the first time regardless of the date when the work or service relating to this Lease was performed), at any time following the Lease Expiration Date which are attributable to any Expense Year.

4.4.2 Statement of Estimated Direct Expenses. Landlord shall give Tenant a yearly expense estimate statement (the "Estimate Statement") which shall set forth in general major categories Landlord's reasonable estimate (the "Estimate") of what the total amount of Direct Expenses for the then-current Expense Year shall be and the estimated Tenant's Share of Direct Expenses (the "Estimated Direct Expenses"). The failure of Landlord to timely furnish the Estimate Statement for any Expense Year shall not preclude Landlord from enforcing its rights to collect any Additional Rent under this Article 4, nor shall Landlord be prohibited from revising any Estimate Statement or Estimated Direct Expenses theretofore delivered to the extent deemed reasonably necessary by Landlord; provided, however, that (i) Landlord shall not revise the Estimated Statement delivered for an Expense Year more than once (1) during an Expense Year, and (ii) any such subsequent revision shall set forth on a reasonably specific basis any particular expense increase. Thereafter, Tenant shall pay, within thirty (30) days after receipt of the Estimate Statement, a fraction of the Estimated Direct Expenses for the then-current Expense Year (reduced by any amounts paid pursuant to the second to last sentence of this Section 4.4.2). Such fraction shall have as its numerator the number of months which have elapsed in such current Expense Year, including the month of such payment, and twelve (12) as its denominator. Until a new Estimate Statement is furnished (which Landlord shall have the right to deliver to Tenant at any time), Tenant shall pay monthly, with the monthly Base Rent installments, an amount equal to one-twelfth (1/12) of the total Estimated Direct Expenses set forth in the previous Estimate Statement delivered by Landlord to Tenant. Throughout the Lease Term Landlord shall maintain records with respect to Direct Expenses in accordance with sound real estate management and accounting practices, consistently applied.

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4.5 Taxes and Other Charges for Which Tenant Is Directly Responsible.

4.5.1 Tenant shall be liable for and shall pay before delinquency, taxes levied or assessed against Tenant's equipment, furniture, fixtures and any other personal property (including any of Tenant's equipment or other property that may be located on or about the Project (other than inside the Premises) (collectively, "Tenant's Off-Premises Equipment")) located in or about the Premises, the Building or the Project. If any such taxes on Tenant's equipment, furniture, fixtures and any other personal property are levied against Landlord or Landlord's property or if the assessed value of Landlord's property is increased by the inclusion therein of a value placed upon such equipment, furniture, fixtures or any other personal property and if Landlord pays the taxes based upon such increased assessment, which Landlord shall have the right to do regardless of the validity thereof but only under proper protest if requested by Tenant, Tenant shall upon demand repay to Landlord the taxes so levied against Landlord or the proportion of such taxes resulting from such increase in the assessment, as the case may be.

4.5.2 If the tenant improvements in the Premises, whether installed and/or paid for by Landlord or Tenant and whether or not affixed to the real property so as to become a part thereof, are assessed for real property tax purposes at a valuation higher than the valuation at which tenant improvements conforming to Landlord's "building standard" in other space in the Building are assessed, then the Tax Expenses levied against Landlord or the property by reason of such excess assessed valuation shall be deemed to be taxes levied against personal property of Tenant and shall be governed by the provisions of Section 4.5.1, above.

4.5.3 Notwithstanding any contrary provision herein, Tenant shall pay prior to delinquency any (i) rent tax or sales tax, service tax, transfer tax or value added tax, or any other applicable tax on the rent or services herein or otherwise respecting this Lease, (ii) taxes assessed upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any portion of the Project; or (iii) taxes assessed upon this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises.

4.6 Landlord's Books and Records. Within one hundred twenty (120) days after receipt of a Statement by Tenant (the "Audit Period"), if Tenant disputes the amount of Tenant's Share of Direct Expenses set forth in the Statement, an independent certified public accountant (which accountant (A) is a member of a nationally recognized certified public accounting firm which has previous experience in auditing financial operating records of landlords of office buildings, (B) is not working on a contingency fee basis [i.e., Tenant must be billed based on the actual time and materials that are incurred by the certified public accounting firm in the performance of the audit without dependent upon the results of such audit] and evidence of such fee arrangement shall be delivered by Tenant to Landlord upon request, and agrees with Landlord in writing to maintain the results of such audit or inspection confidential, (C) agrees with Landlord in writing to maintain the results of such audit or inspection confidential, and (D) shall not currently (i.e., within the previous twelve (12) month period) be providing accounting and/or lease administration services to another tenant in the Project in connection with a review or audit by such other tenant of similar expense records), designated and paid for by Tenant and reasonably approved by Landlord, may, after reasonable notice to Landlord and at reasonable times within the Audit Period, audit Landlord's records with respect to the Tenant's Share of Direct Expenses set forth in the Statement at Landlord's corporate offices, provided that (i) Tenant is not then in default under this Lease, (ii) Tenant has paid all amounts required to be paid under the applicable Estimate Statement and Statement, as the case may be, and (iii) Tenant shall pay, after the first sixteen hours of such audit or inspection, $150 per each additional hour of Landlord's or the building manager's employee time devoted to such inspection or audit to reimburse Landlord for its overhead costs allocable to the inspection or audit. In connection with such audit, Tenant and Tenant's agents must agree in advance to follow Landlord's reasonable rules and procedures regarding an audit of Landlord's records, and shall execute a commercially reasonable confidentiality agreement regarding such audit. Any audit report prepared by Tenant's certified public accounting firm shall be delivered concurrently to Landlord and Tenant within the Audit Period. Tenant's failure to audit the amount of the Excess set forth in any Statement within the Audit Period shall be deemed to be Tenant's approval of such Statement and Tenant, thereafter, waives the right or ability to audit the amounts set forth in such Statement. If after such audit, Tenant still disputes such Tenant's Share of Direct Expenses set forth in such Statement, an audit to determine the proper amount shall be made, at Tenant's expense, by an independent certified public accountant (the "Accountant") selected by Landlord and subject to Tenant's reasonable approval; provided that if such audit by the Accountant proves that the Excess in the subject Statement were overstated by more than four percent (4%), then the cost of the Accountant and the reasonable, actual, out-of-pocket costs of Tenant's initial audit shall be paid for by Landlord. If such inspection or audit reveals that an error was made in the Direct Expenses previously charged to Tenant, then Landlord shall refund or credit to Tenant any overpayment of any such costs, or Tenant shall pay to Landlord any underpayment of any such costs, as the case may be, within 30 days after notification thereof. Tenant may not conduct an inspection or have an audit performed more than once during any calendar year. Tenant hereby acknowledges that Tenant's sole right to audit Landlord's records and to contest the amount of Direct Expenses payable by Tenant shall be as set forth in this Section 4.6, and Tenant hereby waives any and all other rights pursuant to applicable Laws to audit such records and/or to contest the amount of Direct Expenses payable by Tenant. Tenant's right to audit Landlord's records as set forth in this Section 4.6 shall be personal to Tenant and may not be exercised by any sublessee or other Transferee of less than Tenant's entire interest in this Lease. This provision shall survive the expiration or earlier termination of this Lease.

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ARTICLE 5

USE OF PREMISES

5.1 Permitted Use. Tenant shall use the Premises solely for the Permitted Use set forth in Section 7 of the Summary and Tenant shall not use or permit the Premises or the Project to be used for any other purpose or purposes whatsoever without the prior written consent of Landlord, which may be withheld in Landlord's sole discretion.

5.2 Prohibited Uses. Tenant further covenants and agrees that Tenant shall not commit waste, overload the Base Building and Tenant's Building Systems (as that term is defined in Section 7.2.1 below) or subject the Premises to use that would damage the Premises or use, or suffer or permit any person or persons to use, the Premises or any part thereof for any use or purpose contrary to the provisions of the Rules and Regulations set forth in Exhibit D, attached hereto (the "Rules and Regulations"), or in violation of any applicable Laws. Tenant's use shall not result in an occupancy density for the Premises which is greater than the density allowed by applicable Laws. No Tenant Party (as that term is defined in Section 10.1 below) shall do or permit anything to be done in or about the Premises or the Project which will in any way damage the reputation of the Project, create extraordinary fire hazards, or result in an increased rate of insurance on the Project or its contents, or obstruct or interfere with the normal and customary use or operation of the Project by Landlord or other tenants and/or occupants (including, without limitation, by means of noise, vibration, odor of other undesirable effect emanating from the Premises or any machine or other installation therein or from any of Tenant's Off-Premises Equipment) or the rights of other tenants or occupants of the Building, or injure or annoy them or use or allow the Premises, Tenant's Building Systems or any of Tenant's Off-Premises Equipment to be used for any improper, unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or about the Premises or the Project. Tenant shall not use any substantial portion of the Premises for a "call center," any other telemarketing use, or any credit processing use. Tenant shall comply with, and Tenant's rights and obligations under this Lease and Tenant's use of the Premises shall be subject and subordinate to, all Underlying Documents now or hereafter affecting the Project, and, upon request from Landlord, Tenant shall promptly recognize such Underlying Documents by executing a commercially reasonable form of recognition.

ARTICLE 6

SERVICES AND UTILITIES

6.1 Standard Tenant Services. Tenant shall be responsible for providing all services to the Premises, at Tenant's sole cost and expense, including the services stated below.

6.1.1 HVAC. Subject to limitations imposed by all governmental rules, regulations and guidelines applicable thereto, Tenant shall operate and control the heating, ventilation and air conditioning systems serving the Premises ("HVAC").

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6.1.2 Other Utilities. Tenant shall be responsible to either: (1) contract with, and pay directly to, the applicable utility provider for electricity, water, trash and sewer, and gas consumed in the Premises (including normal and excess consumption and including the cost of electricity to operate the HVAC air handlers), or (2) to pay directly to Landlord, and not as a part of Operating Expenses, for the cost of electricity, water, trash and sewer, and gas consumed in the Premises (including normal and excess consumption and including the cost of electricity to operate the HVAC air handlers), which usage of utilities shall either be separately metered or submetered or subject to reasonable and equitable allocation by Landlord amongst Tenant and any other tenant(s) of the 130 Building. If payments are made to Landlord, Tenant shall pay such costs within thirty (30) days after demand and as Additional Rent under this Lease (and not as part of the Operating Expenses). If payments are made directly to the applicable utility provider, Tenant shall make such payments prior to delinquency. Tenant shall bear the cost of replacement of lamps, starters and ballasts for non-Building standard lighting fixtures within the Premises. Tenant's use of electricity shall never exceed the capacity of the feeders to the Project or the risers or wiring installation. If for any reason Tenant's use exceeds the capacity of the feeders to the Building or the risers or wiring installation, Tenant, in Tenant's sole discretion and at Tenant's expense, shall either promptly take all necessary action to increase the electrical capacity of the Building, in compliance with Article 8, or reduce its usage, so that it does not exceed the capacity of the applicable electrical components.

6.1.3 Janitorial; Landscaping. Tenant shall perform all janitorial services and other cleaning to the Premises in a manner generally consistent with the standards of Comparable Buildings. Landlord shall provide janitorial services and other landscaping services to the Common Areas, and window washing services in a manner consistent with other Comparable Buildings.

6.1.4 Elevators. Tenant shall operate all elevators in the 110 Building.

6.1.5 Security Systems. Landlord shall have no obligation to provide guard service or other security measures for the benefit of the Premises or the Project. Landlord hereby agrees that Tenant, at Tenant's expense, shall have the right to install a card key security system ("Tenant's Security System") to control access to the Premises. Any portion of Tenant's Security Systems located or visible outside of the Premises shall be subject to Landlord's prior review and approval (not to be unreasonably withheld). The installation of Tenant's Security System shall otherwise be deemed an Alteration and shall be performed pursuant to Article 8 of this Lease, below (or deemed a Tenant Improvement and constructed pursuant to the Tenant Work Letter). Tenant shall be solely responsible, at Tenant's sole cost and expense, for the installation, monitoring, operation and removal of Tenant's Security System. Tenant shall furnish Landlord with a copy of all key codes or access cards and Tenant shall ensure that Landlord shall have access to the Premises and the Building at all times, subject to Article 27 below. In no event shall Landlord be liable for, and Tenant shall defend, indemnify, and hold harmless Landlord and its representatives and agents from any claims, demands, liabilities, causes of action, suits, judgments, damages and expenses arising from, such system or the malfunctioning thereof in accordance with Tenant’s indemnity contained in Section 10.1 hereof.

6.1.6 Access. Subject to applicable Laws and the other provisions of this Lease, and except in the event of an emergency, Tenant shall have access to the Building, and the Premises twenty-four (24) hours per day, seven (7) days per week, every day of the year.

Tenant shall reasonably cooperate with Landlord at all times and abide by all reasonable, non-discriminatory regulations and requirements that Landlord may reasonably prescribe for the proper functioning and protection of the HVAC, electrical, mechanical and plumbing systems.

6.2 Utility Information. Upon request from Landlord, from time to time, Tenant shall, within ten (10) days, provide to Landlord either permission to access Tenant's usage information from the utility service provider or copies of the utility bills for Tenant's usage of such services in a format reasonably acceptable to Landlord. Tenant shall promptly provide Landlord with a copy of all invoices for such services after Landlord's request.

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6.3 Interruption of Use. Tenant agrees that Landlord shall not be liable for damages, by abatement of Rent (except as specifically set forth in Section 19.5.2 of this Lease) or otherwise, for failure to furnish or delay in furnishing any service (including telephone and telecommunication services), or for any diminution in the quality or quantity thereof and such failures or delays or diminution shall never be deemed to constitute an eviction or disturbance of Tenant's use and possession of the Premises, constitute a breach of any implied warranty, or relieve Tenant from paying Rent or performing any of its obligations under this Lease. Furthermore, Landlord shall not be liable under any circumstances for a loss of, or injury to, property or for injury to, or interference with, Tenant's business, including, without limitation, loss of profits, however occurring, through or in connection with or incidental to a failure to furnish any of the services or utilities as set forth in this Article 6.

6.4 Rooftop Rights. In accordance with, and subject to, the terms and conditions set forth in Article 8, below, and this Section 6.4, Tenant shall have the non-exclusive right to use the Building's roof for the installation and maintenance, at Tenant's sole cost and expense (subject to the application of the Tenant Improvement Allowance, as that term is defined in Section 2.1 of the Tenant Work Letter, to the extent permitted by the Tenant Work Letter), of satellite dishes/antennae or HVAC unit on the roof of the Building (and reasonable equipment and cabling related thereto) (all such equipment is defined collectively as the "Rooftop Equipment"). The physical appearance and all specifications of the Rooftop Equipment shall be subject to Landlord's approval, the location of any such installation of the Rooftop Equipment shall be designated by Landlord, and Landlord may require Tenant to install screening around such Rooftop Equipment, as designated by Landlord. Landlord shall have reasonable approval over any aspects of the Rooftop Equipment (including screening) if visible from the exterior of the Building. Landlord makes no representations or warranties whatsoever with respect to the condition of the roof of the Building, or the fitness or suitability of the roof of the Building for the installation, maintenance and operation of the Rooftop Equipment, including, without limitation, with respect to the quality and clarity of any receptions and transmissions to or from the Rooftop Equipment and the presence of any interference with such signals whether emanating from the Building or otherwise. Tenant shall maintain such Rooftop Equipment, at Tenant's sole cost and expense. Tenant shall remove such Rooftop Equipment upon the expiration or earlier termination of the Lease, and shall return the affected portion of the rooftop and the Premises to the condition the rooftop and the Premises would have been in had no such Rooftop Equipment been installed (reasonable wear and tear excepted). Notwithstanding any such review or approval by Landlord, Tenant shall remain solely liable for any damage to any portion of the roof or roof membrane, specifically including any penetrations, in connection with Tenant's installation, use, maintenance and/or repair of such Rooftop Equipment, and Landlord shall have no liability therewith (except to the extent of property damage caused by Landlord's gross negligence and willful misconduct, subject to Section 10.5, below). Such Rooftop Equipment shall, in all instances, comply with applicable Laws.

6.5 Tenant's Generator.

6.5.1 In General. Subject to the terms hereof (including, without limitation, the Tenant Work Letter and Article 8 of this Lease, as applicable), applicable Laws, including any necessary government agency approvals, Tenant shall have the right, at Tenant's sole cost and expense, to install a standby power generator, fuel tank and enclosed generator pad (collectively, the "Generator") in the general area shown on Exhibit A-1 attached hereto serving the 110 Building (the "Generator Area"). For purposes of this Lease, the "Generator" shall be deemed to include, without limitation, all associated equipment, connections and/or facilities. All plans and specifications relating to the Generator shall be subject to the approval of Landlord in accordance with the Tenant Work Letter or Article 8, as applicable. Tenant shall provide and install vertical and horizontal standby power distribution conduits; as needed. Tenant shall integrate monitoring of any Generator with the Tenant's Building Systems and Landlord's Building Systems. Subject to the terms of this Section 6.5, Landlord shall permit Tenant, at its sole cost and expense, to install and maintain the Generator, all in compliance with applicable Laws. The cost of design (including engineering costs) and installation of the Generator and the costs of the Generator itself shall be Tenant's sole responsibility, or deducted from the Tenant Improvement Allowance pursuant to the terms of the Tenant Work Letter. Tenant acknowledges that to the extent that the Generator shall be visible from certain portions of the Building and/or Project, Landlord may require (in Landlord's reasonable discretion) that Tenant, at Tenant's sole cost and expense, install screening, landscaping or other improvements satisfactory to Landlord (in Landlord's reasonable discretion) in order to satisfy Landlord's aesthetic requirements in connection with the area surrounding the Generator, all at Tenant's sole cost and expense. The number of parking spaces occupied by the Generator shall be deducted from the number of parking passes available to Tenant in Section 9 of the Summary.

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6.5.2 Operation and Maintenance of Generator. In no event shall Tenant permit the Generator to interfere with normal and customary use or operation of the Building and Project by Landlord or other tenants and/or occupants (including, without limitation, by means of noise or odor). Tenant shall be responsible, at Tenant's sole cost and expense, for all maintenance and repairs and compliance with applicable Law (including, without limitation, any San Jose Department of Public Health requirements imposed with respect to the fuel tank) with respect to the Generator, and Tenant acknowledges that Landlord shall have no responsibility in connection with the Generator and that Landlord shall not be liable for any physical damage that may occur with respect to the Generator (except to the extent of property damage caused by Landlord's gross negligence or willful misconduct, subject to Section 10.5, below). Without limitation of the foregoing provisions of this Section 6.5.2, all matters (including all plans and specifications) relating to the location, installation, connection, use, maintenance, repair, compliance with Laws, and removal of the Generator (including, without limitation, the manner and means of Tenant's connection of the Generator to the electrical systems of the Building) shall be subject to the prior approval of Landlord, which approval shall not be unreasonably withheld, conditioned or delayed and may be conditioned on Tenant complying with such reasonable requirements imposed by Landlord, based on the advice of Landlord's engineers, so that Landlord's Building Systems and Tenant's Building Systems or other components of the Building and the occupants of the Project are not adversely affected by the installation and operation of the Generator, and/or based upon other reasonable factors as determined by Landlord. Tenant shall provide Landlord with a copy of all permits, logs and maintenance records for the Generator within five (5) business days of Landlord's request. In the event that Tenant shall fail to comply with the requirements set forth herein, after notice and opportunity to cure as provided for in Section 19.1.2, without limitation of Landlord's other remedies, (i) Landlord shall have the right to terminate Tenant's rights with respect to the Generator, and/or (ii) Landlord shall have the right, at Tenant's sole cost and expense, to cure such breach, in which event Tenant shall be obligated to pay to Landlord, within thirty (30) days following demand by Landlord, the amount expended by Landlord, plus Landlord's standard administration fee in an amount not to exceed three percent (3%) of the cost of the work. The Generator and Generator Area shall be deemed to be a part of the Premises for purposes of this Lease; provided, however, that the square footage of the Generator Area shall not be included in the rentable square footage of the Premises.

6.5.3 Removal of Generator. At Landlord's option, Landlord may require that Tenant remove the Generator and all related facilities and equipment and the pad upon the expiration or earlier termination of this Lease (or upon any earlier termination of Tenant's rights with respect to the Generator as provided hereunder), and repair all damage to the Building and/or Project resulting from such removal and restore all affected areas to their condition existing prior to the installation of the Generator, reasonable wear and tear excepted, all at Tenant's sole cost and expense. The foregoing obligations of Tenant shall survive the expiration or earlier termination of this Lease.

ARTICLE 7

PROPERTY MANAGEMENT; REPAIRS AND MAINTENANCE

7.1 Property Management. Landlord and Tenant acknowledge and agree that Tenant shall be responsible for obligations related to the maintenance, repair and improvement of the Premises and Tenant's Building Systems in accordance with the following provisions of this Article 7.

7.1.1 Management Standards.

7.1.1.1 Professional Management. Tenant shall perform its duties under this Article 7 in a manner consistent with the standards followed by landlords or management companies of Comparable Buildings (the "Management Standard").

7.1.1.2 Site Operations Manager. The name, address, daytime and evening telephone and email addresses of the lead contact for Tenant's Engineers (the "Site Operations Manager") shall be furnished to Landlord and updated reasonably promptly if the same shall change. All matters pertaining to the employment or retention of independent contractors engaged by Tenant in connection with the performance of its duties under this Article 7 are the responsibility of Tenant, who shall in all respects be the contracting party with any independent contractor. At no time shall any independent contractors of Tenant and/or their employees be considered employees or independent contractors of Landlord.

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7.1.1.3 Service Agreements. Tenant shall enter into service, repair and maintenance agreements for Tenant's Building Systems (collectively, the "Service Agreements"), upon the terms and conditions and with providers as required under Exhibit G of this Lease. Each Service Agreement shall be provided to Landlord prior to finalization and Landlord shall have the reasonable right to approve or disapprove of the form or contents of the Service Agreements or the persons or entities to be engaged thereunder within five (5) business days after receiving a copy of any such agreements from Tenant, provided, however, that Landlord's failure to respond during such period shall be deemed Landlord's approval thereof. Otherwise, within ten (10) business days of Landlord's request, Tenant shall deliver a copy of all current Service Agreements to Landlord.

7.1.2 Meeting Requirements. Upon request from Landlord, but not more frequently than quarterly, the Site Operations Manager shall be available for meetings with Landlord at the Building to conduct a full inspection of the condition of the Tenant's Building Systems and discuss Tenant's performance of its obligations under this Article 7, provided that either party shall have the right to call more frequent meetings to deal with emergency situations or if Landlord reasonably believes that Tenant is in breach of the terms of this Article 7.

7.1.3 Records and Reports Requirements. Landlord shall provide Tenant with copies of all warranties and guaranties in Landlord's possession relating to Tenant's Building Systems. Tenant shall perform its obligations under this Article 7 in a manner so as to not void or vitiate such warranties and guarantees, including, without limitation, using required contractors to perform work (including Tenant Improvements) affecting the HVAC system. All plans and specifications maintained by Tenant in connection with Tenant's Building Systems, and any warranties and guaranties and operating manuals relating to the Tenant's Building Systems (collectively, the "Building System Documents") shall become the property of Landlord, and such documents (but Tenant may retain copies thereof) shall be delivered to Landlord upon the expiration or earlier termination of the Lease Term or any termination of Tenant's management of the Tenant's Building Systems under this Article 7 or this Lease, to the extent not previously delivered to Landlord.

7.1.4 Tenant's Testing Obligations. Tenant shall operate, maintain, and test Tenant's Building Systems including all subsystems in any special areas as designated by Landlord, as required by the terms of this Lease and in a manner consistent with the Management Standard. Tenant shall conduct such testing and maintenance in accordance with applicable Laws.

7.1.5 Landlord's Inspection Rights. From time to time but no more than once per calendar quarter, Landlord shall have the right to inspect Tenant's records (including the Building System Documents) relating to the performance of Tenant's obligations under this Article 7. Tenant shall make such records reasonably available to Landlord within five (5) business days of receipt of a request therefor.

7.1.6 Tenant's Risk Management Obligations. Tenant shall promptly investigate and make a full timely written report to Landlord as to all alleged accidents known to Tenant and/or all claims for damages relating to the Tenant's Building Systems known to Tenant.

7.1.7 Tenant's Responsibilities Upon Termination of Tenant's Management of the Tenant's Building Systems under this Article 7. Upon the expiration or earlier termination of this Lease for any reason, or upon any termination of Tenant's management of Tenant's Building Systems under this Article 7 or this Lease, Tenant shall within ten (10) business days following receipt of a written request from Landlord, deliver the following to Landlord, or Landlord's appointed agent (except to the extent that any such item has already been delivered to Landlord).

7.1.7.1 At Landlord's option, an assignment to Landlord, or its nominee or designee, of all Service Agreements with third parties, to the extent assignable.

7.1.7.2 The Building System Documents (copies thereof where reasonably acceptable).

7.1.7.3 All tools and equipment originally delivered by Landlord to Tenant, subject to reasonable wear and tear and events of damage or destruction.

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7.1.7.4 Copies of any repair and maintenance records.

7.1.7.5 Any other items in Tenant's possession or control which Landlord may reasonably require in taking over the management of Tenant's Building Systems.

7.1.7.6 The obligation of Tenant to deliver the foregoing shall survive the termination of Tenant's obligation to manage the Project.

7.2 Repair and Maintenance.

7.2.1 Tenant's Repair and Maintenance Obligations. Tenant shall, at Tenant's sole cost and expense, in a manner consistent with the Management Standard, (i) maintain, repair and improve, and pursuant to the specifications set forth in Exhibit H, attached hereto, all portions of the Building systems including the mechanical, electrical, plumbing, sprinkler and HVAC systems exclusively serving the Premises, provided, however, Tenant shall have no obligation to maintain, repair or improve the fire life safety systems (individually, a "Tenant Building System," and collectively, the "Tenant Building Systems"), and (ii) maintain, repair and improve the Premises, including all improvements, fixtures, equipment, interior window coverings, and flooring, furnishings therein. Upon request by Tenant, Landlord agrees to diligently enforce (or if assignable to Tenant, to assign to Tenant) any warranties relating to Tenant's Building Systems. Notwithstanding any provision to the contrary contained in this Lease, Tenant's obligations to comply with applicable Laws are set forth in Section 24.1 below, and not in this Section 7.2. At Landlord's option, if Tenant fails to make such repairs or improvements as required in this Section 7.2 with respect to Tenant's Building Systems, Landlord may, after written notice to Tenant, and after affording Tenant a reasonable time period within which to conduct such repair or improvement, and after providing Tenant a second notice setting forth Landlord's intention to engage in self-help (except in the event of an emergency, in which case no notice to Tenant shall be required), but need not, make such repairs and improvements to the Tenant Building Systems, and Tenant shall pay Landlord the reasonable cost thereof, including a reasonable percentage of the cost thereof sufficient to reimburse Landlord for all overhead, general conditions, fees and other costs or expenses arising from Landlord's involvement with such repairs and improvements forthwith upon being billed for same. Except as set forth in Section 7.4 below, Tenant hereby waives any and all rights under and benefits of subsection 1 of Section 1932 and Sections 1941 and 1942 of the California Civil Code or under any similar law, statute, or ordinance now or hereafter in effect.

7.2.2 Landlord's Maintenance Obligations. In addition to Landlord's obligations set forth in Sections 1.1.1 and 7.2.1 and the Tenant Work Letter, except to the extent the same is Tenant's obligation pursuant to Section 7.2.1 above, Landlord shall maintain, repair and improve, in good repair and in a manner consistent with the Management Standard, (i) the structural portions of the Building, including, without limitation, the foundation, floor/ceiling slabs, exterior slabs, roof (including the roof membrane), curtain wall, exterior glass and mullions, columns, beams, shafts, and fire stairwells (collectively, "Building Structure"), (ii) all portions of the Building fire life safety systems (the "Landlord Building Systems"), (iii) any Building systems not exclusively serving the Premises, and (iv) the Common Areas (including, without limitation, the Project Parking Facilitates, sidewalks and landscaping). Landlord's costs of performing its obligations under this Section 7.2 shall be included in Operating Expenses (except to the extent such costs are otherwise prohibited by the terms of Section 4.2.3 above, or otherwise payable directly by Tenant pursuant to this Lease). Any entry of the Premises by Landlord in connection with the foregoing shall be done consistent with the terms of Article 27 of this Lease. Notwithstanding the foregoing, the terms of Section 1.1.1 shall apply during the Warranty Period for any repairs required to the Landlord's Building Systems.

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ARTICLE 8

ADDITIONS AND ALTERATIONS

8.1 Landlord's Consent to Alterations. Tenant may not make any improvements, alterations, additions or changes to the Premises or any electrical, mechanical, plumbing or HVAC facilities or systems pertaining to the Premises (collectively, the "Alterations") without first procuring the prior written consent of Landlord to such Alterations, which consent shall be requested by Tenant not less than twenty (20) days prior to the commencement thereof, and which consent shall not be unreasonably withheld by Landlord, provided it shall be deemed reasonable for Landlord to withhold its consent to any Alteration which would (a) violate any applicable Law, (b) adversely affect (in the reasonable discretion of Landlord) or require any modification to Tenant's Building Systems or the Base Building or void any warranty on any Tenant's Building Systems or Base Building component or design, or (c) affect the (1) exterior appearance of the Project, (2) appearance of the Common Areas, (3) quiet enjoyment of other tenants or occupants of the Project, or (4) provision of services to other occupants of the Project. To the extent that Landlord grants Tenant the right to use areas within the Project, whether pursuant to the terms of this Lease or through plans and specifications subsequently approved by Landlord (and without implying that Landlord shall grant any such approvals), (A) in no event may Tenant use more than Tenant's Share of the areas within the Building or utility capacity made available by Landlord for general tenant usage for Tenant's installations and operations in the Premises (including chilled water, electricity, telecommunications room space, electrical room space, plenum space and riser space), and (B) Tenant shall comply with the provisions of this Section with respect to all such items, including Tenant's Off-Premises Equipment. All Alterations shall be constructed in accordance with any plans and specifications approved by Landlord, and shall be constructed, maintained, and used by Tenant, at its risk and expense, in accordance with all Laws; Landlord's consent to or approval of any Alterations (or the plans therefor) shall not constitute a representation or warranty by Landlord, nor Landlord's acceptance, that the same comply with sound architectural and/or engineering practices or with all applicable Laws, and Tenant shall be solely responsible for ensuring all such compliance. Notwithstanding the foregoing, Tenant shall be permitted to make Alterations following ten (10) business days' notice to Landlord, but without Landlord's prior consent, to the extent that such Alterations do not (i) adversely affect the Building Structure, Landlord's Building Systems, Tenant's Building Systems, or the exterior appearance of the Building, (ii) adversely affect the value of the Premises or Building, (iii) fail to comply with applicable Laws or cause another portion of the Project to fail to comply with applicable Laws, or (iv) cost more than One Hundred Thousand and 00/100 Dollars ($100,000.00) for a particular job of work per Lease Year and do not exceed more than Seven Hundred Thousand and 00/100 Dollars ($700,000.00) throughout the entire Lease Term (the "Cosmetic Alterations"). The construction of the initial improvements to the Premises shall be governed by the terms of the Tenant Work Letter and not the terms of this Article 8, except as otherwise set forth in Section 8.5 below.

8.2 Manner of Performance; Base Building. Any Alterations and any repairs and maintenance described in Section 7.1 above, shall be performed only by licensed and reputable contractors, subcontractors, materials, mechanics and materialmen selected by Tenant and reasonably approved by Landlord, provided that, Landlord may require Tenant to retain engineering consultants from a list provided to Tenant by Landlord relating to the structural, mechanical, electrical, plumbing, HVAC, lifesafety and sprinkler work of the Alterations. Tenant shall construct such Alterations and perform such maintenance and repairs in a good and workmanlike manner, in conformance with any and all applicable Laws (including all applicable permits and consents issued with respect to the Alterations or maintenance and repairs) and pursuant to a valid building permit, issued by the city or county in which the Building is located or other applicable governmental agency, all in conformance with Landlord's reasonable and non-discriminatory construction rules and regulations. All work under Section 7.1 above and this Article 8 which may affect the Base Building must be approved by the Project's engineer of record, at Tenant's expense, and if any work by Tenant affects or requires changes to the Base Building, then Landlord may elect, at Tenant's expense, to make such changes. The "Base Building" shall mean the Building Structure and Landlord's Building Systems. In performing any work under Section 7.1 above and this Article 8, Tenant shall have the work performed in such manner so as not to damage the Building or interfere with or obstruct access to the Project or any portion thereof, or business of Landlord or other tenants in the Project. Tenant shall not use (and upon notice from Landlord shall cease using) contractors, services, workmen, labor, materials or equipment that, in Landlord's reasonable judgment, to the extent they are disturbing labor harmony with the workforce or trades engaged in performing other work, labor or services in or about the Building or the Common Areas; provided, however, prior to any such cessation, Landlord and Tenant shall use commercially reasonable efforts to establish protocols to reestablish and maintain labor harmony. In addition to Tenant's obligations under Article 9 of this Lease, upon completion of any Alterations, Tenant agrees to cause a Notice of Completion to be recorded in the office of the recorder of the county in which the Building is located in accordance with Section 8182 of the Civil Code of the State of California or any successor statute, and Tenant shall deliver to the Project construction manager an accurate reproducible copy of the "as built" drawings of the Alterations as well as all permits, approvals and other documents issued by any governmental agency in connection with the Alterations.

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8.3 Payment by Tenant. If payment is made by Tenant directly to contractors, Tenant shall (i) comply with Landlord's requirements for final lien releases and waivers in connection with Tenant's payment for work to contractors, and (ii) comply with Landlord's standard contractor's rules and regulations. If Tenant orders any work directly from Landlord, Tenant shall pay to Landlord the prevailing rate at the Building to compensate Landlord for all overhead, general conditions, fees and other costs and expenses arising from Landlord's involvement with such work. If Tenant does not order any work directly from Landlord, Tenant shall pay Landlord's standard fee (not to exceed four percent (4%) of the costs of such work) and reimburse Landlord for Landlord's reasonable, actual, out-of-pocket costs and expenses actually incurred in connection with Landlord's review of such work, except in connection with a Cosmetic Alteration.

8.4 Construction Insurance. In addition to the requirements of Article 10 of this Lease, prior to the commencement of any Alterations and/or work performed under Section 7.1 above, Tenant shall provide Landlord with evidence that Tenant and all contractors and subcontractors carry "Builder's All Risk" insurance in an amount and with such companies approved by Landlord covering such Alterations, and such other insurance and endorsements as Landlord may reasonably require. All Alterations shall be insured by Tenant pursuant to Article 10 of this Lease immediately upon completion thereof. In addition, Landlord may, in its discretion, require Tenant to obtain a lien and completion bond or some alternate form of security satisfactory to Landlord in an amount sufficient to ensure the lien-free completion of such Alterations and naming Landlord as a co-obligee.

8.5 Landlord's Property. All Alterations, improvements, fixtures, equipment and/or appurtenances which may be installed or placed in or about the Premises, from time to time, shall be at the sole cost of Tenant and shall be and become the property of Landlord. Notwithstanding the foregoing, Landlord may, by written notice to Tenant at the time of Landlord's approval of the proposed Alterations, Tenant Improvements or receipt of notice of Tenant's proposed Cosmetic Alteration, require Tenant, at Tenant's expense, to remove any Alterations, Tenant Improvements or Cosmetic Alterations and to repair any damage to the Premises and Building caused by such removal; provided, however, notwithstanding the foregoing, if within fifteen (15) business days following Landlord's receipt of Tenant's request for consent to such Alterations, Tenant Improvements or receipt of notice of Tenant's proposed Cosmetic Alterations, Landlord fails to notify Tenant with respect to the removal requirement regarding such Alterations, Tenant Improvements or Cosmetic Alterations, Landlord shall be deemed to have agreed to waive the removal requirement with regard to such Alterations, Tenant Improvements or Cosmetic Alterations. If Tenant fails to complete such removal and/or to repair any damage caused by the removal of any Alterations and/or improvements and/or systems and equipment in the Premises, Landlord may do so and may charge the cost thereof to Tenant. Tenant hereby protects, defends, indemnifies and holds Landlord harmless from any liability, cost, obligation, expense or claim of lien in any manner relating to the performance of any work under this Article 8 or installation, placement, removal or financing of any such Alterations, improvements, fixtures and/or equipment in, on or about the Premises, which obligations of Tenant shall survive the expiration or earlier termination of this Lease.

ARTICLE 9

COVENANT AGAINST LIENS

Tenant shall keep the Project and Premises free from any liens or encumbrances arising out of the work performed, materials furnished or obligations incurred by or on behalf of a Tenant Party, and shall protect, defend, indemnify and hold Landlord and its agents and representatives harmless from and against any claims, liabilities, judgments or costs (including, without limitation, reasonable attorneys' fees and costs) arising out of same or in connection therewith. Tenant shall give Landlord notice at least twenty (20) days prior to the commencement of any such work on the Premises (or such additional time as may be necessary under applicable Laws or required under this Lease) and provide Landlord with the identities, mailing addresses and telephone numbers of all contractors, and subcontractors, and all major materialmen or suppliers performing work or supplying materials prior to beginning such construction and Landlord may post on and about the Premises notices of non-responsibility pursuant to applicable Laws, and Landlord may record, at its election, notices of non-responsibility pursuant to California Civil Code Section 8442 in connection with any work performed by Tenant. Tenant shall remove any such lien or encumbrance by payment and release or by bond or other security reasonably acceptable to Landlord within ten (10) business days after notice by Landlord, and if Tenant shall fail to do so, Landlord may pay the amount necessary to remove such lien or encumbrance, without being responsible for investigating the validity thereof. The amount so paid shall be deemed Additional Rent under this Lease payable upon demand, without limitation as to other remedies available to Landlord under this Lease. Nothing contained in this Lease shall authorize Tenant to do any act which shall subject Landlord's title to the Project, Building or Premises (or Landlord's interest therein) to any liens or encumbrances whether claimed by operation of law or express or implied contract or deemed to give any contractor or subcontractor or materialman any right or interest in any funds held by Landlord to reimburse Tenant for any portion of the cost of such work. Any claim to a lien or encumbrance upon the Building or Premises arising in connection with any such work or respecting the Premises not performed by or at the request of Landlord shall be null and void, or at Landlord's option shall attach only against Tenant's interest in the Premises and shall in all respects be subordinate to Landlord's title to the Project, Building and Premises.

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ARTICLE 10

INDEMNIFICATION AND INSURANCE

10.1 Indemnification and Waiver. Notwithstanding any provision in this Lease to the contrary, Tenant hereby assumes all risk of damage to, destruction, loss, loss of use, or theft of property of, any Tenant Party located in or about the Project (including all of Tenant's Off-Premises Equipment), caused by casualty, theft, fire, third parties or any other matter or cause, regardless of whether the negligence of any party caused such loss in whole or in part, or injury to persons in, upon or about the Premises from any cause whatsoever (including, but not limited to, any personal injuries resulting from a slip and fall in, upon or about the Premises) and agrees that Landlord, its managers and members, Additional Insureds (as that term is defined below), Landlord's and each of their respective officers, agents, servants, employees, and independent contractors (collectively, "Landlord Parties") shall not be liable for, and are hereby released from any responsibility for, any risk assumed by Tenant pursuant to this Section 10.1. The term the "Additional Insureds" shall mean Landlord's Mortgagee (if any), Landlord's designated property manager, if any, FCP-RIOTECH, LLC, FCP MANAGEMENT, INC., RTP55 HOLDINGS, LLC, RTP55 MFM, LLC, RTP55 CIFM, LLC, WESTBROOK REAL ESTATE FUND X, L.P., WESTBROOK REAL ESTATE CO-INVESTMENT PARTNERSHIP, L.P., AND FOUR CORNERS PROPERTIES, LLC, any other parties reasonably designated by Landlord. Tenant acknowledges that Landlord shall not carry insurance on, and shall not be responsible, for damage to, any property of any Tenant Party located in or about the Project. Subject to Section 10.5, Tenant shall indemnify, defend, protect, and hold harmless the Landlord Parties from any and all claims, demands, penalties, fines, liabilities, actions (including, without limitation, informal proceedings), settlements, judgments, costs, damages, and expenses (including, without limitation, court costs and attorneys' fees and costs) (each "Loss" and collectively, "Losses") of whatever kind or nature, known or unknown, contingent or otherwise incurred or suffered by or asserted against such Landlord Parties in connection with or arising from (a) any cause whatsoever in the Premises (including Losses resulting in whole or in part from the active negligence of the Landlord Parties), (b) any acts, omissions or negligence of Tenant or of any person claiming by, through or under Tenant, or of the contractors, agents, servants, employees, invitees, guests or licensees of Tenant (collectively, "Tenant Parties" and each, individually a "Tenant Party") or any such person in, on or about the Project, (c) the installation, operation, maintenance, repair or removal of any property of any Tenant Party located in or about the Project, including Tenant's Off-Premises Equipment, or (d) any breach of the terms of this Lease or other failure by Tenant to perform its obligations under this Lease, either prior to, during, or after the expiration of the Lease Term, provided that the terms of the foregoing indemnity shall not apply to the gross negligence or willful misconduct of Landlord. Should any Landlord Parties be named as a defendant in any suit brought against Tenant in connection with or arising out of Tenant's occupancy of the Premises, Tenant shall pay to Landlord its costs and expenses incurred in such suit, including without limitation, its actual professional fees such as reasonable appraisers', accountants' and attorneys' fees. The provisions of this Section 10.1 shall survive the expiration or earlier termination of this Lease with respect to any claims or liability arising in connection with any event occurring prior to such expiration or termination.

10.2 Tenant's Compliance With Landlord's Fire and Casualty Insurance. Tenant shall, at Tenant's expense, comply with all insurance company requirements pertaining to the use of the Premises. If Tenant's conduct or use of the Premises, or vacation of the Premises, causes any increase in the rate of insurance on the Building or its contents, and Tenant shall reimburse Landlord for any such increase. Tenant, at Tenant's expense, shall comply with all rules, orders, regulations or requirements of the American Insurance Association (formerly the National Board of Fire Underwriters) and with any similar body.

10.3 Tenant's Insurance. Effective as of the earlier of (i) the date Tenant enters or occupies and/or uses the Premises prior to the Lease Commencement Date or (ii) the Lease Commencement Date, and continuing throughout the Lease Term (and including any period of Tenant's holdover in the Premises pursuant to Article 16 below), Tenant shall, at its sole cost and expense, maintain the following coverages in the following amounts.

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10.3.1 Property Insurance. Property Insurance insuring against any perils included within the classification "All Risk," including, without limitation, fire, windstorm, cyclone, tornado, hail, flood, water damage, earthquake, explosion, riot, riot attending a strike, civil commotion, aircraft, vehicle, smoke damage, vandalism, malicious mischief, sprinkler leakage, and earthquake sprinkler leakage. Such insurance shall insure (i) all property owned by the Tenant or any other Tenant Party, for which Tenant is legally liable or that was installed at the expense of Tenant or any other Tenant Party, and which is located in, on or at the Premises or any other portion of the Project, including, without limitation all furniture, furnishings, business and trade fixtures, office equipment, free-standing cabinet work, movable partitions, merchandise and all other items of Tenant's property on the Premises installed by, for, or at the expense of Tenant and all of Tenant's Off-Premises Equipment, and any other personal property (ii) including the "Tenant Improvements", as that term is defined in the Tenant Work Letter, and any other improvements and betterments which exist in the Premises as of the Lease Commencement Date (excluding Tenant's Base Building and Landlord's Base Building) (the "Original Improvements"), and (iii) all other improvements and betterments, alterations and additions to the Premises. Such insurance shall be written on a Special Form basis, in an amount not less than one hundred percent (100%) of the full replacement cost value (with the exception of earthquake and flood insurance) and shall include coverage for (a) all perils included in the CP 10 30 04 02 Coverage Special Form, (b) water damage from any cause whatsoever, including, but not limited to, sprinkler leakage, bursting, leaking or stoppage of any pipes, explosion, and backup or overflow from sewers or drains, and (c) terrorism (to the extent such terrorism insurance is available as a result of the Terrorism Risk Insurance Act of 2015, or subsequent statute, extension or reauthorization ("TRIPRA"), or is otherwise available at commercially reasonable rates).

10.3.2 Business Interruption Insurance. Business Interruption Insurance and Extra Expense on ISO coverage form CP 00 30 or equivalent reasonably acceptable to Landlord covering a minimum of at least twelve (12) months plus Extra Expense insurance in such amounts as will reimburse Tenant for actual direct or indirect loss of earnings attributable to the risks outlined in Section 10.3.1 above.

10.3.3 Commercial General Liability Insurance. Commercial General Liability Insurance on the current ISO CG 00 01 occurrence form (or any equivalent reasonably acceptable to Landlord) covering the insured against claims of liability arising out of the Lease, Tenant's operations including use, occupancy or maintenance of Premises, the Building, or the Project, or any portion of the foregoing, in the amount of not less than $1,000,000 per occurrence and $2,000,000 general aggregate, which shall be endorsed to apply on a per location basis, covering bodily injury (including mental anguish) to or death of one or more persons and damage to tangible property (including loss of use), $1,000,000 Personal and Advertising Injury, and $2,000,000 Products – Completed Operations. Products – Completed Operations coverage shall be maintained for a minimum period equal to the greater of the three (3) years after substantial completion of the Tenant Improvements and/or the Lease Term (as applicable), or the period under which a claim can be asserted under the applicable statute of limitations and/or repose. Such policy shall insure the hazards of the Premises and Tenant's operations thereon and include, but not be limited to, coverage for independent contractors, blanket contractual liability (covering the performance by Tenant of its indemnity agreements and the performance by Tenant of the indemnity agreements set forth in Section 10.1 of this Lease) including personal injury, ongoing and products - completed operations coverage, premises –operations hazard, host liquor liability, broad form property damage, and allow cross liability and provide a separate of insureds provision. The policy shall not include any exclusions or limitations other than those incorporated in the standard ISO policy form, or its equivalent.

10.3.4 Worker's Compensation. Worker's Compensation or other similar insurance pursuant to all applicable state and local statutes and regulations, and Employer's Liability with minimum limits of not less than $1,000,000 bodily injury each accident/$1,000,000 bodily injury by disease each employee/$1,000,000 bodily injury by disease policy limit.

10.3.5 Commercial Automobile Liability Insurance. Commercial Automobile Liability Insurance covering all Owned (if any), Hired, or Non-owned vehicles with limits not less than $1,000,000 combined single limit for bodily injury and property damage.

10.3.6 Liquor Liability. Prior to the sale, storage, use or giving away of alcoholic beverages on or from the Premises or Common Areas by Tenant or another person, Tenant, at its own expense, shall obtain and maintain Liquor Liability Insurance holding harmless and protecting Landlord and the Premises from and against any and all Losses arising under any present or future law, statute, or ordinance of the State of California or other governmental authority having jurisdiction over the Premises, by reason of any storage, sale, use or giving away of alcoholic beverages on or from the Premises and in a form as otherwise acceptable to Landlord (provided that Tenant shall have no such obligation to obtain any such coverage to the extent that such activities are covered under the host liquor liability insurance included in the insurance described in Section 10.3.3 above). Such policy shall have a minimum limit of not less than $5,000,000 per occurrence and in the aggregate for bodily injury (fatal or nonfatal) and property damage.

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10.3.7 Umbrella and/or Excess Liability Insurance. Umbrella and/or Excess Liability Insurance follow form basis in an amount of not less than $10,000,000 per occurrence and $10,000,000 annual aggregate. Coverage shall be in excess of Commercial General Liability, Automobile Liability and Employer’s Liability Insurance, as well as Liquor Liability insurance policies with such coverage being concurrent to and not more restrictive than the underlying insurance. Such Umbrella/Excess policy shall be endorsed to provide primary and non-contributory coverage to Landlord and the Additional Insureds as required by this Lease. Tenant hereby expressly agrees that it is the specific intent of the parties that Tenant is required to provide Umbrella/Excess Liability coverage, whereby such coverage is vertically exhausted and not subject to any "horizontal exhaustion" rights any insurers issuing such insurance policies may have in regards to any insurance Landlord and/or any other Additional Insured might carry for its own benefit, or on behalf of other Additional Insureds. The limits of liability can be provided in a combination of a Commercial General Liability policy and an Umbrella and/or Excess Liability policy.

10.3.8 Additional Insurance Obligations. Increased amounts of the insurance required to be carried by Tenant pursuant to this Article 10 and such other reasonable types of insurance coverage and in such reasonable amounts covering the Premises and Tenant's operations therein, as may be required by Landlord or Landlord's Mortgagee; provided, however, that in no event shall such new or increased amounts or types of insurance exceed that required of comparable tenants by landlords of Comparable Buildings.

10.4 Form of Policies. The minimum limits of policies of insurance required of Tenant under this Lease shall in no event limit the liability of Tenant under this Lease. Such insurance shall (i) name Landlord, Additional Insureds, and any other party the Landlord so specifies, as an additional insured, with the exception of Worker's Compensation and Employers Liability per Section 10.3.4 above; (ii) be issued by an insurance company having a rating of not less than A-X in Best's Insurance Guide or which is otherwise acceptable to Landlord and licensed to do business in the State of California; (iii) be primary insurance as to all claims thereunder and provide that any insurance carried by Landlord is excess and is non-contributing with any insurance requirement of Tenant; (iv) be in form and content reasonably acceptable to Landlord; and (v) Tenant shall provide Landlord no less than thirty (30) days' written notice prior to the cancellation, non-renewal, or material alteration of any of Tenant's Insurance policies. If the use and occupancy of the Premises include any activity or matter that is or may be excluded from coverage under a commercial general liability policy (e.g., the sale, service or consumption of alcoholic beverages), Tenant shall obtain such endorsements to the commercial general liability policy or otherwise obtain insurance to insure all liability arising from such activity or matter, including liquor liability, if applicable, in such amounts as Landlord may reasonably require. Tenant shall deliver said policy or policies or certificates thereof to Landlord on or before the date Tenant enters or occupies the Premises or, if earlier, the Lease Commencement Date and at least thirty (30) days before the expiration dates thereof. Further, Landlord shall have the right, from time to time, to request copies of policies of Tenant's insurance required hereunder, which Tenant shall thereafter provide within ten (10) business days. No review or approval of any insurance certificate or policy by Landlord shall derogate from or diminish Landlord's rights or Tenant's obligations hereunder. In the event Tenant shall fail to procure such insurance, or to deliver such policies or certificate, Landlord may, at its option, procure such policies for the account of Tenant, and the cost thereof, plus Landlord's reasonable standard administrative fee, shall be paid to Landlord within five (5) days after delivery to Tenant of bills therefor. In addition, any such deductible or self-insured retention amount required under Tenant's insurance policies shall not exceed $25,000, unless otherwise approved by Landlord in writing. Any such deductible and self-insured retention amount shall be the sole responsibility of Tenant.

10.5 Waiver of Subrogation.

10.5.1 Property Insurance. Landlord and Tenant intend that their respective property loss risks, including business income and loss of rent insurance, shall be borne by reasonable insurance carriers to the extent above provided, and Landlord and Tenant hereby agree to look solely to, and seek recovery only from, their respective insurance carriers in the event of a property loss to the extent that such coverage is agreed to be provided hereunder. The parties each hereby waive all rights and claims against each other for such losses, and waive all rights of subrogation of their respective insurers, provided such waiver of subrogation shall not affect the right to the insured to recover thereunder. Tenant's waiver in this Section 10.5 also extends to the other Landlord Parties. The parties agree that their respective insurance policies are now, or shall be, endorsed such that the waiver of subrogation shall not affect the right of the insured to recover thereunder, so long as no material additional premium is charged therefor.

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10.5.2 Policies other than Property Insurance. Tenant waives all rights against Landlord and the other Landlord Parties, for recovery of damages occurring on and after the date on which this Lease is executed to the extent such damages are covered (or required to be covered) under any insurance policy carried (or required to be carried) by Tenant related to the Premises or this Lease (excluding property insurance, which is covered in Section 10.5.1 above). Tenant shall obtain endorsements effecting the foregoing waivers. If any other policy implicated by the waiver in this Section 10.5.2 does not allow Tenant to waive rights of recovery against others prior to a loss, Tenant shall obtain an endorsement effecting the applicable waiver.

10.6 Third-Party Contractors. Tenant shall obtain and deliver to Landlord, certificates of insurance evidencing Workers Compensation together with Employers Liability, Commercial General Liability, Automobile Liability, and Umbrella/Excess Liability Insurance in like form and amounts described under this Article 10, above and such insurance as otherwise may be required by Landlord from time to time, and applicable endorsements prior to the commencement of work in or about the Premises by any vendor or any other third-party contractor (collectively, a "Third Party Contractor"). All such insurance shall (a) name Landlord, Additional Insureds, Tenant and any other party the Landlord so reasonably specifies, as an additional insured, if any, on a primary and non-contributory basis, which shall include, without limitation, ongoing and products-completed operations (such additional insured status shall be afforded by way of a scheduled endorsement at least as broad as ISO CG 20 38 04 13 (or its equivalent), as well as by way of scheduled endorsements at least as broad as the ISO endorsements CG 20 10 10 01 together with CG 20 37 10 01 (or their equivalent)), (b) all such insurance shall provide a waiver of subrogation in favor of Landlord, Additional Insureds, and Tenant. Each Third Party Contractor shall be solely responsible for each party's own property, tools, and equipment.

ARTICLE 11

DAMAGE AND DESTRUCTION

11.1 Repair of Damage to Premises by Landlord. Tenant shall promptly notify Landlord of any damage to the Premises resulting from fire or any other casualty. If the Premises or any Common Areas serving or providing access to the Premises shall be damaged by fire or other casualty, Landlord shall promptly and diligently, subject to reasonable delays for insurance adjustment or other matters beyond Landlord's reasonable control, and subject to all other terms of this Article 11, restore Tenant's Building Systems, the Base Building and such Common Areas. Such restoration shall be to substantially the same condition of the Tenant's Building Systems, Base Building and the Common Areas prior to the casualty, except for modifications required by applicable Law or by Landlord's Mortgagee or any other modifications to the Common Areas deemed desirable by Landlord, which are consistent with the character of the Project, provided that access to the Premises and any common restrooms serving the Premises shall not be materially impaired. Upon the occurrence of any damage to the Premises, upon notice (the "Landlord Repair Notice") to Tenant from Landlord, Tenant shall assign to Landlord (or to any party designated by Landlord) all insurance proceeds payable to Tenant under Tenant's insurance required under Section 10.3.1 of this Lease, and Landlord shall repair any injury or damage to any Alterations, the Tenant Improvements and the Original Improvements installed in the Premises and shall return such Alterations, Tenant Improvements and Original Improvements to their original condition; provided that if the cost of such repair by Landlord exceeds the amount of insurance proceeds received by Landlord from Tenant's insurance carrier, as assigned by Tenant, the cost of such repairs shall be paid by Tenant to Landlord prior to Landlord's commencement of repair of the damage. Landlord shall not be liable for any inconvenience or annoyance to Tenant or its visitors, or injury to Tenant's business resulting in any way from such damage or the repair thereof; provided however, that if such fire or other casualty shall have damaged the Premises or Common Areas necessary to Tenant's occupancy, and the Premises is not occupied by Tenant as a result thereof, then during the time and to the extent the Premises is unfit for occupancy, the Rent shall be abated in proportion to the ratio that the amount of rentable square feet of the Premises which is unfit for occupancy for the purposes permitted under this Lease bears to the total rentable square feet of the Premises.

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11.2 Landlord's Option to Repair; Tenant Termination Right. Notwithstanding the terms of Section 11.1 of this Lease, Landlord may elect not to rebuild and/or restore the Premises, either the 110 Building or the 130 Building and/or Project, and instead terminate this Lease, by notifying Tenant in writing of such termination within sixty (60) days after the date of discovery of the damage, such notice to include a termination date giving Tenant one hundred twenty (120) days to vacate the Premises, but Landlord may so elect only if the either the 110 Building or the 130 Building or Project shall be damaged by fire or other casualty or cause, whether or not the Premises is affected, and one or more of the following conditions is present: (i) in Landlord's reasonable judgment, repairs cannot reasonably be completed within two hundred ten (210) days after the date of discovery of the damage (when such repairs are made without the payment of overtime or other premiums); (ii) Landlord's Mortgagee shall require that the insurance proceeds or any portion thereof be used to retire the mortgage debt, or shall terminate the ground lease, as the case may be; (iii) the damage is not fully covered by Landlord's insurance policies; (iv) Landlord decides to rebuild either the 110 Building or the 130 Building or Common Areas so that they will be substantially different structurally or architecturally; or (v) the damage occurs during the last twelve (12) months of the Lease Term; provided, however, that if Landlord does not elect to terminate this Lease pursuant to Landlord's termination right as provided above, and the repairs cannot, in the reasonable opinion of Landlord, be completed within two hundred ten (210) days after being commenced, Tenant may elect, no earlier than sixty (60) days after the date of the damage and not later than ninety (90) days after the date of such damage, to terminate this Lease by written notice to Landlord effective as of the date specified in the notice.

11.3 Waiver of Statutory Provisions. The provisions of this Lease, including this Article 11, constitute an express agreement between Landlord and Tenant with respect to any and all damage to, or destruction of, all or any part of the Premises, the Building or the Project, and any statute or regulation of the State of California, including, without limitation, Sections 1932 and 1933(4) of the California Civil Code, with respect to any rights or obligations concerning damage or destruction in the absence of an express agreement between the parties, and any other statute or regulation, now or hereafter in effect, shall have no application to this Lease or any damage or destruction to all or any part of the Premises, the Building or the Project. No damages, compensation or claim shall be payable by Landlord for any inconvenience, any interruption or cessation of Tenant's business, or any annoyance, arising from any damage or destruction of all or any portion of the Premises, the Building or the Project.

ARTICLE 12

NONWAIVER

No provision of this Lease shall be deemed waived by either party hereto unless expressly waived in a writing signed by such party. The waiver by either party hereto of any breach of any term, covenant or condition herein contained shall not be deemed to be a waiver of any subsequent breach of same or any other term, covenant or condition herein contained. No custom or practice which may evolve between the parties in the administration of the terms hereof shall waive or diminish the right of Landlord or Tenant to insist upon the performance by the other party in strict accordance with the terms hereof. The subsequent acceptance of Rent hereunder by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, other than the failure of Tenant to pay the particular Rent so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such Rent. No acceptance of a lesser amount than the Rent herein stipulated shall be deemed a waiver of Landlord's right to receive the full amount due, nor shall any endorsement or statement on any check or payment or any letter accompanying such check or payment be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the full amount due. No receipt of monies by Landlord from Tenant after the termination of this Lease shall in any way alter the length of the Lease Term or of Tenant's right of possession hereunder, or after the giving of any notice shall reinstate, continue or extend the Lease Term or affect any notice given Tenant prior to the receipt of such monies, it being agreed that after the service of notice or the commencement of a suit, or after final judgment for possession of the Premises, Landlord may receive and collect any Rent due, and the payment of said Rent shall not waive or affect said notice, suit or judgment.

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ARTICLE 13

CONDEMNATION

If the whole or any part of the Premises, Building or Project shall be taken by power of eminent domain or condemned by any competent authority for any public or quasi-public use or purpose, or if any adjacent property or street shall be so taken or condemned, or reconfigured or vacated by such authority in such manner as to require the use, reconstruction or remodeling of any part of the Premises, Building or Project, or if Landlord shall grant a deed or other instrument in lieu of such taking by eminent domain or condemnation, Landlord shall have the option to terminate this Lease effective as of the date possession is required to be surrendered to the authority. If more than twenty-five percent (25%) of the rentable square feet of the Premises is taken, or if access to the Premises is substantially impaired, or if more than ten percent (10%) of the parking passes pertaining to the Building are taken and a comparable amount of alternative parking within the Project is not made available by Landlord, in each case for a period in excess of one hundred twenty (120) days, Tenant shall have the option to terminate this Lease effective as of the date possession is required to be surrendered to the authority. Tenant shall not because of such taking assert any claim against Landlord or the authority for any compensation because of such taking and Landlord shall be entitled to the entire award or payment in connection therewith, except that Tenant shall have the right to file with the authority any separate claim available to Tenant for any taking of Tenant's personal property and fixtures belonging to Tenant and removable by Tenant upon expiration of the Lease Term pursuant to the terms of this Lease, and for moving expenses, so long as such claims do not diminish the award available to Landlord or Landlord's Mortgagee, and such claim is payable separately to Tenant. All Rent shall be apportioned as of the date of such termination. If any part of the Premises shall be taken, and this Lease shall not be so terminated, the Rent shall be proportionately abated. Article 13 shall be Tenant's sole and exclusive remedy in the event of any taking, and Tenant hereby waives any rights and the benefits of Section 1265.130 of The California Code of Civil Procedure ("CCP") or any other statute granting Tenant specific rights in the event of a taking which are inconsistent with the provisions of this Article 13. Notwithstanding anything to the contrary contained in this Article 13, in the event of a temporary taking of all or any portion of the Premises for a period of one hundred and twenty (120) days or less, then this Lease shall not terminate but the Base Rent and Direct Expenses shall be abated for the period of such taking in proportion to the ratio that the amount of rentable square feet of the Premises taken bears to the total rentable square feet of the Premises. Landlord shall be entitled to receive the entire award made in connection with any such temporary taking.

ARTICLE 14

ASSIGNMENT AND SUBLETTING

14.1 Transfers. Tenant shall not, without the prior written consent of Landlord, assign, sublease, mortgage, pledge, hypothecate, encumber, or permit any lien to attach to, or otherwise transfer, this Lease or any interest hereunder, permit any assignment, or other transfer of this Lease or any interest hereunder by operation of law, permit any other entity to become Tenant hereunder by merger, consolidation, or other reorganization, sublet the Premises or any part thereof, or enter into any license or concession agreements or otherwise permit the occupancy or use of the Premises or any part thereof by any persons other than Tenant and its employees and contractors (all of the foregoing are hereinafter sometimes referred to collectively as "Transfers" and any person or entity to whom any Transfer is made or sought to be made is hereinafter sometimes referred to as a "Transferee"). If Tenant desires Landlord's consent to any Transfer, Tenant shall notify Landlord in writing, which notice (the "Transfer Notice") shall include (i) the proposed effective date of the Transfer, which shall not be less than twenty-five (25) days after the date of delivery of the Transfer Notice, (ii) a description of the portion of the Premises to be transferred (the "Subject Space"), (iii) all of the terms of the proposed Transfer and the consideration therefor, including calculation of the Transfer Premium, as that term is defined in Section 14.3 below, in connection with such Transfer, the name and address of the proposed Transferee and any Affiliates of Transferee, and a copy of all existing executed and/or proposed documentation pertaining to the proposed Transfer, including all existing operative documents to be executed to evidence such Transfer or the agreements incidental or related to such Transfer, provided that Landlord shall have the right to require Tenant to utilize Landlord's standard Transfer consent documents in connection with the documentation of Landlord's consent to such Transfer, and (iv) current financial statements of the proposed Transferee certified by an officer, partner or owner thereof, business credit and personal references and history of the proposed Transferee and any other information reasonably required by Landlord which will enable Landlord to determine the financial responsibility, character, and reputation of the proposed Transferee, nature of such Transferee's business and proposed use of the Subject Space. Any Transfer made in violation of this Article 14 shall, at Landlord's option, be null, void and of no effect, and shall, at Landlord's option, constitute an Event of Default. Whether or not Landlord consents to any proposed Transfer, Tenant shall pay Landlord's reasonable review and processing fees, as well as any reasonable professional fees (including, without limitation, attorneys', accountants', architects', engineers' and consultants' fees) incurred by Landlord, within thirty (30) days after written request by Landlord.

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14.2 Landlord's Consent. Landlord shall not unreasonably withhold, condition or delay its consent to any proposed Transfer of the Subject Space by assignment or sublease to the Transferee on the terms specified in the Transfer Notice. Without limitation as to other reasonable grounds for withholding consent, the parties hereby agree that it shall be reasonable under this Lease and under any applicable Law for Landlord to withhold consent to any proposed Transfer where one or more of the following apply:

14.2.1 any Event of Default then exists and is continuing;

14.2.2 The Transferee is of a character or reputation or engaged in a business which is not consistent with the quality of the Building or the Project;

14.2.3 The Transferee intends to use the Subject Space for purposes which are not permitted under this Lease or which would materially increase Operating Expenses;

14.2.4 The Transferee is either a governmental or quasi-government agency, or subdivision or instrumentality thereof, or any other entity entitled to the defense of sovereign immunity or a non-profit organization;

14.2.5 The Transferee is not a party of adequate financial worth and/or financial stability in light of the responsibilities to be undertaken in connection with the Transfer on the date consent is requested;

14.2.6 The proposed Transfer would cause a violation of another lease for space in the Project, or would give an occupant of the Project a right to cancel its lease;

14.2.7 the proposed Transferee does not intend itself to occupy a substantial portion of the Subject Space;

14.2.8 the proposed Transferee or its Affiliates are currently or have in the past ten (10) years been involved in litigation with Landlord or any other Landlord Party; or

14.2.9 either the proposed Transferee, or any Affiliate of the proposed Transferee, (i) occupies space in the Project at the time of the request for consent or (ii) is negotiating with Landlord or has negotiated with Landlord during the six (6) month period immediately preceding the date Landlord receives the Transfer Notice, to lease space in the Project, provided that, in each instance, Landlord has comparable space in the Project available to lease.

Tenant hereby waives and releases its rights under Section 1995.310 of the California Civil Code or under any similar law, statute or ordinance now or hereafter in effect. If Landlord consents to any Transfer pursuant to the terms of this Section 14.2 (and does not exercise any recapture rights Landlord may have under Section 14.4 of this Lease), Tenant may within six (6) months after Landlord's consent, but not later than the expiration of said six-month period, enter into such Transfer of the Premises or portion thereof, upon substantially the same terms and conditions as are set forth in the Transfer Notice furnished by Tenant to Landlord pursuant to Section 14.1 of this Lease, provided that if there are any changes in the terms and conditions from those specified in the Transfer Notice (i) such that Landlord would initially have been entitled to refuse its consent to such Transfer under this Section 14.2, or (ii) which would cause the proposed Transfer to be more favorable to the Transferee than the terms set forth in Tenant's original Transfer Notice, Tenant shall again submit the Transfer to Landlord for its approval and other action under this Article 14 (including Landlord's right of recapture, if any, under Section 14.4 of this Lease). Notwithstanding anything to the contrary in this Lease, if Tenant or any proposed Transferee claims that Landlord has unreasonably withheld or delayed its consent under this Section 14.2 or otherwise has breached or acted unreasonably under this Article 14, their sole remedies shall be a suit for contract damages, declaratory judgment and an injunction for the relief sought, and Tenant hereby waives all other remedies, including, without limitation, any right at law or equity to sue for damages or terminate this Lease, on its own behalf and, to the extent permitted under all applicable Laws, on behalf of the proposed Transferee. Tenant shall indemnify, defend and hold harmless Landlord from any and all liability, losses, claims, damages, costs, expenses, causes of action and proceedings involving any third party or parties (including without limitation Tenant's proposed subtenant or assignee) who claim they were damaged by Landlord's wrongful withholding or conditioning of Landlord's consent. Tenant shall pay for the cost of any demising walls or other improvements necessitated by a Transfer.

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14.3 Transfer Premium. Subject to Section 14.8 below, if Landlord consents to a Transfer, as a condition thereto which the parties hereby agree is reasonable, Tenant shall pay to Landlord fifty percent (50%) of any "Transfer Premium" as that term is defined in this Section 14.3, received by Tenant from such Transferee. The "Transfer Premium" shall mean all rent, additional rent or other consideration payable by such Transferee in connection with the Transfer in excess of the Rent and Additional Rent payable by Tenant under this Lease during the term of the Transfer on a per rentable square foot basis if less than all of the Premises is transferred, after deducting the reasonable expenses incurred by Tenant for (i) any changes, alterations and improvements to the Premises in connection with the Transfer, (ii) any brokerage commissions in connection with the Transfer, and (iii) legal fees reasonably incurred in connection with the Transfer (collectively, "Tenant's Subleasing Costs"). The Transfer Premium shall also include, but not be limited to, key money, bonus money or other cash consideration paid by Transferee to Tenant in connection with such Transfer, and any payment in excess of fair market value for services rendered by Tenant to Transferee or for assets, fixtures, inventory, equipment, or furniture transferred by Tenant to Transferee in connection with such Transfer. For purposes of calculating the Transfer Premium on a monthly basis, Tenant's Subleasing Costs shall be deemed to be expended by Tenant in equal monthly amounts over the entire term of the Transfer. The Transfer Premium shall be calculated for any period during which multiple sublease agreements are in effect (i.e., the term of such subleases have commenced) shall be determined as a total aggregate Transfer Premium for all such subleases. For the avoidance of doubt, the Transfer Premium shall not apply to a transfer of this Lease to any Permitted Transferee.

14.4 Landlord's Option as to Subject Space. Notwithstanding anything to the contrary contained in this Article 14, in the event Tenant contemplates a Transfer of all or a portion of the Premises, Tenant shall give Landlord notice (the "Intention to Transfer Notice") of such contemplated Transfer (whether or not the contemplated Transferee or the terms of such contemplated Transfer have been determined). The Intention to Transfer Notice shall specify the portion of and amount of rentable square feet of the Premises which Tenant intends to Transfer (the "Contemplated Transfer Space"), the contemplated date of commencement of the Contemplated Transfer (the "Contemplated Effective Date"), and the contemplated length of the term of such contemplated Transfer, and shall specify that such Intention to Transfer Notice is delivered to Landlord pursuant to this Section 14.4 in order to allow Landlord to elect to recapture the Contemplated Transfer Space. Thereafter, Landlord shall have the option, by giving written notice to Tenant within thirty (30) days after receipt of any Intention to Transfer Notice, to recapture the Contemplated Transfer Space; provided, however, notwithstanding anything to the contrary contained herein, in the event the Contemplated Transfer Space (together with all areas previously subleased by Tenant) makes up fifty percent (50%) or more of the rentable square feet of Premises within either the 110 Building or the 130 Building, then Landlord shall have the option, by giving written notice to Tenant within thirty (30) days after receipt of any Intention to Transfer Notice, to terminate this Lease with respect to the entire Premises as of the Contemplated Effective Date. In the event of a recapture by Landlord, such recapture shall cancel and terminate this Lease with respect to such Contemplated Transfer Space as of the Contemplated Effective Date. In the event of a recapture by Landlord, if this Lease shall be canceled with respect to less than the entire Premises, the Rent reserved herein shall be prorated on the basis of the number of rentable square feet retained by Tenant in proportion to the number of rentable square feet contained in the Premises, and this Lease as so amended shall continue thereafter in full force and effect, and upon request of either party, the parties shall execute written confirmation of the same. If Landlord declines, or fails to elect in a timely manner, to recapture such Contemplated Transfer Space under this Section 14.4, then, subject to the other terms of this Article 14, for a period of nine (9) months (the "Nine Month Period") commencing on the last day of such thirty (30) day period, Landlord shall not have any right to recapture the Contemplated Transfer Space with respect to any Transfer made during the Nine Month Period, provided that any such Transfer is substantially on the terms set forth in the Intention to Transfer Notice, and provided further that any such Transfer shall be subject to the remaining terms of this Article 14. If such a Transfer is not so consummated within the Nine Month Period (or if a Transfer is so consummated, then upon the expiration of the term of any Transfer of such Contemplated Transfer Space consummated within such Nine Month Period), Tenant shall again be required to submit a new Intention to Transfer Notice to Landlord with respect any contemplated Transfer, as provided above in this Section 14.4.

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14.5 Effect of Transfer. If Landlord consents to a Transfer, (i) the terms and conditions of this Lease shall in no way be deemed to have been waived or modified, (ii) such consent shall not be deemed consent to any further Transfer by either Tenant or a Transferee, (iii) Tenant shall deliver to Landlord, promptly after execution, an original executed copy of all documentation pertaining to the Transfer, (iv) Tenant shall furnish upon Landlord's request a complete statement, confirmed by an independent certified public accountant, or Tenant's chief financial officer, setting forth in detail the computation of any Transfer Premium Tenant has derived and shall derive from such Transfer, and (v) no Transfer relating to this Lease or agreement entered into with respect thereto, whether with or without Landlord's consent, shall relieve Tenant or any guarantor of this Lease from any liability under this Lease, including, without limitation, in connection with the Subject Space, Tenant and Transferee being jointly and severally liable therefor. In the event that Tenant subleases all or any portion of the Premises in accordance with the terms of this Article 14, Tenant shall cause such subtenant to carry and maintain the same insurance coverage terms and limits as are required of Tenant, in accordance with the terms of Article 10 of this Lease. Landlord or its authorized representatives shall have the right at all reasonable times to audit the books, records and papers of Tenant relating to the determination of any Transfer Premium, and shall have the right to make copies thereof. If the Transfer Premium respecting any Transfer shall be found understated, Tenant shall, within thirty (30) days after demand, pay the deficiency, and if understated by more than four percent (4%), Tenant shall pay Landlord's costs of such audit.

14.6 Additional Transfers. For purposes of this Lease, the term "Transfer" shall also include (i) if Tenant is a partnership, the withdrawal or change, voluntary, involuntary or by operation of law, of fifty percent (50%) or more of the partners, or transfer of fifty percent (50%) or more of partnership interests, within a twelve (12)-month period, or the dissolution of the partnership without immediate reconstitution thereof, and (ii) if Tenant is a closely held corporation (i.e., whose stock is not publicly held and not traded through an exchange or over the counter) or a limited liability company, (A) the dissolution, merger, consolidation or other reorganization of Tenant or (B) the sale or other transfer of an aggregate of fifty percent (50%) or more of the voting shares of Tenant (other than to immediate family members by reason of gift or death), within a twelve (12)-month period, or (C) the sale, mortgage, hypothecation or pledge of an aggregate of fifty percent (50%) or more of the value of the unencumbered assets of Tenant within a twelve (12)-month period.

14.7 Attornment; Default. Each sublease by Tenant hereunder shall be subject and subordinate to this Lease and to the matters to which this Lease is or shall be subordinate, and each subtenant by entering into a sublease is deemed to have agreed that in the event of termination, re-entry or dispossession by Landlord under this Lease, Landlord may, at its option, take over all of the right, title and interest of Tenant, as sublandlord, under such sublease, and such subtenant shall, at Landlord's option, attorn to Landlord pursuant to the then executory provisions of such sublease, except that Landlord shall not be (1) liable for any previous act or omission of Tenant under such sublease, (2) subject to any counterclaim, offset or defense that such subtenant might have against Tenant, (3) bound by any previous modification of such sublease not approved by Landlord in writing or by any rent or additional rent or advance rent which such subtenant might have paid for more than the current month to Tenant, and all such rent shall remain due and owing, notwithstanding such advance payment, (4) bound by any security or advance rental deposit made by such subtenant which is not delivered or paid over to Landlord and with respect to which such subtenant shall look solely to Tenant for refund or reimbursement, or (5) obligated to perform any work in the subleased space or to prepare it for occupancy, and in connection with such attornment, the subtenant shall execute and deliver to Landlord any instruments Landlord may reasonably request to evidence and confirm such attornment. Each subtenant or licensee of Tenant shall be deemed, automatically upon and as a condition of its occupying or using the Premises or any part thereof, to have agreed to be bound by the terms and conditions set forth in this Section 14.7. The provisions of this Section 14.7 shall be self-operative, and no further instrument shall be required to give effect to this provision. If Tenant shall be in default under this Lease (beyond the applicable notice and cure period), Landlord is hereby irrevocably authorized, as Tenant's agent and attorney-in-fact, to direct any Transferee to make all payments under or in connection with the Transfer directly to Landlord (which Landlord shall apply towards Tenant's obligations under this Lease) until such default is cured. Such Transferee shall rely on any representation by Landlord that Tenant is in default hereunder, without any need for confirmation thereof by Tenant. Upon any assignment, the assignee shall assume in writing all obligations and covenants of Tenant thereafter to be performed or observed under this Lease. No collection or acceptance of rent by Landlord from any Transferee shall be deemed a waiver of any provision of this Article 14 or the approval of any Transferee or a release of Tenant from any obligation under this Lease, whether theretofore or thereafter accruing. In no event shall Landlord's enforcement of any provision of this Lease against any Transferee be deemed a waiver of Landlord's right to enforce any term of this Lease against Tenant or any other person. If Tenant's obligations hereunder have been guaranteed, Landlord's consent to any Transfer shall not be effective unless the guarantor also consents to such Transfer.

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14.8 Deemed Consent Transfers. Notwithstanding anything to the contrary contained in this Lease, (A) an assignment or subletting of all or a portion of the Premises to an Affiliate of Tenant as of the date of this Lease (an "Affiliate" shall mean entity which is controlled by, controls, or is under common control with, Tenant (as of the date of this Lease), but only so long as such transferee remains an Affiliate of Tenant), (B) an assignment of this Lease to an entity which acquires all or substantially all of the stock or assets of Tenant, or (C) an assignment of this Lease to an entity which is the resulting entity of a merger or consolidation of Tenant during the Lease Term, shall not be deemed a Transfer requiring Landlord's consent under this Article 14 (any such assignee or sublessee described in items (A) through (C) of this Section 14.8 is hereinafter referred to as a "Permitted Transferee"), provided that (i) Tenant notifies Landlord at least five (5) business days prior to the effective date of any such assignment or sublease and promptly supplies Landlord with any documents or information reasonably requested by Landlord regarding such Transfer or Permitted Transferee as set forth above, (ii) Tenant delivers evidence of insurance as required under this Lease with respect to the Permitted Transferee, (iii) Tenant is not in default, beyond the applicable notice and cure period, and such assignment or sublease is not a subterfuge by Tenant to avoid its obligations under this Lease, (iv) such Permitted Transferee shall be of a character and reputation consistent with the quality of the Building, (v) such Permitted Transferee shall have a tangible net worth (not including intangibles, such as goodwill, as an asset) computed in accordance with generally accepted accounting principles, consistently applied sufficient to assure performance of all future obligations hereunder, (vi) no assignment or sublease relating to this Lease, whether with or without Landlord's consent, shall relieve Tenant from any liability under this Lease, and (vii) the liability of such Permitted Transferee under either an assignment or sublease shall be joint and several with Tenant. The occurrence of a Transfer pursuant to this Section 14.8 shall not waive Landlord's rights as to any subsequent Transfers. An assignee of Tenant's entire interest in this Lease who qualifies as a Permitted Transferee may also be referred to herein as a "Permitted Transferee Assignee." "Control", as used in this Section 14.8, shall mean the ownership, directly or indirectly, of more than fifty percent (50%) of the voting securities of, or possession of the right to vote, in the ordinary direction of its affairs, of more than fifty percent (50%) of the voting interest in, any person or entity. Notwithstanding any provision to the contrary contained herein, immediately following an assignment to a Permitted Transferee Assignee in accordance with the terms and conditions of subsections (B) and (C) of this Section 14.8, Tenant shall provide Landlord with financial statements of the Permitted Transferee Assignee pertaining to the period after the consummation of such assignment that are certified by the Permitted Transferee Assignee's chief financial officer or an independent certified public accountant which is a member of a nationally or regionally recognized certified public accounting firm. If, based on such financial statements, Landlord reasonably determines that such Permitted Transferee Assignee will not have a tangible net worth (not including goodwill as an asset) computed in accordance with generally accepted accounting principles ("Net Worth") at least equal to Two Billion Eight Hundred Million Dollars ($2,800,000,000), then Landlord shall reasonably determine as to whether, and if so to what extent, Tenant must provide Landlord with financial security, such as a letter of credit or guaranty, and such determination shall be made by reviewing the extent of financial security then generally being imposed by landlords of Comparable Buildings from tenants of comparable financial condition and credit history to the then existing financial condition and credit history of the Permitted Transferee Assignee in light of the responsibilities to be undertaken by the Permitted Transferee Assignee vis-à-vis such tenants of Comparable Buildings. If Landlord reasonably determines that any financial security is required in accordance with the immediately preceding sentence, then within thirty (30) days following Landlord's delivery thereof to Tenant, (A) the parties shall promptly enter into a commercially reasonable lease amendment documenting such financial security, and (B) Tenant shall provide such financial security to Landlord.

ARTICLE 15

SURRENDER OF PREMISES; OWNERSHIP AND REMOVAL OF TRADE FIXTURES

15.1 Surrender of Premises. No act or thing done by Landlord or any agent or employee of Landlord during the Lease Term shall be deemed to constitute an acceptance by Landlord of a surrender of the Premises unless such intent is specifically acknowledged in writing by Landlord. The delivery of keys to the Premises to Landlord or any agent or employee of Landlord shall not constitute a surrender of the Premises or effect a termination of this Lease, whether or not the keys are thereafter retained by Landlord, and notwithstanding such delivery Tenant shall be entitled to the return of such keys at any reasonable time upon request until this Lease shall have been properly terminated. The voluntary or other surrender of this Lease by Tenant, whether accepted by Landlord or not, or a mutual termination hereof, shall not work a merger, and at the option of Landlord shall operate as an assignment to Landlord of all subleases or subtenancies affecting the Premises or terminate any or all such sublessees or subtenancies.

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15.2 Removal of Tenant Property by Tenant. Upon the expiration of the Lease Term, or upon any earlier termination of this Lease, Tenant shall, subject to the provisions of Section 8.5 above and this Article 15, quit and surrender possession of the Premises to Landlord in as good order and condition as when Tenant took possession and as thereafter improved by Landlord and/or Tenant, reasonable wear and tear and repairs which are specifically made the responsibility of Landlord hereunder excepted, free of any liens or encumbrances and free of Hazardous Materials placed on the Premises by Tenant or Tenant Parties during the Lease Term. Upon such expiration or termination, Tenant shall, without expense to Landlord, remove or cause to be removed from the Premises all debris and rubbish, and such items of furniture, unattached equipment, unattached business and trade fixtures, free-standing cabinet work, movable partitions and walls and other articles of personal property owned by Tenant or installed or placed by a Tenant Party (but Tenant may not remove any such item which was paid for, in whole or in part, by Landlord unless Landlord requires such removal), and remove such alterations, additions, improvements, and Tenant's Off-Premises Equipment, as Landlord may require pursuant to Section 8.5 above. Tenant shall repair at its own expense all damage to the Premises and Building resulting from removal of the items described above. If Tenant fails to remove any property, including any of the property described above, Landlord may, at Landlord's option, (1) deem such items to have been abandoned by Tenant, the title thereof shall immediately pass to Landlord at no cost to Landlord, and such items may be appropriated, sold, stored, destroyed, or otherwise disposed of by Landlord without notice to Tenant and without any obligation to account for such items; any such disposition shall not be considered a strict foreclosure or other exercise of Landlord's rights in respect of the security interest granted hereunder or otherwise, (2) remove such items, perform any work required to be performed by Tenant hereunder, and repair all damage caused by such work, and Tenant shall reimburse Landlord on demand for any expenses which Landlord may incur in effecting compliance with Tenant's obligations hereunder (including collection costs and attorneys' fees), plus interest thereon at the Default Rate, or (3) elect any of the actions described in clauses (1) and (2) above as Landlord may elect in its sole discretion. The provisions of this Article 15 shall survive the end of the Lease Term.

ARTICLE 16

HOLDING OVER

If Tenant holds over after the expiration of the Lease Term with the express written consent of Landlord, such tenancy shall be from month-to-month only, and shall not constitute a renewal hereof or an extension for any further term, and in such case Base Rent shall be payable at a monthly rate of three hundred percent (300%) of the Base Rent applicable during the last rental period of the Lease Term under this Lease. Such month-to-month tenancy shall be subject to every other applicable term, covenant and agreement contained herein. If Tenant holds over after the expiration of the Lease Term without the express written consent of Landlord, such tenancy shall be a tenancy at sufferance, and shall not constitute a renewal hereof or an extension for any further term, and in such case daily damages in any action to recover possession of the Premises shall be calculated at a daily rate equal to (i) for the first (1^st) two (2) months of such holdover, one hundred fifty percent (150%) of the Base Rent applicable during the last rental period of the Lease Term under this Lease (calculated on a per diem basis), and (ii) thereafter, two hundred percent (200%) of the Base Rent applicable during the last rental period of the Lease Term under this Lease (calculated on a per diem basis), and in each instance, one hundred percent (100%) of all other Additional Rent due under this Lease (calculated on a per diem basis). Nothing contained in this Article 16 shall be construed as consent by Landlord to any holding over by Tenant, and Landlord expressly reserves the right to require Tenant to vacate and deliver possession of the Premises to Landlord as provided in this Lease upon the expiration or other termination of this Lease. The provisions of this Article 16 shall not be deemed to limit or constitute a waiver of any other rights or remedies of Landlord provided herein or at law. If Tenant holds over without Landlord's express written consent, and tenders payment of rent for any period beyond the expiration of the Lease Term by way of check (whether directly to Landlord, its agents, or to a lock box) or wire transfer, Tenant acknowledges and agrees that the cashing of such check or acceptance of such wire shall be considered inadvertent and not be construed as creating a month-to-month tenancy, provided Landlord refunds such payment to Tenant promptly upon learning that such check has been cashed or wire transfer received. Tenant acknowledges that any holding over without Landlord's express written consent may compromise or otherwise affect Landlord's ability to enter into new leases with prospective tenants regarding the Premises. Therefore, if Tenant fails to vacate and deliver the Premises upon the termination or expiration of this Lease, in addition to any other liabilities to Landlord accruing therefrom, Tenant shall protect, defend, indemnify and hold Landlord harmless from and against all claims made by any succeeding tenant founded upon such failure to vacate and deliver, and any losses suffered by Landlord, including lost profits and damages, resulting from such failure to vacate and deliver. Tenant agrees that any proceedings necessary to recover possession of the Premises, whether before or after expiration of the Lease Term, shall be considered an action to enforce the terms of this Lease for purposes of the awarding of any attorney's fees in connection therewith.

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ARTICLE 17

ESTOPPEL CERTIFICATES

Within ten (10) business days following a request in writing by Landlord, Tenant shall execute, acknowledge and deliver to Landlord an estoppel certificate, which, as submitted by Landlord, shall be substantially in the form of Exhibit E, attached hereto (or such other form as may reasonably be required by Landlord's Mortgagee or any prospective mortgagee or purchaser of the Project, or any portion thereof), indicating therein any exceptions thereto that may exist at that time, and shall also contain any other information reasonably requested by Landlord required by Landlord's Mortgagee or any prospective mortgagee or purchaser. Any such certificate may be relied upon by Landlord's Mortgagee or any prospective mortgagee or purchaser of all or any portion of the Project. Tenant shall execute and deliver whatever other instruments may be reasonably required for such purposes. Failure of Tenant to timely execute, acknowledge and deliver such estoppel certificate or other instruments shall constitute an acceptance of the Premises and an acknowledgment by Tenant that statements included in the estoppel certificate are true and correct, without exception. At any time during the Lease Term, Landlord may require Tenant to provide Landlord with a current financial statement and financial statements of the two (2) years prior to the current financial statement year. Such statements shall be prepared in accordance with generally accepted accounting principles consistently applied and, if such is the normal practice of Tenant, shall be audited by an independent certified public accountant. Notwithstanding the foregoing, in the event that (i) stock in the entity which constitutes Tenant under this Lease (as opposed to an entity that "controls" Tenant or is otherwise an "affiliate" of Tenant, as those terms are defined in Section 14.8 of this Lease) is publicly traded on a national stock exchange, and (ii) Tenant has its own, separate and distinct 10K and 10Q filing requirements (as opposed joint or cumulative filings with an entity that controls Tenant or with entities which are otherwise Affiliates of Tenant), then Tenant's obligation to provide Landlord with a copy of its most recent current financial statement shall be deemed satisfied.

ARTICLE 18

SUBORDINATION

18.1 Subordination. Landlord shall use commercially reasonable efforts to deliver to Tenant a subordination non-disturbance and attornment agreement substantially in the form attached hereto as Exhibit I (the "Initial SNDA") executed by Landlord's Mortgagee concurrently with Tenant's execution of this Lease. This Lease shall be subordinate to any deed of trust, mortgage, or other security instrument (each, a "Mortgage"), or any ground lease, master lease, or primary lease (each, a "Primary Lease"), that now or hereafter covers all or any part of the Premises (the mortgagee under any such Mortgage, beneficiary under any such deed of trust, or the lessor under any such Primary Lease is referred to herein as a "Landlord's Mortgagee"); provided, that Landlord shall obtain a subordination non-disturbance and attornment agreement from any future Landlord's Mortgagee in the standard form provided by such future Landlord Mortgagee, which requires such Landlord Mortgagee to accept this Lease, and not to disturb Tenant's possession, so long as an Event of Default has not occurred and be continuing, to be executed by Landlord, Tenant and Landlord's Mortagee. Any Landlord's Mortgagee may elect, at any time, unilaterally, to make this Lease superior to its Mortgage, Primary Lease, or other interest in the Premises by so notifying Tenant in writing. The provisions of this Section shall be self-operative and no further instrument of subordination shall be required; however, in confirmation of such subordination, Tenant shall execute and return to Landlord (or such other party designated by Landlord) within ten (10) days after written request therefor such documentation, in recordable form if required, as a Landlord's Mortgagee may reasonably request to evidence the subordination of this Lease to such Landlord's Mortgagee's Mortgage or Primary Lease (including a commercially reasonable subordination, non-disturbance and attornment agreement) or, if the Landlord’s Mortgagee so elects, the subordination of such Landlord’s Mortgagee’s Mortgage or Primary Lease to this Lease.

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18.2 Attornment. Tenant shall attorn to any party succeeding to Landlord's interest in the Premises, whether by purchase, foreclosure, deed in lieu of foreclosure, power of sale, termination of lease, or otherwise, upon such party's request, and shall execute such agreements confirming such attornment as such party may reasonably request.

ARTICLE 19

DEFAULTS; REMEDIES

19.1 Events of Default. In addition to any other Events of Default specified in this Lease, the occurrence of any of the following shall constitute a default of this Lease by Tenant (each, an "Event of Default"):

19.1.1 Any failure by Tenant to pay any Rent or any other charge required to be paid under this Lease, or any part thereof, when due unless such failure is cured within five (5) business days after notice; however, an Event of Default shall occur hereunder without any obligation of Landlord to give any notice if Tenant fails to pay Rent when due and, during the 12 month interval preceding such failure, Landlord has given Tenant written notice of failure to pay Rent on two or more occasions; or

19.1.2 Except where a specific time period is otherwise set forth for Tenant's performance in this Lease, in which event the failure to perform by Tenant within such time period shall be a default by Tenant under this Section 19.1.2, any failure by Tenant to observe or perform any other provision, covenant or condition of this Lease to be observed or performed by Tenant where such failure continues for thirty (30) days after written notice thereof from Landlord to Tenant; provided that if the nature of such default is such that the same cannot reasonably be cured within a thirty (30) day period, Tenant shall not be deemed to be in default if it diligently commences such cure within such period and thereafter diligently proceeds to rectify and cure such default; or

19.1.3 To the extent permitted by law, (i) Tenant or any guarantor of this Lease being placed into receivership or conservatorship, or becoming subject to similar proceedings under Federal or State law, or (ii) a general assignment by Tenant or any guarantor of this Lease for the benefit of creditors, or (iii) the taking of any corporate action in furtherance of bankruptcy or dissolution whether or not there exists any proceeding under an insolvency or bankruptcy law, or (iv) the filing by or against Tenant or any guarantor of any proceeding under an insolvency or bankruptcy law, unless in the case of such a proceeding filed against Tenant or any guarantor the same is dismissed within sixty (60) days, or (v) the appointment of a trustee or receiver to take possession of all or substantially all of the assets of Tenant or any guarantor, unless possession is restored to Tenant or such guarantor within thirty (30) days, or (vi) any execution or other judicially authorized seizure of all or substantially all of Tenant's assets located upon the Premises or of Tenant's interest in this Lease, unless such seizure is discharged within thirty (30) days; or

19.1.4 Abandonment or vacation of all or a substantial portion of the Premises by Tenant; or

19.1.5 The failure by Tenant to observe or perform according to the provisions of Articles 6, 10, 14, 17 or 18 of this Lease, or any breach by Tenant of any representations and warranties set forth in this Lease, where such failure continues for more than three (3) business days after notice from Landlord;

19.1.6 Tenant fails to pay and release of record, or diligently contest and bond around, any mechanic's or construction lien filed against the Premises, the Building or the Project for any work performed, materials furnished, or obligation incurred by or at the request of a Tenant Party, within the time and in the manner required by Section 8.3 or Article 9; or

19.1.7 Any notices to be provided by Landlord under this Section 19.1 shall be in lieu of, and not in addition to, any notice required under Section 1161 et seq. of the CCP.

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19.2 Remedies Upon Default. Upon the occurrence of any Event of Default, Landlord shall have, in addition to any other remedies available to Landlord at law or in equity (all of which remedies shall be distinct, separate and cumulative), the option to pursue any one or more of the following remedies, each and all of which shall be cumulative and nonexclusive, without any notice or demand whatsoever.

19.2.1 Terminate this Lease upon written notice to Tenant, in which event Tenant shall immediately surrender the Premises to Landlord, and if Tenant fails to do so, Landlord may, without prejudice to any other remedy which it may have for possession or arrearages in rent, enter upon and take possession of the Premises and expel or remove Tenant and any other person who may be occupying the Premises or any part thereof, without being liable for prosecution or any claim for damages therefor; and Landlord may recover from Tenant the following:

(A) The worth at the time of award of the unpaid rent which has been earned at the time of such termination; plus

(B) The worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus

(C) The worth at the time of award of the amount by which the unpaid rent for the balance of the Lease Term after the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus

(D) Any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, specifically including but not limited to, brokerage commissions and advertising expenses incurred, expenses of remodeling the Premises or any portion thereof for a new tenant, whether for the same or a different use, and any special concessions made to obtain a new tenant; and

(E) At Landlord's election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable law.

The term "rent" as used in this Section 19.2 shall be deemed to be and to mean all sums of every nature required to be paid by Tenant pursuant to the terms of this Lease, whether to Landlord or to others. As used in Sections 19.2.1(i) and (ii), above, the "worth at the time of award" shall be computed by allowing interest at the rate set forth in Article 25 of this Lease, but in no case greater than the maximum amount of such interest permitted by law. As used in Section 19.2.1(iii) above, the "worth at the time of award" shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%).

19.2.2 Landlord shall have the remedy described in California Civil Code Section 1951.4 (lessor may continue lease in effect after lessee's breach and abandonment and recover rent as it becomes due, if lessee has the right to sublet or assign, subject only to reasonable limitations). Accordingly, if Landlord does not elect to terminate this Lease on account of any default by Tenant, Landlord may, from time to time, without terminating this Lease, enforce all of its rights and remedies under this Lease, including the right to recover all rent as it becomes due.

19.2.3 Landlord shall at all times have the rights and remedies (which shall be cumulative with each other and cumulative and in addition to those rights and remedies available under this Article 19, at law, in equity or pursuant to any other provision of this Lease), without prior demand or notice except as required by applicable law, to seek any declaratory, injunctive or other equitable relief, and specifically enforce this Lease, or restrain or enjoin a violation or breach of any provision hereof. Landlord's rights and remedies may be pursued successively or concurrently as Landlord may elect. The exercise of any remedy by Landlord shall not be deemed an election of remedies or preclude Landlord from exercising any other remedies in the future.

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19.3 Subleases of Tenant. Whether or not Landlord elects to terminate this Lease on account of any default by Tenant, as set forth in this Article 19, Landlord shall have the right to terminate any and all subleases, licenses, concessions or other consensual arrangements for possession entered into by Tenant and affecting the Premises or may, in Landlord's sole discretion, succeed to Tenant's interest in such subleases, licenses, concessions or arrangements. In the event of Landlord's election to succeed to Tenant's interest in any such subleases, licenses, concessions or arrangements, Tenant shall, as of the date of notice by Landlord of such election, have no further right to or interest in the rent or other consideration receivable thereunder.

19.4 Efforts to Relet. No re-entry or repossession, repairs, maintenance, changes, alterations and additions, reletting, appointment of a receiver to protect Landlord's interests hereunder, or any other action or omission by Landlord shall be construed as an election by Landlord to terminate this Lease or Tenant's right to possession, or to accept a surrender of the Premises, nor shall same operate to release Tenant in whole or in part from any of Tenant's obligations hereunder, unless express written notice of such intention is sent by Landlord to Tenant. Tenant hereby irrevocably waives any right otherwise available under any law to redeem or reinstate this Lease.

19.5 Landlord Default.

19.5.1 In General. Notwithstanding anything to the contrary set forth in this Lease, Landlord shall not be in default in the performance of any obligation required to be performed by Landlord pursuant to this Lease unless Landlord fails to perform such obligation within thirty (30) days after the receipt of notice from Tenant specifying in detail Landlord’s failure to perform; provided, however, if the nature of Landlord’s obligation is such that more than thirty (30) days are required for its performance, then Landlord shall not be in default under this Lease if it shall commence such performance within such thirty (30) day period and thereafter diligently pursue the same to completion. Upon any such default by Landlord under this Lease, Tenant may, except as otherwise specifically provided in this Lease to the contrary, exercise any of its rights provided in this Lease and at law or in equity and Tenant's remedies shall be cumulative and nonexclusive, except as otherwise expressly set forth in this Lease.

19.5.2 Abatement of Rent. In the event that Tenant is prevented from using, and does not use, the Premises or any material portion thereof, as a result of Landlord's negligence or willful misconduct in the performance of any repair, maintenance or alteration performed by Landlord, or which Landlord failed to perform, after the Lease Commencement Date and required by this Lease, which substantially interferes with Tenant's use of the Premises (each, an "Abatement Event"), then Tenant shall give Landlord notice of such Abatement Event, and if such Abatement Event continues for five (5) consecutive business days after Landlord's receipt of any such notice (the "Eligibility Period") and Landlord does not diligently commence and pursue to completion the remedy of such Abatement Event, then the Base Rent, Tenant's Share of Direct Expenses, and Tenant's obligation to pay for parking (to the extent not utilized by Tenant) shall be abated or reduced, as the case may be, after expiration of the Eligibility Period for such time that Tenant continues to be so prevented from using, and does not use for the normal conduct of Tenant's business, the Premises or a portion thereof, in the proportion that the rentable area of the portion of the Premises that Tenant is prevented from using, and does not use, bears to the total rentable area of the Premises; provided, however, in the event that Tenant is prevented from using, and does not use, a portion of the Premises for a period of time in excess of the Eligibility Period and the remaining portion of the Premises is not sufficient to allow Tenant to effectively conduct its business therein, and if Tenant does not conduct its business from such remaining portion, then for such time after expiration of the Eligibility Period during which Tenant is so prevented from effectively conducting its business therein, the Base Rent and Tenant's Share of Direct Expenses for the entire Premises and Tenant's obligation to pay for parking shall be abated for such time as Tenant continues to be so prevented from using, and does not use, the Premises. If, however, Tenant reoccupies any portion of the Premises during such period, the Rent allocable to such reoccupied portion, based on the proportion that the rentable area of such reoccupied portion of the Premises bears to the total rentable area of the Premises, shall be payable by Tenant from the date Tenant reoccupies such portion of the Premises. To the extent an Abatement Event is caused by an event covered by Articles 11 or 13 of this Lease, then Tenant's right to abate rent shall be governed by the terms of such Article 11 or 13, as applicable, and the Eligibility Period shall not be applicable thereto. Such right to abate Base Rent and Tenant's Share of Direct Expenses shall be Tenant's sole and exclusive remedy for rent abatement at law or in equity for an Abatement Event. Except as provided in this Section 19.5.2, nothing contained herein shall be interpreted to mean that Tenant is excused from paying Rent due hereunder.

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ARTICLE 20

COVENANT OF QUIET ENJOYMENT

Landlord covenants that Tenant, shall, during the Lease Term, peaceably and quietly have, hold and enjoy the Premises subject to the terms, covenants, conditions, provisions and agreements hereof without interference by any persons lawfully claiming by or through Landlord. The foregoing covenant is in lieu of any other covenant express or implied.

ARTICLE 21

SECURITY DEPOSIT

Concurrently with Tenant’s execution of this Lease, Tenant shall deposit with Landlord the Security Deposit, as security for the faithful performance by Tenant of all of its obligations under this Lease. If Tenant defaults with respect to any provisions of this Lease, including, but not limited to, the provisions relating to the payment of Rent, the removal of property and the repair of resultant damage, Landlord may, without notice to Tenant, but shall not be required to, apply all or any part of the Security Deposit for the payment of any Rent or any other sum in default and Tenant shall, upon demand therefor, restore the Security Deposit to its original amount. The Security Deposit is not an advance payment of Rent or a measure or limit of Landlord’s damages upon an Event of Default (as defined above). Any unapplied portion of the Security Deposit shall be returned to Tenant, or, at Landlord’s option, to the last assignee of Tenant’s interest hereunder, within sixty (60) days following the expiration of the Lease Term. The Security Deposit may be commingled with other funds, and no interest shall be paid thereon. If Landlord transfers its interest in the Premises and the transferee assumes Landlord’s obligations under this Lease, then Landlord may assign the Security Deposit to the transferee and Landlord thereafter shall have no further liability for the return of the Security Deposit. Tenant hereby waives the provisions of Section 1950.7 of the California Civil Code, or any successor statute, and all other provisions of law, now or hereafter in effect, which (i) establish the time frame by which a landlord must refund a security deposit under a lease, and/or (ii) provide that a landlord may claim from a security deposit only those sums reasonably necessary to remedy defaults in the payment of rent, to repair damage caused by a tenant or to clean the premises, it being agreed that Landlord may, in addition, claim those sums specified in this Section above and/or those sums reasonably necessary to compensate Landlord for any loss or damage caused by Tenant’s default of this Lease, as amended hereby, including, but not limited to, all damages or rent due upon termination of Lease pursuant to Section 1951.2 of the California Civil Code.

ARTICLE 22

INTENTIONALLY OMITTED

ARTICLE 23

SIGNS

23.1 Interior Signs. Subject to Landlord's prior written approval, in its sole discretion, and provided all signs are in keeping with the quality, design and style of the Building and Project, Tenant may install identification signage anywhere in the Premises.

23.2 Prohibited Signage and Other Items. Any signs, notices, logos, pictures, names or advertisements which are installed and that have not been separately approved by Landlord may be removed without notice by Landlord at the sole expense of Tenant. Tenant may not install any signs on the exterior or roof of the Project or the Common Areas.

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23.3 Tenant's Exterior Signage. Subject to the terms and conditions of this Section 23.3, Tenant, at Tenant's sole cost and expense, shall have (i) the exclusive right (except to the extent provided in this Section 23.3 below) to install, repair and maintain signage depicting Tenant's name on the exterior of the 110 Building, and (ii) the non-exclusive right (except to the extent provided in this Section 23.3 below) to install, repair and maintain one (1) sign depicting Tenant's name on the exterior of the 130 Building (collectively, "Tenant's Signage"), each of the foregoing in the specific locations shown on Exhibit J attached hereto, and of a size and location permitted by applicable Laws, provided that Tenant's rights contained in this Section 23.5 may only be exercised by Original Tenant or its Permitted Transferee Assignee (and not any other assignee or any sublessee or other transferee of the Original Tenant's interest in this Lease). In no event shall Tenant have any right to Tenant's Signage upon the occurrence of an Event of Default. Tenant's Signage pertaining to a particular Building shall terminate upon Tenant's failure to lease the entirety of the Premises within such Building.

23.3.1 Tenant's Signage Specifications and Permits. Tenant's Signage shall set forth Tenant's name or logo. The graphics, materials, color, design, lettering, lighting, size, illumination, specifications and exact of Tenant's Signage shall be subject to the prior written approval of Landlord, which approval shall not be unreasonably withheld, conditioned or delayed; provided, however, without limiting other reasons for which Landlord may reasonably withhold its approval, it shall be deemed reasonable for Landlord to withhold its approval of Tenant's Signage if the same is inconsistent with, or otherwise not compatible with the quality, design and style of the Project, the Project signage program (as approved by the city in which the Building is located), or if such signage unreasonably interferes with the Building's exterior window cleaning systems. For purposes of this Section 23.3, the reference to "name" shall mean name, as the same may change from time to time, subject to Landlord's approval rights set forth herein. In addition, Tenant's Signage shall be subject to Tenant's receipt of all required governmental permits and approvals and shall be subject to all applicable Laws and to the Underlying Documents, and the Project signage program. Landlord shall use commercially reasonable efforts, at no cost to Landlord, to assist Tenant in obtaining all necessary governmental permits and approvals for Tenant's Signage. Tenant hereby acknowledges that, notwithstanding Landlord's approval of Tenant's Signage, Landlord has made no representation or warranty to Tenant with respect to the probability of obtaining all necessary governmental approvals and permits for Tenant's Signage. In the event Tenant does not receive the necessary governmental approvals and permits for Tenant's Signage initially, Tenant may continue its pursuit thereof and Tenant's and Landlord's rights and obligations under the remaining terms and conditions of this Lease shall be unaffected.

23.3.2 Cost and Maintenance. If Landlord grants its approval, Tenant shall erect Tenant's Signage in accordance with the approved plans and specifications, in a good and workmanlike manner, in accordance with all Laws, regulations, restrictions (governmental or otherwise), and architectural guidelines in effect for the area in which the Building is located and the Project's signage program, so long as Tenant has received all requisite approvals thereunder (the "Sign Requirements"), and in a manner so as not to unreasonably interfere with the use of the Project grounds while such construction is taking place; thereafter, Tenant shall maintain Tenant's Signage in a good, clean and safe condition in accordance with the Sign Requirements, all at Tenant's sole cost and expense. For all purposes under this Lease, the Tenant's Signage shall be deemed to be included within the definition of Tenant's Off-Premises Equipment. Tenant's obligations under this Section 23.3 are cumulative and in addition to all other obligations of Tenant under this Lease. The costs of the actual signs comprising Tenant's Signage and the installation, design, construction, and any and all other costs associated with Tenant's Signage, including, without limitation, metering and utility charges and hook-up fees, permits, and maintenance and repairs, shall be the sole responsibility of Tenant. If the Tenant's Signage uses any electricity, Tenant shall pay for the cost to purchase and install electrical submeter equipment and wiring, and thereafter Tenant shall pay to Landlord the monthly electrical submeter charges throughout the Term. Should Tenant's Signage require repairs and/or maintenance, as determined in Landlord's reasonable judgment, Landlord shall have the right to provide notice thereof to Tenant and Tenant shall cause such repairs and/or maintenance to be performed within ten (10) days after receipt of such notice from Landlord, at Tenant's sole cost and expense; provided, however, if such repairs and/or maintenance are reasonably expected to require longer than ten (10) days to perform, Tenant shall commence such repairs and/or maintenance within such ten (10) day period and shall diligently prosecute such repairs and maintenance to completion. Should Tenant fail to perform such repairs and/or maintenance within the periods described in the immediately preceding sentence, Landlord shall have the right to cause such work to be performed and to charge Tenant as Additional Rent for the cost (including a percentage of the cost thereof sufficient to reimburse Landlord for all overhead, general conditions, fees and other costs or expenses arising from Landlord's involvement with such repairs and/or maintenance) of such work. Upon the expiration or earlier termination of this Lease (or earlier termination of Tenant's signage rights), Tenant shall, at Tenant's sole cost and expense, cause Tenant's Signage to be removed and shall cause the areas in which such Tenant's Signage was located to be restored to the condition existing immediately prior to the placement of such Tenant's Signage (including the removal of any discoloration). If Tenant fails to timely remove such Tenant's Signage or to restore the areas in which such Tenant's Signage was located, as provided in the immediately preceding sentence, then Landlord may perform such work, and all costs incurred by Landlord in so performing (including a percentage of the cost thereof sufficient to reimburse Landlord for all overhead, general conditions, fees and other costs or expenses arising from Landlord's involvement with such repairs and/or maintenance) shall be reimbursed by Tenant to Landlord within thirty (30) days after Tenant's receipt of an invoice therefor. The terms and conditions of this Section 23.3 shall survive the expiration or earlier termination of this Lease.

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23.3.3 Objectionable Name or Logo. To the extent Tenant desires to change its name and/or logo, or grants signage rights to any Transferee, any new name and/or logo shall not have a name which relates to an entity which is of a character or reputation, or is associated with a political faction or orientation, which is associated with services products or ideologies of a sexual nature or which are generally considered defamatory, or which has a business purposes of furthering a political candidacy, advancing a political stance, or is reasonably likely to incite protest (an "Objectionable Name"). The parties hereby agree that the name Inphi or any reasonable derivation thereof, shall not be deemed an Objectionable Name. Any changes to Tenant's signage shall be at Tenant's sole cost and expense.

ARTICLE 24

COMPLIANCE WITH LAW

24.1 Tenant's Compliance with Law Obligations. Tenant shall not do anything or suffer anything to be done in or about the Premises or the Project which will in any way conflict with any law, statute, ordinance or other governmental rule, regulation or requirement or any Underlying Document (each, a "Law" and collectively, "Laws") now in force or which may hereafter be enacted or promulgated. At its sole cost and expense, Tenant shall promptly comply with all applicable Laws (including the making of any alterations to the Premises required by applicable Laws) which relate to (i) Tenant's use of the Premises, (ii) the Alterations or the Tenant Improvements in the Premises, (iii) Tenant's Off-Premises Equipment, (iv) Tenant's Building Systems, and (v) the Base Building, but, as to the Base Building, provided, however, with respect to the Base Building, only to the extent such obligations are triggered by Tenant's Alterations, the Tenant Improvements, the installation, maintenance or operation of Tenant's Off-Premises Equipment or use of the Premises for non-general office use. Should any standard or regulation now or hereafter be imposed on Landlord or Tenant by a state, federal or local governmental body charged with the establishment, regulation and enforcement of occupational, health or safety standards for employers, employees, landlords or tenants, then Tenant agrees, at its sole cost and expense, to comply promptly with such standards or regulations. Tenant shall be responsible, at its sole cost and expense, to make all alterations to the Premises as are required to comply with the Laws described in this Article 24. The judgment of any court of competent jurisdiction or the admission of Tenant in any judicial action, regardless of whether Landlord is a party thereto, that Tenant has violated any of said governmental measures, shall be conclusive of that fact as between Landlord and Tenant.

24.2 Landlord's Compliance with Law Obligations. Landlord shall comply with all applicable Laws relating to the Base Building, provided that compliance with such applicable Laws is not the responsibility of Tenant under this Lease, and provided further that Landlord's failure to comply therewith (i) would prohibit Tenant from obtaining or maintaining a certificate of occupancy for the Premises, (ii) would unreasonably and materially affect the safety of Tenant's employees or create a significant health hazard for Tenant's employees, or (iii) would materially and adversely affect Tenant's use of the Premises for the Permitted Use or materially interfere with Tenant's business operations being conducted at the Premises. Landlord shall be permitted to include in Operating Expenses any costs or expenses incurred by Landlord under this Article 24 to the extent not prohibited by the terms of Section 4.2.3 above.

24.3 Disabilities Acts. Notwithstanding anything in this Lease to the contrary, as between Landlord and Tenant, (i) Tenant shall bear the risk of complying with Title III of the Americans With Disabilities Act of 1990, any state laws governing handicapped access or architectural barriers, and all rules, regulations, and guidelines promulgated under such laws, as amended from time to time (the "Disabilities Acts") in the Premises during the Lease Term, and (ii) Landlord shall bear the risk of complying with the Disabilities Acts in the Common Areas of the Building, and the Base Building (provided, that, with respect to Landlord's Building Systems, only with respect to applicable Laws that were enacted, modified or initially enforced prior to the date of Landlord's delivery of the Premises to Tenant) other than compliance that is necessitated by the use of the Premises for other than general office use or a typical office density or as a result of any alterations or additions, including the Tenant Improvements, made by or on behalf of a Tenant Party (which risk and responsibility shall be borne by Tenant).

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24.4 Certified Access Specialist. For purposes of Section 1938 of the California Civil Code, Landlord hereby discloses to Tenant, and Tenant hereby acknowledges, that the Premises have not undergone inspection by a Certified Access Specialist (CASp). As required by Section 1938(e) of the California Civil Code, Landlord hereby states as follows: "A Certified Access Specialist (CASp) can inspect the subject premises and determine whether the subject premises comply with all of the applicable construction-related accessibility standards under state law. Although state law does not require a CASp inspection of the subject premises, the commercial property owner or lessor may not prohibit the lessee or tenant from obtaining a CASp inspection of the subject premises for the occupancy or potential occupancy of the lessee or tenant, if requested by the lessee or tenant. The parties shall mutually agree on the arrangements for the time and manner of the CASp inspection, the payment of the fee for the CASp inspection, and the cost of making any repairs necessary to correct violations of construction-related accessibility standards within the premises." In furtherance of the foregoing, Landlord and Tenant hereby agree as follows: (i) any CASp inspection requested by Tenant shall be conducted, at Tenant's sole cost and expense, by a CASp designated by Landlord, subject to Landlord's reasonable rules and requirements; (ii) Tenant, at its sole cost and expense, shall be responsible for making any improvements or repairs within the Premises to correct violations of construction-related accessibility standards; and (iii) if anything done by or for Tenant in its use or occupancy of the Premises shall require any improvements or repairs to the Building or the Project (outside the Premises) to correct violations of construction-related accessibility standards, then Tenant shall reimburse Landlord upon demand, as Additional Rent, for the cost to Landlord of performing such improvements or repairs.

ARTICLE 25

LATE CHARGES

If any installment of Rent or any other sum due from Tenant shall not be received by Landlord or Landlord's designee when due, then Tenant shall pay to Landlord a late charge equal to the greater of (a) five percent (5%) of the overdue amount and (b) $250.00, plus any reasonable attorneys' fees incurred by Landlord by reason of Tenant's failure to pay Rent and/or other charges when due hereunder. The late charge shall be deemed Additional Rent and the right to require it shall be in addition to all of Landlord's other rights and remedies hereunder or at law and shall not be construed as liquidated damages or as limiting Landlord's remedies in any manner. In addition to the late charge described above, any Rent or other amounts owing hereunder which are not paid within ten (10) days after the date they are due shall bear interest from the date when due until paid at a rate per annum equal to the annual "Bank Prime Loan" rate cited in the Federal Reserve Statistical Release Publication H.15, published on the first Tuesday of each calendar month (or such other comparable index as Landlord and Tenant shall reasonably agree upon if such rate ceases to be published) plus two (2) percentage points (the "Default Rate"). In no event, however, shall the charges permitted under this Article 25 or elsewhere in this Lease, to the extent they are considered to be interest under applicable Law, exceed the maximum lawful commercial rate of interest.

ARTICLE 26

LANDLORD'S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT

26.1 Landlord's Cure. All covenants and agreements to be kept or performed by Tenant under this Lease shall be performed by Tenant at Tenant's sole cost and expense and without any reduction of Rent, except to the extent, if any, otherwise expressly provided herein. If Tenant shall fail to perform any obligation under this Lease, and such failure shall continue in excess of the time allowed under Section 19.1 Landlord may, but shall not be obligated to, make any such payment or perform any such act on Tenant's part without waiving its rights based upon any default of Tenant and without releasing Tenant from any obligations hereunder.

26.2 Tenant's Reimbursement. In addition to any other obligation of Tenant hereunder, Tenant shall pay to Landlord, upon delivery by Landlord to Tenant of statements therefor: (i) sums equal to expenditures reasonably made and obligations incurred by Landlord in connection with the remedying by Landlord of Tenant's defaults pursuant to the provisions of Section 26.1; (ii) sums equal to all Losses; and (iii) sums equal to all expenditures made and obligations incurred by Landlord in collecting or attempting to collect the Rent or in enforcing or attempting to enforce any rights of Landlord under this Lease or pursuant to law, including, without limitation, all reasonable legal fees and other amounts so expended. Tenant's obligations under this Section 26.2 shall survive the expiration or sooner termination of the Lease Term.

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ARTICLE 27

ENTRY BY LANDLORD

Landlord reserves the right at all reasonable times and upon at least one (1) business day prior written notice to Tenant (except in the case of an emergency) to enter the Premises to (i) inspect them; (ii) show the Premises to prospective purchasers, or to current or prospective mortgagees, ground or underlying lessors or insurers or, during the last nine (9) months of the Lease Term, to prospective tenants; (iii) post notices of nonresponsibility; or (iv) make such alterations, improvements, additions or repairs to all or any portion of the Premises, the Base Building or the Project as Landlord shall desire or deem necessary, or as Landlord may be required to perform under applicable Laws, or by any governmental or quasi governmental authority, or by court order or decree. Notwithstanding anything to the contrary contained in this Article 27, Landlord may enter the Premises at any time to (A) perform services required of Landlord, including janitorial service; (B) take possession due to any breach of this Lease in the manner provided herein; and (C) perform any covenants of Tenant which Tenant fails to perform. Except with respect to clause (B), above, Landlord shall use commercially reasonable efforts to minimize interference with the conduct of Tenant's business in connection with such entries into the Premises. Landlord may make any such entries without the abatement of Rent, except as otherwise provided in this Lease, and may take such reasonable steps as required to accomplish the stated purposes. Tenant hereby waives any claims for damages or for any injuries or inconvenience to or interference with Tenant's business, lost profits, any loss of occupancy or quiet enjoyment of the Premises, and any other loss occasioned thereby. For each of the above purposes, Landlord shall at all times have a key with which to unlock all the doors in the Premises, excluding Tenant's vaults, safes and special security areas designated in advance by Tenant. In an emergency, Landlord shall have the right to use any means that Landlord may deem proper to open the doors in and to the Premises. Any entry into the Premises by Landlord in the manner hereinbefore described shall not be deemed to be a forcible or unlawful entry into, or a detainer of, the Premises, or an actual or constructive eviction of Tenant from any portion of the Premises. No provision of this Lease shall be construed as obligating Landlord to perform any repairs, alterations or decorations except as otherwise expressly agreed to be performed by Landlord herein.

ARTICLE 28

PARKING

Tenant shall be entitled to use throughout the Lease Term, commencing on the Lease Commencement Date, the amount of unreserved parking passes set forth in Section 9 of the Summary, unless reduced pursuant to the last sentence of Section 6.5.1 above, all of which parking passes shall pertain to the Project Parking Facilities. Tenant shall not be obligated to pay to Landlord (or its designee) for the use of the parking passes. Notwithstanding the foregoing, Tenant shall be responsible for the full amount of any taxes imposed by any governmental authority in connection with the renting of such parking passes by Tenant or the use of the Project Parking Facilities by Tenant. Tenant's continued right to use the parking passes is conditioned upon Tenant abiding by all reasonable rules and regulations which are prescribed from time to time for the orderly operation and use of the Project Parking Facilities, including any sticker or other identification system established by Landlord and there being no Event of Default. Landlord specifically reserves the right to change the size, configuration, design, layout and all other aspects of the Project Parking Facilities at any time and Tenant acknowledges and agrees that Landlord may, without incurring any liability to Tenant and without any abatement of Rent under this Lease, from time to time, close-off or restrict access to the Project Parking Facilities for purposes of permitting or facilitating any such construction, alteration or improvements; provided, however, during regular business hours, Landlord shall use commercially reasonable efforts to make reasonably comparable alternative parking available, and further provided that such changes to do materially and adversely affect Tenant's access to the Premises. Notwithstanding the foregoing, Tenant shall have the right, subject to Landlord's reasonable approval, to designate up to 32 parking stalls in the Project Parking Facilities for the exclusive use of Tenant's visitors and employees in the location immediately adjacent to the entrance of the Building, as identified on Exhibit K attached hereto. Tenant shall also have the right, subject to Landlord's reasonable approval, to designate the location of a reasonable number of bike lockers in the Project Parking Facilities for the exclusive use of Tenant's visitors and employees. Landlord may delegate its responsibilities hereunder to a parking operator in which case such parking operator shall have all the rights of control attributed hereby to the Landlord. The parking passes used by Tenant pursuant to this Article 28 are provided to Tenant solely for use by Tenant's own personnel and such passes may not be transferred, assigned, subleased or otherwise alienated by Tenant without Landlord's prior approval. Tenant may validate visitor parking by such method or methods as the Landlord may establish, at the validation rate from time to time generally applicable to visitor parking. Unless specified to the contrary above, the parking passes provided hereunder shall be provided on an unreserved, "first-come, first served" basis.

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All motor vehicles (including all contents thereof) shall be parked in the Project Parking Facilities at the sole risk of Tenant and each other Tenant Party, it being expressly agreed and understood Landlord has no duty to insure any of said motor vehicles (including the contents thereof), and Landlord is not responsible for the protection and security of such vehicles. Notwithstanding anything to the contrary contained in this Lease, Landlord shall have no liability whatsoever for any property damage or loss which might occur on the Project Parking Facilities or as a result of or in connection with the parking of motor vehicles in the Project Parking Facilities, provided that the foregoing shall not limit Landlord's liability, if any, pursuant to applicable Law for personal injury and property damage to the extent caused by the gross negligence or willful misconduct of Landlord, its agents, employees or contractors.

ARTICLE 29

MISCELLANEOUS PROVISIONS

29.1 Terms; Captions. The words "Landlord" and "Tenant" as used herein shall include the plural as well as the singular. The necessary grammatical changes required to make the provisions hereof apply either to corporations or partnerships or individuals, men or women, as the case may require, shall in all cases be assumed as though in each case fully expressed. The captions of Articles and Sections are for convenience only and shall not be deemed to limit, construe, affect or alter the meaning of such Articles and Sections.

29.2 Amendments; Binding Effect; No Electronic Records. This Lease may not be amended except by instrument in writing signed by Landlord and Tenant. Landlord and Tenant hereby agree not to conduct the transactions or communications contemplated by this Lease by electronic means, or electronic signatures or shall the use of the phrase "in writing" or the word "written" be construed to include electronic communications, except as set forth in Section 29.27 below. The terms and conditions contained in this Lease shall inure to the benefit of and be binding upon the parties hereto, and upon their respective successors in interest and legal representatives, except as otherwise herein expressly provided. This Lease is for the sole benefit of Landlord and Tenant, and, other than Landlord's Mortgagee, no third party shall be deemed a third party beneficiary hereof.

29.3 No Air Rights. No rights to any view or to light or air over any property, whether belonging to Landlord or any other person, are granted to Tenant by this Lease. If at any time any windows of the Premises are temporarily darkened or the light or view therefrom is obstructed by reason of any repairs, improvements, maintenance or cleaning in or about the Project, the same shall be without liability to Landlord and without any reduction or diminution of Tenant's obligations under this Lease.

29.4 Intentionally Omitted.

29.5 Transfer of Landlord's Interest. Tenant acknowledges that Landlord has the right to transfer all or any portion of its interest in the Project or Building and in this Lease, and Tenant agrees that in the event of any such transfer, Landlord shall be released from all liability accruing under this Lease after the date of transfer and Tenant agrees to look solely to such transferee for the performance of Landlord's obligations hereunder after the date of transfer, provided that such transferee fully assumes liability for all obligations of this Lease to be performed by Landlord, including the return of any Security Deposit, and Tenant shall attorn to such transferee.

29.6 Prohibition Against Recording. Except as provided in Section 29.4 of this Lease, neither this Lease, nor any memorandum, affidavit or other writing with respect thereto, shall be recorded by Tenant or by anyone acting through, under or on behalf of Tenant without the prior written consent of Landlord, which consent may be withheld or denied in the sole and absolute discretion of Landlord, and any such recordation shall be a material breach of this Lease. Tenant grants to Landlord a power of attorney to execute and record a release releasing any such recorded instrument of record that was recorded without the prior written consent of Landlord, which power is coupled with an interest and is irrevocable.

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29.7 Landlord's Title. Landlord's title is and always shall be paramount to the title of Tenant. Nothing herein contained shall empower Tenant to do any act which can, shall or may encumber the title of Landlord.

29.8 Relationship of Parties. Nothing contained in this Lease shall be deemed or construed by the parties hereto or by any third party to create the relationship of principal and agent, partnership, joint venturer or any association between Landlord and Tenant.

29.9 Application of Payments. Landlord shall have the right to apply payments received from Tenant pursuant to this Lease, regardless of Tenant's designation of such payments, to satisfy any obligations of Tenant hereunder, in such order and amounts as Landlord, in its sole discretion, may elect.

29.10 Time of Essence. Time is of the essence with respect to the performance of every provision of this Lease in which time of performance is a factor.

29.11 Partial Invalidity. If any term, provision or condition contained in this Lease shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term, provision or condition to persons or circumstances other than those with respect to which it is invalid or unenforceable, shall not be affected thereby, and each and every other term, provision and condition of this Lease shall be valid and enforceable to the fullest extent possible permitted by law.

29.12 No Warranty. In negotiating, executing and delivering this Lease, Tenant has not relied on, and hereby disclaims, any representations, including, but not limited to, any representation as to the amount of any item comprising Additional Rent or the amount of the Additional Rent in the aggregate or that Landlord is furnishing the same services to other tenants, at all, on the same level or on the same basis, or any warranty or any statement of Landlord which is not set forth herein or in one or more of the exhibits attached hereto.

29.13 Landlord Liability. The liability of Landlord or the other Landlord Parties to Tenant (or any person or entity claiming by, through or under Tenant) for any default by Landlord under this Lease or arising in connection herewith or with Landlord's operation, management, leasing, repair, renovation, alteration or any other matter relating to the Project or the Premises shall be limited solely and exclusively to an amount which is equal to the interest of Landlord in the Project, including any sales, rentals or insurance proceeds received by Landlord or the Landlord Parties in connection with the Project, Building or Premises (following payment of any outstanding liens and/or mortgages, whether attributable to sales or insurance proceeds or otherwise). The Landlord Parties shall not have any personal liability therefor, and Tenant hereby expressly waives and releases such personal liability on behalf of itself and all persons claiming by, through or under Tenant. The limitations of liability contained in this Section 29.13 shall inure to the benefit of the Landlord Parties' present and future partners, beneficiaries, officers, directors, trustees, shareholders, agents and employees, and their respective partners, heirs, successors and assigns. Under no circumstances shall any present or future partner, member, shareholder, trustee or beneficiary of Landlord, have any liability for the performance of Landlord's obligations under this Lease. Notwithstanding any contrary provision herein, neither Landlord nor the other Landlord Parties shall be liable under any circumstances for injury or damage to, or interference with, Tenant's business, including but not limited to, loss of profits, loss of rents or other revenues, loss of business opportunity, loss of goodwill or loss of use, in each case, however occurring. Notwithstanding any contrary provision herein, neither Tenant nor the other Tenant Parties shall be liable under any circumstances for injury or damage to, or interference with, Landlord's business, including but not limited to, loss of profits, loss of rents or other revenues, loss of business opportunity, loss of goodwill or loss of use, in each case, however occurring, other than those consequential damages incurred by Landlord in connection with a holdover of the Premises by Tenant after the expiration or earlier termination of the Lease Term or incurred by Landlord in connection with any repair, physical construction or improvement work performed by or on behalf of Tenant in the Project.

29.14 Entire Agreement. It is understood and acknowledged that there are no oral agreements between the parties hereto affecting this Lease and this Lease constitutes the parties' entire agreement with respect to the subject matter hereof and supersedes and cancels any and all previous negotiations, arrangements, brochures, agreements and understandings, if any, between the parties hereto (including, without limitation, any confidentiality agreement, letter of intent, request for proposal, or similar agreement previously entered into between Landlord and Tenant in anticipation of this Lease) or displayed by Landlord to Tenant with respect to the subject matter thereof, and none thereof shall be used to interpret or construe this Lease.

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29.15 Right to Lease. Landlord reserves the absolute right to effect such other tenancies in the Project as Landlord in the exercise of its sole business judgment shall determine to best promote the interests of the Building or Project. Tenant does not rely on the fact, nor does Landlord represent, that any specific tenant or type or number of tenants shall, during the Lease Term, occupy any space in the Building or Project.

29.16 Force Majeure. Any prevention, delay or stoppage due to strikes, lockouts, labor disputes, acts of God, acts of war, terrorist acts, inability to obtain services, labor, or materials or reasonable substitutes therefor, governmental actions, governmental laws, regulations or restrictions, civil commotions, fire or other casualty, and other causes beyond the reasonable control of the party obligated to perform, except with respect to the obligations imposed with regard to Rent and other charges to be paid by Tenant pursuant to this Lease (collectively, a "Force Majeure"), notwithstanding anything to the contrary contained in this Lease, shall excuse the performance of such party for a period equal to any such prevention, delay or stoppage and, therefore, if this Lease specifies a time period for performance of an obligation of either party, that time period shall be extended by the period of any delay in such party's performance caused by a Force Majeure.

29.17 Waiver of Redemption by Tenant. Tenant hereby waives, for Tenant and for all those claiming under Tenant, any and all rights now or hereafter existing to redeem by order or judgment of any court or by any legal process or writ, Tenant's right of occupancy of the Premises after any termination of this Lease.

29.18 Notices. All notices, demands, statements, designations, approvals or other communications (collectively, "Notices") given or required to be given by either party to the other hereunder or by law shall be in writing, shall be (A) sent by first class, United States certified or registered mail, postage prepaid, return receipt requested ("Mail"), (B) delivered by a nationally recognized overnight courier, or (C) delivered personally. Any Notice shall be sent, transmitted, or delivered, as the case may be, to Tenant at the appropriate address set forth in Section 10 of the Summary, or to such other place as Tenant may from time to time designate in a Notice to Landlord, or to Landlord at the addresses set forth below, or to such other places as Landlord may from time to time designate in a Notice to Tenant. Any Notice will be deemed given (i) the date the Mail or overnight courier delivery is made (or refused), or (ii) the date personal delivery is made (or refused). Notices may also be sent by electronic mail, and shall be deemed received when sent if sent before 5:00 p.m. Pacific Standard Time on a business day (otherwise, such Notice shall be deemed received he next business day), so long as a copy of such Notice is also sent by another permitted delivery method. As of the date of this Lease, any Notices to Landlord must be sent, transmitted, or delivered, as the case may be, to the following addresses:

RTP 55 OWNER, LLC

c/o FCP Management, Inc.

339 S. San Antonio Road, Suite 2B

Los Altos, CA 94022

Attn: Jonel Porta

Email:

and

RTP55 OWNER, LLC
7121 Fairway Drive, Suite 410
Palm Beach Gardens, Florida 33418
Attention: General Counsel
Email:

With copies to:

RTP55 OWNER, LLC
735 Market Street, Suite 600
San Francisco, CA 94103
Attention: Mr. Miles Treaster
Email:

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and:

RTP55 OWNER, LLC
735 Market Street, Suite 600
San Francisco, CA 94103
Attention: Mr. James Escarzega
Email:

and:

RTP 55 Owner, LLC

c/o Cushman & Wakefield

300 Santa Row, 5th Floor

San Jose, CA 95128

Attn: Property Manager

Email:

and:

Allen Matkins Leck Gamble Mallory & Natsis LLP
1901 Avenue of the Stars, Suite 1800
Los Angeles, CA 90067
Attention: Anton N. Natsis, Esq.
Email:

29.19 Joint and Several. If there is more than one Tenant (or if Tenant permits any other Tenant Party to occupy the Premises), each such party shall be jointly and severally liable for Tenant's obligations under this Lease. All unperformed obligations of Tenant hereunder not fully performed at the end of the Term shall survive the end of the Term, including payment obligations with respect to Rent and all obligations concerning the condition and repair of the Premises.

29.20 Authority. If Tenant is a corporation, trust or partnership, each individual executing this Lease on behalf of Tenant hereby represents and warrants that (a) Tenant is a duly formed and existing entity qualified to do business in the State of California and will remain during the Term a duly formed and existing entity qualified to do business in the State of California, and (b) Tenant has full right and authority to execute and deliver this Lease and that each person signing on behalf of Tenant is authorized to do so. In such event, Tenant shall, within ten (10) days after execution of this Lease, deliver to Landlord satisfactory evidence of such authority and, if a corporation, upon demand by Landlord, also deliver to Landlord satisfactory evidence of (i) good standing in Tenant's state of incorporation and (ii) qualification to do business in the State of California.

29.21 Attorneys' Fees. In the event that either Landlord or Tenant should bring suit for the possession of the Premises, for the recovery of any sum due under this Lease, or because of the breach of any provision of this Lease or for any other relief against the other, then all costs and expenses, including reasonable attorneys' fees, incurred by the prevailing party therein shall be paid by the other party, which obligation on the part of the other party shall be deemed to have accrued on the date of the commencement of such action and shall be enforceable whether or not the action is prosecuted to judgment.

29.22 Governing Law; WAIVER OF TRIAL BY JURY. This Lease shall be construed and enforced in accordance with the laws of the State of California. IN ANY ACTION OR PROCEEDING ARISING HEREFROM, LANDLORD AND TENANT (ON BEHALF OF ITSELF AND ITS RESPECTIVE SUCCESSORS, ASSIGNS AND SUBTENANTS) HEREBY CONSENT (EACH AFTER CONSULTATION WITH COUNSEL) TO (I) THE JURISDICTION OF ANY COMPETENT COURT WITHIN THE STATE OF CALIFORNIA, (II) SERVICE OF PROCESS BY ANY MEANS AUTHORIZED BY CALIFORNIA LAW AT THE ADDRESS FOR NOTICE TO SUCH PARTY UNDER IN THIS LEASE, AND (III) TO THE EXTENT PERMITTED BY APPLICABLE LAW, IN THE INTEREST OF SAVING TIME AND EXPENSE, TRIAL WITHOUT A JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR THEIR SUCCESSORS IN RESPECT OF ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, TENANT'S USE OR OCCUPANCY OF THE PREMISES, AND/OR ANY CLAIM FOR INJURY OR DAMAGE, OR ANY EMERGENCY OR STATUTORY REMEDY. IN THE EVENT LANDLORD COMMENCES ANY SUMMARY PROCEEDINGS OR ACTION FOR NONPAYMENT OF BASE RENT OR ADDITIONAL RENT, TENANT SHALL NOT INTERPOSE ANY COUNTERCLAIM OF ANY NATURE OR DESCRIPTION (UNLESS SUCH COUNTERCLAIM SHALL BE MANDATORY) IN ANY SUCH PROCEEDING OR ACTION, BUT SHALL BE RELEGATED TO AN INDEPENDENT ACTION AT LAW.

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29.23 Submission of Lease. Submission of this instrument for examination or signature by Tenant does not constitute a reservation of, option for or option to lease, and it is not effective as a lease or otherwise until execution and delivery by both Landlord and Tenant.

29.24 Brokers. Landlord and Tenant hereby warrant to each other that they have had no dealings with any real estate broker or agent in connection with the negotiation of this Lease, excepting only the real estate brokers or agents specified in Section 12 of the Summary (the "Brokers"), and that they know of no other real estate broker or agent who is entitled to a commission in connection with this Lease. Each party agrees to indemnify and defend the other party against and hold the other party harmless from any and all claims, demands, losses, liabilities, lawsuits, judgments, costs and expenses (including without limitation reasonable attorneys' fees) with respect to any leasing commission or equivalent compensation alleged to be owing on account of any dealings with any real estate broker or agent, other than the Brokers, occurring by, through, or under the indemnifying party. The terms of this Section 29.24 shall survive the expiration or earlier termination of the Lease Term.

29.25 Independent Covenants. This Lease shall be construed as though the covenants herein between Landlord and Tenant are independent and not dependent and Tenant hereby expressly waives the benefit of any statute to the contrary and agrees that if Landlord fails to perform its obligations set forth herein, Tenant shall not be entitled to make any repairs or perform any acts hereunder at Landlord's expense or to any setoff of the Rent or other amounts owing hereunder against Landlord. There shall be no merger of the leasehold estate hereby created with the fee estate in the Premises or any part thereof if the same person acquires or holds, directly or indirectly, this Lease or any interest in this Lease and the fee estate in the leasehold Premises or any interest in such fee estate.

29.26 Project or Building Name and Signage. Landlord shall have the right at any time to change the name of the Project or Building and to install, affix and maintain any and all signs on the exterior and on the interior of the Project or Building as Landlord may, in Landlord's sole discretion, desire. Tenant shall not use the name of the Project or Building or use pictures or illustrations of the Project or Building in advertising or other publicity or for any purpose other than as the address of the business to be conducted by Tenant in the Premises, without the prior written consent of Landlord.

29.27 Counterparts. This Lease (and any amendments to this Lease) may be executed in counterparts with the same effect as if both parties hereto had executed the same document. Both counterparts shall be construed together and shall constitute a single lease. To facilitate execution of this Lease, the parties may execute and exchange, by telephone facsimile or electronic mail PDF, counterparts of the signature pages. Signature pages may be detached from the counterparts and attached to a single copy of this Lease to physically form one document.

29.28 Confidentiality. Tenant acknowledges that the content of this Lease and any related documents are confidential information and Tenant shall keep such confidential information strictly confidential and shall not disclose such confidential information to any person or entity; however, Tenant may disclose the terms and conditions of this Lease to its attorneys, accountants, employees and existing or prospective financial partners, or if required by Law or court order, provided all parties to whom Tenant is permitted hereunder to disclose such terms and conditions are advised by Tenant of the confidential nature of such terms and conditions and agree to maintain the confidentiality thereof (in each case, prior to disclosure). Tenant shall be liable for any disclosures made in violation of this Section by Tenant or by any entity or individual to whom the terms of and conditions of this Lease were disclosed or made available by Tenant. The consent by Landlord to any disclosures shall not be deemed to be a waiver on the part of Landlord of any prohibition against any future disclosure. Notwithstanding the foregoing, to the extent Tenant is a publicly traded corporation, Tenant may be obligated to regularly provide financial information concerning Tenant and/or its affiliates to the shareholders of its affiliates, to the Federal Securities and Exchange Commission and other regulatory agencies, and to auditors and underwriters, which information may include summaries of financial information concerning leases, rents, costs and results of operations of its business, including any financial obligations set forth in this Lease. In connection with the foregoing, Tenant shall be permitted to file a copy of this Lease with the SEC and any other regulatory agencies to the extent required by applicable Laws.

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29.29 Communications and Computer Lines. Tenant may install, maintain, replace, remove or use any communications or computer wires and cables serving the Premises (collectively, the "Lines"), provided that (i) Tenant shall obtain Landlord's prior written consent, use licensed, reputable contractor reasonably approved in writing by Landlord, and comply with all of the other provisions of Articles 7 and 8 of this Lease, (ii) an acceptable number of spare Lines and space for additional Lines shall be maintained for existing and future occupants of the Project, as determined in Landlord's reasonable opinion, (iii) the Lines therefor (including riser cables) shall be appropriately insulated to prevent excessive electromagnetic fields or radiation, shall be surrounded by a protective conduit reasonably acceptable to Landlord, and shall be identified in accordance with the "Identification Requirements," as that term is set forth hereinbelow, (iv) any new or existing Lines servicing the Premises installed by or on behalf of Tenant shall comply with all applicable Laws and (v) Tenant shall pay all costs in connection therewith. All Lines shall be clearly marked with adhesive plastic labels (or plastic tags attached to such Lines with wire) to show Tenant's name, suite number, telephone number and the name of the person to contact in the case of an emergency (A) every four feet (4') outside the Premises (specifically including, but not limited to, the electrical room risers and other Common Areas), and (B) at the Lines' termination point(s) (collectively, the "Identification Requirements"). Landlord reserves the right (by notice to Tenant at any time prior to the expiration or earlier termination of this Lease) to require that Tenant, prior to the expiration or earlier termination of this Lease, remove any Lines located in or serving the Premises and repair any damage in connection with such removal. Landlord has remove all existing lines in the Premises prior to date of this Lease.

29.30 Renovations. It is specifically understood and agreed that Landlord has no obligation and has made no promises to alter, remodel, improve, renovate, repair or decorate the Project, the Premises or the Building, or any part thereof and that no representations respecting the condition of the Premises, the Building or the Project have been made by Landlord to Tenant except as specifically set forth herein or in the Tenant Work Letter. However, Tenant hereby acknowledges that Landlord is currently renovating or may during the Lease Term renovate, improve, alter, add to or modify (collectively, the "Renovations") the Project, the Common Areas, the Building and/or the Premises, and that such Renovations may result in levels of noise, dust, odor, obstruction of access, etc., which are in excess of that present in a fully constructed project. Tenant hereby agrees that such Renovations shall in no way constitute a constructive eviction of Tenant nor entitle Tenant to any abatement of Rent and Tenant hereby waives any and all rent offsets or claims of constructive eviction which may arise in connection with such Renovations. Except to the extent expressly set forth in this Lease, Landlord shall have no responsibility and shall not be liable to Tenant for any injury to or interference with Tenant's business arising from the Renovations, nor shall Tenant be entitled to any compensation or damages from Landlord for loss of the use of the whole or any part of the Premises or of Tenant's personal property or improvements resulting from the Renovations, or for any inconvenience or annoyance occasioned by such Renovations.

29.31 No Violation. Tenant hereby warrants and represents that neither its execution of nor performance under this Lease shall cause Tenant to be in violation of any agreement, instrument, contract, law, rule or regulation by which Tenant is bound, and Tenant shall protect, defend, indemnify and hold Landlord harmless against any claims, demands, losses, damages, liabilities, costs and expenses, including, without limitation, reasonable attorneys' fees and costs, arising from Tenant's breach of this warranty and representation.

29.32 Transportation Management. Tenant shall use commercially reasonable efforts to comply with all present or future programs intended to manage parking, transportation or traffic in and around the Project and/or the Building, and in connection therewith, Tenant shall take commercially reasonable action for the transportation planning and management of all employees located at the Premises by working directly with Landlord, any governmental transportation management organization or any other transportation-related committees or entities. Such programs may include, without limitation: (i) restrictions on the number of peak-hour vehicle trips generated by Tenant; (ii) increased vehicle occupancy; (iii) implementation of an in-house ridesharing program and an employee transportation coordinator; (iv) working with employees and any Project, Building or area-wide ridesharing program manager; (v) instituting employer-sponsored incentives (financial or in-kind) to encourage employees to rideshare; and (vi) flexible work shifts for employees.

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29.33 OFAC Certification. Tenant hereby represents and warrants to Landlord that Tenant is not: (i) in violation of any Anti-Terrorism Law (defined herein below); (ii) conducting any business or engaging in any transaction or dealing with any Prohibited Person (defined herein below), including, without limitation, the making or receiving of any contribution of funds, goods or services to or for the benefit of any Prohibited Person; (iii) dealing in, or otherwise engaging in any transaction relating to, any property or interest in property blocked pursuant to Executive Order No. 13224; (iv) engaging in or conspiring to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate any of the prohibitions set forth in any Anti-Terrorism Law; or (v) a Prohibited Person, nor are any of its partners, members, managers, officers or directors a Prohibited Person. As used herein, "Anti-Terrorism Law" is defined as any law relating to terrorism, anti-terrorism, money laundering or anti-money laundering activities, including, without limitation, Executive Order No. 13224 and Title 3 of the USA Patriot Act. As used herein "Executive Order No. 13224" is defined as Executive Order No. 13224 on Terrorist Financing effective September 24, 2001, and relating to "Blocking Property and Prohibiting Transactions With Persons Who Commit, or Support Terrorism." "Prohibited Person" is defined as: (a) a person or entity that is listed in the Annex to Executive Order 13224; (b) a person or entity with whom Tenant or Landlord is prohibited from dealing or otherwise engaging in any transaction by any Anti-Terrorism Law; or (c) a person or entity that is named as a "specially designated national and blocked person" on the most current list published by the U.S. Treasury Department Office of Foreign Assets Control at its official website, http://www.treas.gov/ofac/t11sdn.pdf or at any replacement website or other official publication of such list. "USA Patriot Act" is defined as the "Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001" (Public Law 107-56).

29.34 Sustainability. Landlord may, in Landlord's sole and absolute discretion, elect to apply to obtain or maintain a LEED certification for the Project (or portion thereof), or other applicable certification in connection with Landlord's sustainability practices for the Project (as such sustainability practices are to be determined by Landlord, in its sole and absolute discretion, from time to time). In the event that Landlord elects to pursue such an aforementioned certification, Tenant shall use commercially reasonable efforts to cooperate with the Landlord's efforts in connection therewith and provide Landlord with any documentation it may need in order to obtain or maintain the aforementioned certification (which cooperation may include, but shall not be limited to, Tenant, at no material cost to and expense to Tenant, complying with certain standards pertaining to the purchase of materials used in connection with any Alterations or improvements undertaken by the Tenant in the Project, the sharing of documentation pertaining to any Alterations or improvements undertaken by Tenant in the Project with Landlord, and the sharing of Tenant's billing information pertaining to trash removal and recycling related to Tenant's operations in the Project).

29.35 Green Cleaning/Recycling. To the extent a "green cleaning program" and/or a recycling program is implemented by Landlord in the Building and/or Project (each in Landlord's sole and absolute discretion), Tenant shall, at no material cost and expense to Tenant, comply with the provisions of each of the foregoing programs (e.g., Tenant shall separate waste appropriately so that it can be efficiently processed by Landlord's particular recycling contractors). To the extent Tenant fails to comply with any of Landlord's recycling programs contemplated by the foregoing, Tenant shall be required to pay any contamination charges related to such non-compliance.

29.36 Office and Communications Services.

29.36.1 The Provider. Landlord has advised Tenant that certain office and communications services (which may include, without limitation, cable or satellite television service) may be offered to tenants of the Building by a concessionaire (which may or may not have exclusive rights to offer such services in the Building) under contract to Landlord ("Provider"). Tenant shall be permitted to contract with Provider for the provision of any or all of such services on such terms and conditions as Tenant and Provider may agree.

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29.36.2 Other Terms. Tenant acknowledges and agrees that: (i) Landlord has made no warranty or representation to Tenant with respect to the availability of any such services, or the quality, reliability or suitability thereof; (ii) the Provider is not acting as the agent or representative of Landlord in the provision of such services, and Landlord shall have no liability or responsibility for any failure or inadequacy of such services, or any equipment or facilities used in the furnishing thereof, or any act or omission of Provider, or its agents, employees, representatives, officers or contractors; (iii) Landlord shall have no responsibility or liability for the installation, alteration, repair, maintenance, furnishing, operation, adjustment or removal of any such services, equipment or facilities; and (iv) any contract or other agreement between Tenant and Provider shall be independent of this Lease, the obligations of Tenant hereunder, and the rights of Landlord hereunder, and, without limiting the foregoing, no default or failure of Provider with respect to any such services, equipment or facilities, or under any contract or agreement relating thereto, shall have any effect on this Lease or give to Tenant any offset or defense to the full and timely performance of its obligations hereunder, or entitle Tenant to any abatement of rent or additional rent or any other payment required to be made by Tenant hereunder, or constitute any accrual or constructive eviction of Tenant, or otherwise give rise to any other claim of any nature against Landlord.

29.37 Intentionally Omitted.

29.38 Hazardous Materials.

29.38.1 Definitions. For purposes of this Lease, the following definitions shall apply: "Hazardous Material(s)" shall mean any solid, liquid or gaseous substance or material that is described or characterized as a toxic or hazardous substance, waste, material, pollutant, contaminant or infectious waste, or any matter that in certain specified quantities would be injurious to the public health or welfare, or words of similar import, in any of the "Environmental Laws," as that term is defined below, or any other words which are intended to define, list or classify substances by reason of deleterious properties such as ignitability, corrosivity, reactivity, carcinogenicity, toxicity or reproductive toxicity and includes, without limitation, asbestos, petroleum (including crude oil or any fraction thereof, natural gas, natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel, or any mixture thereof), petroleum products, polychlorinated biphenyls, urea formaldehyde, radon gas, nuclear or radioactive matter, medical waste, soot, vapors, fumes, acids, alkalis, chemicals, microbial matters (such as molds, fungi or other bacterial matters), biological agents and chemicals which may cause adverse health effects, including but not limited to, cancers and /or toxicity. "Environmental Laws" shall mean any and all federal, state, local or quasi-governmental laws (whether under common law, statute or otherwise), ordinances, decrees, codes, rulings, awards, rules, regulations or guidance or policy documents now or hereafter enacted or promulgated and as amended from time to time, in any way relating to (i) the protection of the environment, the health and safety of persons (including employees), property or the public welfare from actual or potential release, discharge, escape or emission (whether past or present) of any Hazardous Materials or (ii) the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of any Hazardous Materials.

29.38.2 Compliance with Environmental Laws. Landlord covenants that during the Lease Term, Landlord shall comply with all Environmental Laws in accordance with, and as required by, the terms and conditions of Article 24 of this Lease. Tenant represents and warrants that, except for the following chemicals and materials, and their respective quantities (the "Disclosed Chemicals"), eight (8) sixteen ounce (16 oz) containers of 99.9% pure alcohol, twenty (20) ten ounce (10 oz) containers of Solder Wire, twenty (20) ten ounce (10 oz) containers of Flux, and one (1) two (2) gallon container of Coolant, Tenant will not produce, use, store or generate any Hazardous Materials, on, under or about the Project, nor cause or permit any Hazardous Material to be brought upon, placed, stored, manufactured, generated, blended, handled, recycled, used or "Released," as that term is defined below, on, in, under or about the Project. However, notwithstanding the preceding sentence, Landlord agrees that Tenant may use, store and properly dispose of commonly available household cleaners and chemicals to maintain the Premises and Tenant's routine office operations (such as printer toner and copier toner) (together with the Disclosed Chemicals, collectively referred to as the "Permitted Chemicals"). Landlord and Tenant acknowledge that any or all of the Disclosed Chemicals and Permitted Chemicals described in this paragraph may constitute Hazardous Materials. However, Tenant may use, store and dispose of same, provided that in doing so, Tenant fully complies with all Environmental Laws. Notwithstanding the foregoing, in the event Tenant modifies, changes, or supplements the Disclosed Chemicals, or increase the respective quantities of any of the Disclosed Chemicals, or Original Tenant assigns this Lease to any entity other than a Permitted Transferee Assignee, Tenant shall comply with the requirements of Exhibit L which is attached hereto and Landlord's Pre-Leasing Environmental Exposure Questionnaire. For purposes of this Lease, "Release" or "Released" or "Releases" shall mean any release, deposit, discharge, emission, leaking, spilling, seeping, migrating, injecting, pumping, pouring, emptying, escaping, dumping, disposing, or other movement of Hazardous Materials into the environment.

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29.38.3 Tenant Hazardous Materials. Tenant will (i) obtain and maintain in full force and effect all Environmental Permits (as defined below) that may be required from time to time under any Environmental Laws applicable to Tenant or the Premises, and (ii) be and remain in compliance with all terms and conditions of all such Environmental Permits and with all other Environmental Laws. "Environmental Permits" means, collectively, any and all permits, consents, licenses, approvals and registrations of any nature at any time required pursuant to, or in order to comply with any Environmental Law. On or before the Lease Commencement Date and on each annual anniversary of the Lease Commencement Date thereafter, as well as at any other time following Tenant's receipt of a reasonable request from Landlord, Tenant agrees to deliver to Landlord a list of all Hazardous Materials anticipated to be used by Tenant in the Premises and the quantities thereof. At any time following Tenant's receipt of a request from Landlord, Tenant shall promptly complete a "hazardous materials questionnaire" using the form then-provided by Landlord. Upon the expiration or earlier termination of this Lease, Tenant agrees to promptly remove from the Premises, the Building and the Project, at its sole cost and expense, any and all Hazardous Materials, including any equipment or systems containing Hazardous Materials, which are installed, brought upon, stored, used, generated or released upon, in, under or about the Premises, the Building, and/or the Project or any portion thereof by Tenant and/or any other Tenant Parties (such obligation to survive the expiration or sooner termination of this Lease). Nothing in this Lease shall impose any liability on Tenant for any Hazardous Materials in existence on the Premises, Building or Project prior to the Lease Commencement Date or brought onto the Premises, Building or Project after the Lease Commencement Date by any third parties not under Tenant's control. Tenant agrees to indemnify, defend, protect and hold harmless the Landlord Parties from and against any liability, obligation, damage or costs, including without limitation, attorneys' fees and costs, resulting directly or indirectly from any use, presence, removal or disposal of any Hazardous Materials or breach of any provision of this Section, to the extent such liability, obligation, damage or costs was a result of actions caused or permitted by Tenant or any other Tenant Party.

29.38.4 Landlord's Right of Environmental Audit. Landlord may, upon reasonable notice to Tenant (at least two (2) business days), be granted access to and enter the Premises no more than once annually to perform or cause to have performed an environmental inspection, site assessment or audit. Such environmental inspector or auditor may be chosen by Landlord, in its sole discretion, and be performed at Landlord's sole expense. To the extent that the report prepared upon such inspection, assessment or audit, indicates the presence of Hazardous Materials in violation of Environmental Laws, or provides recommendations or suggestions to prohibit the release, discharge, escape or emission of any Hazardous Materials at, upon, under or within the Premises, or to comply with any Environmental Laws, Tenant shall promptly, at Tenant's sole expense, comply with such recommendations or suggestions, including, but not limited to performing such additional investigative or subsurface investigations or remediation(s) as recommended by such inspector or auditor. Notwithstanding the above, if at any time, Landlord has actual notice or reasonable cause to believe that Tenant has violated, or permitted any violations of any Environmental Law, then Landlord will be entitled to perform its environmental inspection, assessment or audit at any time, notwithstanding the above mentioned annual limitation, and Tenant must reimburse Landlord for the cost or fees incurred for such as Additional Rent.

29.39 Water or Mold Notification. To the extent Tenant or its agents or employees discover any water leakage, water damage or mold in or about the Premises or Project, Tenant shall promptly notify Landlord thereof in writing.

[Signatures follow on next page]

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IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be executed the day and date first above written.

LANDLORD:

RTP55 OWNER, LLC,
a Delaware limited liability company

By:/s/ Bruce Burkard
Name: Bruce Burkard
Its: Authorized Signatory

TENANT:

INPHI CORPORATION,
a Delaware corporation

By: /s/ John S. Edmunds
Name: John S. Edmunds
Its: SVP & CFO

Date: 10/25/2019

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OFFICE LEASE

RIOTECH OFFICE PARK

RTP55 OWNER, LLC,

a Delaware limited liability company,

as Landlord,

and

INPHI CORPORATION,

a Delaware corporation,

as Tenant.

TABLE OF CONTENTS

		Page

ARTICLE 1	PREMISES, BUILDING, PROJECT, AND COMMON AREAS	5
ARTICLE 2	LEASE TERM	8
ARTICLE 3	BASE RENT	12
ARTICLE 4	ADDITIONAL RENT	13
ARTICLE 5	USE OF PREMISES	20
ARTICLE 6	SERVICES AND UTILITIES	20
ARTICLE 7	PROPERTY MANAGEMENT; REPAIRS AND MAINTENANCE	23
ARTICLE 8	ADDITIONS AND ALTERATIONS	26
ARTICLE 9	COVENANT AGAINST LIENS	27
ARTICLE 10	INDEMNIFICATION AND INSURANCE	28
ARTICLE 11	DAMAGE AND DESTRUCTION	31
ARTICLE 12	NONWAIVER	32
ARTICLE 13	CONDEMNATION	33
ARTICLE 14	ASSIGNMENT AND SUBLETTING	33
ARTICLE 15	SURRENDER OF PREMISES; OWNERSHIP AND REMOVAL OF TRADE FIXTURES	37
ARTICLE 16	HOLDING OVER	38
ARTICLE 17	ESTOPPEL CERTIFICATES	39
ARTICLE 18	SUBORDINATION	39
ARTICLE 19	DEFAULTS; REMEDIES	40
ARTICLE 20	COVENANT OF QUIET ENJOYMENT	43
ARTICLE 21	SECURITY DEPOSIT	43
ARTICLE 22	INTENTIONALLY OMITTED	43
ARTICLE 23	SIGNS	43
ARTICLE 24	COMPLIANCE WITH LAW	45
ARTICLE 25	LATE CHARGES	46
ARTICLE 26	LANDLORD'S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT	46
ARTICLE 27	ENTRY BY LANDLORD	47
ARTICLE 28	PARKING	47
ARTICLE 29	MISCELLANEOUS PROVISIONS	48

EXHIBITS

A	OUTLINE OF PREMISES
A-1	GENERATOR AREA
A-2	OUTLINE OF FIRST REFUSAL SPACE
B	TENANT WORK LETTER
C	FORM OF NOTICE OF LEASE TERM DATES
D	RULES AND REGULATIONS
E	FORM OF TENANT'S ESTOPPEL CERTIFICATE
F	MARKET RENT DETERMINATION
G	QUALIFICATIONS OF SERVICE PROVIDERS AND AGREEMENTS
H	REPAIR AND MAINTENANCE SPECIFICATIONS
I	SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT
J	APPROVED TENANT'S SIGNAGE
K	DESIGNATED PARKING STALLS
L	ENVIRONMENTAL QUESTIONNAIRE

(i)

INDEX

	Page(s)

110 Building	Summary
110 Building Base Rent Abatement Period	12
130 Building	Summary
130 Building Base Rent Abatement Period	12
90 Building	Summary
90 Building First Refusal Notice	7
90 Building First Refusal Space	7
90 Building Right of First Refusal	7
Abatement Event	42
Accountant	19
Additional Insureds	28
Additional Rent	13
Advocate Arbitrators.	10
Affiliate	37
Alterations	26
Anti-Terrorism Law	54
Appealable Tax Expenses	17
Appeals Notice	17
Approved Working Drawings	Exhibit B
Arbitration Agreement	10
Architect	Exhibit B
Audit Period	19
Availability Determination	5
Bank Prime Loan	46
Base Building	26
Base Rent	Summary
Base Rent Abatement	12
Base Year	Summary
Briefs	10
Brokers	52
Builder's All Risk	27
Building	Summary
Building Structure	25
Building System Documents	24
Buildings	Summary
CCP	33
Certificate of Substantial Completion	Exhibit B
Clean-up	Exhibit L
Closure Letter	Exhibit L
Code	Exhibit B
Common Areas	5
Comparable Buildings	Exhibit F
Comparable Transactions	Exhibit F
Construction Drawings	Exhibit B
Contemplated Effective Date	35
Contemplated Transfer Space	35
Contract	Exhibit B
Contractor	Exhibit B
Control	37
Coordination Fee	Exhibit B
Cosmetic Alterations	26
Cost Pools	18
Default Rate	46
Delivery Date	Exhibit B
Direct Expenses	13

(ii)

INDEX

	Page(s)

Disabilities Acts	45
Disclosed Chemicals	55
Eligibility Period	42
Engineers	Exhibit B
Environmental Assessment	Exhibit L
Environmental Laws	55, Exhibit L
Environmental Permits	56
Environmental Questionnaire	Exhibit L
Environmental Report	Exhibit L
Estimate	18
Estimate Statement	18
Estimated Excess	18
Event of Default	40
Excess	18
Executive Order No. 13224	54
Expense Year	13
Final Costs	Exhibit B
Final Space Plan	Exhibit B
Final Working Drawings	Exhibit B
First Rebuttals	11
First Refusal Amendment	6, 8
First Refusal Commencement Date	6, 7
First Refusal Improvement Allowance	6
First Refusal Notice	6
First Refusal Percentage	6
First Refusal Space	5
First Refusal Term	6, 7
Force Majeure	50
Future Hazardous Materials	Exhibit L
Generator	22
Generator Area	22
hard costs	Exhibit B
Hazardous Material(s)	55
Hazardous Materials	Exhibit L
Hazardous Materials Claims	Exhibit L
HVAC	20
Identification Requirements	53
Initial SNDA	39
Intention to Transfer Notice	35
Landlord	Summary
Landlord Building Systems	25
Landlord Parties	28
Landlord Repair Notice	31
Landlord Warranty	Exhibit B
Landlord Work	Exhibit B
Landlord's Initial Statement	11
Landlord's Mortgagee	39
Landlord's Warranty Period	Exhibit B
Law	45
Laws	45
Lease	Summary
Lease Commencement Date	Summary
Lease Expiration Date	Summary
Lease Term	Summary
Lease Year	8

(iii)

INDEX

	Page(s)

Lines	53
Loss	28
Losses	28
Mail	50
Management Fee Cap	16
Management Standard	23
Market Rent	Exhibit F
Market Rent TI Allowance	Exhibit F
Mortgage	39
Net Equivalent Lease Rate	Exhibit F
Net Worth	37
Neutral Arbitrator	10
Nine Month Period	35
Notices	50
number of days	Exhibit B
Objectionable Name	45
Operating Expenses	13
Option Exercise Notice	9
Option Rent	9
Option Rent Notice	9
Option Term	9
Original Improvements	29
Other Project Buildings	Summary
Outside Agreement Date	10
PCBs	Exhibit L
Permitted Chemicals	55
Permitted Transferee	37
Permitted Transferee Assignee.	37
Permitted Use	Summary
Primary Lease	39
Prohibited Person	54
Project	Summary
Project Parking Facilities	Summary
Proposition 13	16
Provider	54
Release	55, Exhibit L
Renovations	53
Rent.	13
Right of First Refusal	5
Rooftop Equipment	22
Rules and Regulations	20
Ruling	11
Second Rebuttals	11
Service Agreements	24
Sign Requirements	44
Site Operations Manager	23
Statement	18
Subject Space	33
Summary	Summary
Tax Expenses	16
Tenant	Summary
Tenant Building System	25
Tenant Building Systems	25
Tenant Damage	Exhibit B
Tenant Delay	Exhibit B

(iv)

INDEX

	Page(s)

Tenant Improvement Allowance	Exhibit B
Tenant Improvement Allowance Items	Exhibit B
Tenant Improvements	29, Exhibit B
Tenant Parties	28
Tenant Party	28
Tenant Work Letter	5
Tenant's 110 Building Share	Summary
Tenant's 130 Building Share	Summary
Tenant's Agents	Exhibit B, Exhibit L
Tenant's First Refusal Exercise Notice	6, 7
Tenant's Initial Statement	11
Tenant's Off-Premises Equipment	19
Tenant's Project Share	Summary
Tenant's Rebuttal Statement	11
Tenant's Security System	21
Tenant's Share	Summary
Tenant's Signage	44
Tenant's Subleasing Costs	35
Third Party Contractor	31
Third Party Lease	6, 7
Transfer	36
Transfer Notice	33
Transfer Premium	35
Transferee	33
Transfers	33
Underlying Documents	13
USA Patriot Act	54

(v)

Exhibit 10.35

FIRST AMENDMENT TO OFFICE LEASE

This FIRST AMENDMENT TO OFFICE LEASE ("First Amendment") is made and entered into as of December 30, 2019 (the "Effective Date"), by and between RTP55 OWNER, LLC, a Delaware limited liability company ("Landlord"), and INPHI CORPORATION, a Delaware corporation ("Tenant").

r e c i t a l s :

A. Landlord and Tenant are parties to that certain Office Lease (the "Lease") dated as of October 24, 2019, pursuant to which Tenant leases (i) that certain space (the "110 Premises") consisting of all of the 87,608 rentable square feet of space in the building (the "110 Building") located at 110 Rio Robles, San Jose, California and (ii) that certain space (the "130 Premises") consisting of a portion of the rentable square feet in the building (the "130 Building") located at 130-134 Rio Robles, San Jose, California in the development commonly known as "Riotech Office Park" (the "Project"). The 110 Premises and the 130 Premises shall be referred to collectively as the "Premises."

B. The location of the demising walls for the 130 Premises has been modified, and Landlord and Tenant desire to amend the Lease to reflect the resulting modified rentable square footage of the 130 Premises, and to otherwise amend the Lease on the terms and conditions contained in this First Amendment.

a g r e e m e n t :

NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

1. Terms. All capitalized terms when used herein shall have the same respective meanings as are given such terms in the Lease unless expressly provided otherwise in this First Amendment.

2. Remeasurement. Notwithstanding anything to the contrary set forth in the Lease, Landlord and Tenant acknowledge and agree that as of the Effective Date: (i) the location of a demising walls separating the 130 Premises from the remainder of the 130 Building has been modified as shown on Exhibit A attached hereto, and accordingly Landlord has remeasured the 130 Premises and (ii) according to such remeasurement, (a) the 130 Premises contains 23,003 rentable square feet of space and (b) the Premises contains a total of 110,611 rentable square feet of space.

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3. Rent.

3.1 Base Rent. Notwithstanding any provision to the contrary set forth in the Lease, and further to the updated rentable square footage documented above, Landlord and Tenant hereby acknowledge and agree that, as of the Effective Date, the Base Rent schedule set forth in Section 4 of the Summary of Basic Lease Information of the Lease is hereby deleted and replaced with the following:

Period During Extended Term	Annual Base Rent	Monthly Installment of Base Rent	Approximate Monthly Rental Rate per Square Foot
1**	$2,628,240.00 *	$219,020.00 *	$2.50
2	$3,424,516.56	$285,376.38	$2.58
3	$3,517,429.80	$293,119.15	$2.65
4	$3,623,616.36	$301,968.03	$2.73
5	$3,729,802.92	$310,816.91	$2.81
6	$3,849,262.80	$320,771.90	$2.90
7	$3,968,722.68	$330,726.89	$2.99
8	$4,074,909.24	$339,575.77	$3.07
9	$4,207,642.44	$350,636.87	$3.17
10	$4,327,102.32	$360,591.86	$3.26
11	$4,459,835.52	$371,652.96	$3.36

*Subject to the Base Rent Abatement set forth in Section 3.2 of the Lease.

**The Base Rent for the period commencing on the Lease Commencement Date and expiring twelve (12) months thereafter set forth in the schedule above was calculated based on the Premises being deemed to contain only 87,608 rentable square feet, notwithstanding that Tenant is leasing the entire Premises (consisting of 110,611 rentable square feet). Tenant shall have no obligation to pay Operating Expenses or Tax Expenses which arise or accrue during such twelve (12) month period with respect to Tenant's 130 Building Share only.

4. Operating Expenses. Notwithstanding any provision contained in the Lease to the contrary, as of the Effective Date, (i) the reference to "With respect to the 130 Building, 47.52%" in Section 6 of the Summary of Basic Lease Information of the Lease shall be amended and restated as "With respect to the 130 Building, 47.62% and (ii) the reference to "With respect to the Project, approximately 29.27%" in Section 6 of the Summary of Basic Lease Information of the Lease shall be amended and restated as "With respect to the Project, approximately 29.34%".

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5. Right of First Refusal. Notwithstanding any provision contained in the Lease to the contrary, as of the Effective Date, the First Refusal Space (as defined in Section 1.3 of the Lease) contains 22,298 rentable square feet.

6. Tenant Improvement Allowance. Notwithstanding any provision contained in the Lease to the contrary, as of the Effective Date, the total Tenant Improvement Allowance shall equal $8,003,547.00.

7. No Brokers. Landlord and Tenant hereby warrant to each other that they have had no dealings with any real estate broker or agent in connection with the negotiation of this First Amendment and that they know of no real estate broker or agent who is entitled to a commission in connection with this First Amendment. Each party agrees to indemnify and defend the other party against and hold the other party harmless from and against any and all claims, demands, losses, liabilities, lawsuits, judgments, costs and expenses (including without limitation reasonable attorneys' fees) with respect to any leasing commission or equivalent compensation alleged to be owing on account of any dealings with any real estate broker or agent, occurring by, through or under the indemnifying party. The terms of this Section 7 shall survive the expiration or earlier termination of the term of the Lease.

8. No Further Modification. Except as specifically set forth in this First Amendment, all of the terms and provisions of the Lease shall remain unmodified and in full force and effect.

[Signatures to follow on next page]

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IN WITNESS WHEREOF, this First Amendment has been executed as of the day and year first above written.

"LANDLORD"	RTP55 OWNER, LLC, a Delaware limited liability company By: s/ Bruce Burkard Name: Bruce Burkard Its: Authorized Signatory



"TENANT"	INPHI CORPORATION, a Delaware corporation By: /s/ John S. Edmunds Name: John S. Edmunds Its: SVP & CFO

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Exhibit 21.1

Subsidiaries of the Registrant

Name of Subsidiary	Jurisdiction/State of Incorporation
Inphi International Pte Ltd.	Singapore

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (File Nos. 333-170629, 333-179270, 333-187108, 333-194339, 333-200616, 333-203906, 333-206108, 333-209832, 333-215523, 333-216363, 333-223313, 333-226649 and 333-229979) and Form S-3 (No. 333-200008) of Inphi Corporation of our report dated March 2, 2020 relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP
Los Angeles, California

March 2, 2020

EXHIBIT 31.1

CHIEF EXECUTIVE OFFICER CERTIFICATION

I, Ford Tamer, certify that:

1. I have reviewed this annual report on Form 10-K of Inphi Corporation;

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

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

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

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

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

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

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

Date: March 2, 2020
/s/ Ford Tamer
Ford Tamer
President and Chief Executive Officer (Principal Executive Officer)

EXHIBIT 31.2

CHIEF FINANCIAL OFFICER CERTIFICATION

I, John Edmunds, certify that:

1. I have reviewed this annual report on Form 10-K of Inphi Corporation;

(a)

(b)

(c)

(d)

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


Date: March 2, 2020
/s/ John Edmunds
John Edmunds
Chief Financial Officer and Chief Accounting Officer (Principal Financial Officer)

EXHIBIT 32.1

SECTION 906 CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Ford Tamer, the chief executive officer of Inphi Corporation (the "Company"), certify for the purposes of section 1350 of chapter 63 of title 18 of the United States Code that, to my knowledge:

1.	The Company's Annual Report on Form 10-K for the period ended December 31, 2019 fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act, and

2.	The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 2, 2020

/s/ Ford Tamer

Ford Tamer

President and Chief Executive Officer

(Principal Executive Officer)

EXHIBIT 32.2

SECTION 906 CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, John Edmunds, the chief financial officer of Inphi Corporation (the "Company"), certify for the purposes of section 1350 of chapter 63 of title 18 of the United States Code that, to my knowledge:

1.	The Company's Annual Report on Form 10-K for the period ended December 31, 2019 fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act, and

2.	The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 2, 2020

/s/ John Edmunds

John Edmunds

Chief Financial Officer and Chief Accounting Officer

(Principal Financial Officer)