FITBIT INC (Form: 10-Q, Received: 08/07/2015 19:23:25)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

____________________________________________

FORM 10-Q

____________________________________________



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

For the quarterly period ended June 30, 2015



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

For the transition period from ________________ to ________________

Commission file number: 001-37444

____________________________________________

FITBIT, INC.

(Exact name of registrant as specified in its charter)

____________________________________________



Delaware (State or other jurisdiction of incorporation or organization)		20-8920744 (I.R.S. Employer Identification No.)

405 Howard Street San Francisco, California (Address of principal executive offices)		94105 (Zip Code)

(415) 513-1000

(Registrant’s telephone number, including area code)

____________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.



Yes ¨	No þ

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)

during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).



Yes þ	No ¨

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



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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).



Yes ¨	No þ

As of July 31, 2015, there were 42,061,250 shares of the registrant’s Class A common stock outstanding and 164,818,603 shares of the registrant’s Class B common stock outstanding.

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TABLE OF CONTENTS



		Page Number
PART I.	FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements

	Condensed Consolidated Balance Sheets —June 30, 2015 and December 31, 2014	3

	Condensed Consolidated Statements of Operations —for the three and six months ended June 30, 2015 and 2014	4

	Condensed Consolidated Statements of Comprehensive Income —for the three and six months ended June 30, 2015 and 2014	5

	Condensed Consolidated Statements of Cash Flows —for the six months ended June 30, 2015 and 2014	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35

Item 4.	Controls and Procedures	36

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	37

Item 1A.	Risk Factors	37

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	58

Item 6.	Exhibits	60
SIGNATURES		61

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PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

FITBIT, INC.

Condensed Consolidated Balance Sheets

(In thousands, except par value per share amounts)

(unaudited)



	June 30, 2015		December 31, 2014
	June 30, 2015		December 31, 2014
Assets
Current assets:
Cash and cash equivalents	$	461,276	$	195,626
Accounts receivable, net	252,023		238,859
Inventories	186,870		115,072
Deferred tax assets	49,625		33,555
Prepaid expenses and other current assets	18,163		13,614
Total current assets	967,957		596,726
Property and equipment, net	30,945		26,435
Goodwill	22,157		—
Intangible assets, net	13,263		—
Other assets	12,308		9,890
Total assets	$	1,046,630	$	633,051
Liabilities, Redeemable Convertible Preferred Stock, and Stockholders’ Equity
Current liabilities:
Fitbit Force recall reserve	$	12,894	$	22,476
Accounts payable	193,594		195,666
Accrued liabilities	79,618		70,940
Deferred revenue	21,346		9,009
Income taxes payable	795		30,631
Long-term debt, current portion	—		132,589
Total current liabilities	308,247		461,311
Redeemable convertible preferred stock warrant liability	—		15,797
Other liabilities	15,031		12,867
Total liabilities	323,278		489,975
Commitments and contingencies (Note 7)
Redeemable convertible preferred stock, $0.0001 par value, no shares and 144,528,912 shares authorized as of June 30, 2015 and December 31, 2014, respectively; no shares and 139,851,483 shares issued and outstanding as of June 30, 2015 and December 31, 2014, respectively	—		67,814
Stockholders’ equity:
Class A common stock, $0.0001 par value, 600,000,000 shares and no shares authorized as of June 30, 2015 and December 31, 2014, respectively; 42,061,250 shares and no shares issued and outstanding as of June 30, 2015 and December 31, 2014, respectively	4		—
Class B common stock, $0.0001 par value, 350,000,000 and 230,400,000 shares authorized as of June 30, 2015 and December 31, 2014, respectively; 164,625,960 and 40,875,583 shares issued and outstanding as of June 30, 2015 and December 31, 2014, respectively	16		4
Additional paid-in capital	590,290		7,979
Accumulated other comprehensive income	122		37
Retained earnings	132,920		67,242
Total stockholders’ equity	723,352		75,262
Total liabilities, redeemable convertible preferred stock, and stockholders’ equity	$	1,046,630	$	633,051

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

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FITBIT, INC.

Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

(unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Revenue	$	400,412		$	113,572		$	737,166		$	222,387
Cost of revenue	212,870			55,183			380,415			119,229
Gross profit	187,542			58,389			356,751			103,158
Operating expenses:
Research and development	30,492			11,809			52,918			20,897
Sales and marketing	69,690			13,311			113,557			24,584
General and administrative	14,648			7,443			27,629			16,060
Change in contingent consideration	(7,704		)	—			(7,704		)	—
Total operating expenses	107,126			32,563			186,400			61,541
Operating income	80,416			25,826			170,351			41,617
Interest expense, net	(379		)	(452		)	(846		)	(861		)
Other expense, net	(45,308		)	(3,687		)	(58,385		)	(4,906		)
Income before income taxes	34,729			21,687			111,120			35,850
Income tax expense	17,048			6,934			45,442			12,225
Net income	17,681			14,753			65,678			23,625
Less: noncumulative dividends to preferred stockholders	(1,212		)	(1,327		)	(2,526		)	(2,640		)
Less: undistributed earnings to participating securities	(11,244		)	(10,423		)	(45,907		)	(16,293		)
Net income attributable to common stockholders—basic	5,225			3,003			17,245			4,692
Add: adjustments for undistributed earnings to participating securities	1,862			1,058			7,003			1,618
Net income attributable to common stockholders—diluted	$	7,087		$	4,061		$	24,248		$	6,310
Net income per share attributable to common stockholders:
Basic	$	0.09		$	0.07		$	0.35		$	0.12
Diluted	$	0.07		$	0.07		$	0.29		$	0.11
Shares used to compute net income per share attributable to common stockholders:
Basic	58,548			40,193			49,922			40,174
Diluted	95,190			60,487			82,841			59,983

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

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FITBIT, INC.

Condensed Consolidated Statements of Comprehensive Income

(In thousands)

(unaudited)



	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Net income	$	17,681	$	14,753	$	65,678	$	23,625
Other comprehensive income:
Change in foreign currency translation adjustment, net of tax	41		7		85		12
Comprehensive income	$	17,722	$	14,760	$	65,763	$	23,637

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

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FITBIT, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(unaudited)



	Six Months Ended June 30,
	2015			2014
Cash Flows from Operating Activities
Net income	$	65,678		$	23,625
Adjustments to reconcile net income to net cash provided by operating activities:
Recovery of doubtful accounts	(28		)	(51		)
Provision for inventory obsolescence	4,537			1,230
Depreciation and amortization	7,519			1,713
Amortization of intangible assets	655			—
Revaluation of redeemable convertible preferred stock warrant liability	56,655			5,194
Amortization of issuance costs and discount on debt	322			216
Stock-based compensation	12,650			975
Change in contingent consideration	(7,704		)	—
Deferred income taxes	(20,111		)	—
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable	(12,834		)	29,548
Inventories	(76,334		)	976
Prepaid expenses and other assets	(2,495		)	(3,186		)
Fitbit Force recall reserve	(9,581		)	(25,864		)
Accounts payable	(5,561		)	(27,107		)
Accrued liabilities and other liabilities	8,830			(7,391		)
Deferred revenue	11,789			1,914
Income taxes payable	(29,836		)	(1,466		)
Net cash provided by operating activities	4,151			326
Cash Flows from Investing Activities
Change in restricted cash	—			2,310
Purchase of property and equipment	(11,745		)	(6,698		)
Acquisitions, net of cash acquired	(11,037		)	—
Net cash used in investing activities	(22,782		)	(4,388		)
Cash Flows from Financing Activities
Net proceeds from initial public offering	420,885			—
Proceeds from issuance of debt and revolving credit facility, net debt discount	160,000			30,000
Repayment of debt	(294,503		)	(3,096		)
Payment of debt issuance costs	—			(604		)
Payments of offering costs	(2,522		)	—
Proceeds from exercise of stock options	442			12
Net cash provided by financing activities	284,302			26,312
Net increase in cash and cash equivalents	265,671			22,250
Effect of exchange rate on cash and cash equivalents	(21		)	12
Cash and cash equivalents at beginning of period	195,626			81,728
Cash and cash equivalents at end of period	$	461,276		$	103,990
Supplemental Disclosure
Cash paid for interest	$	103		$	820
Cash paid for income taxes	$	94,966		$	13,692
Supplemental Disclosure of Non-Cash Investing and Financing Activity
Conversion of redeemable convertible preferred stock into Class B common stock	$	67,814		$	—
Reclassification of redeemable convertible preferred stock warrant liability to additional paid-in capital	$	72,452		$	—
Issuance of redeemable convertible preferred stock upon net exercise of redeemable convertible preferred stock warrants	$	56,678		$	1,503
Purchase of property and equipment included in accounts payable	$	2,714		$	5,711
Deferred offering costs included in accounts payable and accruals	$	2,711		$	—
Issuance of common stock in connection with acquisitions	$	13,317		$	—

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

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FITBIT, INC.

Notes to Condensed Consolidated Financial Statements

1. Business Overview

Fitbit, Inc. (the “Company”) is transforming the way millions of people around the world achieve their health and fitness goals. The Fitbit platform combines connected health and fitness devices with software and services, including an online dashboard and mobile apps, data analytics, motivational and social tools, personalized insights, and virtual coaching through customized fitness plans and interactive workouts. The Company sells devices through diversified sales channels that include distributors, retailers, a corporate wellness offering, and Fitbit.com. The Company was incorporated in Delaware in 2007. The Company has established wholly-owned subsidiaries globally and its corporate headquarters are located in San Francisco, California.

In June 2015, the Company completed its initial public offering (“IPO”) of Class A common stock, in which the Company sold 22,387,500 shares and certain of its stockholders sold 19,673,750 shares, including 5,486,250 shares pursuant to the underwriters’ over-allotment option. The shares were sold at an initial public offering price of $20.00 per share for net proceeds of $420.9 million to the Company, after deducting underwriting discounts and commissions of $26.9 million . Offering costs incurred by the Company were approximately $5.2 million . In addition, in connection with the IPO:

•

The Company authorized two new classes of common stock— Class A common stock and Class B common stock. All prior periods presented have been updated to reflect the new classes of common stock. The rights of the holders of Class A and Class B common stock are identical, except with respect to voting and conversion. Each share of Class A common stock is entitled to one vote per share and each share of Class B common stock is entitled to ten votes per share. Each share of Class B common stock is convertible at any time at the option of the stockholder into one share of Class A common stock, generally automatically converts into Class A common stock upon a transfer, and has no expiration date.


•	All shares of the then-outstanding common stock, as well as options to purchase common stock and restricted stock units (“RSUs”), were reclassified into an equivalent number of shares of our Class B common stock.


•	All 139,851,483 shares of the then-outstanding redeemable convertible preferred stock were converted and reclassified into an equivalent number of shares of our Class B common stock. This resulted in a reclassification of the redeemable convertible preferred stock balance of $67.8 million to additional paid-in capital.

•

The Company issued 274,992 shares of Series B redeemable convertible preferred stock and 1,210,591 shares of Series C redeemable convertible preferred stock upon the net exercise of redeemable convertible preferred stock warrants, which occurred immediately prior to the completion of its IPO. These shares were sold as Class A common stock in the IPO. In addition, all of the remaining outstanding redeemable convertible preferred stock warrants automatically converted to Class B common stock warrants upon the closing of the IPO. As a result, the Company revalued the warrants as of the completion of the IPO and reclassified the redeemable convertible preferred stock warrant liability balance of $72.5 million to additional paid-in capital.


•	The Company recorded proceeds of $420.9 million to additional paid-in capital and reclassified $5.2 million of deferred offering costs previously recorded in other current assets as an offset to the proceeds from the IPO.

2. Basis of Presentation and Summary of Significant Accounting Policies

The accompanying condensed consolidated financial statements are unaudited. The condensed consolidated balance sheet at December 31, 2014 has been derived from the audited financial statements of the Company. The accompanying condensed financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information, and in management’s opinion, includes all adjustments, consisting of only normal recurring adjustments, necessary for the fair statement of the Company’s financial position, its results of operations, and cash flows for the interim periods presented. The results of operations for the three and six months ended June 30, 2015 are not necessarily indicative of the results to be expected for the full fiscal year or any other period.

The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s prospectus filed pursuant to Rule 424(b) under the Securities Act of 1933, as amended, with the Securities and Exchange Commission (“SEC”) on June 18, 2015. There have been no significant changes in the Company’s accounting policies from those disclosed in its prospectus filed with the SEC on June 18, 2015.

Principles of Consolidation

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

Stock Split

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FITBIT, INC.

Notes to Condensed Consolidated Financial Statements (Continued)

In May 2015, the Company effected a 3 -for- 2 stock split of all outstanding shares of the Company’s capital stock, including common stock and redeemable convertible preferred stock. All share, option, RSU, warrant, and per share information presented in the condensed consolidated financial statements has been adjusted to reflect the stock split on a retroactive basis for all periods presented and all share information is rounded down to the nearest whole share after reflecting the stock split.

Use of Estimates

The preparation of condensed consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the condensed consolidated financial statements and accompanying notes. The estimates and assumptions made by management related to revenue recognition, accruals for the Fitbit Force recall, reserves for sales returns and incentives, reserves for warranty, valuation of stock options, fair value of warrant liability and derivative assets and liabilities, allowance for doubtful accounts, inventory valuation, and the valuations of deferred income tax assets and uncertain tax positions. Actual results could differ from those estimates, and such differences may be material to the condensed consolidated financial statements.

Comprehensive Income

Comprehensive income consists of two components, net income and other comprehensive income, net of tax. Other comprehensive income refers to revenue, expenses, and gains and losses that are recorded as an element of stockholders’ equity but are excluded from net income. The Company’s other comprehensive income consists of foreign currency translation adjustments from those subsidiaries not using the U.S. dollar as their functional currency.

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09 (ASC 606), Revenue from Contracts with Customers , which affects any entity that either enters into contracts with customers to transfer goods and services or enters into contracts for the transfer of nonfinancial assets. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under the currently effective guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. In July 2015, the FASB approved a one-year deferral of the effective date of the standard. ASU 2014-09 will become effective for the Company on January 1, 2018 and can be adopted either retrospectively to each prior reporting period presented or as a cumulative effect adjustment as of the date of adoption. Early adoption is permitted but not before the original effective date of annual periods beginning after December 15, 2016. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

3. Fair Value Measurements

Assets and liabilities recorded at fair value on a recurring basis are categorized based upon the level of judgment associated with inputs used to measure their fair values. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the reporting date.

The Company estimates fair value by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

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

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

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

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FITBIT, INC.

Notes to Condensed Consolidated Financial Statements (Continued)

The carrying values of the Company’s financial instruments, including cash equivalents, accounts receivable, and accounts payable, approximated their fair values due to the short period of time to maturity or repayment. The carrying value of the Company’s long-term debt approximated its fair value as of December 31, 2014 as the debt carried a variable rate or market rates available to the Company and other assumptions had not changed significantly.

The following tables set forth the Company’s financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):



	June 30, 2015
	Level 1		Level 2		Level 3		Total
Assets:
Derivative assets	$	—	$	541	$	—	$	541
Liabilities:
Derivative liabilities	$	—	$	291	$	—	$	291



	December 31, 2014
	Level 1		Level 2		Level 3		Total
Assets:
Derivative assets	$	—	$	316	$	—	$	316
Liabilities:
Redeemable convertible preferred stock warrant liability	$	—	$	—	$	15,797	$	15,797
Derivative liabilities	—		105		—		105
Total	$	—	$	105	$	15,797	$	15,902

Level 2 assets and liabilities are comprised of derivative financial instruments associated with hedging activity, which is further discussed in Note 4. Derivative financial instruments are initially measured at fair value on the contract date and are subsequently remeasured to fair value at each reporting date using inputs such as spot rates and forward rates. There is not an active market for each hedge contract, but the inputs used to calculate the value of the instruments are tied to active markets.

The Company’s Level 3 liabilities, measured and recorded on a recurring basis, consist of the redeemable convertible preferred stock warrant liability and contingent consideration. Prior to the IPO, the fair value of the warrant liability was calculated using an option-pricing model as discussed in Note 8. Generally, increases or decreases in the fair value of the underlying redeemable convertible preferred stock would result in a directionally similar impact in the fair value measurement of the associated warrant liability. The unexercised warrants to purchase redeemable convertible preferred stock were converted into warrants to purchase shares of Class B common stock upon the closing of the IPO. As a result, the Company revalued and reclassified the redeemable convertible preferred stock liability to additional paid-in capital upon the closing of the IPO.

The following table sets forth a summary of the changes in the fair value of the redeemable convertible preferred stock warrant liability (in thousands):




Balance at December 31, 2014	$	15,797
Change in fair value	56,655
Settlement of warrant liability upon exercise	(56,678		)
Reclassification of unexercised warrants to additional paid-in capital upon the initial public offering	(15,774		)
Balance at June 30, 2015	$	—

The Company’s acquisition-related contingent consideration is determined using the Monte Carlo simulation method. The increases or decreases in the fair value of the contingent consideration payable could result from changes in the anticipated fair value of the Company’s common stock, stock price volatility, and probability of various market-based scenarios. As the fair value measure is based on significant inputs that are not observable in the market, they are categorized as Level 3.

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FITBIT, INC.

Notes to Condensed Consolidated Financial Statements (Continued)

The following table sets forth a summary of the changes in the fair value of the acquisition-related contingent consideration (in thousands):




Balance at December 31, 2014	$	—
Addition from acquisition	7,704
Change in fair value of contingent consideration	(7,704		)
Balance at June 30, 2015	$	—

There have been no transfers between fair value measurement levels during the three and six months ended June 30, 2014 and June 30, 2015.

4. Derivative Financial Instruments

The Company’s earnings and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. The Company enters into foreign exchange contracts to hedge monetary assets and liabilities that are denominated in currencies other than the functional currency of its subsidiaries. The Company and its subsidiaries do not enter into derivative contracts for speculative purposes.

These foreign exchange contracts are carried at fair value and do not qualify for hedge accounting treatment and are not designated as hedging instruments. Changes in the value of the foreign exchange contracts are recognized in other income (expense), net and offset the foreign currency gain or loss on the underlying net monetary assets or liabilities.

The table below presents the notional amount of the foreign currency contracts as of June 30, 2015 (in thousands):



	Notional Amount Sold
Functional Currency:	Foreign Amount	USD Equivalent
AUD	35,260	$	27,348
CAD	8,580	6,971
EUR	10,800	12,090
GBP	10,680	16,643
JPY	75,000	609
NZD	1,142	798
		$	64,459

The table below presents the notional amount of the foreign currency contracts as of December 31, 2014 (in thousands):



	Notional Amount Purchased
Functional Currency:	Foreign Amount	USD Equivalent
AUD	32,700	$	26,810
CAD	3,200	2,782
EUR	2,700	3,355
GBP	2,100	3,295
NZD	1,200	930
		$	37,172

Currently, the Company does not have master netting agreements with its counterparties for its foreign currency contracts. As of December 31, 2014 and June 30, 2015 , the fair value of the derivative assets of $0.3 million and $0.5 million , respectively, were recorded in prepaid expenses and other current assets and the fair value of the derivative liability of $0.1 million and $0.3 million , respectively, were recorded in accrued liabilities on the condensed consolidated balance sheets. The gain recognized in other income (expense), net for non-designated foreign currency forward contracts was $0.5 million and $2.5 million for the three

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FITBIT, INC.

Notes to Condensed Consolidated Financial Statements (Continued)

and six months ended June 30, 2015 , respectively. The Company did not enter into foreign exchange contracts during 2014 until December 2014.

5. Balance Sheet Components

Revenue Reserve

Revenue returns reserve activities were as follows (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Beginning balances	$	26,362		$	15,631		$	26,559		$	15,416
Increases	32,859			7,836			53,352			14,660
Returns taken	(23,956		)	(6,318		)	(44,646		)	(12,927		)
Ending balances	$	35,265		$	17,149		$	35,265		$	17,149

Inventories

Inventories consisted of the following (in thousands):



	June 30, 2015		December 31, 2014
	June 30, 2015		December 31, 2014
Components	$	60,217	$	53,383
Finished goods	126,653		61,689
Total inventories	$	186,870	$	115,072

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):



	June 30, 2015		December 31, 2014
	June 30, 2015		December 31, 2014
POP displays, net	$	6,700	$	7,121
Prepaid expenses and other current assets	11,463		6,493
Total prepaid expenses and other current assets	$	18,163	$	13,614

Property and Equipment, Net

Property and equipment, net, consisted of the following (in thousands):



	June 30, 2015			December 31, 2014
	June 30, 2015			December 31, 2014
Tooling and manufacturing equipment	$	38,559		$	28,344
Furniture and office equipment	4,180			2,891
Purchased and internally-developed software	1,854			1,396
Leasehold improvements	3,661			3,594
Total property and equipment	48,254			36,225
Less: Accumulated depreciation and amortization	(17,309		)	(9,790		)
Property and equipment, net	$	30,945		$	26,435

Goodwill and Intangible Assets

The changes in the carrying amount of goodwill for the six months ended June 30, 2015 were as follows (in thousands). See Note 13 for additional information.

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FITBIT, INC.

Notes to Condensed Consolidated Financial Statements (Continued)



	Goodwill
Balance at December 31, 2014	$	—
Goodwill acquired	22,562
Subsequent goodwill adjustments	(405		)
Balance at June 30, 2015	$	22,157

There were no intangible assets outstanding as of December 31, 2014. The carrying amounts of the intangible assets as of June 30, 2015 were as follows (in thousands, except useful life). See Note 13 for additional information.



	June 30, 2015							Weighted Average Remaining Useful Life (years)
	Gross		Accumulated Amortization			Net		Weighted Average Remaining Useful Life (years)

Developed technology	$	12,640	$	(558	)	$	12,082	6.7
Trademarks and other	1,278		(97		)	1,181		4.4
Total intangible assets, net	$	13,918	$	(655	)	$	13,263

Total amortization expense related to intangible assets was $0.5 million and $0.7 million for the three and six months ended June 30, 2015, respectively.

The estimated future amortization expense of acquired intangible assets to be charged to cost of revenue and operating expenses after June 30, 2015, is as follows (in thousands):



	Cost of Revenue		Operating Expenses		Total

Remaining 2015	$	883	$	164	$	1,047
2016	1,806		281		2,087
2017	1,806		230		2,036
2018	1,806		230		2,036
2019	1,806		230		2,036
Thereafter	3,975		46		4,021
Total intangible assets, net	$	12,082	$	1,181	$	13,263

Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):



	June 30, 2015		December 31, 2014
	June 30, 2015		December 31, 2014
Product warranty	$	31,063	$	20,098
Employee related liabilities	10,148		4,115
Accrued cooperative advertising and marketing development funds	10,132		7,679
Accrued sales incentives	4,034		2,355
Sales taxes and VAT payable	3,040		2,291
Accrued manufacturing expense	2,113		9,953
Customer deposits	1,864		6,391
Inventory received not billed	—		6,242
Other	17,224		11,816
Accrued liabilities	$	79,618	$	70,940

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FITBIT, INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Product warranty reserve activities were as follows (in thousands) ⁽¹⁾ :



	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Beginning balances	$	23,251		$	6,740		$	20,098		$	8,480
Charged to cost of revenue	14,568			2,494			22,065			2,062
Settlement of claims	(6,756		)	(1,609		)	(11,100		)	(2,917		)
Ending balances	$	31,063		$	7,625		$	31,063		$	7,625


(1)	Does not include reserves established as a result of the recall of the Fitbit Force. See the section titled “—Fitbit Force Recall Reserve” for additional information regarding such reserves.

Fitbit Force Recall Reserve

In March 2014, the Company announced a recall for one of its products, the Fitbit Force (“Fitbit Force Recall”). The product recall, which is regulated by the U.S. Consumer Product Safety Commission, covered all Fitbit Force units sold since the product was first introduced in October 2013. The product recall program has no expiration date.

As a result of the product recall, the Company established reserves that include cost estimates for customer refunds, logistics and handling fees for managing product returns and processing refunds, obsolescence of on-hand inventory, cancellation charges for existing purchase commitments and rework of component inventory with the contract manufacturer, write-offs of tooling and manufacturing equipment, and legal settlement costs.

Fitbit Force recall reserve activities were as follows (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Beginning balances	$	15,104		$	84,239		$	22,476		$	82,938
Charged to revenue	—			—			—			11,561
Charged (benefit) to cost of revenue	—			—			(2,040		)	10,602
Charged (benefit) to general and administrative	69			—			(73		)	505
Settlement of claims	(2,279		)	(27,165		)	(7,469		)	(48,532		)
Ending balances	$	12,894		$	57,074		$	12,894		$	57,074

6. Long-Term Debt

2014 Credit Agreement

In August 2014, the Company entered into an amended and restated credit agreement (“Asset-Based Credit Facility”), with a borrowing limit of $180.0 million . The Asset-Based Credit Facility allows the Company to borrow up to the lesser of (i) $180.0 million , including up to $50.0 million for the issuance of letters of credit and up to $25.0 million for swing line loans and (ii) the borrowing base then in effect less the amount then outstanding under letters of credit and loans. The borrowing base is determined by the Company’s collateral agents based on several variables, including percentages of the book value of certain eligible accounts receivable and a percentage of certain eligible inventories. Borrowings under the Asset-Based Credit Facility may be drawn as Alternate Base Rate or ABR loans or Eurodollar loans, and matures in August 2018. ABR loans bear interest at a variable rate equal to the applicable margin plus the highest of (i) the prime rate, (ii) the federal funds effective rate plus 0.5% , and (iii) the Eurodollar rate plus 1.0% , but in any case at a minimum rate of 3.25% per annum. Eurodollar loans bear interest at a variable rate based on the LIBOR rate and Euro currency reserve requirements. The Company is also required to pay an annual commitment fee on the average daily unused portion of the facility of 0.25% , 0.35% , or 0.45% , based on usage of the facility. As of December 31, 2014 and June 30, 2015 , the effective interest rate on the revolving line of credit was 4.25% .

The Company has the option to repay its borrowings under the Asset-Based Credit Facility without penalty prior to maturity. The Asset-Based Credit Facility requires the Company to comply with certain financial covenants, including maintaining a consolidated fixed charge coverage ratio of at least 1. 1 :1, consolidated leverage ratios of between 3 :1 and 2 :1, and levels of liquidity of not less than $15.0 million . The Asset-Based Credit Facility also requires the Company to comply with certain non-financial covenants. The Company was in compliance with these covenants as of December 31, 2014 and June 30, 2015 .

As of December 31, 2014 , the Company had $125.0 million of outstanding borrowings under the Asset-Based Credit Facility. In January 2015, the Company repaid $125.0 million of its indebtedness under the Asset-Based Credit Facility. As a result, the

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FITBIT, INC.

Notes to Condensed Consolidated Financial Statements (Continued)

long-term debt that was repaid was classified as long-term debt, current portion, on the Company’s condensed consolidated balance sheet as of December 31, 2014 . As of June 30, 2015 , the Company had no outstanding borrowings under the Asset-Based Credit Facility.

2014 Revolving Credit and Guarantee Agreement

In August 2014, the Company entered into a revolving credit and guarantee agreement (“Cash Flow Facility”). In October 2014, the Company amended the Cash Flow Facility to increase the borrowing limit under the Cash Flow Facility. The Cash Flow Facility allows the Company to borrow up to $50.0 million , including up to $10.0 million for the issuance of letters of credit and up to $10.0 million for swing line loans, and matures in August 2018. Borrowings under the Cash Flow Facility may also be drawn as ABR loans or Eurodollar loans. ABR loans under our Cash Flow Facility bear interest at a variable rate equal to the applicable margin plus the highest of (i) 3.5% , (ii) the prime rate, (iii) the federal funds effective rate plus 0.5% , and (iv) the adjusted LIBOR rate plus 1.0% . Eurodollar loans under the Cash Flow Facility bear interest at a variable rate for any day based on the LIBOR rate and Euro currency reserve requirements. The Company is also required to pay an annual commitment fee on the average daily unused portion of the facility of 0.375% or 0.5% , based on usage of the facility. As of December 31, 2014 , and June 30, 2015, the effective interest rate on the revolving line of credit was 3.59% . The Cash Flow Facility also requires the Company to comply with certain financial covenants, including maintaining certain consolidated leverage ratios of between 3 :1 and 2 :1, and other non-financial covenants.

As of December 31, 2014 , the Company had $8.0 million of outstanding borrowings under the Cash Flow Facility. Subsequent to December 31, 2014 , the Company repaid $8.0 million of its indebtedness under the Cash Flow Facility. As of June 30, 2015 , the Company had no outstanding borrowings under the Cash Flow Facility.

The fair value of warrants issued in connection with debt agreements prior to 2012 was recorded as a debt discount and is amortized over the term of the related financing arrangement to interest expense using the straight-line method. In addition, capitalized issuance costs are amortized to interest expense over the term of the related financing arrangement on a straight-line basis. Interest expense was $0.5 million and $0.4 million for the three months ended June 30, 2014 and 2015 , respectively, and $0.9 million and $0.9 million for the six months ended June 30, 2014 and 2015 , respectively.

Letters of Credit

As of December 31, 2014 and June 30, 2015 , the Company had outstanding letters of credit totaling $2.9 million and $3.5 million , respectively, issued to cover various security deposits on the Company’s facility leases.

7. Commitments and Contingencies

Leases

The Company’s principal facility is located in San Francisco, California. The Company also leases office space in various locations with expiration dates between 2015 and 2024. The lease agreements often include leasehold improvement incentives, escalating lease payments, renewal provisions and other provisions which require the Company to pay taxes, insurance, maintenance costs or defined rent increases. All of Company’s leases are accounted for as operating leases. Rent expense is recorded over the lease terms on a straight-line basis. Rent expense was $1.1 million and $1.5 million for the three months ended June 30, 2014 and 2015, respectively, and $2.2 million and $2.6 million for the six months ended June 30, 2014 and 2015 , respectively.

In June 2015, the Company entered into a lease to expand the Company’s existing headquarters. The lease expires in 2024 and future minimum payments under the lease are included in the table below.

Future minimum payments under the leases as of June 30, 2015 were as follows (in thousands):



	Amounts
Remaining 2015	$	3,633
2016	13,106
2017	16,905
2018	16,926
2019	16,263
Thereafter	56,294
Total	$	123,127

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FITBIT, INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Purchase Commitments

The aggregate amount of purchase orders open as of December 31, 2014 and June 30, 2015 was approximately $257.0 million and $344.1 million , respectively. The Company cannot determine the aggregate amount of such purchase orders that represent contractual obligations because purchase orders may represent authorizations to purchase rather than binding agreements. The Company’s purchase orders are based on its current needs and are fulfilled by its suppliers, contract manufacturers, and logistics providers within short periods of time.

Legal Proceedings

Fitbit Force

In 2014, class action and personal injury lawsuits were filed against the Company based upon claims of allergic reactions from adhesives in the Fitbit Force, and alleged violations of various state false advertising and unfair competition statutes based on the Company’s sale and marketing of the Fitbit Force. The class action cases were settled in 2014. Certain personal injury complaints remain outstanding, including several complaints filed in 2015, but the Company believes that liabilities arising under these claims are covered by the Company’s commercial general liability insurance.

Jawbone

On May 27, 2015, Aliphcom, Inc. d/b/a Jawbone (“Jawbone”) filed a lawsuit against the Company and certain of its employees who were formerly employed by Jawbone in the Superior Court of the State of California in the County of San Francisco alleging trade secret misappropriation, breach of contract, breach of implied covenant of good faith and fair dealing, and unfair and unlawful business practices. The complaint alleges, among other things, that prior to leaving Jawbone at various times in 2015, the employees downloaded Jawbone company documents and materials, including allegedly confidential and trade secret information, and that these employees are using such information in the development of the Company’s products. The complaint also alleges that the Company recruited those employees with the intent of using Jawbone’s proprietary information. The complaint seeks unspecified damages, including punitive damages and injunctive relief. On June 26, 2015, the Company and the employee defendants filed demurrers seeking to dismiss Jawbone’s complaint. The demurrers are currently pending and a hearing is scheduled for August 21, 2015.

On June 10, 2015, Jawbone and BodyMedia, Inc., a wholly-owned subsidiary of Jawbone (“BodyMedia”), filed a lawsuit against the Company in the United States District Court for the Northern District of California alleging that the Company infringes three U.S. patents held by them: U.S. Patent No. 8,446,275, titled “General Health and Wellness Management Method and Apparatus For A Wellness Application Using Data From a Data-Capable Band,” U.S. Patent No. 8,073,707, titled “System For Detecting, Monitoring, And Reporting An Individual’s Physiological Or Contextual Status,” and U.S. Patent No. 8,398,546, titled “System For Monitoring And Managing Body Weight And Other Physiological Conditions Including Iterative And Personalized Planning, Intervention And Reporting Capability.” Jawbone and BodyMedia allege that these patents have been infringed by a substantial majority of the Company’s products that it has sold historically, as well as several current products. The complaint seeks unspecified compensatory damages and attorney’s fees from the Company and to permanently enjoin the Company from making, manufacturing, using, selling, importing, or offering the Company’s products for sale.

On July 3, 2015, Jawbone and BodyMedia amended their complaint to add three additional U.S. patents to the infringement claims against the Company: U.S. Patent No. 8,529,811, titled “Component Protective Overmolding Using Protective External Coatings,” U.S. Patent No. 8,793,522, titled “Power Management in a Data-Capable Strapband,” and U.S. Patent No. 8,961,413, titled “Wireless Communications Device and Personal Monitor.”

On July 8, 2015, Jawbone and BodyMedia filed a complaint with the U.S. International Trade Commission (the “ITC”) requesting an investigation into purported violations of the Tariff Act of 1930 by the Company and Flextronics International Ltd. and Flextronics Sales and Marketing (A-P) Ltd. The complaint alleges that the Company’s products infringe the same six U.S. patents at issue in the District Court action. Furthermore, the complaint makes the same allegations of trade secret misappropriation, unfair competition and unfair acts as a result of the Company’s hiring of the former Jawbone employees, as in the State Court action. The complaint seeks a limited exclusion order and a cease and desist order halting the importation and sale of the Company’s products that allegedly infringe upon Jawbone’s patents and misappropriate Jawbone’s trade secrets. On July 24, 2015, Jawbone and BodyMedia filed a letter with the ITC seeking to amend and supplement their ITC complaint. In their letter, Jawbone and BodyMedia, among other things, purport to identify the trade secrets allegedly misappropriated by the employee defendants.

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FITBIT, INC.

Notes to Condensed Consolidated Financial Statements (Continued)

The Company intends to vigorously defend each of the Jawbone litigation matters and, based on its review, the Company believes it has valid defenses with respect to each of these matters. However, litigation is inherently uncertain, and any judgment or injunctive relief entered against the Company or any adverse settlement could materially and adversely impact its business, financial condition, operating results, and prospects. Because the Company is in the early stages of these litigation matters, the Company is unable to estimate a reasonably possible range of loss, if any, that may result from this matter. In addition, these litigation matters are complex, likely to involve significant management time and attention, and the cost of defending these matters is likely to be expensive, regardless of outcome.

Other

The Company is and, from time to time, may in the future become, involved in other legal proceedings in the ordinary course of business. The Company currently believes that the outcome of any of these existing legal proceedings, either individually or in the aggregate, will not have a material impact on the operating results, financial condition or cash flows of the Company. With respect to existing legal proceedings, the Company has either determined that the existence of a material loss is not reasonably possible or that it is unable to estimate a reasonably possible range of loss.

Indemnifications

In the ordinary course of business, the Company enters into agreements that may include indemnification provisions. Pursuant to such agreements, the Company may indemnify, hold harmless and defend an indemnified parties for losses suffered or incurred by the indemnified party. Some of the provisions will limit losses to those arising from third-party actions. In some cases, the indemnification will continue after the termination of the agreement. The maximum potential amount of future payments the Company could be required to make under these provisions is not determinable. To date, the Company has not incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. The Company has also entered into indemnification agreements with its directors and officers that may require the Company to indemnify its directors and officers against liabilities that may arise by reason of their status or service as directors or officers to the fullest extent permitted by Delaware corporate law. The Company also currently has directors’ and officers’ insurance.

8. Redeemable Convertible Preferred Stock and Warrants

Redeemable Convertible Preferred Stock

Upon the closing of the Company’s IPO, all shares of the Company’s then-outstanding redeemable convertible preferred stock, as shown in the table below, automatically converted on a one-for-one basis into an aggregate of 139,851,483 shares of Class B common stock. Redeemable convertible preferred stock outstanding as of December 31, 2014 and as of immediately prior to the conversion into Class B common stock consisted of the following (in thousands, except per share data):



	Shares Authorized	Shares Outstanding	Price per Share		Net Carrying Value		Liquidation Preference
Series A	10,200	10,200	$	0.04167	$	421	$	425
Series A-1	22,369	22,369	0.09165		2,000		2,050
Series B	42,360	42,052	0.21580		10,533		9,075
Series C	39,600	36,080	0.33452		12,049		12,069
Series D	30,000	29,150	1.47513		42,811		43,000
Total	144,529	139,851			$	67,814	$	66,619

Redeemable Convertible Preferred Stock Warrants

As of December 31, 2014, and until immediately prior to the completion of the IPO, the Company had the following redeemable convertible preferred stock warrants issued and outstanding (in thousands, except per share data):

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FITBIT, INC.

Notes to Condensed Consolidated Financial Statements (Continued)



Warrant Class	Number of Shares Underlying Warrants	Fair Value		Issuance Date	Exercise Price per Share
Warrant Class	Number of Shares Underlying Warrants	Fair Value		Issuance Date	Exercise Price per Share

Series B	278	$	2,351	June 2011	$	0.22
Series C	57	475		April 2012	0.33
Series C	1,215	9,728		September 2012	0.67
Series C ⁽¹⁾	405	3,243		September 2012	0.67
Total	1,955	$	15,797


(1)	Represents additional shares that may be exercised pursuant to the Series C redeemable convertible preferred stock warrant issued in September 2012 due to a draw down on a debt financing arrangement in March 2013.

Prior to the IPO, as the redeemable convertible preferred stock warrants were exercisable into contingently redeemable preferred shares, the Company had recognized a liability for the fair value of its warrants upon issuance and subsequently remeasured the liability at the end of each reporting period. The Company estimated the fair values of the redeemable convertible preferred stock warrants using the Black-Scholes option-pricing model based on inputs as of the valuation measurement dates, including the fair values of our convertible preferred stock, the estimated volatility of the price of our convertible preferred stock, the expected term of the warrants, and the risk-free interest rates.

Immediately prior to the completion of the IPO, the Company issued 274,992 shares of Series B redeemable convertible preferred stock and 1,210,591 shares of Series C redeemable convertible preferred stock upon the exercise of 277,992 and 1,251,357 of Series B and Series C redeemable convertible preferred stock warrants, respectively, after the forfeiture of 3,000 and 40,766 Series B and Series C redeemable convertible preferred stock warrants, respectively. The shares issued upon the net exercise were sold as Class A common stock in the IPO. In addition, all of the remaining outstanding redeemable convertible preferred stock warrants automatically converted to Class B common stock warrants upon closing of the IPO. As a result of the net exercise of redeemable convertible preferred stock warrants and automatic conversion of the remaining warrants to Class B common stock warrants, the Company revalued the warrants as of the completion of the IPO and reclassified the remaining redeemable convertible preferred stock warrant liability balance related to the unexercised warrants to additional paid-in capital. As of June 30, 2015, there were 425,643 Class B common stock warrants outstanding. These Class B common stock warrants expire in June 2025 and are exercisable at an exercise price of $0.67 per share.

9. Stock Plan

Preferred Stock

Upon completion of its IPO on June 22, 2015, the Company filed a Restated Certificate of Incorporation, which authorized the issuance of preferred stock with rights and preferences, including voting rights, designated from time to time by the board of directors. As of June 30, 2015, there were 10,000,000 shares of preferred stock authorized with a par value of $0.0001 per share, and no shares of preferred stock issued or outstanding.

Common Stock

As of December 31, 2014, the Company had 230,400,000 shares of common stock authorized for issuance and 40,875,583 shares issued and outstanding. In connection with the IPO, the Company established two classes of authorized common stock, Class A common stock and Class B common stock. All shares of common stock outstanding immediately prior to the IPO were converted into an equivalent amount of shares of Class B common stock. As of June 30, 2015, the Company had 600,000,000 shares of Class A common stock authorized with a par value of $0.0001 per share and 350,000,000 shares of Class B common stock authorized with a par value of $0.0001 per share. As of June 30, 2015, 42,061,250 shares of Class A common stock were issued and outstanding and 164,625,960 shares of Class B common stock were issued and outstanding.

Holders of Class A common stock are entitled to one vote for each share of Class A common stock held on all matters submitted to a vote of stockholders and holders of Class B common stock are entitled to ten votes for each share of Class B common stock held on all matters submitted to a vote of stockholders. Except with respect to voting, the rights of the holders of Class A and Class B common stock are identical. Shares of Class B common stock are voluntarily convertible into shares of Class A common stock at the option of the holder and generally automatically convert into shares of our Class A common stock upon a transfer.

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FITBIT, INC.

Notes to Condensed Consolidated Financial Statements (Continued)

2007 Equity Incentive Plan

In September 2007, the Company adopted the Amended and Restated 2007 Stock Plan (the “2007 Plan”), which was most recently amended in March 2015. The 2007 Plan provided for the grant of incentive and non-statutory stock options and RSUs to employees, directors, and consultants under terms and provisions established by the board of directors. The 2015 Equity Incentive Plan (the “2015 Plan”) became effective on June 16, 2015. As a result, the Company will not grant any additional stock options under the 2007 Plan and the 2007 Plan has terminated. Any outstanding stock options and RSUs granted under the 2007 Plan will remain outstanding, subject to the terms of the 2007 Plan and applicable award agreements, until such shares are issued under those awards, by exercise of stock options or settlement of RSUs, or until the awards terminate or expire by their terms. Stock options and RSUs granted under the 2007 Plan generally have terms similar to those described below with respect to stock options and RSUs granted under the 2015 Plan.

2015 Equity Incentive Plan

In May 2015, the Company’s board of directors and stockholders adopted and approved the 2015 Plan. The 2015 Plan became effective on June 16, 2015 and serves as the successor to the 2007 Plan. The remaining shares available for issuance under the 2007 Plan became reserved for issuance under the 2015 Plan, and the Company ceased granting awards under the 2007 Plan. The number of shares reserved for issuance under the 2015 Plan will increase automatically on the first day of January of each year starting in 2016 through 2025 by the number of shares of Class A common stock equal to 5% of the total outstanding shares of common stock as of the immediately preceding December 31. The share reserve may also increase to the extent that outstanding awards expire or terminate un-exercised. As of June 30, 2015, 6,274,474 shares were reserved for issuance under the 2015 Plan.

The 2015 Plan authorizes the award of stock options, restricted stock awards, stock appreciation rights, RSUs, performance awards, and stock bonuses to employees, directors, consultants, independent contractors, and advisors. In general, stock options and RSUs will vest over a four -year period, and have a maximum term of ten years . The exercise price of an option will be not less than 100% of the fair market value of the shares on the date of grant.

2015 Employee Stock Purchase Plan

In May 2015, the Company’s board of directors adopted the 2015 Employee Stock Purchase Plan (“2015 ESPP”), which became effective on June 17, 2015. A total of 3,750,000 shares of Class A common stock were initially reserved for issuance under the 2015 ESPP. The 2015 ESPP allows eligible employees to purchase shares of the Company’s Class A common stock at a discount through payroll deductions of up to 15% of eligible compensation, subject to any plan limitations. Except for the initial offering period, the 2015 ESPP provides for 6-month offering periods beginning in May and November of each year. The initial offering period began June 17, 2015, and will end in May 2016.

On each purchase date, eligible employees will purchase Class A common stock at a price per share equal to 85% of the lesser of the fair market value of the Company’s common stock (i) on the first trading day of the applicable offering period and (2) the last trading day of each purchase period in the applicable offering period. For the first offering period, which began on June 17, 2015, the fair market value of the common stock on the offering date was $20.00 , the price at which the Company’s Class A common stock was first sold to the public in its IPO, as specified in the final prospectus filed with the SEC on June 18, 2015, pursuant to Rule 424(b).

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FITBIT, INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Stock Options

Stock option activity under the equity incentive plans was as follows:



	Options Outstanding
	Number of Shares Subject to Options		Weighted– Average Exercise Price		Aggregate Intrinsic Value
	(in thousands)				(in thousands)
Balance—December 31, 2014	44,009		$	1.72	$	207,863
Granted	6,844		10.27
Exercised	(719	)	0.62		$	10,737
Forfeited or canceled	(896	)	3.34
Balance—June 30, 2015	49,238		2.90		$	1,739,756

Options exercisable—June 30, 2015	20,528		0.51		$	774,329
Options vested and expected to vest—June 30, 2015	46,462		2.81		$	1,645,537

The aggregate intrinsic values of options outstanding, exercisable, vested and expected to vest as of June 30, 2015 were calculated as the difference between the exercise price of the options and the fair value of the Class A common stock of $38.23 as of June 30, 2015 .

The total grant date fair value of options that vested during the three months ended June 30, 2014 and 2015 was $0.3 million and $4.7 million , respectively, and during the six months ended June 30, 2014 and 2015 was $0.5 million and $6.5 million , respectively.

Restricted Stock Units

RSU activity under the equity incentive plans was as follows:



	RSUs Outstanding	Weighted- Average Grant Date Fair Value
	(in thousands)
Unvested balance—December 31, 2014	—	$	—
Granted	504	15.70
Unvested balance—June 30, 2015	504	15.70

Stock-Based Compensation Expense

Total stock-based compensation recognized was as follows (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014

Cost of revenue	$	825	$	129	$	1,271	$	188
Research and development	3,138		192		5,017		284
Sales and marketing	1,322		120		2,629		183
General and administrative	2,462		220		3,733		320
Total stock-based compensation expense	$	7,747	$	661	$	12,650	$	975

As of June 30, 2015 , the total unrecognized compensation expense related to unvested options, net of estimated forfeitures, was $82.0 million , which the Company expects to recognize over an estimated weighted average period of 3.5 years. As of June 30, 2015 , the total unrecognized compensation expense related to unvested RSUs, net of estimated forfeitures, was $6.8 million , which the Company expects to recognize over an estimated weighted average period of 3.3 years. As of June 30, 2015 , the total

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FITBIT, INC.

Notes to Condensed Consolidated Financial Statements (Continued)

unrecognized compensation expense related to unvested common stock issued in connection with the Company’s acquisition of FitStar, Inc. (“FitStar”), net of estimated forfeitures, was $3.1 million , which the Company expects to recognize over an estimated weighted average period of 2.7 years. See Note 13 for additional information on the acquisition.

Stock-based compensation is measured at the grant date based on the fair value of the award and is recognized as expense, net of estimated forfeitures, over the requisite service period, which is generally the vesting period of the respective award. The fair value of RSUs is the fair value of the Company’s common stock on the grant date. In determining the fair value of the options and the 2015 ESPP, the Company uses the Black-Scholes option-pricing model and assumptions discussed below. Each of these inputs is subjective and generally requires significant judgment.

Prior to the Company’s IPO, the fair value of the shares of common stock underlying stock options was historically established by the Company’s board of directors, and was based in part upon a valuation provided by an independent third-party valuation firm. Subsequent to the completion of the IPO, the Company uses the market closing price for Class A common stock as reported on the New York Stock Exchange. The Company has consistently used peer company volatilities for calculating the expected volatilities for employee stock options and the 2015 ESPP. The expected term of options granted to employees is based on the simplified method as the Company does not have sufficient historical exercise data, and the expected term of the 2015 ESPP is based on the contractual term. The risk-free interest rate for the expected term of the options and the 2015 ESPP is based on the U.S. Treasury yield curve in effect at the time of grant. The Company recognizes its stock-based compensation related to options using a straight-line method over the vesting term of the awards. The Company recognizes its stock-based compensation related to ESPP using a straight-line method over the offering period.

In addition, the Company is required to estimate the amount of stock-based compensation that it expects to be forfeited based on historical experience. The assumptions used in calculating the fair value of the stock-based awards represent management judgment. As a result, if factors change and different assumptions are used, the stock-based compensation expense could be materially different in the future.

The fair value of the stock option awards granted to employees was estimated at the date of grant using a Black-Scholes option-pricing model with the following assumptions:



	Three Months Ended June 30,		Six Months Ended June 30,
	2015	2014	2015	2014
Employee stock options
Expected term in years	6.25	6.25	6.25	6.25
Volatility	52.7% - 55.1%	60.8% - 60.9%	52.7% - 56.9%	60.8% - 60.9%
Risk-free interest rate	1.5% - 1.9%	1.9% - 2.0%	1.5% - 1.9%	1.9% - 2.0%
Dividend yield	—%	—%	—%	—%
Employee stock purchase plan
Expected term in years	0.92	—	0.92	—
Volatility	55%	—%	55%	—%
Risk-free interest rate	0.3%	—%	0.3%	—%
Dividend yield	—%	—%	—%	—%

10. Income Taxes

The Company is subject to income tax in the United States as well as other tax jurisdictions in which it conducts business. Earnings from non-U.S. activities are subject to local country income tax. The Company does not provide for federal income taxes on the undistributed earnings of its foreign subsidiaries as such earnings are to be reinvested indefinitely.

For the three and six months ended June 30, 2015, the Company recorded an expense for income taxes of $17.0 million and $45.4 million , respectively, for an effective tax rate of 49.1% and 40.9% , respectively. The effective tax rate is higher than the statutory federal tax rate primarily due to certain permanent differences related to the change in fair value of the redeemable convertible preferred stock warrant liability and non-deductible stock-based compensation expense, partially offset by non-taxable income associated with contingent consideration from the FitStar acquisition and a permanent domestic production activities deduction. For the three and six months ended June 30, 2014, the Company recorded an expense for income taxes of $6.9 million and $12.2 million , respectively, for an effective tax rate of 32.0% and 34.1% , respectively. The tax expense for the three and six

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FITBIT, INC.

Notes to Condensed Consolidated Financial Statements (Continued)

months ended June 30, 2014 reflect current income tax expense on earnings as the Company recorded a valuation allowance against its U.S. deferred tax assets as of June 30, 2014.

At June 30, 2015, the total amount of gross unrecognized tax benefits was $13.5 million , all of which would affect the effective tax rate if recognized. The Company does not have any tax positions as of June 30, 2015 for which it is reasonably possible the total amount of gross unrecognized tax benefits will increase or decrease within the following 12 months. The Company’s policy is to record interest and penalties related to unrecognized tax benefits as income tax expense. During the three and six months ended June 30, 2015, the Company recorded $0.1 million and $0.4 million , respectively, related to the accrual of interest and penalties. During the three and six months ended June 30, 2014, the Company recorded a negligible amount related to the accrual of interest and penalties.

11. Net Income per Share Attributable to Common Stockholders

Basic and diluted net income per share attributable to common stockholders is presented in conformity with the two-class method required for participating securities. The Company considers its redeemable convertible preferred stock to be participating securities. In connection with the IPO, the Company established two classes of authorized common stock: Class A common stock and Class B common stock. As a result, all then-outstanding shares of common stock were converted into shares of Class B common stock. The rights of the holders of Class A and Class B common stock are identical, except with respect to voting and conversion. Each share of Class A common stock is entitled to one vote per share and each share of Class B common stock is entitled to ten votes per share. Each share of Class B common stock is convertible at any time at the option of the stockholder into one share of Class A common stock, generally automatically converts into Class A common stock upon a transfer, and has no expiration date.

Undistributed earnings allocated to participating securities are subtracted from net income in determining net income attributable to common stockholders. Basic net income per share attributable to common stockholders is computed by dividing the net income attributable to common stockholders by the weighted-average number of common shares outstanding during the period. All participating securities are excluded from basic weighted-average common shares outstanding.

For the calculation of diluted EPS, net income attributable to common stockholders for basic EPS is adjusted by the effect of dilutive securities. Diluted net income per share attributable to common stockholders is computed by dividing the net income attributable to common stockholders by the weighted-average number of common shares outstanding, including all potentially dilutive common shares, if the effect of each class of potential shares of common stock is dilutive. The undistributed earnings are allocated based on the contractual participation rights of the Class A and Class B common shares as if the earnings for the year have been distributed. As the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis. The computation of the diluted net income per share of Class A common stock assumes the conversion of Class B common stock, while diluted net income per share of Class B common stock does not assume the conversion of Class A common stock as Class A common stock is not convertible into Class B common stock.

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FITBIT, INC.

Notes to Condensed Consolidated Financial Statements (Continued)

The following table sets forth the computation of the Company’s basic and diluted net income per share attributable to common stockholders (in thousands, except per share amounts):



	Three Months Ended June 30,									Six Months Ended June 30,
	2015						2014			2015						2014
	Class A			Class B			Class B			Class A			Class B			Class B
Numerator:
Net income	$	1,256		$	16,425		$	14,753		$	2,752		$	62,926		$	23,625
Less: noncumulative dividends to preferred stockholders	(86		)	(1,126		)	(1,327		)	(106		)	(2,420		)	(2,640		)
Less: undistributed earnings to participating securities	(799		)	(10,445		)	(10,423		)	(1,924		)	(43,983		)	(16,293		)
Net income attributable to common stockholders—basic	$	371		$	4,854		$	3,003		$	722		$	16,523		$	4,692
Add: adjustments to undistributed earnings to participating securities	1,862			1,731			1,058			7,003			6,717			1,618
Reallocation of net income as a result of conversion of Class B to Class A common stock	4,854			—			—			16,523			—			—
Reallocation of net income to Class B common stock	—			191			—			—			$	392		—
Net income attributable to common stockholders—diluted	$	7,087		$	6,776		$	4,061		$	24,248		$	23,632		$	6,310

Denominator:
Weighted-average shares of common stock—basic	4,160			54,388			40,193			2,091			47,831			40,174
Conversion of Class B to Class A common stock	54,388			—			—			47,831			—			—
Effect of potentially dilutive stock options, RSUs, common stock warrants, and ESPP	36,642			36,618			20,294			32,919			32,907			19,809
Weighted-average shares of common stock—diluted	95,190			91,006			60,487			82,841			80,738			59,983
Net income per share attributable to common stockholders:
Basic	$	0.09		$	0.09		$	0.07		$	0.35		$	0.35		$	0.12
Diluted	$	0.07		$	0.07		$	0.07		$	0.29		$	0.29		$	0.11

The following common stock equivalents were excluded from the computation of diluted net income per share for the periods presented because including them would have been anti-dilutive (in thousands):



	Three Months Ended June 30,		Six Months Ended June 30,
	2015	2014	2015	2014

Redeemable convertible preferred stock	126,020	139,504	132,898	139,504
Stock options to purchase common stock	—	1,550	799	1,219
Redeemable convertible preferred stock warrants	1,808	2,303	1,808	1,794
Total	127,828	143,357	135,505	142,517

12. Significant Customer Information and Other Information

Retailer and Distributor Concentration

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FITBIT, INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Retailers and distributors with revenue equal to or greater than 10% of total revenue for the three and six months ended June 30, 2014 and 2015 were as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014

A	14	%	15	%	16	%	12	%
B	14		*		12		13
C	13		15		12		14
D	11		*		*		*

*Revenue was less than 10%.

Retailers and distributors that accounted for equal to or greater than 10% of net accounts receivable at December 31, 2014 and June 30, 2015 were as follows:



	June 30, 2015		December 31, 2014
	June 30, 2015		December 31, 2014

B	17	%	17	%
D	17		13
C	16		14
A	11		*
E	*		10

* Accounts receivable were less than 10%.

Geographic and Other Information

Revenue by geographic region, based on ship-to destinations, was as follows (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014

United States	$	312,666	$	88,504	$	577,975	$	178,335
Americas excluding United States	16,799		7,177		30,228		10,893
Europe, Middle East, and Africa	39,712		9,915		74,768		18,639
APAC	31,235		7,976		54,195		14,520
Total	$	400,412	$	113,572	$	737,166	$	222,387

As of December 31, 2014 and June 30, 2015 , long-lived assets, which represent property and equipment, located outside the United States were $20.0 million and $23.7 million , respectively.

13. Acquisition

In March 2015, the Company acquired all of the outstanding securities of FitStar, a provider of interactive video-based exercise experiences on mobile devices and computers that utilize proprietary algorithms to adjust and customize workouts for individual users, for aggregate acquisition consideration of $32.5 million ,. The aggregate acquisition consideration was comprised of $13.3 million related to the issuance of 1,059,688 shares of the Company’s Class B common stock, $11.5 million of cash, and $7.7 million of contingent consideration. The acquisition is expected to enhance the Company’s software and services offerings.

As of the acquisition date, the Company was potentially obligated to issue additional common stock or pay cash to FitStar shareholders. The actual amount of any contingent consideration paid with respect to the FitStar acquisition, if any, was dependent on market-based events in the future. The Company determined the fair market value of this contingent consideration to be $7.7 million as of the acquisition date using the Monte Carlo simulation method. The fair value of this liability is adjusted at each reporting period, and the change in fair value is included in total operating expenses on the condensed consolidated statement of

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FITBIT, INC.

Notes to Condensed Consolidated Financial Statements (Continued)

operations. As a result of the Company’s IPO, the Company recorded a change in fair value of $7.7 million as a benefit and as of June 30, 2015, the fair value of the contingent consideration liability was zero . In addition, the terms related to the contingent consideration have expired as of the date of this Report on Form 10-Q.

The following table summarizes the fair value of assets acquired and liabilities assumed (in thousands):




Goodwill	$	22,157
Developed and core technology	12,640
Customer relationships	128
Trademarks	1,150
Assumed liabilities, net of assets	(3,552		)
Total	$	32,523

The amortization periods of the acquired developed technology, customer relationships, and trademarks are 7.0 years , 1.3 years , and 5.0 years , respectively. Goodwill is not deductible for tax purposes.

In addition, upon acquisition, the Company issued 308,216 additional shares of common stock valued at $4.2 million . The Company is also obligated to make cash payments up to $1.2 million . Both the common stock and the cash payments are additional consideration which is contingent upon former employees of FitStar continuing to be employed by the Company. As such, this additional consideration was not part of the purchase price and is recognized as post-acquisition compensation expense over the related requisite service period of 3 years . The Company also recorded acquisition-related transaction costs of $0.3 million , which were included in general and administrative expenses in the condensed consolidated statement of operations during the six months ended June 30, 2015.

The results of operations of FitStar are included in the accompanying condensed consolidated statements of operations from the date of acquisition. Pro forma results of operations for this acquisition have not been presented because they are not material to the Company’s condensed consolidated financial statements.

14. Subsequent Events

In July 2015, the Company established a letter of credit of $13.3 million in connection with the security deposit required for the facility lease to expand the Company’s existing headquarters.

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

This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of the federal securities laws. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. In some cases, forward-looking statements can be identified by the use of terminology such as “believe,” “may,” “will,” “intend,” “expect,” “plan,” “anticipate,” “estimate,” “potential,” or “continue,” or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, these expectations or any of the forward-looking statements could prove to be incorrect, and actual results could differ materially from those projected or assumed in the forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to risks and uncertainties, including but not limited to the factors set forth in this Quarterly Report on Form 10-Q under Part II, Item 1A. Risk Factors. All forward-looking statements and reasons why results may differ included in this Quarterly Report on Form 10-Q are made as of the date of the filing of this Quarterly Report on Form 10-Q, and we assume no obligation to update any such forward-looking statements or reasons why actual results may differ. The following discussion should be read in conjunction with our condensed consolidated financial statements and notes thereto appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Overview

Fitbit is transforming the way millions of people around the world achieve their health and fitness goals. The Fitbit platform combines connected health and fitness devices with software and services, including an online dashboard and mobile apps, data analytics, motivational and social tools, personalized insights, and virtual coaching through customized fitness plans and interactive workouts. Our platform helps people become more active, exercise more, sleep better, eat smarter, and manage their weight. We pioneered the connected health and fitness market starting in 2007, and since then, we have grown into a leading global health and fitness brand. As of June 30, 2015, we have sold over 25.3 million devices since inception.

The core of our platform is our family of six wearable connected health and fitness trackers. These wrist-based and “clippable” devices automatically track users’ daily steps, calories burned, distance traveled, floors climbed, and active minutes and display real-time feedback to encourage them to become more active in their daily lives. Most of our trackers also measure sleep duration and quality, and our more advanced products track heart rate and GPS-based information such as speed, distance, and exercise routes. Several of our devices also feature deeper integration with smartphones, such as the ability to receive call and text notifications and control music. In addition, we offer a Wi-Fi connected scale that records weight, body fat, and BMI. We are able to enhance the functionality and features of our connected devices through wireless updates. Our platform also includes our online dashboard and mobile apps, which wirelessly and automatically sync with our devices. Our platform allows our users to see trends and achievements, access motivational tools such as virtual badges and real-time progress notifications, and connect, support, and compete with friends and family. We intend to continue to significantly invest in research and development in order to enhance our products and services.

We design our products primarily in California and outsource the production of our devices to contract manufacturers, which are responsible for procuring most of the components used in the manufacturing of our products from third-party suppliers. We also outsource packaging and fulfillment to third-party logistics providers around the world.

We generate substantially all of our revenue from sales of our connected health and fitness devices. We sell our products in over 45,000 retail stores and in more than 50 countries, through our retailers’ websites, through our online store at Fitbit.com, and as part of our corporate wellness offering. We seek to build global brand awareness, increase product adoption, and drive sales through our sales and marketing efforts. We intend to continue to significantly invest in these sales and marketing efforts in the future.

Our growth will depend in part on the adoption and sale of our products and services in international markets. In 2014 and for the three months and six months ended June 30, 2015, 25%, 22%, and 22%, respectively, of our revenue, based on ship-to destinations, was from sales outside of the United States. We believe international markets represent a significant growth opportunity for us. We intend to expand sales of our products and services in new and existing international markets by expanding our distribution channels through select retailers and strategic partnerships. We also intend to continue to invest across all geographic regions in sales and marketing efforts, including increasing our global advertising efforts, and in infrastructure and personnel to support our international expansion, including establishing additional sales offices globally. Our international expansion efforts have resulted and will continue to result in increased costs and are subject to a variety of risks, including increased competition, uncertain

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enforcement of our intellectual property rights, more complex distribution logistics, and the complexity of compliance with foreign laws and regulations.

For the three months ended June 30, 2014 and 2015, we had revenue of $113.6 million and $400.4 million, respectively, net income of $14.8 million and $17.7 million, respectively, and adjusted EBITDA of $29.1 million and $86.2 million, respectively. For the six months ended June 30, 2014 and 2015, we had revenue of $222.4 million and $737.2 million, respectively, net income of $23.6 million and $65.7 million, respectively, and adjusted EBITDA of $71.1 million and $179.6 million, respectively. In the three months ended June 30, 2014 and 2015, we sold 1.7 million and 4.5 million devices, respectively. In the six months ended June 30, 2014 and 2015, we sold 3.3 million and 8.3 million devices, respectively. See the section titled “—Key Business Metrics” for additional information regarding devices sold and adjusted EBITDA, including a reconciliation of adjusted EBITDA to net income.

Key Business Metrics

In addition to the measures presented in our condensed consolidated financial statements, we use the following key metrics to evaluate our business, measure our performance, develop financial forecasts, and make strategic decisions (in thousands).



	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014

Devices sold	4,458		1,720		8,324		3,295
Adjusted EBITDA	$	86,245	$	29,088	$	179,628	$	71,116

Devices Sold

Devices sold represents the number of connected health and fitness devices that are sold during a period, net of expected returns and provisions for the Fitbit Force recall. Devices sold does not include sales of accessories. Growth rates between devices sold and revenue are not necessarily correlated because our revenue is affected by other variables, such as the types of products sold during the period, the introduction of new product offerings that have different U.S. manufacturer’s suggested retail prices, and sales of accessories and premium services.

Adjusted EBITDA

To supplement our condensed consolidated financial statements presented in accordance with generally accepted accounting principles in the United States, or U.S. GAAP, we monitor and consider adjusted EBITDA, which is a non-GAAP financial measure. This non-GAAP financial measure is not based on any standardized methodology prescribed by U.S. GAAP and is not necessarily comparable to similarly-titled measures presented by other companies.

We define adjusted EBITDA as net income adjusted to exclude the impact of the Fitbit Force recall, stock-based compensation expense, the revaluation of our redeemable convertible preferred stock warrant liability, depreciation and intangible assets amortization, change in contingent consideration, interest expense, net, and income tax expense.

We use adjusted EBITDA to evaluate our operating performance and trends and make planning decisions. We believe that adjusted EBITDA helps identify underlying trends in our business that could otherwise be masked by the effect of the expenses and other items that we exclude in adjusted EBITDA. In particular, the exclusion of the effect of the Fitbit Force recall, which primarily impacted our results for the fourth quarter of 2013 and the first quarter of 2014, discussed in “—Fitbit Force Product Recall” and certain expenses in calculating adjusted EBITDA can provide a useful measure for period-to-period comparisons of our business. Additionally, we use this measure to evaluate our operating performance and trends and make planning decisions. Accordingly, we believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects, and allowing for greater transparency with respect to a key financial metric used by our management in its financial and operational decision-making.

Adjusted EBITDA is not prepared in accordance with U.S. GAAP, and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with U.S. GAAP. There are a number of limitations related to the use of this non-GAAP financial measure rather than net income, which is the nearest U.S. GAAP equivalent of adjusted EBITDA. For example, adjusted EBITDA excludes the Fitbit Force recall, which primarily impacted our results for the fourth quarter of 2013 and the first quarter of 2014, and which had a negative impact on our revenue and expenses during these periods. In addition, adjusted EBITDA

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excludes stock-based compensation expense, which has recently been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy. Accordingly, adjusted EBITDA should be considered along with other operating and financial performance measures presented in accordance with U.S. GAAP.

The following table presents a reconciliation of net income to adjusted EBITDA (in thousands):



	Three Months Ended June 30,					Six Months Ended June 30,
	2015			2014		2015			2014
Net income	$	17,681		$	14,753	$	65,678		$	23,625
Impact of Fitbit Force recall	69			1,483		(2,113		)	26,522
Stock-based compensation expense	7,747			661		12,650			975
Revaluation of redeemable convertible preferred stock warrant liability	46,320			3,842		56,655			5,195
Depreciation and intangible assets amortization	4,705			963		8,174			1,713
Change in contingent consideration	(7,704		)	—		(7,704		)	—
Interest expense, net	379			452		846			861
Income tax expense	17,048			6,934		45,442			12,225
Adjusted EBITDA	$	86,245		$	29,088	$	179,628		$	71,116

Components of our Operating Results

Revenue

We generate substantially all of our revenue from the sale of our connected health and fitness devices and accessories. We also generate a small portion of our revenue from our subscription-based premium services.

Cost of Revenue

Cost of revenue consists of product costs, including costs of contract manufacturers for production, shipping and handling costs, warranty replacement costs, packaging, costs related to the Fitbit Force recall, fulfillment costs, manufacturing and tooling equipment depreciation, warehousing costs, excess and obsolete inventory write-downs, and certain allocated costs related to management, facilities, and personnel-related expenses and other expenses associated with supply chain logistics. Personnel-related expenses include salaries, bonuses, benefits, and stock-based compensation.

Operating Expenses

Operating expenses consist of research and development, sales and marketing, and general and administrative expenses.

Research and Development . Research and development expenses consist primarily of personnel-related expenses, consulting and contractor expenses, tooling and prototype materials, and allocated overhead costs.

Substantially all of our research and development expenses are related to developing new products and services and improving our existing products and services. To date, research and development expenses have been expensed as incurred, because the period between achieving technological feasibility and the release of products and services for sale has been short and development costs qualifying for capitalization have been insignificant.

We expect our research and development expenses to increase in absolute dollars as we continue to make significant investments in developing new products and services and enhancing existing products and services.

Sales and Marketing. Sales and marketing expenses represent the largest component of our operating expenses and consist primarily of advertising and marketing promotions of our products and services and personnel-related expenses, as well as sales incentives, trade show and event costs, sponsorship costs, consulting and contractor expenses, travel, POP display expenses and related amortization, and allocated overhead costs. We expect our sales and marketing expenses to increase in absolute dollars as we continue to actively promote our products and services.

General and Administrative . General and administrative expenses consist of personnel-related expenses for our finance, legal, human resources, and administrative personnel, as well as the costs of professional services, any allocated overhead,

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information technology, and other administrative expenses. We expect our general and administrative expenses to increase in absolute dollars due to the anticipated growth of our business and related infrastructure as well as legal, accounting, insurance, investor relations, and other costs associated with becoming a public company.

Change in contingent consideration. The change in contingent consideration relates to the benefit received for the reversal of a contingent liability incurred in connection with the acquisition of FitStar, Inc. See Note 13 of the notes to our condensed consolidated financial statements for additional information.

Interest Expense, Net

Interest expense, net consists of interest expense associated with our debt financing arrangements, amortization of debt issuance costs, and interest income earned on our cash and cash equivalents.

Other Expense, Net

Other expense, net consists of mark-to-market adjustments for the revaluation of our redeemable convertible preferred stock warrant liability and foreign currency gains and losses.

Income Tax Expense

We are subject to income taxes in the United States and foreign jurisdictions in which we do business. These foreign jurisdictions have statutory tax rates different from those in the United States. Accordingly, our effective tax rates will vary depending on the relative proportion of foreign to U.S. income, the utilization of foreign tax credits, and changes in tax laws.

Fitbit Force Product Recall

In March 2014, we recalled the Fitbit Force after some of our users experienced allergic reactions to adhesives in the wristband. This recall primarily impacted our results for the fourth quarter of 2013 and the first quarter of 2014. We established a reserve for the Fitbit Force recall after considering various factors including cost estimates for customer returns, logistics and handling fees for managing product returns and processing refunds, obsolescence of on-hand inventory, cancellation charges for existing purchase commitments, rework of component inventory with the contract manufacturer, legal fees and settlement costs, and write-offs of tooling and manufacturing equipment.

The recall had the following effect on our income before income taxes (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Reduction of revenue	$	—		$	—		$	—		$	(11,561	)
Incremental (benefit to) cost of revenue	—			—			(2,040		)	10,602
Impact on gross profit	—			—			2,040			(22,163		)
Incremental general and administrative expenses (benefit)	69			1,483			(73		)	4,359
Impact on income before income taxes	$	(69	)	$	(1,483	)	$	2,113		$	(26,522	)

Operating Results

The following tables set forth the components of our condensed consolidated statements of operations for each of the periods presented and as a percentage of our revenue for those periods. The period-to-period comparison of operating results is not necessarily indicative of results for future periods.

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	Three Months Ended June 30,						Six Months Ended June 30,
	2015 ⁽¹⁾			2014 ⁽¹⁾			2015 ⁽¹⁾			2014 ⁽¹⁾
	(in thousands)
Consolidated Statements of Operations Data:
Revenue	$	400,412		$	113,572		$	737,166		$	222,387
Cost of revenue ⁽²⁾	212,870			55,183			380,415			119,229
Gross profit	187,542			58,389			356,751			103,158
Operating expenses:
Research and development ⁽²⁾	30,492			11,809			52,918			20,897
Sales and marketing ⁽²⁾	69,690			13,311			113,557			24,584
General and administrative ⁽²⁾	14,648			7,443			27,629			16,060
Change in contingent consideration	(7,704		)	—			(7,704		)	—
Total operating expenses	107,126			32,563			186,400			61,541
Operating income	80,416			25,826			170,351			41,617
Interest expense, net	(379		)	(452		)	(846		)	(861		)
Other expense, net	(45,308		)	(3,687		)	(58,385		)	(4,906		)
Income before income taxes	34,729			21,687			111,120			35,850
Income tax expense	17,048			6,934			45,442			12,225
Net income	$	17,681		$	14,753		$	65,678		$	23,625


(1)	In March 2014, we recalled the Fitbit Force. See the section titled “—Fitbit Force Product Recall” for additional information. The recall, which primarily affected our results for the fourth quarter of 2013 and the first quarter of 2014, had the following effect on our income (loss) before income taxes:



	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
	(in thousands)
Reduction of revenue	$	—		$	—		$	—		$	(11,561	)
Incremental (benefit to) cost of revenue	—			—			(2,040		)	10,602
Impact on gross profit	—			—			2,040			(22,163		)
Incremental general and administrative expenses (benefit)	69			1,483			(73		)	4,359
Impact on income before income taxes	$	(69	)	$	(1,483	)	$	2,113		$	(26,522	)


(2)	Includes stock-based compensation expense as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
	(in thousands)
Cost of revenue	$	825	$	129	$	1,271	$	188
Research and development	3,138		192		5,017		284
Sales and marketing	1,322		120		2,629		183
General and administrative	2,462		220		3,733		320
Total stock-based compensation expense	$	7,747	$	661	$	12,650	$	975

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	Three Months Ended June 30,				Six Months Ended June 30,
	2015 ⁽¹⁾		2014 ⁽¹⁾		2015 ⁽¹⁾		2014 ⁽¹⁾
	(as a percentage of revenue)
Consolidated Statements of Operations Data:
Revenue	100	%	100	%	100	%	100	%
Cost of revenue	53		49		52		54
Gross profit	47		51		48		46
Operating expenses:
Research and development	8		10		7		9
Sales and marketing	17		12		15		11
General and administrative	4		7		4		7
Change in contingent consideration	(2	)	—		(1	)	—
Total operating expenses	27		29		25		28
Operating income	20		22		23		18
Interest expense, net	—		—		—		—
Other expense, net	(11	)	(3	)	(8	)	(2	)
Income before income taxes	9		19		15		16
Income tax expense	4		6		6		5
Net income	5	%	13	%	9	%	11	%


(1)	In March 2014, we recalled the Fitbit Force. See the section titled “—Fitbit Force Product Recall” for additional information. The recall, which primarily affected our results for the fourth quarter of 2013 and the first quarter of 2014, had the following effect on our income (loss) before income taxes:



	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
	(as a percentage of revenue)
Incremental cost of revenue	—	%	—	%	—	%	5	%
Impact on gross profit	—		—		—		(10	)
Incremental general and administrative expenses	—		1		—		2
Impact on income before taxes	—	%	(1	)%	—	%	(12	)%

Revenue



	Three Months Ended June 30,				Change				Six Months Ended June 30,				Change
(dollars in thousands)	2015		2014		$		%		2015		2014 ⁽¹⁾		$		%
Revenue	$	400,412	$	113,572	$	286,840	253	%	$	737,166	$	222,387	$	514,779	231	%


(1)	The Fitbit Force recall resulted in a decrease to revenue of $11.6 million for the six months ended June 30, 2014. See the section titled “—Fitbit Force Product Recall” for additional information.

Revenue increased $286.8 million, or 253%, from $113.6 million for the three months ended June 30, 2014 to $400.4 million for the three months ended June 30, 2015. A substantial majority of the increase was due to an increase in the number of devices sold from 1.7 million in the three months ended June 30, 2014 to 4.5 million in the three months ended June 30, 2015, including $311.9 million in revenue from new products introduced in the fourth quarter of 2014. Revenue also increased due to an increase in the average selling price of our devices by 40% from $63 for the three months ended June 30, 2014 to $88 for the three months ended June 30, 2015, due to new products introduced in the fourth quarter of 2014. The increase in revenue was partially offset by the negative impact of foreign currency exchange rates of $12.5 million. U.S. revenue, based on ship-to destinations, increased $224.2 million, or 253%, from $88.5 million for the three months ended June 30, 2014 to $312.7 million for three months ended June 30, 2015, and international revenue, based on ship-to destinations, increased by $62.6 million, or 250%, from $25.1 million for the three months ended June 30, 2014 to $87.7 million for the three months ended June 30, 2015.

Revenue increased $514.8 million, or 231%, from $222.4 million for the six months ended June 30, 2014 to $737.2 million for the six months ended June 30, 2015. A substantial majority of the increase was due to an increase in the number of devices

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sold from 3.3 million in the six months ended June 30, 2014 to 8.3 million in the six months ended June 30, 2015, including $545.0 in revenue from new products introduced in the fourth quarter of 2014. Revenue also increased due to an increase in the average selling price of our devices by 34% from $65 for the six months ended June 30, 2014 to $87 for the six months ended June 30, 2015, due to new products introduced in the fourth quarter of 2014. The increase in revenue was partially offset by the negative impact of foreign currency exchange rates of $21.0 million. U.S. revenue, based on ship-to destinations, increased $399.7 million, or 224%, from $178.3 million for the six months ended June 30, 2014 to $578.0 million for six months ended June 30, 2015, and international revenue, based on ship-to destinations, increased by $115.1 million, or 261%, from $44.1 million for the six months ended June 30, 2014 to $159.2 million for the six months ended June 30, 2015.

Cost of Revenue



	Three Months Ended June 30,						Change				Six Months Ended June 30,						Change
(dollars in thousands)	2015			2014			$		%		2015 ⁽¹⁾			2014 ⁽¹⁾			$		%
Cost of revenue	$	212,870		$	55,183		$	157,687	286	%	$	380,415		$	119,229		$	261,186	219	%
Gross profit	187,542			58,389			129,153		221	%	356,751			103,158			253,593		246	%
Gross margin	47		%	51		%					48		%	46		%

(1)

The Fitbit Force recall resulted in an increase to cost of revenue of $10.6 million and a benefit to cost of revenue of $2.0 million in the six months ended June 30, 2014 and 2015, respectively, a decrease in gross profit of $22.2 million and an increase in gross profit of $2.0 million in the six months ended June 30, 2014 and 2015, respectively, and a decrease of 10 percentage points and a negligible increase in gross margin in the six months ended June 30, 2014 and 2015, respectively. See the section titled “—Fitbit Force Product Recall” for additional information.

Cost of revenue increased $157.7 million, or 286%, from $55.2 million for the three months ended June 30, 2014 to $212.9 million for the three months ended June 30, 2015. The increase was primarily due to the increase in the number of devices sold and an increase in average cost per device related to new products introduced in the fourth quarter of 2014. Cost of revenue increased $261.2 million, or 219%, from $119.2 million for the six months ended June 30, 2014 to $380.4 million for the six months ended June 30, 2015. The increase was primarily due to the increase in the number of devices sold and an increase in average cost per device related to new products introduced in the fourth quarter of 2014. In addition, we recognized a $2.0 million benefit to cost of revenue in the six months ended June 30, 2015 compared to a $10.6 million increase to cost of revenue in the six months ended June 30, 2014 in connection with the recall of the Fitbit Force.

Gross margin decreased to 47% for the three months ended June 30, 2015 from 51% for the three months ended June 30, 2014 and increased to 48% for the six months ended June 30, 2015 from 46% for the six months ended June 30, 2014. The decrease in gross margin for the three months ended June 30, 2015 was primarily due to the slightly lower margins on new products introduced in the fourth quarter of 2014, for which we have had less time to drive down unit costs versus legacy products, and the negative impact of foreign currency exchange rates on product pricing, which accounted for approximately one-third of the decline in gross margin. The increase in gross margin for the six months ended June 30, 2015 was primarily due to a reduction in costs incurred in connection with the recall of the Fitbit Force, partially offset by the aforementioned impact of lower margins on new products introduced in the fourth quarter of 2014 and the negative impact of foreign currency exchange rates on product pricing.

Research and Development



	Three Months Ended June 30,				Change				Six Months Ended June 30,				Change
(dollars in thousands)	2015		2014		$		%		2015		2014		$		%
Research and development	$	30,492	$	11,809	$	18,683	158	%	$	52,918	$	20,897	$	32,021	153	%

Research and development expenses increased $18.7 million, or 158%, from $11.8 million for the three months ended June 30, 2014 to $30.5 million for the three months ended June 30, 2015. The increase was primarily due to a $14.0 million increase in personnel-related expenses due to a 150% increase in headcount, a $2.7 million increase in consultant and contractor expenses, and a $1.4 million increase in tooling and prototype materials.

Research and development expenses increased $32.0 million, or 153%, from $20.9 million for the six months ended June 30, 2014 to $52.9 million for the six months ended June 30, 2015. The increase was primarily due to a $23.7 million increase in personnel-related expenses, a $5.4 million increase in consultant and contractor expenses, and a $2.8 million increase in tooling and prototype materials.

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Sales and Marketing



	Three Months Ended June 30,				Change				Six Months Ended June 30,				Change
(dollars in thousands)	2015		2014		$		%		2015		2014		$		%
Sales and marketing	$	69,690	$	13,311	$	56,379	424	%	$	113,557	$	24,584	$	88,973	362	%

Sales and marketing expenses increased $56.4 million, or 424%, from $13.3 million for the three months ended June 30, 2014 to $69.7 million for the three months ended June 30, 2015. The increase was primarily due to a $48.8 million increase in expenses associated with advertising costs and other marketing programs, driven by the launch of media campaigns during the three months ended June 30, 2015. In addition, personnel-related expenses increased $4.4 million due to an 85% increase in headcount, and consulting and contractor expenses increased $3.5 million.

Sales and marketing expenses increased $89.0 million, or 362%, from $24.6 million for the six months ended June 30, 2014 to $113.6 million for the six months ended June 30, 2015. The increase was primarily due to a $73.6 million increase in expenses associated with advertising costs and other marketing programs, driven by the launch of media campaigns during the six months ended June 30, 2015. In addition, personnel-related expenses increased $8.2 million, and consulting and contractor expenses increased $6.8 million.

General and Administrative



	Three Months Ended June 30,				Change				Six Months Ended June 30,				Change
(dollars in thousands)	2015 ⁽¹⁾		2014 ⁽¹⁾		$		%		2015 ⁽¹⁾		2014 ⁽¹⁾		$		%
General and administrative	$	14,648	$	7,443	$	7,205	97	%	$	27,629	$	16,060	$	11,569	72	%

(1)

The Fitbit Force recall resulted in an increase to general and administrative expenses of $1.5 million and $4.4 million for the three and six months ended June 30, 2014, respectively, and an increase (benefit) to general and administrative expenses of $0.1 million and $(0.1) million for the three and six months ended June 30, 2015. See the section titled “—Fitbit Force Product Recall” for additional information.

General and administrative expenses increased $7.2 million, or 97%, from $7.4 million for the three months ended June 30, 2014 to $14.6 million for the three months ended June 30, 2015. The increase was primarily due to a $6.0 million increase in personnel-related expenses due to a 66% increase in headcount, a $1.0 million increase in administrative fees, and a $0.8 million increase in consulting and contractor expenses, partially offset by a $1.5 million decrease in legal fees.

General and administrative expenses increased $11.6 million, or 72%, from $16.1 million for the six months ended June 30, 2014 to $27.6 million for the six months ended June 30, 2015. The increase was primarily due to a $9.3 million increase in personnel-related expenses, a $2.5 million increase in consulting and contractor expenses, a $1.3 million increase in administrative fees, and a $0.5 million increase in allocated overhead, partially offset by a $3.4 million decrease in legal fees.

Change in Contingent Consideration



	Three Months Ended June 30,					Change			Six Months Ended June 30,					Change
(dollars in thousands)	2015			2014		$			2015			2014		$
Change in contingent consideration	$	(7,704	)	$	—	$	(7,704	)	$	(7,704	)	$	—	$	(7,704	)

The change in consideration of $7.7 million during the three and six months ended June 30, 2015 is a result of our re-measurement of the contingent consideration liability related to our acquisition of FitStar. This is a non-recurring benefit. There was no contingent liability as of June 30, 2015, and the terms of the contingent liability have expired.

Interest and Other Expense, Net



	Three Months Ended June 30,						Change					Six Months Ended June 30,						Change
(dollars in thousands)	2015			2014			$			%		2015			2014			$			%
Interest expense, net	$	(379	)	$	(452	)	$	73		(16	)%	$	(846	)	$	(861	)	$	15		(2	)%
Other expense, net	$	(45,308	)	$	(3,687	)	$	(41,621	)	1,129	%	$	(58,385	)	$	(4,906	)	$	(53,479	)	1,090	%

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Other expense, net, increased $41.6 million from $3.7 million for the three months ended June 30, 2014 to $45.3 million for the three months ended June 30, 2015. The increase was primarily due to an increase of $42.5 million in charges related to the revaluation of our convertible preferred stock warrant liability.

Other expense, net, increased $53.5 million from $4.9 million for the six months ended June 30, 2014 to $58.4 million for the six months ended June 30, 2015. The increase was primarily due to an increase of $51.4 million in charges related to the revaluation of our convertible preferred stock warrant liability and a $2.0 million increase in foreign exchange loss.

Income Tax Expense



	Three Months Ended June 30,				Change				Six Months Ended June 30,				Change
(dollars in thousands)	2015		2014		$		%		2015		2014		$		%
Income tax expense	$	17,048	$	6,934	$	10,114	146	%	$	45,442	$	12,225	$	33,217	272	%

Income tax expense increased $10.1 million, or 146%, from $6.9 million for the three months ended June 30, 2014 to $17.0 million for the three months ended June 30, 2015. Our effective tax rate was 49.1% and 32.0% for the three months ended June 30, 2015 and 2014, respectively. Income tax expense increased $33.2 million, or 272%, from $12.2 million for the six months ended June 30, 2014 to $45.4 million for the six months ended June 30, 2015. Our effective tax rate was 40.9% and 34.1% for the six months ended June 30, 2015 and 2014, respectively. The increase in income tax expense and effective tax rate for the three and six months ended June 30, 2015 was primarily due to increased earnings during these periods and the impact of the initial public offering on certain non-deductible expenses such as the change in fair value of the redeemable convertible preferred stock warrant liability.

Liquidity and Capital Resources

Our operations have been financed primarily through cash flow from operating activities, the net proceeds from the sale of our preferred equity securities, and borrowings under our credit facilities. As of June 30, 2015, we had cash and cash equivalents of $461.3 million.

In June 2015, we completed an initial public offering of our Class A common stock. We received net proceeds of $420.9 million after deducting underwriting discounts and commissions of $26.9 million but before deducting offering costs of approximately $5.2 million.

We believe our existing cash and cash equivalent balances and cash flow from operations will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth, the timing and extent of spending on research and development efforts and other business initiatives, the expansion of sales and marketing activities, the timing of new product introductions, market acceptance of our products and overall economic conditions. To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing. The sale of additional equity would result in additional dilution to our stockholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations.

Credit Facilities

In August 2014, we entered into an amended and restated credit agreement, or Asset-Based Credit Facility, which allows us to borrow up to $180.0 million and a revolving credit and guarantee agreement, or Cash Flow Facility, which allows us to borrow up to $50.0 million. For further information, see Note 6 of the notes to our condensed consolidated financial statements.

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Cash Flows

The following table summarizes our cash flows for the periods indicated (in thousands):



	Six Months Ended June 30,
	2015			2014
Net cash provided by (used in):
Operating activities	$	4,151		$	326
Investing activities	(22,782		)	(4,388		)
Financing activities	284,302			26,312
Net change in cash and cash equivalents	$	265,671		$	22,250

Cash Flows from Operating Activities

Net cash provided by operating activities of $4.2 million for the six months ended June 30, 2015 was primarily due to net income of $65.7 million and non-cash adjustments of $54.5 million, partially offset by a decrease in net change in operating assets and liabilities of $116.0 million. Non-cash adjustments primarily consisted of the revaluation of the redeemable convertible preferred stock warrant liability of $56.6 million and stock-based compensation expense of $12.7 million, partially offset by deferred income taxes of $20.1 million. The decrease in net change in operating assets and liabilities was primarily due to a $76.3 million increase in inventories, a $29.8 million decrease in income tax payable, and a $12.8 million increase in accounts receivable, partially offset by an $11.8 million increase in deferred revenue. Inventory levels have increased to support demand for the new products announced in the fourth quarter of 2014.

Net cash provided by operating activities of $0.3 million for the six months ended June 30, 2014 was primarily due to net income of $23.6 million and non-cash adjustments of $9.3 million, partially offset by a decrease in net change in operating assets and liabilities of $32.6 million. Non-cash adjustments primarily consisted of the revaluation of the redeemable convertible preferred stock warrant liability and depreciation expense. The decrease in net change in operating assets and liabilities was primarily due to a $34.5 million decrease in accounts payable, accrued liabilities, and other liabilities, partially offset by a $29.5 million decrease in accounts receivable.

Cash Flows from Investing Activities

Cash used in investing activities for the six months ended June 30, 2015 of $22.8 million was due to the cash portion of the acquisition of FitStar of $11.0 million, net of cash acquired, and purchases of property and equipment.

Cash used in investing activities for the six months ended June 30, 2014 of $4.4 million was due to $6.7 million used for purchases of property and equipment, partially offset by a $2.3 million increase in restricted cash related to our operating lease obligations.

Cash Flows from Financing Activities

Cash provided by financing activities for the six months ended June 30, 2015 of $284.3 million was primarily related to proceeds from our initial public offering of $420.9 million, and net repayments of borrowings of $134.5 million under our credit facilities.

Cash provided by financing activities for the six months ended June 30, 2014 of $26.3 million was primarily related to net borrowings of $26.9 million under our credit facilities.

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Contractual Obligations and Other Commitments

The following table summarizes our non-cancelable contractual obligations as of June 30, 2015:



	Payments Due By Period
	Total		1 Year (Remaining 2015)		2-3 Years (2016 and 2017)		4-5 Years (2018 and 2019)		More than 5 Years (2020 and beyond)
	(in thousands)
Operating leases ⁽¹⁾	123,127		3,633		30,011		33,189		56,294
Total	$	123,127	$	3,633	$	30,011	$	33,189	$	56,294


(1)	We lease our facilities under long-term operating leases, which expire at various dates through 2024. The lease agreements frequently include provisions which require us to pay taxes, insurance, or maintenance costs.

Purchase orders or contracts for the purchase of certain goods and services are not included in the preceding table. The aggregate amount of purchase orders open as of June 30, 2015 was approximately $344.1 million. We cannot determine the aggregate amount of such purchase orders that represent contractual obligations because purchase orders may represent authorizations to purchase rather than binding agreements. Our purchase orders are based on our current needs and are fulfilled by our suppliers, contract manufacturers, and logistics providers within short periods of time. We subcontract with other companies to manufacture our products. During the normal course of business, we and our contract manufacturers procure components based upon a forecasted production plan. If we cancel all or part of the orders, we may be liable to our suppliers and contract manufacturers for the cost of the unutilized component orders or components purchased by our contract manufactures.

The table above excludes the liability for uncertain tax positions of $12.6 million as of June 30, 2015, due to the uncertainty of when the related tax settlements will become due.

Off-Balance Sheet Arrangements

As of June 30, 2015, we did not have any off-balance sheet arrangements or holdings in variable interest entities.

Critical Accounting Polices and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are 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. Actual results may differ from these estimates under different assumptions or conditions.

There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in the final prospectus filed with the Securities and Exchange Commission, or SEC, on June 18, 2015 in connection with our initial public offering pursuant to Rule 424(b) under the Securities Act of 1933, as amended.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

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

Interest Rate Risk

As of December 31, 2014 and June 30, 2015, we had cash and cash equivalents of $195.6 million and $461.3 million, respectively, which consisted primarily of bank deposits and money market funds. Such interest-earning instruments carry a degree of interest rate risk. However, historical fluctuations of interest income have not been significant.

As of December 31, 2014, we had indebtedness of $125.0 million under the Asset-Based Credit Facility and $8.0 million under the Cash Flow Facility. The borrowings under the Asset-Based Credit Facility bore interest at a rate of 4.25% as of December 31, 2014. The borrowings under the Cash Flow Facility bore interest at 3.59% as of December 31, 2014 and were repaid in March 2015.

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To date, we have not been exposed, nor do we anticipate being exposed, to material risks due to changes in interest rates. A hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our consolidated financial statements.

Foreign Currency Risk

To date, all of our inventory purchases have been denominated in U.S. dollars. Our international sales are primarily denominated in foreign currencies and any unfavorable movement in the exchange rate between U.S. dollars and the currencies in which we conduct sales in foreign countries could have an adverse impact on our revenue. A portion of our operating expenses are incurred outside the United States and are denominated in foreign currencies, which are also subject to fluctuations due to changes in foreign currency exchange rates. In addition, our suppliers incur many costs, including labor costs, in other currencies. To the extent that exchange rates move unfavorably for our suppliers, they may seek to pass these additional costs on to us, which could have a material impact on our gross margins. Our revenue, operating results and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates. We recognized net gains (losses) of $1.0 million and $0.2 million for the three months ended June 30, 2015 and 2014, respectively, and $(1.7) million and $0.3 million for the six months ended June 30, 2015 and 2014, respectively. As we grow our operations, our exposure to foreign currency risk could become more significant. We enter into foreign currency exchange contracts for hedging. It is difficult to predict the effect hedging activities would have on our operating results. We analyzed our foreign currency exposure to identify assets and liabilities denominated in other currencies. A hypothetical 10% change in exchange rates between those currencies and the U.S. dollar would not have materially affected our operating results.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures . Our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13-a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act) as of June 30, 2015. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of June 30, 2015, our disclosure controls and procedures were effective to provide reasonable assurance that the information we are required to 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 and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II

Item 1. Legal Proceedings

For a discussion of legal proceedings, see Note 7, “Commitments and Contingencies,” in the notes to our condensed consolidated financial statements.

Further, we are and, from time to time, we may become, involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are not presently a party to any other legal proceedings that in the opinion of our management, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, financial condition, or cash flows.

Item 1A. RISK FACTORS

An investment in our Class A common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Quarterly Report on Form 10-Q, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our condensed consolidated financial statements and related notes, before making a decision to invest in our Class A common stock. Our business, operating results, financial condition, or prospects could be materially and adversely affected by any of these risks and uncertainties. If any of these risks actually occurs, the trading price of our Class A common stock could decline and you might lose all or part of your investment. Our business, operating results, financial performance, or prospects could also be harmed by risks and uncertainties not currently known to us or that we currently do not believe are material.

Risks Related to Our Business

We operate in a highly competitive market. If we do not compete effectively, our prospects, operating results, and financial condition could be adversely affected.

The connected health and fitness devices market is highly competitive, with companies offering a variety of competitive products and services. We expect competition in our market to intensify in the future as new and existing competitors introduce new or enhanced products and services that are potentially more competitive than our products and services. The connected health and fitness devices market has a multitude of participants, including specialized consumer electronics companies, such as Garmin, Jawbone, and Misfit, and traditional health and fitness companies, such as adidas and Under Armour. In addition, many large, broad-based consumer electronics companies either compete in our market or adjacent markets or have announced plans to do so, including Apple, Google, LG, Microsoft, and Samsung. For example, Apple has recently introduced the Apple Watch smartwatch, with broad-based functionalities, including some health and fitness tracking capabilities. We may also face competition from manufacturers of lower-cost devices, such as Xiaomi and its Mi Band device. In addition, we compete with a wide range of stand-alone health and fitness-related mobile apps that can be purchased or downloaded through mobile app stores. We believe many of our competitors and potential competitors have significant competitive advantages, including longer operating histories, ability to leverage their sales efforts and marketing expenditures across a broader portfolio of products and services, larger and broader customer bases, more established relationships with a larger number of suppliers, contract manufacturers, and channel partners, greater brand recognition, ability to leverage app stores which they may operate, and greater financial, research and development, marketing, distribution, and other resources than we do. Our competitors and potential competitors may also be able to develop products or services that are equal or superior to ours, achieve greater market acceptance of their products and services, and increase sales by utilizing different distribution channels than we do. Some of our competitors may aggressively discount their products and services in order to gain market share, which could result in pricing pressures, reduced profit margins, lost market share, or a failure to grow market share for us. If we are not able to compete effectively against our current or potential competitors, our prospects, operating results, and financial condition could be adversely affected.

If we are unable to anticipate and satisfy consumer preferences in a timely manner, our business may be adversely affected.

Our success depends on our ability to anticipate and satisfy consumer preferences in a timely manner. All of our products are subject to changing consumer preferences that cannot be predicted with certainty. Consumers may decide not to purchase our products and services as their preferences could shift rapidly to different types of connected health and fitness devices or away from these types of products and services altogether, and our future success depends in part on our ability to anticipate and respond to shifts in consumer preferences. In addition, our newer products and services that have additional features, such as the Fitbit Charge, Fitbit Charge HR, and Fitbit Surge, may have higher prices than many of our earlier products and the products of some of our competitors, which may not appeal to consumers or only appeal to a smaller subset of consumers. It is also possible that competitors could introduce new products and services that negatively impact consumer preference for our connected health and

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fitness devices, which could result in decreased sales of our products and services and a loss in market share. Accordingly, if we fail to anticipate and satisfy consumer preferences in a timely manner, our business may be adversely affected.

If we are unable to successfully develop and timely introduce new products and services or enhance existing products and services, our business may be adversely affected.

We must continually develop and introduce new products and services and improve and enhance our existing products and services to maintain or increase our sales. The success of new or enhanced products and services may depend on a number of factors including, anticipating and effectively addressing consumer preferences and demand, the success of our sales and marketing efforts, timely and successful research and development, effective forecasting and management of product demand, purchase commitments, and inventory levels, effective management of manufacturing and supply costs, and the quality of or defects in our products.

The development of our products and services is complex and costly, and we typically have several products and services in development at the same time. Given the complexity, we occasionally have experienced, and could experience in the future, delays in completing the development and introduction of new and enhanced products and services. Problems in the design or quality of our products or services may also have an adverse effect on our brand, business, financial condition, and operating results. Unanticipated problems in developing products and services could also divert substantial research and development resources, which may impair our ability to develop new products and services and enhancements of existing products and services, and could substantially increase our costs. If new or enhanced product and service introductions are delayed or not successful, we may not be able to achieve an acceptable return, if any, on our research and development efforts, and our business may be adversely affected.

Our operating results could be materially harmed if we are unable to accurately forecast consumer demand for our products and services and adequately manage our inventory.

To ensure adequate inventory supply, we must forecast inventory needs and expenses and place orders sufficiently in advance with our suppliers and contract manufacturers based on our estimates of future demand for particular products. Our ability to accurately forecast demand for our products and services could be affected by many factors, including an increase or decrease in customer demand for our products and services or for products and services of our competitors, product and service introductions by competitors, unanticipated changes in general market conditions, and the weakening of economic conditions or consumer confidence in future economic conditions. Due to the recent rapid growth in demand for our connected health and fitness devices, and particularly in connection with new product introductions, we face challenges acquiring adequate and timely supplies of our products to satisfy the levels of demand, which we believe negatively affects our revenue. This risk may be exacerbated by the fact that we may not carry a significant amount of inventory, either directly or with our contract manufacturers or logistics providers to satisfy short-term demand increases. If we fail to accurately forecast customer demand, we may experience excess inventory levels or a shortage of products available for sale.

Inventory levels in excess of customer demand may result in inventory write-downs or write-offs and the sale of excess inventory at discounted prices, which would cause our gross margin to suffer and could impair the strength of our brand. Conversely, if we underestimate customer demand for our products and services, our contract manufacturers may not be able to deliver products to meet our requirements, and this could result in damage to our brand and customer relationships and adversely affect our revenue and operating results.

Our quarterly operating results or other operating metrics may fluctuate significantly, which could cause the trading price of our Class A common stock to decline.

Our quarterly operating results and other operating metrics have fluctuated in the past and may continue to fluctuate from quarter to quarter. We expect that this trend will continue as a result of a number of factors, many of which are outside of our control and may be difficult to predict, including:


•	the level of demand for our connected health and fitness devices and our ability to maintain or increase the size and engagement of our community of users;


•	the timing and success of new product and service introductions by us or our competitors or any other change in the competitive landscape of our market;


•	the mix of products sold in a quarter;


•	the continued market acceptance of, and the growth of the market for, connected health and fitness devices;

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•	pricing pressure as a result of competition or otherwise;


•	delays or disruptions in our supply, manufacturing, or distribution chain;


•	errors in our forecasting of the demand for our products, which could lead to lower revenue or increased costs, or both;


•	seasonal buying patterns of consumers;


•	increases in and timing of sales and marketing and other operating expenses that we may incur to grow and expand our operations and to remain competitive;


•	insolvency, credit, or other difficulties faced by our distributors and retailers, affecting their ability to purchase or pay for our products;


•	insolvency, credit, or other difficulties confronting our suppliers, contract manufacturers, or logistics providers leading to disruptions in our supply or distribution chain;


•	levels of product returns, stock rotation, and price protection rights;


•	adverse litigation judgments, settlements, or other litigation-related costs;


•	changes in the legislative or regulatory environment, such as with respect to privacy, information security, health and wellness devices, consumer product safety, and advertising;


•	product recalls, regulatory proceedings, or other adverse publicity about our products;


•	fluctuations in foreign exchange rates;


•	costs related to the acquisition of businesses, talent, technologies, or intellectual property, including potentially significant amortization costs and possible write-downs; and


•	general economic conditions in either domestic or international markets.

Any one of the factors above or the cumulative effect of some of the factors above may result in significant fluctuations in our operating results.

The variability and unpredictability of our quarterly operating results or other operating metrics could result in our failure to meet our expectations or those of any analysts that cover us or investors with respect to revenue or other operating results for a particular period. If we fail to meet or exceed such expectations for these or any other reasons, the market price of our Class A common stock could fall substantially, and we could face costly lawsuits, including securities class action suits.

We rely on a limited number of suppliers, contract manufacturers, and logistics providers, and each of our products is manufactured by a single contract manufacturer.

We rely on a limited number of suppliers, contract manufacturers, and logistics providers. In particular, we use contract manufacturers located in Asia, and each of our products is manufactured by a single contract manufacturer. Flextronics is our primary contract manufacturer and is currently the sole manufacturer of the majority of our devices. Our reliance on sole contract manufacturers for each of our products increases our risks since we do not currently have any alternative or replacement manufacturers. In the event of an interruption from a contract manufacturer, we may not be able to develop alternate or secondary sources without incurring material additional costs and substantial delays. Furthermore, these risks could materially and adversely affect our business if one of our contract manufacturers is impacted by a natural disaster or other interruption at a particular location because each of our contract manufacturers produces our products from a single location. In addition, some of our suppliers, contract manufacturers, and logistics providers may have more established relationships with our competitors and potential competitors, and as a result of such relationships, such suppliers, contract manufacturers, and logistics providers may choose to limit or terminate their relationship with us.

If we experience significantly increased demand, or if we need to replace an existing supplier, contract manufacturer, or logistics provider, we may be unable to supplement or replace such supply, contract manufacturing, or logistics capacity on terms that are acceptable to us, which may undermine our ability to deliver our products to customers in a timely manner. For example, for certain of our products, it may take a significant amount of time to identify a contract manufacturer that has the capability and resources to build the product to our specifications in sufficient volume. Identifying suitable suppliers, contract manufacturers, and logistics providers is an extensive process that requires us to become satisfied with their quality control, technical capabilities, responsiveness and service, financial stability, regulatory compliance, and labor and other ethical practices. Accordingly, a loss of any key supplier, contract manufacturer, or logistics provider could adversely impact our revenue and operating results.

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We have limited control over our suppliers, contract manufacturers, and logistics providers, which subjects us to significant risks, including the potential inability to obtain or produce quality products on a timely basis or in sufficient quantity.

We have limited control over our suppliers, contract manufacturers, and logistics providers, including aspects of their specific manufacturing processes and their labor, environmental, or other practices, which subjects us to significant risks, including the following:


•	inability to satisfy demand for our products;


•	reduced control over delivery timing and product reliability;


•	reduced ability to oversee the manufacturing process and components used in our products;


•	reduced ability to monitor compliance with our product manufacturing specifications;


•	reduced ability to develop comprehensive manufacturing specifications that take into account materials shortages, materials substitutions, and variance in the manufacturing capabilities of our third-party contract manufacturers;


•	price increases;


•	the failure of a key supplier, contract manufacturer, or logistics provider to perform its obligations to us for technical, market, or other reasons;


•	difficulties in establishing additional contract manufacturing relationships if we experience difficulties with our existing contract manufacturers;


•	shortages of materials or components;


•	misappropriation of our intellectual property;


•	exposure to natural catastrophes, political unrest, terrorism, labor disputes, and economic instability resulting in the disruption of trade from foreign countries in which our products are manufactured;


•	changes in local economic conditions in countries where our suppliers, contract manufacturers, or logistics providers are located;


•	the imposition of new laws and regulations, including those relating to labor conditions, quality and safety standards, imports, duties, taxes, and other charges on imports, as well as trade restrictions and restrictions on currency exchange or the transfer of funds; and


•	insufficient warranties and indemnities on components supplied to our contract manufacturers.

If there are defects in the manufacture of our products by our contract manufacturers, we may face negative publicity, government investigations, and litigation and we may not be fully compensated by our contract manufacturers for any financial or other liability that we suffer as a result.

Because many of the key components in our products come from limited or sole sources of supply, we are susceptible to supply shortages, long lead times for components, and supply changes, any of which could disrupt our supply chain.

Many of the key components used to manufacture our products come from limited or sole sources of supply. Our contract manufacturers generally purchase these components on our behalf, subject to certain approved supplier lists, and we do not have any long-term arrangements with our suppliers. We are therefore subject to the risk of shortages and long lead times in the supply of these components and the risk that our suppliers discontinue or modify components used in our products. In addition, the lead times associated with certain components are lengthy and preclude rapid changes in quantities and delivery schedules. We have in the past experienced and may in the future experience component shortages, and the predictability of the availability of these components may be limited. While component shortages have historically been immaterial, they could be material in the future. In the event of a component shortage or supply interruption from suppliers of these components, we may not be able to develop alternate sources in a timely manner. Developing alternate sources of supply for these components may be time-consuming, difficult, and costly and we may not be able to source these components on terms that are acceptable to us, or at all, which may undermine our ability to meet our requirements or to fill our orders in a timely manner. Any interruption or delay in the supply of any of these parts or components, or the inability to obtain these parts or components from alternate sources at acceptable prices and within a reasonable amount of time, would harm our ability to meet our scheduled product deliveries to our customers and users. This could harm our relationships with our channel partners and users and could cause delays in shipment of our products and adversely affect our operating results. In addition, increased component costs could result in lower gross margins. If we are unable to buy these components in quantities sufficient to meet our requirements on a timely basis, we will not be able to deliver products and services to our customers and users.

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The market for connected health and fitness devices is still in the early stages of growth and if it does not continue to grow, grows more slowly than we expect, or fails to grow as large as we expect, our business and operating results would be harmed.

The market for connected health and fitness devices is relatively new and unproven, and it is uncertain whether connected health and fitness devices will sustain high levels of demand and wide market acceptance. Our success will depend to a substantial extent on the willingness of people to widely adopt these products and services. In part, adoption of our products and services will depend on the increasing prevalence of connected health and fitness devices as well as new entrants to the connected health and fitness device market to raise the profile of both the market as a whole and our own platform. Our connected health and fitness devices have largely been used to measure and track activities such as walking, running, and sleeping. However, they have not been as widely adopted for other sports, exercise, and activities such as cycling, skiing, and swimming for which other niche products are more often used. Furthermore, some individuals may be reluctant or unwilling to use connected health and fitness devices because they have concerns regarding the risks associated with data privacy and security. If the wider public does not perceive the benefits of our connected health and fitness devices or chooses not to adopt them as a result of concerns regarding privacy or data security or for other reasons, then the market for these products and services may not further develop, it may develop more slowly than we expect, or it may not achieve the growth potential we expect it to, any of which would adversely affect our operating results. The development and growth of this relatively new market may also prove to be a short-term trend.

An economic downturn or economic uncertainty may adversely affect consumer discretionary spending and demand for our products and services.

Our products and services may be considered discretionary items for consumers. Factors affecting the level of consumer spending for such discretionary items include general economic conditions, and other factors, such as consumer confidence in future economic conditions, fears of recession, the availability and cost of consumer credit, levels of unemployment, and tax rates. As global economic conditions continue to be volatile or economic uncertainty remains, trends in consumer discretionary spending also remain unpredictable and subject to reductions. Unfavorable economic conditions may lead consumers to delay or reduce purchases of our products and services and consumer demand for our products and services may not grow as we expect. Our sensitivity to economic cycles and any related fluctuation in consumer demand for our products and services may have an adverse effect on our operating results and financial condition.

Our current and future products and services may experience quality problems from time to time that can result in adverse publicity, product recalls, litigation, regulatory proceedings, and warranty claims resulting in significant direct or indirect costs, decreased revenue and operating margin, and harm to our brand.

We sell complex products and services that could contain design and manufacturing defects in their materials, hardware, and firmware. These defects could include defective materials or components, or “bugs” that can unexpectedly interfere with the products’ intended operations or cause injuries to users. Although we extensively and rigorously test new and enhanced products and services before their release, there can be no assurance we will be able to detect, prevent, or fix all defects.

Failure to detect, prevent, or fix defects could result in a variety of consequences including greater number of returns of products than expected from users and retailers, regulatory proceedings, product recalls, and litigation, which could harm our revenue and operating results. We generally provide a 45-day right of return for purchases through Fitbit.com and a 12-month warranty on all of our products, except in the European Union, where we provide a two-year warranty on all of our products. The occurrence of real or perceived quality problems or material defects in our current and future products could expose us to warranty claims in excess of our current reserves. As of December 31, 2014, our reserves for warranty claims were $20.1 million, or 3% of our revenue for 2014. Moreover, we offer limited stock rotation rights and price protection to our distributors. If we experience greater returns from retailers or users in excess of our reserves, our business and operating results could be harmed. In addition, any negative publicity or lawsuits filed against us related to the perceived quality and safety of our products could also affect our brand and decrease demand for our products and services, and adversely affect our operating results and financial condition.

Furthermore, our products are used to track and display various information about users’ activities, such as daily steps taken, calories burned, distance traveled, floors climbed, active minutes, sleep duration and quality, and heart rate and GPS-based information such as speed, distance, and exercise routes. In the past, there have been reports and claims made against us alleging that our products do not provide accurate measurements and data to users, including claims asserting that certain features of our products do not operate as advertised. Such reports and claims have resulted in negative publicity, and, in some cases, have required us to expend time and resources to defend litigation. If our products fail to provide accurate measurements and data to users, or if there are reports or claims of inaccurate measurements or claims regarding the overall health benefits of our products and services in the future, we may become the subject of negative publicity, litigation, including class action litigation, regulatory proceedings, and warranty claims, and our brand, operating results, and business could be harmed.

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We recalled the Fitbit Force in March 2014. The recall has exposed us to CPSC regulatory proceedings and extensive litigation in various jurisdictions, including multi-jurisdiction complex federal and state class action and personal injury claims, which required significant management attention and disrupted our business operations, and adversely affected our financial condition, operating results, and our brand.

In March 2014, we recalled one of our products, the Fitbit Force, after some of our users experienced allergic reactions to adhesives in the wristband. These reactions included skin irritation, rashes, and blistering. The recall had a negative impact on our operating results, primarily in our fourth quarter of 2013 and the first quarter of 2014. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Fitbit Force Product Recall” in this Quarterly Report on Form 10-Q for additional information regarding the financial impact of the recall on our historical operating results. We have provided and are continuing to provide full refunds to consumers who return the Fitbit Force. Users may also exchange their Fitbit Force for a Fitbit Charge. If returns of the Fitbit Force or other costs related to the recall are higher than anticipated, we will be required to increase our reserves related to the recall which would negatively impact our operating results in the future.

The recall is being conducted in conjunction with the CPSC, which has been monitoring recall effectiveness and compliance. In addition to the financial impacts discussed elsewhere in this Quarterly Report on Form 10-Q, this recall requires us to provide a significant amount of information to the CPSC and to continue to provide reports on an ongoing basis, which takes significant time and internal and external resources. Because the Fitbit Force was primarily sold in the United States, we have not had inquiries from any similar foreign regulatory agencies.

A large number of lawsuits, including multi-jurisdiction complex federal and state class action and personal injury claims, were filed against us relating to the Fitbit Force. We have also had several consumers bring lawsuits relating to our Fitbit Flex, Fitbit Charge HR, and Fitbit Surge products. These litigation matters have required significant attention of our management and resources and disrupted the ordinary course of our business operations. While we have settled all of the class action lawsuits, a number of personal injury claims remain outstanding. While we do not believe that these on-going legal proceedings relating to the Fitbit Force, Fitbit Flex, Fitbit Charge HR, or Fitbit Surge are material, due to the inherent uncertainties of litigation, we cannot accurately predict the ultimate outcome of any such proceedings and these actions or other third-party claims against us will result in the diversion of management time and attention from other aspects of our business and may cause us to incur substantial litigation or settlement costs.

In addition, the CPSC conducted an investigation into the Fitbit Flex and, although it did not find a substantial product hazard in the Fitbit Flex, there can be no assurances that product hazards or other defects will not be found in the future with respect to the Fitbit Flex or our other products. The Fitbit Force product recall, regulatory proceedings, and litigation have had and may continue to have, and any future recalls, regulatory proceedings, and litigation could have an adverse impact on our financial condition, operating results, and brand. Furthermore, because of the global nature of our product sales, in the event we experience defects with respect to products sold outside the United States, we could become subject to recalls, regulatory proceedings, and litigation by foreign governmental agencies and private litigants, which could significantly increase the costs of managing any product issues. Any ongoing and future regulatory proceedings or litigation, regardless of their merits, could further divert management’s attention from our operations and result in substantial legal fees and other costs.

There have been recent reports that some users of the Fitbit Charge, Fitbit Charge HR, and Fitbit Surge have experienced skin irritations, which could result in additional negative publicity or otherwise harm our business. In addition, a small number of users have recently filed personal injury lawsuits against us relating to the Fitbit Charge HR and Fitbit Surge products, which could divert management’s attention from our operations and result in substantial legal fees and other costs.

Due to the nature of some of our wearable devices, some users have had in the past and may in the future experience skin irritations or other biocompatibility issues not uncommon with jewelry or other wearable products that stay in contact with skin for extended periods of time. Recently, there have been news reports of some users of Fitbit Charge, Fitbit Charge HR, and Fitbit Surge experiencing skin irritations. This negative publicity could harm sales of our products and also adversely affect our relationships with retailers that sell our products, including causing them to be reluctant to continue to sell our products. In addition, a small number of users have recently filed personal injury lawsuits against us relating to the Fitbit Charge HR and Fitbit Surge products. While we do not believe that these lawsuits are material, due to the inherent uncertainties of litigation we cannot accurately predict the ultimate outcome of any proceedings arising from such claims, and these actions or other third-party claims against us may result in the diversion of our management’s time and attention from other aspects of our business and may cause us to incur substantial litigation or settlement costs. If large numbers of users experience these problems, we could be subject to enforcement actions or the imposition of significant monetary fines, other penalties, or claims by the CPSC or other U.S. or foreign regulatory agencies and face additional personal injury or class action litigation, any of which could have a material adverse impact on our business, financial condition, and operating results.

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We may not be able to sustain our revenue growth rate or profitability in the future.

Our recent revenue growth should not be considered indicative of our future performance. As we grow our business, we expect our revenue growth rates to slow in future periods due to a number of reasons, which may include slowing demand for our products and services, increasing competition, a decrease in the growth of our overall market, our failure, for any reason, to continue to capitalize on growth opportunities, or the maturation of our business. Due to competitive pricing pressures, new product introductions by us or our competitors or other factors, the average selling price of our products and services may decrease. If we are unable to offset any decreases in our average selling price by increasing our sales volumes or by adjusting our product mix, our revenue and operating margins may decline and our financial position may be harmed.

While we achieved profitability in 2014, we have not consistently achieved profitability on a quarterly or annual basis. We expect expenses to increase substantially in the near term, particularly as we make significant investments in our research and development and sales and marketing organizations, expand our operations and infrastructure both domestically and internationally, develop new products and services, and enhance our existing products and services. In addition, we expect to incur additional significant legal, accounting, and other expenses in connection with operating as a public company. If our revenue does not increase to offset these increases in our operating expenses, we may not be profitable in future periods.

Our operating margins may decline as a result of increasing product costs.

Our business is subject to significant pressure on pricing and costs caused by many factors, including intense competition, the cost of components used in our products, labor costs, constrained sourcing capacity, inflationary pressure, pressure from users to reduce the prices we charge for our products and services, and changes in consumer demand. Costs for the raw materials used in the manufacture of our products are affected by, among other things, energy prices, consumer demand, fluctuations in commodity prices and currency, and other factors that are generally unpredictable and beyond our control. Increases in the cost of raw materials used to manufacture our products or in the cost of labor and other costs of doing business in the United States and internationally could have an adverse effect on, among other things, the cost of our products, gross margins, operating results, financial condition, and cash flows. Moreover, if we are unable to offset any decreases in our average selling price by increasing our sales volumes or by adjusting our product mix, our revenue and operating margins may decline and our financial position may be harmed.

Any material disruption or breach of our information technology systems, such as the five-hour outage we experienced during the peak holiday season in December 2014, or those of third-party partners could materially damage user and business partner relationships, and subject us to significant reputational, financial, legal, and operational consequences.

We depend on our information technology systems, as well as those of third parties, to develop new products and services, operate our website, host and manage our services, store data, process transactions, respond to user inquiries, and manage inventory and our supply chain. Any material disruption or slowdown of our systems or those of third parties whom we depend upon, including a disruption or slowdown caused by our failure to successfully manage significant increases in user volume or successfully upgrade our or their systems, system failures, viruses, security breaches, or other causes, could cause information, including data related to orders, to be lost or delayed which could—especially if the disruption or slowdown occurred during the holiday season—result in delays in the delivery of products to stores and users or lost sales, which could reduce demand for our merchandise, harm our brand and reputation, and cause our revenue to decline. For example, during the peak holiday season in December 2014, we suffered an approximately five-hour outage of our information systems due to high levels of platform usage, which rendered us unable to process and support new users signing onto our platform during that time. If changes in technology cause our information systems, or those of third parties whom we depend upon, to become obsolete, or if our or their information systems are inadequate to handle our growth, we could lose users and our business and operating results could be adversely affected.

We collect, store, process, and use personal information and other customer data, which subjects us to governmental regulation and other legal obligations related to privacy, information security, and data protection, and our actual or perceived failure to comply with such obligations could harm our business.

We collect, store, process, and use personal information and other user data, and we rely on third parties that are not directly under our control to do so as well. Our users’ health and fitness-related data and other highly personal information may include, among other information, names, addresses, phone numbers, email addresses, payment account information, height, weight, and biometric information such as heart rates, sleeping patterns, GPS-based location, and activity patterns. Due to the volume and sensitivity of the personal information and data we manage and the nature of our products, the security features of our platform and information systems are critical. If our security measures, some of which are managed by third parties, are breached or fail, unauthorized persons may be able to obtain access to sensitive user data. If we or our third-party service providers, business partners, or third-party apps with which our users choose to share their Fitbit data were to experience a breach of systems

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compromising our users’ sensitive data, our brand and reputation could be adversely affected, use of our products and services could decrease, and we could be exposed to a risk of loss, litigation, and regulatory proceedings. Depending on the nature of the information compromised, in the event of a data breach or other unauthorized access to our user data, we may also have obligations to notify users about the incident and we may need to provide some form of remedy, such as a subscription to a credit monitoring service, for the individuals affected by the incident. A growing number of legislative and regulatory bodies have adopted consumer notification requirements in the event of unauthorized access to or acquisition of certain types of personal data. Such breach notification laws continue to evolve and may be inconsistent from one jurisdiction to another. Complying with these obligations could cause us to incur substantial costs and could increase negative publicity surrounding any incident that compromises user data. Our users may also accidentally disclose or lose control of their passwords, creating the perception that our systems are not secure against third-party access. Additionally, if third parties we work with, such as vendors or developers, violate applicable laws, agreements, or our policies, such violations may also put our users’ information at risk and could in turn have an adverse effect on our business. While we maintain insurance coverage that, subject to policy terms and conditions and a significant self-insured retention, is designed to address certain aspects of cyber risks, such insurance coverage may be insufficient to cover all losses or all types of claims that may arise in the continually evolving area of cyber risk.

Our success depends on our ability to maintain our brand. If events occur that damage our brand, our business and financial results may be harmed.

Our success depends on our ability to maintain the value of the “Fitbit” brand. The “Fitbit” name is integral to our business as well as to the implementation of our strategies for expanding our business. Maintaining, promoting, and positioning our brand will depend largely on the success of our marketing and merchandising efforts, our ability to provide consistent, high quality products and services, and our ability to successfully secure, maintain, and defend our rights to use the “Fitbit” and other trademarks important to our brand. Our brand could be harmed if we fail to achieve these objectives or if our public image or brand were to be tarnished by negative publicity. For example, there has been media coverage of some of the users of our products reporting skin irritation, as well as recent personal injury lawsuits filed against us relating to the Fitbit Charge HR and Fitbit Surge products. We also believe that our reputation and brand may be harmed if we fail to maintain a consistently high level of customer service. In addition, we believe the popularity of the “Fitbit” brand makes it a target of counterfeiting or imitation, with third parties attempting to sell counterfeit products that attempt to replicate our products. Any occurrence of counterfeiting, imitation or confusion with our brand could adversely affect our reputation and impair the value of our brand. Maintaining, protecting, and enhancing our brand may require us to make substantial investments, and these investments may not be successful. If we fail to successfully maintain, promote, and position our brand and protect our reputation or if we incur significant expenses in this effort, our business, financial condition and operating results may be adversely affected.

The failure to effectively manage the introduction of new or enhanced products may adversely affect our operating results.

We must successfully manage introductions of new or enhanced products. Introductions of new or enhanced products could adversely impact the sales of our existing products to retailers and consumers. For instance, retailers often purchase less of our existing products in advance of new product launches. Moreover, consumers may decide to purchase new or enhanced products instead of existing products. This could lead to excess inventory and discounting of our existing products. In addition, we have historically incurred higher levels of sales and marketing expenses accompanying each product introduction. Accordingly, if we fail to effectively manage introductions of new or enhanced products, our operating results would be harmed.

We depend on retailers and distributors to sell and market our products, and our failure to maintain and further develop our sales channels could harm our business.

We primarily sell our products through retailers and distributors and depend on these third-parties to sell and market our products to consumers. Any changes to our current mix of retailers and distributors could adversely affect our gross margin and could negatively affect both our brand image and our reputation. Our sales depend, in part, on retailers adequately displaying our products, including providing attractive space and point of purchase, or POP, displays in their stores, and training their sales personnel to sell our products. If our retailers and distributors are not successful in selling our products, our revenue would decrease and we could experience lower gross margin due to product returns or price protection claims. Our retailers also often offer products and services of our competitors in their stores. In addition, our success in expanding and entering into new markets internationally will depend on our ability to establish relationships with new retailers and distributors. We also sell and will need to continue to expand our sales through online retailers, such as Amazon.com. If we do not maintain our relationship with existing retailers and distributors or develop relationships with new retailers and distributors our ability to sell our products and services could be adversely affected and our business may be harmed.

In 2014 and for the six months ended June 30, 2015, our five largest retailers and distributors accounted for approximately 49% and 56% of our revenue, respectively. Of these retailers and distributors, Wynit Distribution, Best Buy, and Amazon.com

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accounted for approximately 13%, 12%, and 11% of our revenue for 2014, respectively, and approximately 16%, 12%, and 12% of our revenue for the six months ended June 30, 2015, respectively. Accordingly, the loss of a small number of our large retailers and distributors, or the reduction in business with one or more of these retailers and distributors, could have a significant adverse impact on our operating results. While we have agreements with these large retailers and distributors, these agreements do not require them to purchase any meaningful amount of our products.

Consolidation of retailers or concentration of retail market share among a few retailers may increase and concentrate our credit risk and impair our ability to sell products.

The wearable, fitness, and electronics retail markets in some countries are dominated by a few large retailers with many stores. These retailers have in the past increased their market share and may continue to do so in the future by expanding through acquisitions and construction of additional stores. These situations concentrate our credit risk with a relatively small number of retailers, and, if any of these retailers were to experience a shortage of liquidity, it would increase the risk that their outstanding payables to us may not be paid. In addition, increasing market share concentration among one or a few retailers in a particular country or region increases the risk that if any one of them substantially reduces their purchases of our connected health and fitness devices, we may be unable to find a sufficient number of other retail outlets for our products to sustain the same level of sales. Any reduction in sales by our retailers would adversely affect our revenue, operating results, and financial condition.

The insolvency, credit problems, or other financial difficulties confronting our retailers and distributors could expose us to financial risk.

Some of our retailers and distributors have experienced financial difficulties in the past. The insolvency, credit problems, or other financial difficulties confronting our retailers and distributors could expose us to financial risk. Financial difficulties of our retailers and distributors could impede their effectiveness and also expose us to risks if they are unable to pay for the products they purchase from us. The difficulties of retailers and distributors may also lead to price cuts of our products and adverse effects on our brand and operating results. Any reduction in sales by our current retailers or distributors, loss of large resellers or distributors, or decrease in revenue from our retailers or distributors could adversely affect our revenue, operating results, and financial condition.

We have recently begun to spend significant amounts on advertising and other marketing campaigns to acquire new users, which may not be successful or cost-effective.

We have recently begun to spend significant amounts on advertising and other marketing campaigns, such as television, cinema, print advertising, and social media, as well as increased promotional activities, to acquire new users and we expect our marketing expenses to increase in the future as we continue to spend significant amounts to acquire new users and increase awareness of our products and services. In 2014 and for the six months ended June 30, 2015, advertising expenses were $71.9 million and $84.9 million, respectively, representing approximately 10% and 21% of our revenue, respectively. While we seek to structure our advertising campaigns in the manner that we believe is most likely to encourage people to use our products and services, we may fail to identify advertising opportunities that satisfy our anticipated return on advertising spend as we scale our investments in marketing, accurately predict user acquisition, or fully understand or estimate the conditions and behaviors that drive user behavior. If for any reason any of our advertising campaigns prove less successful than anticipated in attracting new users, we may not be able to recover our advertising spend, and our rate of user acquisition may fail to meet market expectations, either of which could have an adverse effect on our business. There can be no assurance that our advertising and other marketing efforts will result in increased sales of our products and services.

If we continue to grow at a rapid pace, we may not be able to effectively manage our growth and the increased complexity of our business, which could negatively impact our brand and financial performance.

We were founded in 2007 and have expanded our operations rapidly since our inception. Our employee headcount and the scope and complexity of our business have increased significantly, with the number of employees increasing from 222 as of December 31, 2013 to 727 as of June 30, 2015, and we expect headcount growth to continue for the foreseeable future. If our operations continue to grow at a rapid pace, we may experience difficulties in obtaining components for our products in quantities sufficient to meet market demand, as well as delays in production and shipments, as our products are subject to risks associated with third-party sourcing and manufacturing. We could be required to continue to expand our sales and marketing, product development, and distribution functions, to upgrade our management information systems and other processes and technology, and to obtain more space for our expanding workforce. This expansion could increase the strain on our resources, and we could experience serious operating difficulties, including difficulties in hiring, training, and managing an increasing number of employees. If we do not adapt to meet these evolving challenges, and if the current and future members of our management team do not effectively scale with our growth, we may experience erosion to our brand, the quality of our products and services may suffer, and our corporate culture may be harmed.

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Because we have only a limited history operating our business at its current scale, it is difficult to evaluate our current business and future prospects, including our ability to plan for and model future growth. Our limited operating experience at this scale, combined with the rapidly evolving nature of the market in which we sell our products and services, substantial uncertainty concerning how these markets may develop, and other economic factors beyond our control, reduces our ability to accurately forecast quarterly or annual revenue. As such, any predictions about our future revenue and expenses may not be as accurate as they would be if we had a longer operating history or operated in a more developed and predictable market. Failure to manage our future growth effectively could have an adverse effect on our business, which, in turn, could have an adverse impact on our operating results and financial condition.

To date, we have derived substantially all of our revenue from sales of our connected health and fitness devices, and sales of our subscription-based premium services have historically accounted for less than 1% of our revenue.

To date, substantially all of our revenue has been derived from sales of our connected health and fitness devices, and we expect to continue to derive the substantial majority of our revenue from sales of these devices for the foreseeable future. In each of 2012, 2013, 2014, and the three and six months ended June 30, 2014 and 2015, we derived less than 1% of our revenue from sales of our subscription-based premium services. However, in the future we expect to increase sales of subscriptions to these services. Our inability to successfully sell and market our premium services could deprive us of a potentially significant source of revenue in the future. In addition, sales of our premium services may lead to additional sales of our connected health and fitness devices and user engagement with our platform. As a result, our future growth and financial performance may depend, in part, on our ability to sell more subscriptions to our premium services.

Our business is subject to a variety of U.S. and foreign laws and regulations that are continuously evolving, including those related to privacy, data security, and data protection due to our collection, processing, and use of personal information and other user data, such as the U.S.-E.U. Safe Harbor Framework, which covers the transfer of personal data from the European Union to the United States.

We are or may become subject to a variety of laws and regulations in the United States and abroad that involve matters central to our business, including laws and regulations regarding privacy, data protection, data security, data retention, consumer protection, advertising, electronic commerce, intellectual property, manufacturing, anti-bribery and anti-corruption, and economic or other trade prohibitions or sanctions. These laws and regulations are continuously evolving and developing. The scope and interpretation of the laws that are or may be applicable to us are often uncertain and may be conflicting, particularly with respect to foreign laws.

In particular, there are numerous U.S. federal, state, and local laws and regulations and foreign laws and regulations regarding privacy and the collection, sharing, use, processing, disclosure, and protection of personal information and other user data, the scope of which is changing, subject to differing interpretations, and may be inconsistent among different jurisdictions. We strive to comply with all applicable laws, policies, legal obligations, and industry codes of conduct relating to privacy, data security, and data protection. However, given that the scope, interpretation, and application of these laws and regulations are often uncertain and may be conflicting, it is possible that these obligations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. Any failure or perceived failure to comply with our privacy or security policies or privacy-related legal obligations by us or third-party service-providers or the failure or perceived failure by third-party apps, with which our users choose to share their Fitbit data, to comply with their privacy policies or privacy-related legal obligations as they relate to the Fitbit data shared with them, or any compromise of security that results in the unauthorized release or transfer of personally identifiable information or other user data, may result in governmental enforcement actions, litigation, or negative publicity, and could have an adverse effect on our brand and operating results.

We have certified that we comply with the U.S.-E.U. Safe Harbor Framework as developed by the U.S. Department of Commerce, which provides a method for U.S. companies operating within the European Union to transfer personal data from citizens of E.U. member countries outside the European Union in a way that is consistent with the E.U. Data Protection Directive. If we fail to comply with such framework, we could face legal liability, including fines, negative publicity, and resulting loss of business. In addition, it is possible that the Safe Harbor Framework will be modified or eliminated in the future. If this occurs, we will need to implement alternative methods to comply with E.U. restrictions on the cross-border transfer of personal information.

Governments are continuing to focus on privacy and data security and it is possible that new privacy or data security laws will be passed or existing laws will be amended in a way that is material to our business. Any significant change to applicable laws, regulations, or industry practices regarding our users’ data could require us to modify our services and features, possibly in a material manner, and may limit our ability to develop new products, services, and features. For example, changes in applicable laws and regulations may result in the user data we collect being deemed protected health information, or PHI, under the Health Insurance Portability and Accountability Act of 1996, and the Health Information Technology for Economic and Clinical Health

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Act. If that were to occur, we would be subject to additional regulation and oversight, any of which could significantly increase our operating costs.

The labeling, distribution, importation, marketing, and sale of our products are subject to extensive regulation by various U.S. state and federal and foreign agencies, including the CPSC, Federal Trade Commission, Food and Drug Administration, or FDA, Federal Communications Commission, and state attorneys general, as well as by various other federal, state, provincial, local, and international regulatory authorities in the countries in which our products and services are distributed or sold. If we fail to comply with any of these regulations, we could become subject to enforcement actions or the imposition of significant monetary fines, other penalties, or claims, which could harm our operating results or our ability to conduct our business.

The global nature of our business operations also create various domestic and foreign regulatory challenges and subject us to laws and regulations such as the U.S. Foreign Corrupt Practices Act, or FCPA, the U.K. Bribery Act, and similar anti-bribery and anti-corruption laws in other jurisdictions, and our products are also subject to U.S. export controls, including the U.S. Department of Commerce’s Export Administration Regulations and various economic and trade sanctions regulations established by the Treasury Department’s Office of Foreign Assets Controls. If we become liable under these laws or regulations, we may be forced to implement new measures to reduce our exposure to this liability. This may require us to expend substantial resources or to discontinue certain products or services, which would negatively affect our business, financial condition, and operating results. In addition, the increased attention focused upon liability issues as a result of lawsuits, regulatory proceedings, and legislative proposals could harm our brand or otherwise impact the growth of our business. Any costs incurred as a result of compliance or other liabilities under these laws or regulations could harm our business and operating results.

Our failure or inability to protect our intellectual property rights, or claims by others that we are infringing upon or unlawfully using their intellectual property could diminish the value of our brand and weaken our competitive position, and adversely affect our business, financial condition, operating results, and prospects.

We currently rely on a combination of patent, copyright, trademark, trade secret, and unfair competition laws, as well as confidentiality agreements and procedures and licensing arrangements, to establish and protect our intellectual property rights. We have devoted substantial resources to the development of our proprietary technologies and related processes. In order to protect our proprietary technologies and processes, we rely in part on trade secret laws and confidentiality agreements with our employees, licensees, independent contractors, commercial partners, and other advisors. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. We cannot be certain that the steps taken by us to protect our intellectual property rights will be adequate to prevent infringement of such rights by others, including imitation of our products and misappropriation of our brand. Additionally, the process of obtaining patent or trademark protection is expensive and time-consuming, and we may not be able to prosecute all necessary or desirable patent applications or apply for all necessary or desirable trademark applications at a reasonable cost or in a timely manner. We have obtained and applied for U.S. and foreign trademark registrations for the “Fitbit” brand and a variety of our product names, and will continue to evaluate the registration of additional trademarks as appropriate. However, we cannot guarantee that any of our pending trademark or patent applications will be approved by the applicable governmental authorities. Moreover, intellectual property protection may be unavailable or limited in some foreign countries where laws or law enforcement practices may not protect our intellectual property rights as fully as in the United States, and it may be more difficult for us to successfully challenge the use of our intellectual property rights by other parties in these countries. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and our failure or inability to obtain or maintain trade secret protection or otherwise protect our proprietary rights could adversely affect our business.

We are and may in the future be subject to patent infringement and trademark claims and lawsuits in various jurisdictions, and we cannot be certain that our products or activities do not violate the patents, trademarks, or other intellectual property rights of third-party claimants. Companies in the technology industry and other patent, copyright, and trademark holders seeking to profit from royalties in connection with grants of licenses own large numbers of patents, copyrights, trademarks, domain names, and trade secrets and frequently commence litigation based on allegations of infringement, misappropriation, or other violations of intellectual property or other rights. As we face increasing competition and gain an increasingly high profile, the intellectual property rights claims against us have grown and will likely continue to grow. For example, on May 27, 2015, Aliphcom, Inc. d/b/a Jawbone, or Jawbone, filed a lawsuit against us and certain of our employees who were formerly employed by Jawbone in the Superior Court of the State of California in the County of San Francisco alleging trade secret misappropriation, breach of contract, breach of the implied covenant of good faith and fair dealing, and unfair and unlawful business practices. The complaint alleges, among other things, that prior to leaving Jawbone at various times in 2015, the employees downloaded Jawbone company documents and materials, including allegedly confidential and trade secret information, and that these employees are using such information in the development of our products. The complaint also alleges that we recruited those employees with the intent of using Jawbone’s proprietary information. The complaint seeks unspecified damages, including punitive damages, and injunctive relief. On June 26, 2015, we and the employee defendants filed demurrers to Jawbone’s complaint. The demurrers are currently pending and a

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hearing is scheduled for August 21, 2015.

In addition, on June 10, 2015, Jawbone and BodyMedia, Inc., a wholly-owned subsidiary of Jawbone, or BodyMedia, filed a lawsuit against us in the United States District Court for the Northern District of California. Jawbone and BodyMedia allege that we are infringing three U.S. patents held by Jawbone or BodyMedia: U.S. Patent No. 8,446,275 titled “General Health and Wellness Management Method and Apparatus For A Wellness Application Using Data From a Data-Capable Band,” U.S. Patent No. 8,073,707 titled “System For Detecting, Monitoring, And Reporting An Individual’s Physiological Or Contextual Status,” and U.S. Patent No. 8,398,546 titled “System For Monitoring And Managing Body Weight And Other Physiological Conditions Including Iterative And Personalized Planning, Intervention And Reporting Capability.” Jawbone and BodyMedia allege that these patents have been infringed by a substantial majority of the products that we have sold historically, as well as several of our current products. With respect to each of the patents, the complaint seeks unspecified compensatory damages and attorneys’ fees from us and to permanently enjoin us from making, manufacturing, using, selling, importing, or offering our products for sale. Jawbone has since amended its complaint to allege infringement of three additional patents: U.S. Patent No. 8,529,811, titled “Component Protective Overmolding Using Protective External Coatings,” U.S. Patent No. 8,793,522, titled “Power Management in a Data-Capable Strapband,” and U.S. Patent No. 8,961,413, titled “Wireless Communications Device and Personal Monitor.” In addition, on July 8, 2015, Jawbone filed a complaint in the International Trade Commission, or ITC, raising substantially the same allegations as in the state court and federal district court cases. On July 24, 2015, Jawbone and BodyMedia filed a letter with the ITC seeking to amend and supplement their ITC complaint. In their letter, Jawbone and BodyMedia, among other things, purport to identify the trade secrets allegedly misappropriated by the employee defendants. If the ITC were to determine that we infringe any of the Jawbone or BodyMedia patents, the ITC could issue an exclusion order, which would prevent us from importing our products into the United States from contract manufacturers outside of the United States.

We intend to vigorously defend these litigation matters and, based on our preliminary review, we believe we have valid defenses with respect to each of these matters. However, litigation is inherently uncertain, and any judgment or injunctive relief entered against us or any adverse settlement could materially and adversely impact our business, financial condition, operating results, and prospects. In addition, litigation can involve significant management time and attention and be expensive, regardless of outcome. During the course of these litigation matters, there may be announcements of the results of hearings and motions, and other interim developments related to the litigation matters. If securities analysts or investors regard these announcements as negative, the market price of our common stock may decline.

Further, from time to time, we have received and may continue to receive letters from third parties alleging that we are infringing upon their intellectual property rights. Our technologies and other intellectual property may not be able to withstand such third-party claims, and successful infringement claims against us could result in significant monetary liability, prevent us from selling some of our products and services, or require us to change our branding. In addition, resolution of claims may require us to redesign our products, license rights from third parties at a significant expense, or cease using those rights altogether. We have also in the past and may in the future bring claims against third parties for infringing our intellectual property rights. Costs of supporting such litigation and disputes may be considerable, and there can be no assurances that a favorable outcome will be obtained. Patent infringement, trademark infringement, trade secret misappropriation, and other intellectual property claims and proceedings brought against us or brought by us, whether successful or not, could require significant attention of our management and resources and have in the past and could further result in substantial costs, harm to our brand, and have an adverse effect on our business.

Our international operations subject us to additional costs and risks, and our continued expansion internationally may not be successful.

We have entered into many international markets in a relatively short time and may enter into additional markets in the future. Outside of the United States, we currently have operations in Australia and a number of countries in Asia and Europe. There are significant costs and risks inherent in conducting business in international markets, including:


•	establishing and maintaining effective controls at foreign locations and the associated increased costs;


•	adapting our technologies, products, and services to non-U.S. consumers’ preferences and customs;


•	variations in margins by region;


•	increased competition from local providers of similar products;


•	longer sales or collection cycles in some countries;


•	compliance with foreign laws and regulations;

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•	compliance with the laws of numerous taxing jurisdictions where we conduct business, potential double taxation of our international earnings, and potentially adverse tax consequences due to U.S. and foreign tax laws as they relate to our international operations;


•	compliance with anti-bribery laws, such as the FCPA and the U.K. Bribery Act, by us, our employees, and our business partners;

•

complexity and other risks associated with current and future foreign legal requirements, including legal requirements related to consumer protection, consumer product safety, and data privacy frameworks, such as the E.U. Data Protection Directive, the proposed E.U. Data Protection Regulation, and applicable privacy and data protection laws in foreign jurisdictions where we currently conduct business or intend to conduct business in the future;


•	currency exchange rate fluctuations and related effects on our operating results;


•	economic and political instability in some countries, particularly those in China where we have recently expanded;


•	the uncertainty of protection for intellectual property rights in some countries and practical difficulties of enforcing rights abroad; and


•	other costs of doing business internationally.

These factors and other factors could harm our international operations and, consequently, materially impact our business, operating results, and financial condition. Further, we may incur significant operating expenses as a result of our international expansion, and it may not be successful. We have limited experience with regulatory environments and market practices internationally, and we may not be able to penetrate or successfully operate in new markets. We may also encounter difficulty expanding into new international markets because of limited brand recognition in certain parts of the world, leading to delayed acceptance of our products and services by users in these new international markets. If we are unable to continue to expand internationally and manage the complexity of our global operations successfully, our financial condition and operating results could be adversely affected.

Our financial performance is subject to risks associated with changes in the value of the U.S. dollar versus local currencies.

Our primary exposure to movements in foreign currency exchange rates relates to non-U.S. dollar denominated sales and operating expenses worldwide. Weakening of foreign currencies relative to the U.S. dollar adversely affects the U.S. dollar value of our foreign currency-denominated sales and earnings, and generally leads us to raise international pricing, potentially reducing demand for our products. In some circumstances, for competitive or other reasons, we may decide not to raise local prices to fully offset the dollar’s strengthening, or at all, which would adversely affect the U.S. dollar value of our foreign currency denominated sales and earnings. Conversely, a strengthening of foreign currencies relative to the U.S. dollar, while generally beneficial to our foreign currency-denominated sales and earnings, could cause us to reduce international pricing and incur losses on our foreign currency derivative instruments, thereby limiting the benefit. Additionally, strengthening of foreign currencies may also increase our cost of product components denominated in those currencies, thus adversely affecting gross margins.

We use derivative instruments, such as foreign currency forward and option contracts, to hedge certain exposures to fluctuations in foreign currency exchange rates. The use of such hedging activities may not offset any, or more than a portion, of the adverse financial effects of unfavorable movements in foreign exchange rates over the limited time the hedges are in place.

We depend on third-party data center service providers. Any disruption in the operation of the data center facilities or failure to renew the services could adversely affect our business.

Our services are hosted using data centers operated by third parties. We control neither the operation of the data centers nor our third-party data center service providers. We have entered into agreements for the lease of our data centers with third-party data center service providers which expire at various times. The third-party data center service providers may have no obligation to renew their agreements with us on commercially reasonable terms, or at all. If we are unable to renew these agreements on commercially reasonable terms, we may be required to transfer our servers or data to new data center facilities or engage new service providers, and we may incur significant costs and a possible interruption in our platform in connection with doing so.

Problems with our third-party data center service providers, the telecommunications network providers with whom they contract, or with the systems by which telecommunications providers allocate capacity among their users could adversely affect the experience of our users. Our third-party data center service providers could decide to close their facilities or cease providing us services without adequate notice. In addition, any financial difficulties, such as bankruptcy, faced by our third-party data center service providers or parties they contract with may have negative effects on our business, the nature and extent of which are difficult to predict. Additionally, any failure of our data centers to meet our needs for capacity could have an adverse effect on our business.

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Any changes in third-party service levels at our data centers or any errors, defects, disruptions, or other performance problems with our platform could harm our brand and may damage the data of our users. We have in the past had outages at our data centers, and future interruptions to our platform might reduce our revenue, cause us to issue refunds, subject us to potential liability, or harm our ability to retain users and attract new users.

Cybersecurity risks could adversely affect our business and disrupt our operations.

The threats to network and data security are increasingly diverse and sophisticated. Despite our efforts and processes to prevent breaches, our servers, computer systems, and those of third parties that we use in our operations are vulnerable to cybersecurity risks, including cyber attacks such as viruses and worms, phishing attacks, denial-of-service attacks, physical or electronic break-ins, employee theft or misuse, and similar disruptions from unauthorized tampering with our servers and computer systems or those of third parties that we use in our operations, which could lead to interruptions, delays, and loss of critical data. In addition, we may be the target of email scams that attempt to acquire sensitive information or company assets. Despite significant efforts to create security barriers to such threats, we may not be able to entirely mitigate these risks. Any cyber attack that attempts to obtain our data and assets, disrupt our service, or otherwise access our systems, or those of third parties we use, if successful, could adversely affect financial performance, harm our business, be expensive to remedy and damage our reputation.

Our business is affected by seasonality.

Our business is affected by the general seasonal trends common to the consumer electronics industry, as well as those common to the fitness industry. Our fourth quarter has typically been our strongest quarter in terms of revenue, reflecting our historical strength in sales during the holiday season. For example, we generated approximately 43%, 40%, and 50% of our full year revenue during the fourth quarters of 2012, 2013, and 2014, respectively. Accordingly, any shortfall in expected fourth quarter revenue would adversely affect our annual operating results. Furthermore, our rapid growth in recent years may obscure the extent to which seasonality trends have affected our business and may continue to affect our business. Accordingly, yearly or quarterly comparisons of our operating results may not be useful and our results in any particular period will not necessarily be indicative of the results to be expected for any future period. Seasonality in our business can also be impacted by introductions of new or enhanced products and services, including the costs associated with such introductions.

Our future success depends on the continuing efforts of our key employees, including our founders, James Park and Eric N. Friedman, and on our ability to attract and retain highly skilled personnel and senior management.

Our future success depends, in part, on our ability to continue to attract and retain highly skilled personnel. In particular, we are highly dependent on the contributions of our co-founders, James Park and Eric N. Friedman, as well as other members of our management team. The loss of any key personnel could make it more difficult to manage our operations and research and development activities, reduce our employee retention and revenue, and impair our ability to compete. Although we have generally entered into employment offer letters with our key personnel, these agreements have no specific duration and provide for at-will employment, which means they may terminate their employment relationship with us at any time.

Competition for highly skilled personnel is often intense, especially in the San Francisco Bay Area where we are located, and we may incur significant costs to attract them. We may not be successful in attracting, integrating, or retaining qualified personnel to fulfill our current or future needs. We have, from time to time, experienced, and we expect to continue to experience, difficulty in hiring and retaining highly skilled employees with appropriate qualifications. In addition, job candidates and existing employees often consider the value of the equity awards they receive in connection with their employment. If the perceived value of our equity or equity awards declines, it may adversely affect our ability to retain highly skilled employees. Additionally, we have a number of current employees whose equity ownership in our company gives them a substantial amount of personal wealth. Likewise, we have a number of current employees whose equity awards are fully vested and are entitled to receive substantial amounts of our capital stock. As a result, it may be difficult for us to continue to retain and motivate these employees, and this wealth could affect their decisions about whether or not they continue to work for us. If we fail to attract new personnel or fail to retain and motivate our current personnel, our business and future growth prospects could be severely harmed.

Changes in legislation in U.S. and foreign taxation of international business activities or the adoption of other tax reform policies, as well as the application of such laws, could materially impact our financial position and operating results.

Recent or future changes to U.S., Irish, and other foreign tax laws could impact the tax treatment of our foreign earnings. We generally conduct our international operations through wholly-owned subsidiaries, branches, or representative offices and report our taxable income in various jurisdictions worldwide based upon our business operations in those jurisdictions. Further, we are in the process of implementing an international structure that aligns with our financial and operational objectives as evaluated based on our international markets, expansion plans, and operational needs for headcount and physical infrastructure outside the

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United States. In connection with the implementation of the international structure, we reorganized the structure of our existing direct and indirect subsidiaries and restructured the intercompany relationships with and amongst the subsidiaries within the company group. Such intercompany relationships are subject to complex transfer pricing regulations administered by taxing authorities in various jurisdictions. Due to changes in the U.S., Irish, and other foreign taxation of such activities, we will likely have to modify our international structure in the future, which will incur costs, may increase our worldwide effective tax rate, and may adversely affect our financial position and operating results.

In addition, significant judgment is required in evaluating our tax positions and determining our provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. For example, our effective tax rates could be adversely affected by earnings being lower than anticipated in countries where we have lower statutory rates and higher than anticipated in countries where we have higher statutory rates, by changes in foreign currency exchange rates, or by changes in the relevant tax, accounting, and other laws, regulations, principles, and interpretations. As we operate in numerous taxing jurisdictions, the application of tax laws can be subject to diverging and sometimes conflicting interpretations by tax authorities of these jurisdictions. It is not uncommon for taxing authorities in different countries to have conflicting views with respect to, among other things, the manner in which the arm’s-length standard is applied for transfer pricing purposes, or with respect to the valuation of intellectual property.

If U.S., Irish, or other foreign tax laws further change, if our current or future structures and arrangements are challenged by a taxing authority, or if we are unable to appropriately adapt the manner in which we operate our business, we may have to undertake further costly modifications to our international structure and our tax liabilities and operating results may be adversely affected.

If we are unable to protect our domain names, our brand, business, and operating results could be adversely affected.

We have registered domain names for websites, or URLs, that we use in our business, such as Fitbit.com. If we are unable to maintain our rights in these domain names, our competitors or other third parties could capitalize on our brand recognition by using these domain names for their own benefit. In addition, although we own the “Fitbit” domain name under various global top level domains such as .com and .net, as well as under various country-specific domains, we might not be able to, or may choose not to, acquire or maintain other country-specific versions of the “Fitbit” domain name or other potentially similar URLs. The regulation of domain names in the United States and elsewhere is generally conducted by Internet regulatory bodies and is subject to change. If we lose the ability to use a domain name in a particular country, we may be forced to either incur significant additional expenses to market our solutions within that country, including the development of a new brand and the creation of new promotional materials, or elect not to sell our solutions in that country. Either result could substantially harm our business and operating results. Regulatory bodies could establish additional top-level domains, appoint additional domain name registrars, or modify the requirements for holding domain names. As a result, we may not be able to acquire or maintain the domain names that utilize the name “Fitbit” in all of the countries in which we currently conduct or intend to conduct business. Further, the relationship between regulations governing domain names and laws protecting trademarks and similar proprietary rights varies among jurisdictions and is unclear in some jurisdictions. Domain names similar to ours have already been registered in the United States and elsewhere, and we may be unable to prevent third parties from acquiring and using domain names that infringe, are similar to, or otherwise decrease the value of, our brand or our trademarks. Protecting and enforcing our rights in our domain names and determining the rights of others may require litigation, which could result in substantial costs, divert management attention, and not be decided favorably to us.

Our inability to effectively control the sales of our products on the gray market could have a material adverse effect on us.

From time to time, our products may be diverted from our authorized retailers and distributors and sold on the “gray market.” Gray market products result in shadow inventory that is not visible to us, thus making it difficult to forecast demand accurately. Also, when gray market products enter the market, we and our channel partners compete with often heavily discounted gray market products, which adversely affects demand for our products and negatively impacts our margins. In addition, our inability to control gray market activities could result in user satisfaction issues, which may have a negative impact on our brand. When products are purchased outside our authorized retailers and distributors, there is a risk that our customers are buying counterfeit or substandard products, including products that may have been altered, mishandled or damaged, or used products represented as new.

Our use of “open source” software could negatively affect our ability to sell our products and subject us to possible litigation.

A portion of the technologies we use incorporates “open source” software, and we may incorporate open source software in the future. Such open source software is generally licensed by its authors or other third parties under open source licenses. These licenses may subject us to certain unfavorable conditions, including requirements that we offer our products and services that

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incorporate the open source software for no cost, that we make publicly available source code for modifications or derivative works we create based upon, incorporating, or using the open source software, or that we license such modifications or derivative works under the terms of the particular open source license. Additionally, if a third-party software provider has incorporated open source software into software that we license from such provider, we could be required to disclose or provide at no cost any of our source code that incorporates or is a modification of such licensed software. If an author or other third party that distributes open source software that we use or license were to allege that we had not complied with the conditions of the applicable license, we could be required to incur significant legal expenses defending against such allegations and could be subject to significant damages and enjoined from the sale of our products and services that contained the open source software. Any of the foregoing could disrupt the distribution and sale of our products and services and harm our business.

We may engage in merger and acquisition activities, which could require significant management attention, disrupt our business, dilute stockholder value, and adversely affect our operating results.

As part of our business strategy, we may make investments in other companies, products, or technologies. We may not be able to find suitable acquisition candidates and we may not be able to complete acquisitions on favorable terms, if at all. If we do complete acquisitions, we may not ultimately strengthen our competitive position or achieve our goals, and any acquisitions we complete could be viewed negatively by users or investors. In addition, if we fail to successfully integrate such acquisitions, or the technologies associated with such acquisitions, into our company, the revenue and operating results of the combined company could be adversely affected. For example, we recently acquired FitStar and we may fail to successfully integrate FitStar into our company.

Acquisitions may disrupt our ongoing operations, divert management from their primary responsibilities, subject us to additional liabilities, increase our expenses, and adversely impact our business, financial condition, operating results, and cash flows. We may not successfully evaluate or utilize the acquired technology and accurately forecast the financial impact of an acquisition transaction, including accounting charges. We may have to pay cash, incur debt, or issue equity securities to pay for any such acquisition, each of which could affect our financial condition or the value of our capital stock and could result in dilution to our stockholders. If we incur more debt it would result in increased fixed obligations and could also subject us to covenants or other restrictions that would impede our ability to manage our operations. Additionally, we may receive indications of interest from other parties interested in acquiring some or all of our business. The time required to evaluate such indications of interest could require significant attention from management, disrupt the ordinary functioning of our business, and adversely affect our operating results.

The Aria Wi-Fi connected scale is subject to FDA regulation, and sales of this product or future regulated products could be adversely affected if we fail to comply with the applicable requirements.

The Aria scale is regulated as a medical device by the FDA and corresponding state regulatory agencies, and we may have future products that are regulated as medical devices. The medical device industry in the United States is regulated by governmental authorities, principally the FDA and corresponding state regulatory agencies. Before we can market or sell a new regulated product or make a significant modification to an existing medical device in the United States, we must obtain regulatory clearance or approval from the FDA, unless an exemption from pre-market review applies. We received a pre-market clearance for the Aria scale in June 2014. The process of obtaining regulatory clearances or approvals to market a medical device can be costly and time consuming, and we may not be able to obtain these clearances or approvals on a timely basis, or at all, for future products. Any delay in, or failure to receive or maintain, clearance or approval for any medical device products under development could prevent us from generating revenue from these products. Medical devices, including the Aria scale, are also subject to numerous ongoing compliance requirements under the regulations of the FDA and corresponding state regulatory agencies, which can be costly and time consuming. For example, under FDA regulations medical device manufacturers are required to, among other things, (i) establish a quality system to help ensure that their products consistently meet applicable requirements and specifications, (ii) establish and maintain procedures for receiving, reviewing, and evaluating complaints, (iii) establish and maintain a corrective and preventive action procedure, (iv) report certain device-related adverse events and product problems to the FDA, and (v) report to the FDA the removal or correction of a distributed product. If we experience any product problems requiring reporting to the FDA or if we otherwise fail to comply with applicable FDA regulations or the regulations of corresponding state regulatory agencies, with respect to the Aria scale or future regulated products, we could jeopardize our ability to sell our products and could be subject to enforcement actions such as fines, civil penalties, injunctions, recalls of products, delays in the introduction of products into the market, and refusal of the FDA or other regulators to grant future clearances or approvals, which could harm our reputation, business, operating results, and financial condition.

Our revolving credit facilities provide our lenders with first-priority liens against substantially all of our assets, including our intellectual property, and contain financial covenants and other restrictions on our actions, which could limit our operational flexibility and otherwise adversely affect our financial condition.

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Our credit agreements restrict our ability to, among other things:


•	use our accounts receivable, inventory, trademarks, and most of our other assets as security in other borrowings or transactions;


•	incur additional indebtedness;


•	sell certain assets;


•	guarantee certain obligations of third parties;


•	declare dividends or make certain distributions; and


•	undergo a merger or consolidation or other transactions.

Our credit agreements also prohibit us from exceeding a consolidated fixed charge coverage ratio and require us to maintain a minimum liquidity reserve. Our ability to comply with these and other covenants is dependent upon a number of factors, some of which are beyond our control.

Our failure to comply with the covenants or payment requirements or the occurrence of other events specified in our credit agreements could result in an event of default under the credit agreements, which would give our lenders the right to terminate their commitments to provide additional loans under the credit agreements and to declare all borrowings outstanding, together with accrued and unpaid interest and fees, to be immediately due and payable. In addition, we have granted our lenders first-priority liens against all of our assets, including our intellectual property, as collateral. Failure to comply with the covenants or other restrictions in the credit facilities could result in a default. If the debt under our credit agreements was to be accelerated, we may not have sufficient cash on hand or be able to sell sufficient collateral to repay it, which would have an immediate adverse effect on our business and operating results. This could potentially cause us to cease operations and result in a complete loss of your investment in our Class A common stock.

If we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.

We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and the rules and regulations of the applicable listing standards of the New York Stock Exchange. We expect that the requirements of these rules and regulations will continue to increase our legal, accounting, and financial compliance costs, make some activities more difficult, time-consuming, and costly, and place significant strain on our personnel, systems, and resources.

The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we will file with the Securities and Exchange Commission, or SEC, is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers. We are also continuing to improve our internal control over financial reporting. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended, and anticipate that we will continue to expend, significant resources, including accounting-related costs and significant management oversight.

Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business. Further, weaknesses in our disclosure controls and internal control over financial reporting may be discovered in the future. Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could harm our operating results or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods. Any failure to implement and maintain effective internal control over financial reporting also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we will eventually be required to include in our periodic reports that will be filed with the SEC. Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the trading price of our Class A common stock. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on the New York Stock Exchange. We are not currently required to comply with the SEC rules that implement Section 404 of the Sarbanes-Oxley Act, and are therefore not required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. However, commencing with our

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second annual report on Form 10-K, we will be required to provide an annual management report on the effectiveness of our internal control over financial reporting.

Our independent registered public accounting firm is not required to formally attest to the effectiveness of our internal control over financial reporting until after we are no longer an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or JOBS Act. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal control over financial reporting is documented, designed, or operating. Any failure to maintain effective disclosure controls and internal control over financial reporting could have a material and adverse effect on our business and operating results and could cause a decline in the price of our Class A common stock.

Our management team has limited experience managing a public company.

Most members of our management team have limited experience managing a publicly-traded company, interacting with public company investors, and complying with the increasingly complex laws pertaining to public companies. Our management team may not successfully or efficiently manage our transition to being a public company subject to significant regulatory oversight and reporting obligations under the federal securities laws and the continuous scrutiny of securities analysts and investors. These new obligations and constituents will require significant attention from our senior management and could divert their attention away from the day-to-day management of our business, which could adversely affect our business, financial condition, and operating results.

Our business is subject to the risk of earthquakes, fire, power outages, floods, and other catastrophic events, and to interruption by manmade problems such as terrorism.

Our business is vulnerable to damage or interruption from earthquakes, fires, floods, power losses, telecommunications failures, terrorist attacks, acts of war, human errors, break-ins, and similar events. The third-party systems and operations and contract manufacturers we rely on, such as the data centers we lease, are subject to similar risks. For example, a significant natural disaster, such as an earthquake, fire, or flood, could have an adverse effect on our business, operating results, and financial condition, and our insurance coverage may be insufficient to compensate us for losses that may occur. Our corporate offices and one of our data center facilities are located in California, a state that frequently experiences earthquakes. In addition, the facilities at which our contract manufacturers manufacture our products are located in parts of Asia that frequently endure typhoons and earthquakes. Acts of terrorism, which may be targeted at metropolitan areas that have higher population density than rural areas, could also cause disruptions in our or our suppliers’, contract manufacturers’, and logistics providers’ businesses or the economy as a whole. We may not have sufficient protection or recovery plans in some circumstances, such as natural disasters affecting California or other locations where we have data centers or store significant inventory of our products. As we rely heavily on our data center facilities, computer and communications systems, and the Internet to conduct our business and provide high-quality customer service, these disruptions could negatively impact our ability to run our business and either directly or indirectly disrupt suppliers’ businesses, which could have an adverse effect on our business, operating results, and financial condition.

We may need to raise additional capital required to grow our business, and we may not be able to raise capital on terms acceptable to us or at all.

Growing and operating our business will require significant cash outlays and capital expenditures and commitments. If cash on hand and cash from operating activities are not sufficient to meet our cash requirements, we will need to seek additional capital, potentially through debt or equity financing, to fund our growth. We may not be able to raise needed cash on terms acceptable to us or at all. Financing may be on terms that are dilutive or potentially dilutive to our stockholders, and the prices at which new investors would be willing to purchase our securities may be lower than the current price per share of our Class A common stock. The holders of new securities may also have rights, preferences, or privileges which are senior to those of existing holders of common stock. If new sources of financing are required, but are insufficient or unavailable, we will be required to modify our growth and operating plans based on available funding, if any, which would harm our ability to grow our business.

If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our operating results could be adversely affected.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report on Form 10-Q. The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities, and equity, and the amount of revenue and expenses that are not readily apparent from other sources. Significant assumptions and

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estimates used in preparing our consolidated financial statements include those related to revenue recognition, inventories, product warranty reserves, the Fitbit Force recall, business combinations, accounting for income taxes, fair value of redeemable convertible preferred stock warrant liability, and stock-based compensation expense. Our operating results may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our operating results to fall below the expectations of securities analysts and investors, resulting in a decline in the price of our Class A common stock.

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

We are an “emerging growth company,” as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We may take advantage of these exemptions for so long as we are an “emerging growth company,” which could be as long as five years following our initial public offering but we expect to not be an “emerging growth company” sooner. We will remain an emerging growth company until the earliest to occur of (i) the last day of the fiscal year in which we have more than $1.0 billion in annual gross revenue; (ii) the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates; (iii) the date on which we have issued, in any three-year period, more than $1.0 billion in non-convertible debt securities; and (iv) the last day of the fiscal year ending after the fifth anniversary of the completion of our initial public offering. We cannot predict if investors will find our Class A common stock less attractive because we will rely on these exemptions. If some investors find our Class A common stock less attractive as a result, there may be a less active trading market for our Class A common stock and the price of our Class A common stock may be more volatile.

Regulations related to conflict minerals may cause us to incur additional expenses and could limit the supply and increase the costs of certain metals used in the manufacturing of our products.

We are subject to requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which will require us to conduct due diligence on and disclose whether or not our products contain conflict minerals. The implementation of these requirements could adversely affect the sourcing, availability, and pricing of the materials used in the manufacture of components used in our products. In addition, we will incur additional costs to comply with the disclosure requirements, including costs related to conducting diligence procedures to determine the sources of minerals that may be used or necessary to the production of our products and, if applicable, potential changes to products, processes, or sources of supply as a consequence of such due diligence activities. It is also possible that we may face reputational harm if we determine that certain of our products contain minerals not determined to be conflict free or if we are unable to alter our products, processes, or sources of supply to avoid such materials.

Risks Related to Ownership of Our Class A Common Stock

The market price of our Class A common stock has been and will likely continue to be volatile, and you could lose all or part of your investment.

The market price of our Class A common stock has been, and will likely continue to be, volatile. Since shares of our Class A common stock were sold in our initial public offering in June 2015 at a price of $20.00 per share, our stock price has ranged from $29.50 to $40.45, through June 30, 2015. In addition to the factors discussed in this Quarterly Report on Form 10-Q, the market price of our Class A common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:


•	overall performance of the equity markets;


•	actual or anticipated fluctuations in our revenue and other operating results;


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


•	failure of securities analysts to initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors;


•	recruitment or departure of key personnel;


•	the economy as a whole and market conditions in our industry;

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•	negative publicity related to problems in our manufacturing or the real or perceived quality of our products, as well as the failure to timely launch new products that gain market acceptance;


•	rumors and market speculation involving us or other companies in our industry;


•	announcements by us or our competitors of significant technical innovations, acquisitions, strategic partnerships, joint ventures, or capital commitments;


•	new laws or regulations or new interpretations of existing laws or regulations applicable to our business;


•	lawsuits threatened or filed against us;


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


•	the expiration of contractual lock-up or market standoff agreements; and


•	sales of shares of our Class A common stock by us or our stockholders.

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

Sales of substantial amounts of our Class A common stock in the public markets, or the perception that they might occur, could cause the market price of our Class A common stock to decline.

Sales of a substantial number of shares of our Class A common stock into the public market, particularly sales by our directors, executive officers, and principal stockholders, or the perception that these sales might occur, could cause the market price of our Class A common stock to decline.

The 42,061,250 shares of our Class A common stock sold in our initial public offering are freely tradable in the public market. The remaining shares of our Class A common stock and Class B common stock are currently restricted from resale as a result of lock-up and market standoff agreements. These securities will become available to be sold on December 15, 2015. Morgan Stanley & Co. LLC, as a representative of the underwriters of our IPO, may, in its discretion, permit our security holders to sell shares prior to the expiration of the restrictive provisions contained in the lock-up agreements. Shares held by directors, executive officers, and other affiliates will also be subject to volume limitations under Rule 144 under the Securities Act of 1933, as amended, or the Securities Act, and various vesting agreements.

In addition, as of June 30, 2015, we had options outstanding that, if fully exercised, would result in the issuance of 49.2 million shares of Class B common stock. We also had 0.5 million RSUs outstanding as of June 30, 2015. All of the shares of Class B common stock issuable upon the exercise of stock options or settlement of RSUs, and the shares reserved for future issuance under our equity incentive plans, are registered for public resale under the Securities Act. Accordingly, these shares will also be able to be freely sold in the public market upon issuance subject to the existing lock-up or market standoff agreements described above and applicable vesting requirements.

In addition, certain holders of our Class B common stock (or warrants to purchase shares of our Class B common stock) have rights, subject to some conditions, to require us to file registration statements for the public resale of the Class A common stock issuable upon conversion of such shares or to include such shares in registration statements that we may file for us or other stockholders.

The dual class structure of our common stock has the effect of concentrating voting control with holders of our Class B common stock, including our directors, executive officers, and significant stockholders. This will limit or preclude your ability to influence corporate matters, including the election of directors, amendments of our organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring stockholder approval.

Our Class B common stock has ten votes per share, and our Class A common stock, has one vote per share. As of June 30, 2015, our directors, executive officers, and holders of more than 5% of our common stock, and their respective affiliates, hold a substantial majority of the voting power of our capital stock. Because of the ten-to-one voting ratio between our Class B and Class A common stock, the holders of our Class B common stock collectively will control a majority of the combined voting power of our common stock and therefore are able to control all matters submitted to our stockholders for approval until the earlier of June 17, 2027 or the date the holders of a majority of our Class B common stock choose to convert their shares. This concentrated

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control will limit or preclude your ability to influence corporate matters for the foreseeable future, including the election of directors, amendments of our organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring stockholder approval. In addition, this may prevent or discourage unsolicited acquisition proposals or offers for our capital stock that you may feel are in your best interest as one of our stockholders.

Future transfers by holders of Class B common stock will generally result in those shares converting to Class A common stock, subject to limited exceptions, such as certain transfers effected for estate planning purposes. The conversion of Class B common stock to Class A common stock will have the effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long term.

If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, the price of our Class A common stock and trading volume could decline.

The trading market for our Class A common stock depends in part on the research and reports that securities or industry analysts publish about us or our business. If few securities analysts commence coverage of us, or if industry analysts cease coverage of us, the trading price for our common stock would be negatively affected. If one or more of the analysts who cover us downgrade our Class A common stock or publish inaccurate or unfavorable research about our business, our common stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our Class A common stock could decrease, which might cause our Class A common stock price and trading volume to decline.

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

We have never declared or paid any cash dividends on our common stock and do not intend to pay any cash dividends in the foreseeable future. We anticipate that we will retain all of our future earnings for use in the development of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our board of directors. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments. In addition, our credit facilities contain restrictions on our ability to pay dividends.

Provisions in our charter documents and under Delaware law could make an acquisition of our company more difficult, limit attempts by our stockholders to replace or remove our current management, limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees, and limit the market price of our common stock.

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


•	provide that our board of directors will be classified into three classes of directors with staggered three-year terms;


•	permit the board of directors to establish the number of directors and fill any vacancies and newly-created directorships;


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


•	authorize the issuance of “blank check” preferred stock that our board of directors could use to implement a stockholder rights plan;


•	provide that only the chairman of our board of directors, our chief executive officer, or a majority of our board of directors will be authorized to call a special meeting of stockholders;

•

provide for a dual class common stock structure in which holders of our Class B common stock have the ability to control the outcome of matters requiring stockholder approval, even if they own significantly less than a majority of the outstanding shares of our Class A and Class B common stock, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets;


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


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


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

In addition, our restated certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive forum for: any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our restated certificate of

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incorporation, or our restated bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, or other employees, which may discourage lawsuits with respect to such claims. Alternatively, if a court were to find the choice of forum provision contained in our restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results, and financial condition.

Moreover, Section 203 of the Delaware General Corporation Law may discourage, delay, or prevent a change in control of our company. Section 203 imposes certain restrictions on mergers, business combinations, and other transactions between us and holders of 15% or more of our common stock.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) Sales of Unregistered Securities

From April 1, 2015 to June 18, 2015 (the date of the filing of our registration statement on Form S-8), we issued and sold the following securities (after giving effect to stock splits):



	1.		Options to employees, directors, consultants, and other service providers to purchase an aggregate of 2,761,108 shares of Class B common stock under our Amended and Restated 2007 Stock Plan, or 2007 Plan, and 255,000 shares of Class A common stock under our 2015 Equity Incentive Plan, with per share exercise prices ranging from $12.5667 to $20.00.



	2.		An aggregate of 212,153 restricted stock units to employees and other service providers to be settled in shares of Class B common stock under our 2007 Plan.



	3.		549,697 shares of common stock to our employees, directors, consultants, and other service providers upon exercise of options granted by it under our 2007 Plan, with purchase prices ranging from $0.0458 to $12.5667 per share, for an aggregate purchase price of $375,942.

The sales of the above securities were exempt from registration under the Securities Act of 1933, as amended, or Securities Act, in reliance upon Section 4(2) of the Securities Act, or Rule 701 promulgated under Section 3(b) of the Securities Act as transactions by an issuer not involving any public offering or pursuant to benefit plans and contracts relating to compensation as provided under Rule 701. The recipients of the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed upon the stock certificates issued in these transactions.

(b) Use of Proceeds

On June 17, 2015, the SEC declared our registration statement on Form S-1 (File No. 333-203941) for our initial public offering effective, and the offering commenced the following day. The offering did not terminate before all of the securities registered in the registration statement were sold. Morgan Stanley & Co. LLC, Deutsche Bank Securities Inc., and Merrill Lynch, Pierce, Fenner & Smith Incorporated acted as active joint book-running managers for the offering. Barclays Capital Inc. and SunTrust Robinson Humphrey, Inc. acted as passive joint book-running managers and Piper Jaffray & Co., Raymond James & Associates, Inc., Stifel, Nicolaus & Company, Incorporated, and William Blair & Company, L.L.C acted as co-managers.

We registered an aggregate of 42,061,250 shares of our Class A common stock (including 19,673,750 shares which were held by certain of our stockholders), including 5,486,250 shares registered to cover an over-allotment option (all of which were held by certain of our stockholders). On June 22, 2015, we closed our initial public offering, in which we sold 22,387,500 shares of our Class A common stock and the selling stockholders sold 19,673,750 shares of our Class A common stock. The shares sold and issued in the IPO included the full exercise of the underwriters’ over-allotment option. The shares were sold at a public offering price of $20.00 per share for an aggregate gross offering price of approximately $841.2 million. We received net proceeds of $420.9 million after deducting underwriting discounts and commissions of $26.9 million but before deducting offering costs. We incurred offering expenses of approximately $5.2 million, of which $2.5 million was paid in the six months ended June 30, 2015, and the remaining $2.7 million will be paid after June 30, 2015. Thus, the net offering proceeds, after deducting underwriting discounts and offering expenses, were approximately $415.7 million. No payments were made to our directors or officers or their associates,

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holders of 10% or more of any class of our equity securities or to our affiliates in connection with the issuance and sale of the securities registered.

There has been no material change in the planned use of proceeds from our initial public offering as described in our final prospectus filed with the SEC on June 18, 2015 pursuant to Rule 424(b)(4).

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Item 6. Exhibits

Exhibit

Incorporated by Reference

Filed

Number

Exhibit Description

Form

File No.

Exhibit

Filing Date

Herewith

3.1

Restated Certificate of Incorporation of the Registrant.

3.2

Restated Bylaws of the Registrant.

10.1+

2015 Equity Incentive Plan, and forms of award agreements.

S-1

333-203941

10.3

5/7/2015

10.2+

2015 Employee Stock Purchase Plan.

S-1

333-203941

10.4

5/7/2015

10.3

Office Lease, dated June 26, 2015, by and between the Registrant and GLL BIT Fremont Street Partners, L.P.

31.1

Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive Officer.

31.2

Rule 13a-14(a) / 15d-14(a) Certification of Chief Financial Officer.

32.1#

Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer.

101.INS

XBRL Instance Document.

101.SCH

XBRL Taxonomy Extension Schema Document.

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB

XBRL Taxonomy Extension Labels Linkbase Document.

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document.

+ Indicates management contract or compensatory plan or arrangement.

# These certifications are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or otherwise subject to the liability of that section, nor shall they be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.






		FITBIT, INC.

Date:	August 7, 2015	/s/ WILLIAM ZERELLA
		William Zerella
		Chief Financial Officer (Principal Financial and Accounting Officer)

Exhibit 3.1

FITBIT, INC.

RESTATED CERTIFICATE OF INCORPORATION

Fitbit, Inc., a Delaware corporation, hereby certifies as follows:

1. The name of the corporation is Fitbit, Inc. The date of the filing of its original Certificate of Incorporation with the Secretary of State was March 26, 2007, under the name Healthy Metrics Research, Inc.

2. The Restated Certificate of Incorporation of the corporation attached hereto as Exhibit “A” , which is incorporated herein by this reference, and which restates, integrates and further amends the provisions of the Certificate of Incorporation of this corporation, as previously amended and/or restated, has been duly adopted by the corporation’s Board of Directors and by the stockholders in accordance with Sections 242 and 245 of the General Corporation Law of the State of Delaware, with the approval of the corporation’s stockholders having been given by written consent without a meeting in accordance with Section 228 of the General Corporation Law of the State of Delaware.

IN WITNESS WHEREOF, this corporation has caused this Restated Certificate of Incorporation to be signed by its duly authorized officer and the foregoing facts stated herein are true and correct.



Dated:	June 23, 2015	Fitbit, Inc.
		By:	/s/ James Park
		Name:		James Park
		Title:		President and Chief Executive Officer

EXHIBIT “A”

FITBIT, INC.

RESTATED CERTIFICATE OF INCORPORATION

ARTICLE I: NAME

The name of the corporation is Fitbit, Inc. (the “ Corporation ”).

ARTICLE II: AGENT FOR SERVICE OF PROCESS

The address of the Corporation’s registered office in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle, Delaware 19801. The name of the registered agent of the Corporation at that address is The Corporation Trust Company.

ARTICLE III: PURPOSE

The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the “ General Corporation Law ”).

ARTICLE IV: AUTHORIZED STOCK

1. Total Authorized . The total number of shares of all classes of stock that the Corporation has authority to issue is Nine Hundred Sixty Million (960,000,000) shares, consisting of: Six Hundred Million (600,000,000) shares of Class A Common Stock, $0.0001 par value per share (“ Class A Common Stock ”), Three Hundred Fifty Million (350,000,000) shares of Class B Common Stock, $0.0001 par value per share (“ Class B Common Stock ” and together with the Class A Common Stock, the “ Common Stock ”), and Ten Million (10,000,000) shares of Preferred Stock, $0.0001 par value per share (the “ Preferred Stock ”). The number of authorized shares of Class A Common Stock or Class B Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of capital stock representing a majority of the voting power of all the then-outstanding shares of capital stock of the Corporation entitled to vote thereon, irrespective of the provisions of Section 242(b)(2) of the General Corporation Law, and no vote of the holders of the Class A Common Stock or Class B Common Stock voting separately as a class shall be required therefor.

2. Preferred Stock .

2.1. The Board of Directors is authorized, subject to any limitations prescribed by the law of the State of Delaware, by resolution or resolutions adopted from time to time, to provide for the issuance of shares of Preferred Stock in one or more series, and, by filing a certificate of designation pursuant to the applicable law of the State of Delaware (“ Certificate of Designation ”), to establish from time to time the number of shares to be included in each such series, to fix the designation, powers (including voting powers), preferences and relative, participating, optional or other rights (and the qualifications, limitations or restrictions thereof) of the shares of each such series and to increase (but not above the total number of authorized shares of the class) or decrease (but not below the number of shares of such series then outstanding) the number of shares of any such series. The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the voting power of all the then-outstanding shares of capital stock of the Corporation entitled to vote thereon, without a separate vote of the holders of the Preferred Stock or any series thereof, irrespective of the provisions of Section 242(b)(2) of the General Corporation Law, unless a vote of any such holders is required pursuant to the terms of any Certificate of Designation designating a series of Preferred Stock.

2.2. Except as otherwise expressly provided in any Certificate of Designation designating any series of Preferred Stock pursuant to the foregoing provisions of this Article IV, (i) any new series of Preferred Stock may be designated, fixed and determined as provided herein by the Board of Directors without approval of the holders of Common Stock or the holders of Preferred Stock, or any series thereof, and (ii) any such new series may have powers, preferences and rights, including, without limitation, voting rights, dividend rights, liquidation rights, redemption rights and conversion rights, senior to, junior to or pari passu with the rights of the Common Stock, the Preferred Stock, or any future class or series of Preferred Stock or Common Stock.

3. Rights of Class A Common Stock and Class B Common Stock .

3.1. Equal Status . Except as otherwise provided in this Restated Certificate of Incorporation or required by applicable law, shares of Class A Common Stock and Class B Common Stock shall have the same rights and powers, rank equally (including as to dividends and distributions, and upon any liquidation, dissolution or winding up of the Corporation), share ratably and be identical in all respects and as to all matters.

3.2. Voting Rights . Except as otherwise expressly provided by this Restated Certificate of Incorporation or as provided by law, the holders of shares of Class A Common Stock and Class B Common Stock shall (a) at all times vote together as a single class on all matters (including the election of directors) submitted to a vote of the stockholders of the Corporation, (b) be entitled to notice of any stockholders’ meeting in accordance with the Bylaws of the Corporation and (c) be entitled to vote upon such matters and in such manner as may be provided by applicable law. Except as otherwise expressly provided herein or required by applicable law, each holder of Class A Common Stock shall have the right to one (1) vote per share of Class A Common Stock held of record by such holder and each holder of Class B Common Stock shall have the right to ten (10) votes per share of Class B Common Stock held of record by such holder.

3.3. Dividends and Distribution Rights . Shares of Class A Common Stock and Class B Common Stock shall be treated equally, identically and ratably, on a per share basis, with respect to any dividends or distributions as may be declared and paid from time to time by the Board of Directors out of any assets of the Corporation legally available therefor; provided , however , that in the event a dividend is paid in the form of shares of Class A Common Stock or Class B Common Stock (or rights to acquire such shares), then holders of Class A Common Stock shall receive shares of Class A Common Stock (or rights to acquire such shares, as the case may be) and holders of Class B Common Stock shall receive shares of Class B Common Stock (or rights to acquire such shares, as the case may be), with holders of shares of Class A Common Stock and Class B Common Stock receiving, on a per share basis, an identical number of shares of Class A Common Stock or Class B Common Stock, as applicable. Notwithstanding the foregoing, the Board of Directors may pay or make a disparate dividend or distribution per share of Class A Common Stock or Class B Common Stock (whether in the amount of such dividend or distribution payable per share, the form in which such dividend or distribution is payable, the timing of the payment, or otherwise) if such disparate dividend or distribution is approved in advance by the affirmative vote of the holders of a majority of the outstanding shares of Class A Common Stock and Class B Common Stock, each voting separately as a class.

3.4. Subdivisions, Combinations or Reclassifications . Shares of Class A Common Stock or Class B Common Stock may not be subdivided, combined or reclassified unless the shares of the other class are concurrently therewith proportionately subdivided, combined or reclassified in a manner that maintains the same proportionate equity ownership between the holders of the outstanding Class A Common Stock and Class B Common Stock on the record date for such subdivision, combination or reclassification; provided , however , that shares of one such class may be subdivided, combined or reclassified in a different or disproportionate manner if such subdivision, combination or reclassification is approved in advance by the affirmative vote of the holders of a majority of the outstanding shares of Class A Common Stock and Class B Common Stock, each voting separately as a class.

3.5. Liquidation, Dissolution or Winding Up . Subject to the preferential or other rights of any holders of Preferred Stock then outstanding, upon the liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, holders of Class A Common Stock and Class B Common Stock will be entitled to receive ratably all assets of the Corporation available for distribution to its stockholders unless disparate or different treatment of the shares of each such class with respect to distributions upon any such liquidation, dissolution or winding up is approved in advance by the affirmative vote of the holders of a majority of the outstanding shares of Class A Common Stock and Class B Common Stock, each voting separately as a class.

3.6. Merger or Consolidation . In the case of any distribution or payment in respect of the shares of Class A Common Stock or Class B Common Stock upon the merger or consolidation of the Corporation with or into any other entity, or in the case of any other transaction having an effect on stockholders substantially similar to that resulting from a merger or consolidation, such distribution or payment shall be made ratably on a per share basis among the holders of the Class A Common Stock and Class B Common Stock as a single class; provided , however , that shares of one such class may receive different or disproportionate distributions or payments in connection with such merger, consolidation or other transaction if (i) the only difference in the per share distribution to the holders of the Class A Common Stock and Class B Common Stock is that any securities distributed to the holder of a share Class B Common Stock have ten times the voting power of any securities distributed to the holder of a share of Class A Common Stock, or (ii) such merger, consolidation or other transaction is approved by the affirmative vote of the holders of a majority of the outstanding shares of Class A Common Stock and Class B Common Stock, each voting separately as a class.

ARTICLE V: CLASS B COMMON STOCK CONVERSION

1. Optional Conversion . Each share of Class B Common Stock shall be convertible into one (1) fully paid and nonassessable share of Class A Common Stock at the option of the holder thereof at any time upon written notice to the Corporation. Before any holder of Class B Common Stock shall be entitled to convert any of such holder’s shares of such Class B Common Stock into shares of Class A Common Stock, such holder shall deliver an instruction, duly signed and authenticated in accordance with any procedures set forth in the Bylaws of the Corporation or any policies of the Corporation then in effect, at the principal corporate office of the Corporation or of any transfer agent for the Class B Common Stock, and shall give written notice to the Corporation at its principal corporate office of such holder’s election to convert the same and shall state therein the name or names in which the shares of Class A Common Stock issuable on conversion thereof are to be registered on the books of the Corporation. The Corporation shall, as soon as practicable thereafter, register on the Corporation’s books ownership of the number of shares of Class A Common Stock to which such record holder of Class B Common Stock, or to which the nominee or nominees of such record holder, shall be entitled as aforesaid. Such conversion shall be deemed to have occurred immediately prior the close of business on the date such notice of the election to convert is received by the Corporation, and the person or persons entitled to receive the shares of Class A Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Class A Common Stock as of such date.

2. Automatic Conversion . Each share of Class B Common Stock shall automatically, without further action by the Corporation or the holder thereof, be converted into one (1) fully paid and nonassessable share of Class A Common Stock immediately prior to the close of business on the earlier of (i) June 17, 2027, or (ii) the date specified by the affirmative vote of the holders of Class B Common Stock representing not less than a majority of the voting power of the outstanding shares of Class B Common Stock, voting separately as a single class (either of the events so specified being the “ Automatic Conversion ”). The Corporation shall provide notice of the Automatic Conversion of shares of Class B Common Stock pursuant to this Section 2 to record holders of such shares of Class B Common Stock as soon as practicable following the Automatic Conversion; provided , however , that the Corporation may satisfy such notice requirements by providing such notice prior to the Automatic Conversion. Such notice shall be provided by any means then permitted by the General Corporation Law; provided , however , that no failure to give such notice nor any defect therein shall affect the validity of the Automatic Conversion. Upon and after the Automatic Conversion, the person registered on the Corporation’s books as the record holder of the shares of Class B Common Stock so converted immediately prior to the Automatic Conversion shall be registered on the Corporation’s books as the record holder of the shares of Class A Common Stock issued upon Automatic Conversion of such shares of Class B Common Stock, without further action on the part of the record holder thereof. Immediately upon the effectiveness of the Automatic Conversion, the rights of the holders of shares of Class B Common Stock as such shall cease, and the holders shall be treated for all purposes as having become the record holder or holders of such shares of Class A Common Stock into which such shares of Class B Common Stock were converted.

3. Conversion on Transfer . Each share of Class B Common Stock shall automatically, without further action by the Corporation or the holder thereof, be converted into one (1) fully paid and nonassessable share of Class A Common Stock, upon the occurrence of a Transfer (as defined below), other than a Permitted Transfer (as defined below), of such share of Class B Common Stock.

4. Policies and Procedures . The Corporation may, from time to time, establish such policies and procedures, not in violation of applicable law or this Restated Certificate of Incorporation or the Bylaws, relating to the conversion of shares of the Class B Common Stock into shares of Class A Common Stock as it may deem necessary or advisable. If the Corporation has reason to believe that a Transfer that is not a Permitted Transfer has occurred, the Corporation may request that the purported transferor furnish affidavits or other evidence to the Corporation as it reasonably deems necessary to determine whether a Transfer that is not a Permitted Transfer has occurred, and if such transferor does not within ten (10) days after the date of such request furnish sufficient (as determined by the Board of Directors) evidence to the Corporation (in the manner provided in the request) to enable the Corporation to determine that no such Transfer has occurred, any such shares of Class B Common Stock, to the extent not previously converted, shall be automatically converted into shares of Class A Common Stock and such conversion shall thereupon be registered on the books and records of the Corporation. In connection with any action of stockholders taken at a meeting, the stock ledger of the Corporation shall be presumptive evidence as to who are the stockholders entitled to vote in person or by proxy at any meeting of stockholders and the classes of shares held by each such stockholder and the number of shares of each class held by such stockholder.

5. Definitions .

a) “ Covered Security Date ” means June 1, 2015.

b) “ Family Member ” shall mean with respect to any natural person who is a Qualified Stockholder, the spouse, domestic partner, parents, grandparents, lineal descendants, siblings and lineal descendants of siblings of such Qualified Stockholder. Lineal descendants shall include adopted persons, but only so long as they are adopted during minority.

c) “ Qualified Stockholder ” shall mean (a) the record holder of a share of Class B Common Stock as of the Covered Security Date; (b) the initial registered holder of any shares of Class B Common Stock that are originally issued by the Corporation after the Covered Security Date pursuant to the exercise or conversion of any Option or Convertible Security that, in each case, were outstanding as of the Covered Security Date; (c) each natural person who, prior to the Covered Security Date, Transferred shares of capital stock of the Corporation to a Permitted Entity that is or becomes a Qualified Stockholder; (d) each natural person who Transferred shares of, or equity awards for, Class B Common Stock (including any Option exercisable or Convertible Security exchangeable for or convertible into shares of Class B Common Stock) to a Permitted Entity that is or becomes a Qualified Stockholder; and (e) a Permitted Transferee.

d) “ Permitted Entity ” shall mean with respect to a Qualified Stockholder (a) a Permitted Trust solely for the benefit of (i) such Qualified Stockholder; (ii) one or more Family Members of such Qualified Stockholder; or (iii) any other Permitted Entity of such Qualified Stockholder, or (b) any general partnership, limited partnership, limited liability company, corporation or other entity exclusively owned by (i) such Qualified Stockholder; (ii) one or more Family Members of such Qualified Stockholder; or (iii) any other Permitted Entity of such Qualified Stockholder.

e) “ Transfer ” of a share of Class B Common Stock shall mean any sale, assignment, transfer, conveyance, hypothecation or other transfer or disposition of such share or any legal or beneficial interest in such share, whether or not for value and whether voluntary or involuntary or by operation of law, including, without limitation, a transfer of a share of Class B Common Stock to a broker or other nominee (regardless of whether there is a corresponding change in beneficial ownership), or the transfer of, or entering into a binding agreement with respect to, Voting Control over such share by proxy or otherwise; provided , however , that the following shall not be considered a “Transfer” within the meaning of this Section 5:

(i) the granting of a revocable proxy to officers or directors of the Corporation at the request of the Board of Directors in connection with actions to be taken at an annual or special meeting of stockholders;

(ii) entering into a voting trust, agreement or arrangement (with or without granting a proxy) solely with stockholders who are holders of Class B Common Stock that (A) is disclosed either in a Schedule 13D filed with the Securities and Exchange Commission or in writing to the Secretary of the Corporation, (B) either has a term not exceeding one (1) year or is terminable by the holder of the shares subject thereto at any time and (C) does not involve any payment of cash, securities, property or other consideration to the holder of the shares subject thereto other than the mutual promise to vote shares in a designated manner; or

(iii) the pledge of shares of Class B Common Stock by a stockholder that creates a mere security interest in such shares pursuant to a bona fide loan or indebtedness transaction for so long as such stockholder continues to exercise Voting Control over such pledged shares; provided , however , that a foreclosure on such shares or other similar action by the pledgee shall constitute a Transfer unless such foreclosure or similar action qualifies as a Permitted Transfer.

A Transfer shall also be deemed to have occurred with respect to a share of Class B Common Stock beneficially held by (i) an entity that is a Permitted Entity, if there occurs any act or circumstance that causes such entity to no longer be a Permitted Entity or (ii) an entity that is a Qualified Stockholder, if there occurs a Transfer on a cumulative basis, from and after the Covered Security Date, of a majority of the voting power of the voting securities of such entity or any direct or indirect Parent of such entity, other than a Transfer to parties that are, as of the Covered Security Date, holders of voting securities of any such entity or Parent of such entity.

f) “ Parent ” of an entity shall mean any entity that directly or indirectly owns or controls a majority of the voting power of the voting securities of such entity.

g) “ Permitted Transfer ” shall mean, and be restricted to, any Transfer of a share of Class B Common Stock:

(i) by a Qualified Stockholder to (A) one or more Family Members of such Qualified Stockholder, (B) any Permitted Entity of such Qualified Stockholder, or (C) to such Qualified Stockholder’s revocable living trust, which revocable living trust is itself both a Permitted Trust and a Qualified Stockholder; or

(ii) by a Permitted Entity of a Qualified Stockholder to (A) such Qualified Stockholder or one or more Family Members of such Qualified Stockholder, or (B) any other Permitted Entity of such Qualified Stockholder.

h) “ Permitted Transferee ” shall mean a transferee of shares of Class B Common Stock received in a Transfer that constitutes a Permitted Transfer.

i) “ Permitted Trust ” shall mean a bona fide trust where each trustee is (i) a Qualified Stockholder, (ii) a Family Member, or (iii) a professional in the business of providing trustee services, including private professional fiduciaries, trust companies and bank trust departments.

j) “ Voting Control ” shall mean, with respect to a share of Class B Common Stock, the power (whether exclusive or shared) to vote or direct the voting of such share by proxy, voting agreement or otherwise.

k) “ Voting Threshold Date ” shall mean 5:00 p.m. (Eastern Time) on the first day falling on or after the date on which the outstanding shares of Class B Common Stock represent less than a majority of the total voting power of the then-outstanding shares of the Corporation then entitled to vote generally in the election of directors.

l) “ Convertible Securities ” shall mean securities (other than shares of Class B Common Stock) convertible into or exchangeable for Class A Common Stock or Class B Common Stock, either directly or indirectly.

m) “ Options ” shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Class A Common Stock, Class B Common Stock or Convertible Securities.

6. Status of Converted Stock . In the event any shares of Class B Common Stock are converted into shares of Class A Common Stock pursuant to this Article V, the shares of Class B Common Stock so converted shall be retired and shall not be reissued by the Corporation.

7. Effect of Conversion on Payment of Dividends . Notwithstanding anything to the contrary in Sections 1, 2 or 3 of this Article V, if the date on which any share of Class B Common Stock is converted into Class A Common Stock pursuant to the provisions of Sections 1, 2 or 3 of this Article V occurs after the record date for the determination of the holders of Class B Common Stock entitled to receive any dividend or distribution to be paid on the shares of Class B Common Stock, the holder of such shares of Class B Common Stock as of such record date will be entitled to receive such dividend or distribution on such payment date; provided , that, notwithstanding any other provision of this Restated Certificate of Incorporation, to the extent that any such dividend or distribution is payable in shares of Class B Common Stock, such dividend or distribution shall be deemed to have been declared, and shall be payable in, shares of Class A Common Stock and no shares of Class B Common Stock shall be issued in payment thereof.

8. Reservation . The Corporation shall at all times reserve and keep available, out of its authorized and unissued shares of Class A Common Stock, solely for the purpose of effecting conversions of shares of Class B Common Stock into Class A Common Stock, such number of duly authorized shares of Class A Common Stock as shall from time to time be sufficient to effect the conversion of all then outstanding shares of Class B Common Stock. If at any time the number of authorized and unissued shares of Class A Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Class B Common Stock, the Corporation shall promptly take such corporate action as may be necessary to increase its authorized but unissued shares of Class A Common Stock to such number of shares as shall be sufficient for such purpose, including, without limitation, obtaining the requisite stockholder approval of any necessary amendment to this Restated Certificate of Incorporation. All shares of Class A Common Stock which are so issuable shall, when issued, be duly and validly issued, fully paid and non-assessable shares. The Corporation shall take all such action as may be necessary to ensure that all such shares of Class A Common Stock may be so issued without violation of any applicable law or regulation.

ARTICLE VI: AMENDMENT OF BYLAWS

The Board of Directors of the Corporation shall have the power to adopt, amend or repeal the Bylaws of the Corporation. Any adoption, amendment or repeal of the Bylaws of the Corporation by the Board of Directors shall require the approval of a majority of the Whole Board. For purposes of this Restated Certificate of Incorporation, the term “ Whole Board ” shall mean the total number of authorized directors whether or not there exist any vacancies in previously authorized directorships. The stockholders shall also have power to adopt, amend or repeal the Bylaws of the Corporation; provided , however , that, notwithstanding any other provision of this Restated Certificate of Incorporation (including any Certificate of Designation) or any provision of law that might otherwise permit a lesser or no vote, but in addition to any vote of the holders of any class or series of stock of the Corporation required by applicable law or by this Restated Certificate of Incorporation (including any Certificate of Designation), the affirmative vote of the holders of at least two-thirds (2/3) of the voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required for stockholders to adopt, amend or repeal any provision of the Bylaws of the Corporation.

ARTICLE VII: MATTERS RELATING TO THE BOARD OF DIRECTORS

1. Director Powers . The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors, except as otherwise provided by law.

2. Number of Directors . Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, the total number of directors constituting the Whole Board shall be fixed from time to time exclusively by resolution adopted by a majority of the Whole Board.

3. Classified Board . Subject to the special rights of the holders of any series of Preferred Stock to elect directors, immediately following the Voting Threshold Date, the directors shall be divided into three classes designated as Class I, Class II and Class III, respectively (the “ Classified Board ”). The Board of Directors is authorized to assign members of the Board of Directors already in office immediately prior to the Voting Threshold Date to such classes of the Classified Board, which assignments shall become effective at the same time the Classified Board becomes effective. Directors shall be assigned to each class in accordance with a resolution or resolutions adopted by a majority of the Board of Directors, with the number of directors in each class to be divided as nearly equal as reasonably possible. The initial term of office of the Class I directors shall expire at the Corporation’s first annual meeting of stockholders following the Voting Threshold Date, the initial term of office of the Class II directors shall expire at the Corporation’s second annual meeting of stockholders following the Voting Threshold Date, and the initial term of office of the Class III directors shall expire at the Corporation’s third annual meeting of stockholders following the Voting Threshold Date . At each annual meeting of stockholders commencing with the first annual meeting of stockholders following the Voting Threshold Date, directors elected to succeed those directors of the class whose terms then expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election.

4. Term and Removal . Each director shall hold office until the annual meeting at which such director’s term expires and until such director’s successor is elected and qualified, or until such director’s earlier death, resignation, disqualification or removal. Prior to the Voting Threshold Date, subject to the special rights of the holders of any series of Preferred Stock, directors may be removed with or without cause by the affirmative vote of the holders of a majority of the voting power of the then-outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class. From and after the Voting Threshold Date, subject to the special rights of the holders of any series of Preferred Stock, directors may be removed only for cause and only by the affirmative vote of the holders of two-thirds (2/3) of the voting power of the then-outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class.

5. Vacancies and Newly Created Directorships . Subject to the special rights of the holders of any series of Preferred Stock to elect directors, any vacancy occurring in the Board of Directors for any cause, and any newly created directorship resulting from any increase in the authorized number of directors, shall be filled only by the affirmative vote of a majority of the directors then in office, even if less than a quorum, or by a sole remaining director, and not by the stockholders. Any director elected in accordance with the preceding sentence shall hold office for a term expiring at the annual meeting of stockholders at which the term of office of such director expires or until such director’s successor shall have been duly elected and qualified. No decrease in the authorized number of directors shall shorten the term of any incumbent director.

6. Vote by Ballot . Election of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide.

ARTICLE VIII: DIRECTOR LIABILITY; INDEMNIFICATION

1. Limitation of Liability . To the fullest extent permitted by law, no director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. Without limiting the effect of the preceding sentence, if the General Corporation Law is hereafter amended to authorize the further elimination or limitation of the liability of a director, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law, as so amended.

2. Indemnification . The Corporation shall indemnify to the fullest extent permitted by law any person made or threatened to be made a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that the person, his or her testator or intestate is or was a director or officer of the Corporation or any predecessor of the Corporation, or serves or served at any other enterprise as a director or officer at the request of the Corporation or any predecessor to the Corporation.

3. Change in Rights . Neither any amendment nor repeal of this Article VIII, nor the adoption of any provision of this Restated Certificate of Incorporation inconsistent with this Article VIII, shall eliminate or reduce the effect of this Article VIII in respect of any matter occurring, or any action or proceeding accruing or arising or that, but for this Article VIII, would accrue or arise, prior tosuch amendment, repeal or adoption of such an inconsistent provision.

ARTICLE IX: MATTERS RELATING TO STOCKHOLDERS

1. No Action by Written Consent of Stockholders . Subject to the rights of any series of Preferred Stock then outstanding, no action shall be taken by the stockholders of the Corporation except at a duly called annual or special meeting of stockholders and no action shall be taken by the stockholders of the Corporation by written consent.

2. Special Meeting of Stockholders . Special meetings of the stockholders of the Corporation may be called only by the Chairperson of the Board, the Chief Executive Officer, or the Board of Directors acting pursuant to a resolution adopted by a majority of the Whole Board, and may not be called by any other person or persons. Business transacted at special meetings of stockholders shall be confined to the purpose or purposes stated in the notice of meeting.

3. Advance Notice of Stockholder Nominations . Advance notice of stockholder nominations for the election of directors of the Corporation and of business to be brought by stockholders before any meeting of stockholders of the Corporation shall be given in the manner provided in the Bylaws of the Corporation.

ARTICLE X: SEVERABILITY

If any provision of this Restated Certificate of Incorporation shall be held to be invalid, illegal, or unenforceable, then such provision shall nonetheless be enforced to the maximum extent possible consistent with such holding and the remaining provisions of this Restated Certificate of Incorporation (including without limitation, all portions of any section of this Restated Certificate of Incorporation containing any such provision held to be invalid, illegal, or unenforceable, that are not themselves invalid, illegal, or unenforceable) shall remain in full force and effect.

ARTICLE XI: AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION

1. General . The Corporation reserves the right to amend or repeal any provision contained in this Restated Certificate of Incorporation in the manner prescribed by the laws of the State of Delaware and all rights conferred upon stockholders are granted subject to this reservation; provided , however , that, notwithstanding any other provision of this Restated Certificate of Incorporation (including any Certificate of Designation) or any provision of law that might otherwise permit a lesser vote or no vote, but in addition to any vote of the holders of any class or series of the stock of the Corporation required by law or by this Restated Certificate of Incorporation (including any Certificate of Designation), and subject to Sections 1 and 2.1 of Article IV, the affirmative vote of the holders of at least two-thirds (2/3) of the voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend or repeal, or adopt any provision inconsistent with, this Section 1 of this Article XI, Section 2 of Article IV, or Article V, Article VI, Article VII, Article VIII, Article IX, Article X or Article XII.

2. Changes to or Inconsistent with Section 3 of Article IV . Notwithstanding any other provision of this Restated Certificate of Incorporation (including any Certificate of Designation) or any provision of law that might otherwise permit a lesser vote or no vote, but in addition to any vote of the holders of any class or series of the stock of the Corporation required by law or by this Restated Certificate of Incorporation (including any Certificate of Designation), the affirmative vote of the holders of Class A Common Stock representing at least seventy-five percent (75%) of the voting power of the then-outstanding shares of Class A Common Stock, voting separately as a single class, and the affirmative vote of the holders of Class B Common Stock representing at least seventy-five percent (75%) of the voting power of the then-outstanding shares of Class B Common Stock, voting separately as a single class, shall be required to amend or repeal, or to adopt any provision inconsistent with, Section 3 of Article IV or this Section 2 of this Article XI.

ARTICLE XII: CHOICE OF FORUM

Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware, to the fullest extent permitted by law, shall be the sole and exclusive forum for (a) any derivative action or proceeding brought on behalf of the Corporation; (b) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation or the Corporation’s stockholders; (c) any action asserting a claim arising pursuant to any provision of the General Corporation Law, this Restated Certificate of Incorporation or the Bylaws; (d) any action to interpret, apply, enforce or determine the validity of this Restated Certificate of Incorporation or the Bylaws; or (e) any action asserting a claim governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring or holding any interest in shares of capital stock of the Corporation shall be deemed to have notice of and to have consented to the provisions of this Article XII.

Exhibit 3.2

FITBIT, INC.

(a Delaware corporation)

RESTATED BYLAWS

As Adopted May 27, 2015 and

As Effective June 23, 2015

FITBIT, INC.

(a Delaware corporation)

RESTATED BYLAWS

TABLE OF CONTENTS



	Page
Article I - STOCKHOLDERS	1
Section 1.1: Annual Meetings	1
Section 1.2: Special Meetings	1
Section 1.3: Notice of Meetings	1
Section 1.4: Adjournments	1
Section 1.5: Quorum	2
Section 1.6: Organization	2
Section 1.7: Voting; Proxies	2
Section 1.8: Fixing Date for Determination of Stockholders of Record	3
Section 1.9: List of Stockholders Entitled to Vote	3
Section 1.10: Inspectors of Elections	4
Section 1.11: Notice of Stockholder Business; Nominations	5
Article II - BOARD OF DIRECTORS	8
Section 2.1: Number; Qualifications	8
Section 2.2: Election; Resignation; Removal; Vacancies	8
Section 2.3: Regular Meetings	9
Section 2.4: Special Meetings	9
Section 2.5: Remote Meetings Permitted	9
Section 2.6: Quorum; Vote Required for Action	9
Section 2.7: Organization	9
Section 2.8: Unanimous Action by Directors in Lieu of a Meeting	9
Section 2.9: Powers	10
Section 2.10: Compensation of Directors	10
Article III - COMMITTEES	10
Section 3.1: Committees	10
Section 3.2: Committee Rules	10
Article IV - OFFICERS	10
Section 4.1: Generally	10
Section 4.2: Chief Executive Officer	11
Section 4.3: Chairperson of the Board	11
Section 4.4: President	12
Section 4.5: Chief Technology Officer	12
Section 4.6: Chief Financial Officer	12
Section 4.7: Treasurer	12
Section 4.8: Vice President	12
Section 4.9: Secretary	12
Section 4.10: Delegation of Authority	13
Section 4.11: Removal	13
Article V - STOCK	13
Section 5.l: Certificates; Uncertificated Shares	13
Section 5.2: Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificates or Uncertificated Shares	13
Section 5.3: Other Regulations	13
Article VI - INDEMNIFICATION	14
Section 6.1: Indemnification of Officers and Directors	14
Section 6.2: Advance of Expenses	14
Section 6.3: Non-Exclusivity of Rights	14
Section 6.4: Indemnification Contracts	14
Section 6.5: Right of Indemnitee to Bring Suit	15
Section 6.6: Nature of Rights	15
Article VII - NOTICES	15
Section 7.l: Notice	15
Section 7.2: Waiver of Notice	16
Article VIII - INTERESTED DIRECTORS	17
Section 8.1: Interested Directors	17
Section 8.2: Quorum	17
Article IX – MISCELLANEOUS	17
Section 9.1: Fiscal Year	17
Section 9.2: Seal	17
Section 9.3: Form of Records	17
Section 9.4: Reliance Upon Books and Records	17
Section 9.5: Certificate of Incorporation Governs	18
Section 9.6: Severability	18
Article X - AMENDMENT	18

FITBIT, INC.

(a Delaware corporation)

RESTATED BYLAWS

As Adopted May 27, 2015 and

As Effective June 23, 2015

ARTICLE I: STOCKHOLDERS

Section 1.1 : Annual Meetings . An annual meeting of stockholders shall be held for the election of directors at such date and time as the Board of Directors of the Corporation (the “ Board ”) shall each year fix. The meeting may be held either at a place, within or without the State of Delaware as permitted by the Delaware General Corporation Law (the “ DGCL ”), or by means of remote communication as the Board in its sole discretion may determine. Any proper business may be transacted at the annual meeting. The Board may postpone, reschedule or cancel any previously scheduled annual meeting of stockholders.

Section 1.2 : Special Meetings . Special meetings of stockholders for any purpose or purposes shall be called in the manner set forth in the Restated Certificate of Incorporation of the Corporation (as the same may be amended and/or restated from time to time, the “ Certificate of Incorporation ”). The special meeting may be held either at a place, within or without the State of Delaware, or by means of remote communication as the Board in its sole discretion may determine. Business transacted at any special meeting of stockholders shall be limited to matters relating to the purpose or purposes stated in the notice of the meeting. The Board may postpone, reschedule or cancel any previously scheduled special meeting of stockholders.

Section 1.3 : Notice of Meetings . Notice of all meetings of stockholders shall be given in writing or by electronic transmission in the manner provided by applicable law (including, without limitation, as set forth in Section 7.1.1 of these Bylaws) stating the date, time and place, if any, of the meeting, the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting and the record date for determining the stockholders entitled to vote at the meeting. In the case of a special meeting, such notice shall also set forth the purpose or purposes for which the meeting is called. Unless otherwise required by applicable law or the Certificate of Incorporation, notice of any meeting of stockholders shall be given not less than ten (10), nor more than sixty (60), days before the date of the meeting to each stockholder of record entitled to vote at such meeting.

Section 1.4 : Adjournments . The chairperson of the meeting shall have the power to adjourn the meeting to another time, date and place (if any). Any meeting of stockholders, annual or special, may be adjourned from time to time, and notice need not be given of any such adjourned meeting if the time, date and place (if any) thereof and the means of remote communications (if any) by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken; provided , however , that if the adjournment is for more than thirty (30) days, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. At the adjourned meeting the Corporation may transact any business that might have been transacted at the original meeting.

Section 1.5 : Quorum . Except as otherwise provided by applicable law, the Certificate of Incorporation or these Bylaws, at each meeting of stockholders the holders of a majority of the voting power of the shares of stock issued and outstanding and entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum for the transaction of business; provided , however , that where a separate vote by a class or classes or series of stock is required by applicable law or the Certificate of Incorporation, the holders of a majority of the voting power of the shares of such class or classes or series of the stock issued and outstanding and entitled to vote on such matter, present in person or represented by proxy at the meeting, shall constitute a quorum entitled to take action with respect to the vote on such matter. If a quorum shall fail to attend any meeting, the chairperson of the meeting or, if directed to be voted on by the chairperson of the meeting, the holders of a majority of the voting power of the shares entitled to vote who are present in person or represented by proxy at the meeting may adjourn the meeting. Shares of the Corporation’s stock belonging to the Corporation (or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation are held, directly or indirectly, by the Corporation), shall neither be entitled to vote nor be counted for quorum purposes; provided , however , that the foregoing shall not limit the right of the Corporation or any other corporation to vote any shares of the Corporation’s stock held by it in a fiduciary capacity and to count such shares for purposes of determining a quorum. A quorum, once established at a meeting, shall not be broken by the withdrawal of enough votes to leave less than a quorum.

Section 1.6 : Organization . Meetings of stockholders shall be presided over by such person as the Board may designate, or, in the absence of such a person, the Chairperson of the Board, or, in the absence of such person, the Chief Executive Officer of the Corporation, or, in the absence of such person, the President of the Corporation, or, in the absence of such person, by a Vice President. Such person shall be chairperson of the meeting and, subject to Section 1.10 hereof, shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seems to him or her to be in order. The Secretary of the Corporation shall act as secretary of the meeting, but in such person’s absence the chairperson of the meeting may appoint any person to act as secretary of the meeting.

Section 1.7 : Voting; Proxies . Each stockholder of record entitled to vote at a meeting of stockholders may authorize another person or persons to act for such stockholder by proxy. Such a proxy may be prepared, transmitted and delivered in any manner permitted by applicable law. Except as may be required in the Certificate of Incorporation, directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Unless otherwise provided by applicable law, rule or regulation applicable to the Corporation or its securities, the rules or regulations of any stock exchange applicable to the Corporation, the Certificate of Incorporation or these Bylaws, every matter other than the election of directors shall be decided by the affirmative vote of the holders of a majority of the voting power of the shares of stock entitled to vote on such matter that are present in person or represented by proxy at the meeting and are voted for or against the matter (or if there are two or more classes or series of stock entitled to vote as separate classes, then in the case of each class or series, the holders of a majority of the voting power of the shares of stock of that class or series present in person or represented by proxy at the meeting voting for or against such matter).

Section 1.8 : Fixing Date for Determination of Stockholders of Record . In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which record date shall, unless otherwise required by law, not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the Board, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided , however , that the Board may fix a new record date for determination of stockholders entitled to vote at the adjourned meeting.

In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix, in advance, a record date, which shall not precede the date upon which the resolution fixing the record date is adopted by the Board and which shall not be more than sixty (60) days prior to such action. If no such record date is fixed by the Board, then the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto.

Section 1.9 : List of Stockholders Entitled to Vote . The Secretary shall prepare, at least ten (10) days before every meeting of stockholders, a complete list of stockholders entitled to vote at the meeting ( provided , however , if the record date for determining the stockholders entitled to vote is less than ten (10) days before the date of the meeting, the list shall reflect the stockholders entitled to vote as of the tenth (10th) day before the meeting date), arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, for a period of at least ten (10) days prior to the meeting, (a) on a reasonably accessible electronic network as permitted by applicable law ( provided that the information required to gain access to the list is provided with the notice of the meeting), or (b) during ordinary business hours, at the principal place of business of the Corporation. If the meeting is held at a place, the list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present at the meeting. If the meeting is held solely by means of remote communication, then the list shall be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access the list shall be provided with the notice of the meeting. Except as otherwise provided by law, the list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them.

Section 1.10 : Inspectors of Elections .

1.10.1 Applicability . Unless otherwise required by the Certificate of Incorporation or by the DGCL, the following provisions of this Section 1.10 shall apply only if and when the Corporation has a class of voting stock that is: (a) listed on a national securities exchange; (b) authorized for quotation on an interdealer quotation system of a registered national securities association; or (c) held of record by more than two thousand (2,000) stockholders. In all other cases, observance of the provisions of this Section 1.10 shall be optional, and at the discretion of the Board.

1.10.2 Appointment . The Corporation shall, in advance of any meeting of stockholders, appoint one or more inspectors of election to act at the meeting and make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting.

1.10.3 Inspector’s Oath . Each inspector of election, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of such inspector’s ability.

1.10.4 Duties of Inspectors . At a meeting of stockholders, the inspectors of election shall (a) ascertain the number of shares outstanding and the voting power of each share, (b) determine the shares represented at a meeting and the validity of proxies and ballots, (c) count all votes and ballots, (d) determine and retain for a reasonable period of time a record of the disposition of any challenges made to any determination by the inspectors, and (e) certify their determination of the number of shares represented at the meeting, and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors.

1.10.5 Opening and Closing of Polls . The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced by the chairperson of the meeting at the meeting. No ballot, proxies or votes, nor any revocations thereof or changes thereto, shall be accepted by the inspectors after the closing of the polls unless the Court of Chancery upon application by a stockholder shall determine otherwise.

1.10.6 Determinations . In determining the validity and counting of proxies and ballots, the inspectors shall be limited to an examination of the proxies, any envelopes submitted with those proxies, any information provided in connection with proxies pursuant to Section 211(a)(2)b.(i) of the DGCL, or in accordance with Sections 211(e) or 212(c)(2) of the DGCL, ballots and the regular books and records of the Corporation, except that the inspectors may consider other reliable information for the limited purpose of reconciling proxies and ballots submitted by or on behalf of banks, brokers, their nominees or similar persons which represent more votes than the holder of a proxy is authorized by the record owner to cast or more votes than the stockholder holds of record. If the inspectors consider other reliable information for the limited purpose permitted herein, the inspectors at the time they make their certification of their determinations pursuant to this Section 1.10 shall specify the precise information considered by them, including the person or persons from whom they obtained the information, when the information was obtained, the means by which the information was obtained and the basis for the inspectors’ belief that such information is accurate and reliable.

Section 1.11: Notice of Stockholder Business; Nominations .

1.11.1 Annual Meeting of Stockholders .

(a) Nominations of persons for election to the Board and the proposal of other business to be considered by the stockholders at an annual meeting of stockholders shall be made (i) pursuant to the Corporation’s notice of such meeting, (ii) by or at the direction of the Board or (iii) by any stockholder of the Corporation who was a stockholder of record at the time of giving of the notice provided for in this Section 1.11, who is entitled to vote at such meeting and who complies with the notice procedures set forth in this Section 1.11.

(b) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to Section 1.11.1(a):

(i) the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation;

(ii) such other business (other than the nomination of persons for election to the Board) must otherwise be a proper matter for stockholder action;

(iii) if the stockholder, or the beneficial owner on whose behalf any such proposal or nomination is made, has provided the Corporation with a Solicitation Notice, as that term is defined in this Section 1.11, such stockholder or beneficial owner must, in the case of a proposal other than the nomination of persons for election to the Board, have delivered a proxy statement and form of proxy to holders of at least the percentage of the Corporation’s voting shares required under applicable law to carry any such proposal, or, in the case of a nomination or nominations, have delivered a proxy statement and form of proxy to holders of a percentage of the Corporation’s voting shares reasonably believed by such stockholder or beneficial holder to be sufficient to elect the nominee or nominees proposed to be nominated by such stockholder, and must, in either case, have included in such materials the Solicitation Notice; and

(iv) if no Solicitation Notice relating thereto has been timely provided pursuant to this Section 1.11, the stockholder or beneficial owner proposing such business or nomination must not have solicited a number of proxies sufficient to have required the delivery of such a Solicitation Notice under this Section 1.11.

To be timely, a stockholder’s notice must be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the seventy-fifth (75th) day nor earlier than the close of business on the one hundred and fifth (105th) day prior to the first anniversary of the preceding year’s annual meeting (except in the case of the 2016 annual meeting, for which such notice shall be timely if delivered in the same time period as if such meeting were a special meeting governed by Section 1.11.2); provided , however , that in the event that the date of the annual meeting is more than thirty (30) days before or more than sixty (60) days after such anniversary date, notice by the stockholder to be timely must be so delivered (A) no earlier than the close of business on the one hundred and fifth (105th) day prior to such annual meeting and (B) no later than the close of business on the later of the seventy-fifth (75th) day prior to such annual meeting or the close of business on the tenth (10th) day following the day on which Public Announcement of the date of such meeting is first made by the Corporation. Such stockholder’s notice shall set forth:

(x) as to each person whom the stockholder proposes to nominate for election or reelection as a director, all information relating to such person that would be required to be disclosed in solicitations of proxies for election of directors, or would be otherwise required, in each case pursuant to and in accordance with Section 14(a) under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), and the rules and regulations promulgated thereunder, including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected;

(y) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the text of the proposal or business (including the text of any resolutions proposed for consideration and in the event that such business includes a proposal to amend the Bylaws, the text of the proposed amendment), the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and

(z) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made, (i) the name and address of such stockholder, as they appear on the Corporation’s books, and of such beneficial owner, (ii) the class or series and number of shares of capital stock of the Corporation that are owned beneficially and of record by such stockholder and such beneficial owner, and (iii) a description of any agreement, arrangement or understanding with respect to the nomination or proposal between or among such stockholder or such beneficial owner, any of their respective affiliates or associates, and any others acting in concert with any of the foregoing, including, in the case of a nomination, the nominee, (iv) a description of any agreement, arrangement or understanding (including any derivative or short positions, profit interests, options, warrants, convertible securities, stock appreciation or similar rights, hedging transactions, and borrowed or loaned shares) that has been entered into as of the date of the stockholder’s notice by, or on behalf of, such stockholder and any such beneficial owner, whether or not such instrument or right shall be subject to settlement in underlying shares of capital stock of the Corporation, the effect or intent of which is to mitigate loss to, manage risk or benefit of share price changes for, or increase or decrease the voting power of, such stockholder or such beneficial owner, with respect to securities of the Corporation, (v) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business or nomination, (vi) a representation whether such stockholder or beneficial owner intends (or is part of a group that intends) to deliver a proxy statement or form of proxy to holders of, in the case of a proposal, at least the percentage of the Corporation’s voting shares required under applicable law to carry the proposal or, in the case of a nomination or nominations, a sufficient number of holders of the Corporation’s voting shares to elect such nominee or nominees (an affirmative statement of such intent being a “ Solicitation Notice ”), and (vii) any other information relating to such stockholder and beneficial owner, if any, required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for, as applicable, the proposal or for the election of directors in an election contest pursuant to and in accordance with Section 14(a) of the Exchange Act and the rules and regulations promulgated thereunder.

(c) Notwithstanding anything in the second sentence of Section 1.11.1(b) to the contrary, in the event that the number of directors to be elected to the Board is increased and there is no Public Announcement by the Corporation naming all of the nominees for director or specifying the size of the increased Board at least seventy five (75) days prior to the first anniversary of the preceding year’s annual meeting (or, if the annual meeting is held more than thirty (30) days before or sixty (60) days after such anniversary date, at least seventy five (75) days prior to such annual meeting), a stockholder’s notice required by this Section 1.11 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary of the Corporation at the principal executive office of the Corporation no later than the close of business on the tenth (10th) day following the day on which such Public Announcement is first made by the Corporation.

1.11.2 Special Meetings of Stockholders . Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation’s notice of such meeting. Nominations of persons for election to the Board may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporation’s notice of such meeting (a) by or at the direction of the Board or (b) provided that the Board has determined that directors shall be elected at such meeting, by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice of the special meeting, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this Section 1.11. In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board, any such stockholder may nominate a person or persons (as the case may be), for election to such position(s) as specified in the Corporation’s notice of meeting, if the stockholder’s notice required by Section 1.11.1(b) shall be delivered to the Secretary of the Corporation at the principal executive offices of the Corporation (i) no earlier than the one hundred fifth (105th) day prior to such special meeting and (ii) no later than the close of business on the later of the seventy-fifth (75th) day prior to such special meeting or the tenth (10th) day following the day on which Public Announcement is first made of the date of the special meeting and of the nominees proposed by the Board to be elected at such meeting.

1.11.3 General .

(a) Only such persons who are nominated in accordance with the procedures set forth in this Section 1.11 shall be eligible to be elected at a meeting of stockholders and serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 1.11. Except as otherwise provided by law or these Bylaws, the chairperson of the meeting shall have the power and duty to determine whether a nomination or any other business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Section 1.11 and, if any proposed nomination or business is not in compliance herewith, to declare that such defective proposal or nomination shall be disregarded. Notwithstanding the foregoing provisions of this Section 1.11, unless otherwise required by law, if the stockholder (or a qualified representative of the stockholder) does not appear at the annual or special meeting of stockholders of the Corporation to present a nomination or proposed business, such nomination shall be disregarded and such proposed business shall not be transacted, notwithstanding that proxies in respect of such vote may have been received by the Corporation. For purposes of this Section 1.11, to be considered a qualified representative of the stockholder, a person must be a duly authorized officer, manager or partner of such stockholder or must be authorized by a writing executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the meeting of stockholders and such person must produce such writing or electronic transmission, or a reliable reproduction of the writing or electronic transmission, at the meeting of stockholders.

(b) For purposes of this Section 1.11, the term “ Public Announcement ” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.

(c) Notwithstanding the foregoing provisions of this Section 1.11, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth herein. Nothing in this Section 1.11 shall be deemed to affect any rights of (a) stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act or (b) the holders of any series of Preferred Stock to elect directors pursuant to any applicable provisions of the Certificate of Incorporation.

ARTICLE II: BOARD OF DIRECTORS

Section 2.1 : Number; Qualifications . The total number of directors constituting the Board (the “ Whole Board ”) shall be fixed from time to time in the manner set forth in the Certificate of Incorporation. No decrease in the authorized number of directors constituting the Whole Board shall shorten the term of any incumbent director. Directors need not be stockholders of the Corporation.

Section 2.2 : Election; Resignation; Removal; Vacancies . Election of directors need not be by written ballot. Unless otherwise provided by the Certificate of Incorporation and subject to the special rights of holders of any series of Preferred Stock to elect directors, immediately following the Voting Threshold Date (as defined in the Certificate of Incorporation), the Board shall be divided into three classes, designated: Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the Whole Board. Each director shall hold office until the annual meeting at which such director’s term expires and until such director’s successor is elected and qualified or until such director’s earlier death, resignation, disqualification or removal. Any director may resign by delivering a resignation in writing or by electronic transmission to the Corporation at its principal office or to the Chairperson of the Board, the Chief Executive Officer, the President or the Secretary. Such resignation shall be effective upon delivery unless it is specified to be effective at a later time or upon the happening of an event. Subject to the special rights of holders of any series of Preferred Stock to elect directors, directors may be removed only as provided by the Certificate of Incorporation and applicable law. All vacancies occurring in the Board and any newly created directorships resulting from any increase in the authorized number of directors shall be filled in the manner set forth in the Certificate of Incorporation.

Section 2.3 : Regular Meetings . Regular meetings of the Board may be held at such places, within or without the State of Delaware, and at such times as the Board may from time to time determine. Notice of regular meetings need not be given if the date, times and places thereof are fixed by resolution of the Board.

Section 2.4 : Special Meetings . Special meetings of the Board may be called by the Chairperson of the Board, the Chief Executive Officer or a majority of the members of the Board then in office and may be held at any time, date or place, within or without the State of Delaware, as the person or persons calling the meeting shall fix. Notice of the time, date and place of such meeting shall be given, orally, in writing or by electronic transmission (including electronic mail), by the person or persons calling the meeting to all directors at least four (4) days before the meeting if the notice is mailed, or at least twenty-four (24) hours before the meeting if such notice is given by telephone, hand delivery, telegram, telex, mailgram, facsimile, electronic mail or other means of electronic transmission. Unless otherwise indicated in the notice, any and all business may be transacted at a special meeting.

Section 2.5 : Remote Meetings Permitted . Members of the Board, or any committee of the Board, may participate in a meeting of the Board or such committee by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to conference telephone or other communications equipment shall constitute presence in person at such meeting.

Section 2.6 : Quorum; Vote Required for Action . At all meetings of the Board, a majority of the Whole Board shall constitute a quorum for the transaction of business. If a quorum shall fail to attend any meeting, a majority of those present may adjourn the meeting to another place, date or time without further notice thereof. Except as otherwise provided herein or in the Certificate of Incorporation, or required by law, the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board.

Section 2.7 : Organization . Meetings of the Board shall be presided over by the Chairperson of the Board or, in such person’s absence, by the Chief Executive Officer or, in such person’s absence, by the President or, in such person’s absence, by a chairperson chosen by the Board at the meeting. The Secretary shall act as secretary of the meeting, but in such person’s absence the chairperson of the meeting may appoint any person to act as secretary of the meeting.

Section 2.8 : Unanimous Action by Directors in Lieu of a Meeting . Any action required or permitted to be taken at any meeting of the Board, or of any committee thereof, may be taken without a meeting if all members of the Board or such committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board or committee, as applicable. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.

Section 2.9: Powers . Except as otherwise provided by the Certificate of Incorporation or the DGCL, the business and affairs of the Corporation shall be managed by or under the direction of the Board.

Section 2.10 : Compensation of Directors . Members of the Board, as such, may receive, pursuant to a resolution of the Board, fees and other compensation for their services as directors, including without limitation their services as members of committees of the Board.

ARTICLE III: COMMITTEES

Section 3.1 : Committees . The Board may designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of the committee, the member or members thereof present at any meeting of such committee who are not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in place of any such absent or disqualified member. Any such committee, to the extent provided in a resolution of the Board, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation and may authorize the seal of the Corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority in reference to the following matters: (a) approving, adopting, or recommending to the stockholders any action or matter (other than the election or removal of members of the Board) expressly required by the DGCL to be submitted to stockholders for approval or (b) adopting, amending or repealing any bylaw of the Corporation.

Section 3.2 : Committee Rules . Each committee shall keep records of its proceedings and make such reports as the Board may from time to time request. Unless the Board otherwise provides, each committee designated by the Board may make, alter and repeal rules for the conduct of its business. In the absence of such rules each committee shall conduct its business in the same manner as the Board conducts its business pursuant to Article II of these Bylaws. Except as otherwise provided in the Certificate of Incorporation, these Bylaws or the resolution of the Board designating the committee, any committee may create one or more subcommittees, each subcommittee to consist of one or more members of the committee, and may delegate to any such subcommittee any or all of the powers and authority of the committee.

ARTICLE IV: OFFICERS

Section 4.1 : Generally . The officers of the Corporation shall consist of a Chief Executive Officer (who may be the Chairperson of the Board or the President), a President, a Secretary and a Treasurer and may consist of such other officers, including a Chairperson of the Board, Chief Technology Officer, Chief Financial Officer, and one or more Vice Presidents, as may from time to time be appointed by the Board. All officers shall be elected by the Board; provided , however , that the Board may empower the Chief Executive Officer of the Corporation to appoint any officer other than the Chairperson of the Board, the Chief Executive Officer, the President, the Chief Technology Officer, the Chief Financial Officer or the Treasurer. Except as otherwise provided by law, by the Certificate of Incorporation or these Bylaws, each officer shall hold office until such officer’s successor is duly elected and qualified or until such officer’s earlier resignation, death, disqualification or removal. Any number of offices may be held by the same person. Any officer may resign by delivering a resignation in writing or by electronic transmission to the Corporation at its principal office or to the Chairperson of the Board, the Chief Executive Officer, the President or the Secretary. Such resignation shall be effective upon delivery unless it is specified to be effective at some later time or upon the happening of some later event. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise may be filled by the Board and the Board may, in its discretion, leave unfiled, for such period as it may determine, any offices. Each such successor shall hold office for the unexpired term of such officer’s predecessor and until a successor is duly elected and qualified or until such officer’s earlier resignation, death, disqualification or removal.

Section 4.2 : Chief Executive Officer . Subject to the control of the Board and such supervisory powers, if any, as may be given by the Board, the powers and duties of the Chief Executive Officer of the Corporation are:

(a) To act as the general manager and, subject to the control of the Board, to have general supervision, direction and control of the business and affairs of the Corporation;

(b) Subject to Article I, Section 1.6, to preside at all meetings of the stockholders;

(c) Subject to Article I, Section 1.2, to call special meetings of the stockholders to be held at such times and, subject to the limitations prescribed by law or by these Bylaws, at such places as he or she shall deem proper; and

(d) To affix the signature of the Corporation to all deeds, conveyances, mortgages, guarantees, leases, obligations, bonds, certificates and other papers and instruments in writing which have been authorized by the Board or which, in the judgment of the Chief Executive Officer, should be executed on behalf of the Corporation; to sign certificates for shares of stock of the Corporation (if any); and, subject to the direction of the Board, to have general charge of the property of the Corporation and to supervise and control all officers, agents and employees of the Corporation.

The person holding the office of President shall be the Chief Executive Officer of the Corporation unless the Board shall designate another officer to be the Chief Executive Officer.

Section 4.3 : Chairperson of the Board . The Chairperson of the Board shall have the power to preside at all meetings of the Board and shall have such other powers and duties as provided in these Bylaws and as the Board may from time to time prescribe.

Section 4.4 : President . The person holding the office of Chief Executive Officer shall be the President of the Corporation unless the Board shall have designated one individual as the President and a different individual as the Chief Executive Officer of the Corporation. Subject to the provisions of these Bylaws and to the direction of the Board, and subject to the supervisory powers of the Chief Executive Officer (if the Chief Executive Officer is an officer other than the President), and subject to such supervisory powers and authority as may be given by the Board to the Chairperson of the Board, and/or to any other officer, the President shall have the responsibility for the general management and control of the business and affairs of the Corporation and the general supervision and direction of all of the officers, employees and agents of the Corporation (other than the Chief Executive Officer, if the Chief Executive Officer is an officer other than the President) and shall perform all duties and have all powers that are commonly incident to the office of President or that are delegated to the President by the Board.

Section 4.5 : Chief Technology Officer . The Chief Technology Officer shall have responsibility for the general research and development activities of the Corporation, for supervision of the Corporation’s research and development personnel, for new product development and product improvements, for overseeing the development and direction of the Corporation’s intellectual property development and such other responsibilities as may be given to the Chief Technology Officer by the Board, subject to: (a) the provisions of these Bylaws; (b) the direction of the Board; (c) the supervisory powers of the Chief Executive Officer of the Corporation; and (d) those supervisory powers that may be given by the Board to the Chairperson or Vice Chairperson of the Board.

Section 4.6 : Chief Financial Officer . The person holding the office of Chief Financial Officer shall be the Treasurer of the Corporation unless the Board shall have designated another officer as the Treasurer of the Corporation. Subject to the direction of the Board and the Chief Executive Officer, the Chief Financial Officer shall perform all duties and have all powers that are commonly incident to the office of Chief Financial Officer.

Section 4.7 : Treasurer . The Treasurer shall have custody of all moneys and securities of the Corporation. The Treasurer shall make such disbursements of the funds of the Corporation as are authorized and shall render from time to time an account of all such transactions. The Treasurer shall also perform such other duties and have such other powers as are commonly incident to the office of Treasurer, or as the Board or the Chief Executive Officer may from time to time prescribe.

Section 4.8 : Vice President . Each Vice President shall have all such powers and duties as are commonly incident to the office of Vice President or that are delegated to him or her by the Board or the Chief Executive Officer. A Vice President may be designated by the Board to perform the duties and exercise the powers of the Chief Executive Officer or President in the event of the Chief Executive Officer’s or President’s absence or disability.

Section 4.9 : Secretary . The Secretary shall issue or cause to be issued all authorized notices for, and shall keep, or cause to be kept, minutes of all meetings of the stockholders and the Board. The Secretary shall have charge of the corporate minute books and similar records and shall perform such other duties and have such other powers as are commonly incident to the office of Secretary, or as the Board or the Chief Executive Officer may from time to time prescribe.

Section 4.10 : Delegation of Authority . The Board may from time to time delegate the powers or duties of any officer of the Corporation to any other officers or agents of the Corporation, notwithstanding any provision hereof.

Section 4.11 : Removal . Any officer of the Corporation shall serve at the pleasure of the Board and may be removed at any time, with or without cause, by the Board; provided that if the Board has empowered the Chief Executive Officer to appoint any officer of the Corporation, then such officer may also be removed by the Chief Executive Officer. Such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation.

ARTICLE V: STOCK

Section 5.1 : Certificates; Uncertificated Shares . The shares of capital stock of the Corporation shall be uncertificated shares; provided , however , that the resolution of the Board that the shares of capital stock of the Corporation shall be uncertificated shares shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation (or the transfer agent or registrar, as the case may be). Notwithstanding the foregoing, the Board may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be certificated shares. Every holder of stock represented by certificates shall be entitled to have a certificate signed by, or in the name of the Corporation, by the Chairperson or Vice-Chairperson of the Board, or the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, of the Corporation, representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue.

Section 5.2 : Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificates or Uncertificated Shares . The Corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate previously issued by it, alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or such owner’s legal representative, to agree to indemnify the Corporation and/or to give the Corporation a bond sufficient to indemnify it, against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.

Section 5.3 : Other Regulations . Subject to applicable law, the Certificate of Incorporation and these Bylaws, the issue, transfer, conversion and registration of shares represented by certificates and of uncertificated shares shall be governed by such other regulations as the Board may establish.

ARTICLE VI: INDEMNIFICATION

Section 6.1 : Indemnification of Officers and Directors . Each person who was or is made a party to, or is threatened to be made a party to, or is involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (a “ Proceeding ”), by reason of the fact that such person (or a person of whom such person is the legal representative), is or was a director or officer of the Corporation or, while serving as a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee, agent or trustee of another corporation, or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans (for purposes of this Article VI, an “ Indemnitee ”), shall be indemnified and held harmless by the Corporation to the fullest extent permitted by the DGCL as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), against all expenses, liability and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes and penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such Indemnitee in connection therewith, provided such Indemnitee acted in good faith and in a manner that the Indemnitee reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or Proceeding, had no reasonable cause to believe the Indemnitee’s conduct was unlawful. Such indemnification shall continue as to an Indemnitee who has ceased to be a director or officer of the Corporation and shall inure to the benefit of such Indemnitees’ heirs, executors and administrators. Notwithstanding the foregoing, subject to Section 6.5 of this Article VI, the Corporation shall indemnify any such Indemnitee seeking indemnity in connection with a Proceeding (or part thereof) initiated by such Indemnitee only if such Proceeding (or part thereof) was authorized by the Board or such indemnification is authorized by an agreement approved by the Board.

Section 6.2 : Advance of Expenses . The Corporation shall pay all expenses (including attorneys’ fees) incurred by an Indemnitee in defending any Proceeding in advance of its final disposition; provided , however , that if the DGCL then so requires, the advancement of such expenses shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such Indemnitee, to repay such amounts if it shall ultimately be determined that such Indemnitee is not entitled to be indemnified under this Article VI or otherwise.

Section 6.3 : Non-Exclusivity of Rights . The rights conferred on any person in this Article VI shall not be exclusive of any other right that such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaw, agreement, vote or consent of stockholders or disinterested directors, or otherwise. Additionally, nothing in this Article VI shall limit the ability of the Corporation, in its discretion, to indemnify or advance expenses to persons whom the Corporation is not obligated to indemnify or advance expenses pursuant to this Article VI.

Section 6.4 : Indemnification Contracts . The Board is authorized to cause the Corporation to enter into indemnification contracts with any director, officer, employee or agent of the Corporation, or any person serving at the request of the Corporation as a director, officer, employee, agent or trustee of another corporation, partnership, joint venture, trust or other enterprise, including employee benefit plans, providing indemnification or advancement rights to such person. Such rights may be greater than those provided in this Article VI.

Section 6.5: Right of Indemnitee to Bring Suit . The following shall apply to the extent not in conflict with any indemnification contract provided for in Section 6.4 above.

6.5.1 Right to Bring Suit . If a claim under Section 6.1 or 6.2 of this Article VI is not paid in full by the Corporation within sixty (60) days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty (20) days, the Indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Indemnitee shall be entitled to be paid, to the fullest extent permitted by law, the expense of prosecuting or defending such suit. In any suit brought by the Indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the Indemnitee to enforce a right to an advancement of expenses) it shall be a defense that the Indemnitee has not met any applicable standard of conduct which makes it permissible under the DGCL (or other applicable law) for the Corporation to indemnify the Indemnitee for the amount claimed.

6.5.2 Effect of Determination . Neither the absence of a determination prior to the commencement of such suit that indemnification of the Indemnitee is proper in the circumstances because the Indemnitee has met the applicable standard of conduct set forth in applicable law, nor an actual determination that the Indemnitee has not met such applicable standard of conduct, shall create a presumption that the Indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the Indemnitee, be a defense to such suit.

6.5.3 Burden of Proof . In any suit brought by the Indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the Indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article VI, or otherwise, shall be on the Corporation.

Section 6.6 : Nature of Rights . The rights conferred upon Indemnitees in this Article VI shall be contract rights and such rights shall continue as to an Indemnitee who has ceased to be a director, officer or trustee and shall inure to the benefit of the Indemnitee’s heirs, executors and administrators. Any amendment, repeal or modification of any provision of this Article VI that adversely affects any right of an Indemnitee or an Indemnitee’s successors shall be prospective only, and shall not adversely affect any right or protection conferred on a person pursuant to this Article VI and existing at the time of such amendment, repeal or modification.

ARTICLE VII: NOTICES

Section 7.1 : Notice .

7.1.1 Form and Delivery . Except as otherwise specifically required in these Bylaws (including, without limitation, Section 7.1.2 below) or by applicable law, all notices required to be given pursuant to these Bylaws shall be in writing and may (a) in every instance in connection with any delivery to a member of the Board, be effectively given by hand delivery (including use of a delivery service), by depositing such notice in the mail, postage prepaid, or by sending such notice by overnight express courier, facsimile, electronic mail or other form of electronic transmission and (b) be effectively be delivered to a stockholder when given by hand delivery, by depositing such notice in the mail, postage prepaid or, if specifically consented to by the stockholder as described in Section 7.1.2 of this Article VII by sending such notice by facsimile, electronic mail or other form of electronic transmission. Any such notice shall be addressed to the person to whom notice is to be given at such person’s address as it appears on the records of the Corporation. The notice shall be deemed given (a) in the case of hand delivery, when received by the person to whom notice is to be given or by any person accepting such notice on behalf of such person, (b) in the case of delivery by mail, upon deposit in the mail, (c) in the case of delivery by overnight express courier, when dispatched, and (d) in the case of delivery via facsimile, electronic mail or other form of electronic transmission, at the time provided in Section 7.1.2.

7.1.2 Electronic Transmission . Without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders given by the Corporation under any provision of the DGCL, the Certificate of Incorporation, or these Bylaws shall be effective if given by a form of electronic transmission consented to by the stockholder to whom the notice is given in accordance with Section 232 of the DGCL. Any such consent shall be revocable by the stockholder by written notice to the Corporation. Any such consent shall be deemed revoked if (a) the Corporation is unable to deliver by electronic transmission two consecutive notices given by the Corporation in accordance with such consent and (b) such inability becomes known to the Secretary or an Assistant Secretary of the Corporation or to the transfer agent, or other person responsible for the giving of notice; provided , however , the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action. Notice given pursuant to this Section 7.1.2 shall be deemed given: (i) if by facsimile telecommunication, when directed to a number at which the stockholder has consented to receive notice; (ii) if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice; (iii) if by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of such posting and the giving of such separate notice; and (iv) if by any other form of electronic transmission, when directed to the stockholder.

7.1.3 Affidavit of Giving Notice . An affidavit of the Secretary or an Assistant Secretary or of the transfer agent or other agent of the Corporation that the notice has been given in writing or by a form of electronic transmission shall, in the absence of fraud, be prima facie evidence of the facts stated therein.

Section 7.2 : Waiver of Notice . Whenever notice is required to be given under any provision of the DGCL, the Certificate of Incorporation or these Bylaws, a written waiver of notice, signed by the person entitled to notice, or waiver by electronic transmission by such person, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors or members of a committee of directors need be specified in any waiver of notice.

ARTICLE VIII: INTERESTED DIRECTORS

Section 8.1 : Interested Directors . No contract or transaction between the Corporation and one or more of its members of the Board or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of its directors or officers are members of the board of directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board or committee thereof that authorizes the contract or transaction, or solely because his, her or their votes are counted for such purpose, if: (a) the material facts as to his, her or their relationship or interest and as to the contract or transaction are disclosed or are known to the Board or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; (b) the material facts as to his, her or their relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (c) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board, a committee thereof, or the stockholders.

Section 8.2 : Quorum . Interested directors may be counted in determining the presence of a quorum at a meeting of the Board or of a committee which authorizes the contract or transaction.

ARTICLE IX: MISCELLANEOUS

Section 9.1 : Fiscal Year . The fiscal year of the Corporation shall be determined by resolution of the Board.

Section 9.2 : Seal . The Board may provide for a corporate seal, which may have the name of the Corporation inscribed thereon and shall otherwise be in such form as may be approved from time to time by the Board.

Section 9.3 : Form of Records . Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account and minute books, may be kept on or by means of, or be in the form of, diskettes, CDs, or any other information storage device or method, provided that the records so kept can be converted into clearly legible paper form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect such records pursuant to any provision of the DGCL.

Section 9.4 : Reliance upon Books and Records . A member of the Board, or a member of any committee designated by the Board shall, in the performance of such person’s duties, be fully protected in relying in good faith upon records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of the Corporation’s officers or employees, or committees of the Board, or by any other person as to matters the member reasonably believes are within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation.

Section 9.5 : Certificate of Incorporation Governs . In the event of any conflict between the provisions of the Certificate of Incorporation and Bylaws, the provisions of the Certificate of Incorporation shall govern.

Section 9.6 : Severability . If any provision of these Bylaws shall be held to be invalid, illegal, unenforceable or in conflict with the provisions of the Certificate of Incorporation, then such provision shall nonetheless be enforced to the maximum extent possible consistent with such holding and the remaining provisions of these Bylaws (including without limitation, all portions of any section of these Bylaws containing any such provision held to be invalid, illegal, unenforceable or in conflict with the Certificate of Incorporation, that are not themselves invalid, illegal, unenforceable or in conflict with the Certificate of Incorporation) shall remain in full force and effect.

ARTICLE X: AMENDMENT

Notwithstanding any other provision of these Bylaws, any alteration, amendment or repeal of these Bylaws, and any adoption of new Bylaws, shall require the approval of the Board or the stockholders of the Corporation as expressly provided in the Certificate of Incorporation.

________________________

CERTIFICATION OF RESTATED BYLAWS

FITBIT, INC.

(a Delaware corporation)

I, Andy Missan, certify that I am Secretary of Fitbit, Inc., a Delaware corporation (the “ Corporation ”), that I am duly authorized to make and deliver this certification, that the attached Bylaws are a true and complete copy of the Restated Bylaws of the Corporation in effect as of the date of this certificate.

Dated: June 23, 2015

/s/ Andy Missan

Andy Missan

Vice President, General Counsel and Secretary

OFFICE LEASE

Property : 199 Fremont Street, San Francisco, CA

Landlord : GLL BIT Fremont Street Partners, L.P.,

a California limited partnership

Tenant : Fitbit Inc.,

A Delaware corporation



1	SALIENT LEASE TERMS.		1

1.1		Rent Payment Address:	1

1.2		Parties and Notice Address:	1

1.3		Facility/Building/Premises:	2

1.4		Term:	4

1.5		Rent:	5

1.6		Deposit:	7

1.7		Permitted Uses:	7

1.8		Tenant’s Percentage Share:	8

1.9		Base Years:	8

1.1		Brokers:	8

1.11		Tenant’s Parking Privileges:	8

1.12		Guarantor:	8

1.13		Contents:	8

2.	LEASE OF PREMISES		9

2.1		Demising Clause.	9

2.2		Description.	10

2.3		Delivery of Premises.	10

3.		USES	12

3.1		Permitted Uses.	12

3.2		Restriction on Use.	13

3.3		Compliance with Laws.	14

3.4		Sustainable Building Operations.	14

3.5		Recycling and Waste Management.	15

3.6		Carbon Credits.	15

4.	ENERGY MANAGEMENT		15

5.	RENT		16

5.1		Minimum Monthly Rent.	16

5.2		Definition of Rent; Prorations.	16

5.3		Place and Manner of Payment.	16

5.4		Late Charges.	16

5.5		Time of Payment.	17



	i



5.6		Partial Payments.	17

5.7		Electricity to the Premises.	17

6.	PAYMENT OF TAXES, ASSESSMENTS, AND OPERATING EXPENSES		18

6.1		Tenant’s Percentage Share.	18

6.2		Taxes and Assessments.	18

6.3		Operating Expense Increases.	21

6.4		Allocations of Certain Costs.	26

6.5		Estimated Payments.	26

6.6		Statement of Expenses.	27

6.7		Non-Waiver of Rights.	27

6.8		Right to Accounting Audit.	27

7.	SECURITY DEPOSIT		29

7.1		Deposit.	29

7.2		Letter of Credit.	29

7.3		No Bar or Defense to Other Remedies.	31

8.	HAZARDOUS SUBSTANCES		31

8.1		Definitions.	31

8.2		Consent Required for Hazardous Substances.	32

8.3		Notices.	32

8.4		Compliance with Environmental Requirements.	33

9.	NO LIGHT, AIR OR VIEW EASEMENT		34

10	ALTERATIONS		34

10.1		Tenant’s Right to Make Alterations.	34

10.2		Installation of Alterations.	34

10.3		Tenant Improvements - Treatment at End of Lease.	36

10.4		Other Improvements in the Building.	37

11.	REPAIR OBLIGATIONS		37

11.1		Tenant’s Obligations	37

11.2		Landlord’s Obligations.	37

12.		LIENS	38

13.	SIGNS; NAMES OF BUILDING AND FACILITY		39

14.	ASSIGNMENT AND SUBLETTING		39



	ii



14.1		“Transfer” Defined.	39

14.2		No Transfer Without Consent.	39

14.3		Procedure for Assignment and Subletting/Landlord’s Recapture Rights.	40

14.4		Conditions to Approval.	41

14.5		Sublease Gross Receipts.	42

14.6		Assignment Gross Receipts.	43

14.7		Joint and Several Obligations.	43

14.8		Non-Competition.	44

14.9		No Merger.	44

14.10		Landlord’s Right to Assign.	44

14.11		ERISA/UBIT.	44

14.12		Reasonable Standard.	44

15.	INDEMNIFICATION; INSURANCE; ALLOCATION OF RISK		45

15.1		Indemnification.	45

15.2		Tenant’s Insurance.	45

15.3		Landlord’s Insurance.	47

15.4		Exculpation.	48

16.	SECURITY SERVICES		49

16.1		Landlord’s Obligation to Furnish Security Services.	49

16.2		Tenant’s Right to Install Security System.	50

17.	BUILDING SERVICES		50

17.1		Standard Building Services.	50

17.2		Additional Services.	50

17.3		Conservation.	50

17.4		Landlord’s Right to Cease Providing Services.	51

18.	FORCE MAJEURE		52

19.	RULES AND REGULATIONS		52

20.	HOLDING OVER		52

20.1		Surrender of Possession.	52

20.2		Holding Over Without Consent.	53

21.	SUBORDINATION		53

21.1		Subordination and Non-Disturbance.	53



	iii



21.2		Attornment.	54

22.	ENTRY BY LANDLORD		54

22.1		Reservation.	54

22.2		Designation.	54

22.3		Representative.	55

22.4		Limitation.	55

22.5		Mitigation.	55

22.6		Emergency.	55

23.	DEFAULTS AND REMEDIES		55

23.1		Events of Default.	55

23.2		Remedies.	56

23.3		Right to Cure.	56

23.4		Waiver of Redemption.	56

23.5		Remedies Cumulative.	57

23.6		Default by Landlord.	57

23.7		Landlord’s Remedies.	58

24.	DAMAGE OR DESTRUCTION		60

24.1		Exclusive Remedy.	60

24.2		Loss Covered by Insurance.	60

24.3		Landlord’s Rights.	61

24.4		Destruction During Final Twelve Months.	61

24.5		Effective Date of a Lease Termination.	61

24.6		Abatement of Rent.	62

24.7		Destruction of Tenant’s Personal Property, Tenant Improvements or Property of the Tenant Parties.	62

25.	EMINENT DOMAIN		62

25.1		Definitions.	62

25.2		Permanent Taking.	63

26.	SALE BY LANDLORD		64

27.	ESTOPPEL CERTIFICATES		64

28.	REQUIREMENTS OF LANDLORD’S LENDERS		65

28.1		Mortgagee Protection.	65



	iv



29.	CONFIDENTIALITY		65

30.	ATTORNEYS’ FEES		66

31.	NON-WAIVER		66

32.	NOTICES		66

33.	JOINT AND SEVERAL LIABILITY		66

34.	TIME		67

35.	SUCCESSORS		67

36.	ENTIRE AGREEMENT		67

37.	RESTRICTIONS ON OPTIONS		67

37.1		Definition.	67

37.2		Options Personal.	67

37.3		Multiple Options.	67

37.4		Strict Enforcement of Conditions and Limitations Upon Options.	68

37.5		Events of Bankruptcy.	68

38.	RIGHT OF FIRST OFFER		69

38.1		Scope of Right.	69

38.2		Exceptions.	69

38.3		Procedure.	70

38.4		Limitations.	70

39.	RECORDING		70

40.	AUTHORIZATION TO SIGN LEASE		70

41.	BROKER PARTICIPATION		71

42.	SURVIVAL OF CERTAIN RIGHTS AND OBLIGATIONS		71

43.	PARKING		71

43.1		Entitlement.	71

43.2		Basis of Operation.	71

43.3		Rates.	71

43.4		Licenses.	72

43.5		Parking Facility Operator.	72

43.6		Bike Racks.	72

44	SEVERABILITY		72

45	CERTAIN RIGHTS RESERVED BY LANDLORD		72



	v



45.1		Repairs.	73

45.2		Security.	73

46	WAIVER OF JURY TRIAL		73

47	INTERPRETATION		74

48	COOPERATION WITH LANDLORD’S SUSTAINABLE PRACTICES AND GOVERNMENT SPONSORED PROGRAMS		74

48.1		In General.	74

48.2		Transportation.	74

48.3		Assistance.	75

49.		OFFER	75

50.	LANDLORD’S DISCLOSURE REGARDING HAZARDOUS SUBSTANCES		75

50.1		In General.	75

50.2		Disclosures.	75

51.	SIGNAGE		76

51.1		Grant of Signage Rights.	76

51.2		Costs and Installation.	76

51.3		Multi-Tenant Directory.	76

52	LABOR COVENANT		76

52.1		Maintenance Covenant.	76

52.2		Construction Covenant.	77

52.3		Indemnity.	77

52.4		Default and Remedies.	78

53.	ERISA AND THE CODE		78

53.1		ERISA Representation.	78

53.2		No Affiliation.	79

53.3		Conditions Precedent to Assignment or Sublease.	79

54.	UBIT		79

55.	COVENANT OF QUIET ENJOYMENT		79

56.	EXERCISE ROOMS AND DAYCARE CENTER		79

57.	ANTI-MONEY LAUNDERING/INTERNATIONAL TRADE LAW COMPLIANCE		80

57.1		Anti-Money Laundering/International Trade Law Compliance.	80

58.	INCORPORATION		81



	vi



59.	RENEWAL OPTION		82

59.1		Grant of Renewal Option.	82

59.2		Minimum Monthly Rent.	82

60.	EXECUTION; COUNTERPARTS		84

61.	FINANCIAL STATEMENTS		84

62.	ROOFTOP EQUIPMENT		84

63.	ACCESSIBILITY; AMERICANS WITH DISABILITIES ACT		85

64.	ENERGY USE DISCLOSURE REQUIREMENTS		86

65.	TENANT’S PROPERTY		86

66.	GOVERNING LAW		86

67.	AMENDMENTS		86

68.	TIME PERIODS		86



	vii

OFFICE LEASE

THIS OFFICE LEASE (this “Lease”), between the parties named below as Landlord and Tenant, is dated June __, 2015 (the “Effective Date”) for reference purposes only.

1. SALIENT LEASE TERMS .



1.1 Rent Payment Address :	GLL BIT Fremont Street Partners, L.P. Dept. 33453 P. O. Box 39000 San Francisco, CA 94139
1.2 Parties and Notice Address :	Landlord: GLL BIT Fremont Street Partners, L.P. 199 Fremont Street, Suite 1150 San Francisco, CA 94105 Attn: Asset Manager, 199 Fremont Street Building With a copy to: GLL BIT Fremont Street Partners, L.P. 199 Fremont Street, Suite 100 San Francisco, CA 94105 Attn: Property Manager
	Tenant: Fitbit Inc. a Delaware corporation Prior to and after the Commencement Date, Tenant’s Notice Address shall be: Fitbit, Inc. 405 Howard Street, Suite 550 San Francisco, CA 94105 Attention: Dawn Birkett



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1.3 Facility/Building/Premises :	1.3.1 Name and Location of Facility where the Building is located: 199 Fremont Street, including its underground parking garage and the adjoining sidewalks and plaza (specifically including the third floor of the “Marine Electric Building” as defined in Section 2.2.1 below, which third floor is Common Area but specifically excluding the first and second floors of such building).
	1.3.2 Street Address of Building: 199 Fremont Street, San Francisco, CA
	1.3.3 Premises: the entire eighth (8 ^th ) (the “Eighth Floor Premises”), ninth (9 ^th ) (the “Ninth Floor Premises”), eleventh (11 ^th ) (the “Eleventh Floor Premises”), twelfth (12 ^th ) (the “Twelfth Floor Premises”), fourteenth (14 ^th ) (the “Fourteenth Floor Premises”), fifteenth (15 ^th ) (the “Fifteenth Floor Premises”), sixteenth (16 ^th ) (the “Sixteenth Floor Premises”), seventeenth (17 ^th ) (the “Seventeenth Floor Premises”) and eighteenth (18 ^th ) (the “Eighteenth Floor Premises”) floors of the Building. The Eighth Floor Premises and the Ninth Floor Premises are sometimes hereinafter together referred to as the “Lower Premises”. The Eleventh Floor Premises, Twelfth Floor Premises, Fourteenth Floor Premises, Fifteenth Floor Premises, Sixteenth Floor Premises, Seventeenth Floor Premises and Eighteenth Floor Premises and sometimes hereinafter collectively referred to as the “Upper Premises”.
	1.3.4 Approximate number of rentable square feet (“RSF”) of: (a) the Premises: 163,628 RSF comprised of: Eighth Floor Premises: 20,809 RSF



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	Ninth Floor Premises: 17,751 RSF Eleventh Floor Premises: 17,762 RSF Twelfth Floor Premises: 17,753 RSF Fourteenth Floor Premises: 17,677 RSF Fifteenth Floor Premises: 17,700 RSF Sixteenth Floor Premises: 18,221 RSF Seventeenth Floor Premises: 18,149 RSF Eighteenth Floor Premises: 17,806 RSF (b) entire Building: 393,887 RSF (c) office portion of Building: 387,876 RSF Landlord and Tenant stipulate that the number of RSF in the Premises and in the Building set forth above is conclusive and shall be binding upon them. Landlord represents that the Building has been measured in accordance with Standard Methods of Measurement - ANSI/BOMA Z65.1—1996.



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1.4 Term :	Lower Premises: A period of approximately one hundred eight (108) full calendar months commencing on the later of the following dates (the “Lower Premises Commencement Date”): (i) two (2) months after the delivery of the Lower Premises to Tenant in the Required Delivery Condition (as defined in Section 2.3), or (ii) August 1, 2015. Upper Premises: A period of approximately one hundred (100) full calendar months commencing on the later of the following dates (the “Upper Premises Commencement Date”): (i) two (2) months after the delivery of the Upper Premises to Tenant in the Required Delivery Condition (as defined in Section 2.3), or (ii) April 1, 2016. The Lower Premises Commencement Date and the Upper Premises Commencement Date are sometimes hereinafter together referred to as the “Commencement Date”. Notwithstanding the foregoing, the Commencement Date for the Eleventh Floor Premises may be delayed until a date no later than June 1, 2016, as more particularly set forth in Section 2.3 herein, provided the Eleventh Floor Premises is delivered to Tenant in the Required Delivery Condition no later than April 1, 2016. The “Expiration Date” for the entire Premises shall be July 31, 2024.



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1.5 Rent :	1.5.1 Minimum Monthly Rent:
	Lower Premises:
	Period During Lease Term	Per Annum		Per Month		Annual Fixed Rent Per Rentable Square Foot
	Lease Year 1*	$	2,390,720.00	$	199,226.67		$62.00
	Lease Year 2	$	2,462,441.60	$	205,203.47		$63.86
	Lease Year 3	$	2,536,476.80	$	211,373.07		$65.78
	Lease Year 4	$	2,612,440.00	$	217,703.33		$67.75
	Lease Year 5	$	2,691,102.40	$	224,258.53		$69.79
	Lease Year 6	$	2,771,307.20	$	230,942.27		$71.87
	Lease Year 7	$	2,854,596.80	$	237,883.07		$74.03
	Lease Year 8	$	2,940,200.00	$	245,016.67		$76.25
	Lease Year 9	$	3,028,502.40	$	252,375.20		$75.54
	Upper Premises:
	Period During Lease Term	Per Annum		Per Month		Annual Fixed Rent Per Rentable Square Foot
	Lease Year 1*	$	8,004,352.00	$	667,029.33		$64.00
	Lease Year 2	$	8,244,482.56	$	687,040.21		$65.92
	Lease Year 3	$	8,492,117.20	$	707,676.43		$67.90
	Lease Year 4	$	8,747,255.92	$	728,937.99		$69.94
	Lease Year 5	$	9,009,898.72	$	750,824.89		$72.04
	Lease Year 6	$	9,280,045.60	$	773,337.13		$74.20
	Lease Year 7	$	9,558,947.24	$	796,578.94		$76.43
	Lease Year 8	$	9,845,352.96	$	820,446.08		$78.72
	Lease Year 9	$	10,140,513.44	$	845,042.79		$81.08
	*Tenant shall have no obligation to pay Minimum Monthly Rent for the first three (3) months of Lease



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	Year 1 (i.e. Lower Premises Commencement Date through Month 3) for the Lower Premises and Tenant shall have no obligation to pay Minimum Monthly Rent for the first three (3) months of Lease Year 1 (i.e. Upper Premises Commencement Date through Month 3) for the Upper Premises. In the event the Commencement Date for the Eleventh Floor Premises is not the same Commencement Date as the Upper Premises Commencement Date, Tenant's obligation to pay Minimum Monthly Rent for the Eleventh Floor Premises shall not commence until the first day of the fourth (4 ^th ) month after the Commencement Date for the Eleventh Floor Premises occurs.



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	1.5.2 Prepaid Rent: N/A
	1.5.3 As used in this Section 1.5, the term “Month” shall mean a full calendar month during the Term. If the Term shall commence on a day other than the first day of a calendar month, or if the Term shall expire on a day other than the last day of a calendar month, the monthly rent for such partial month shall be at the same rate as stated for such month, but prorated based upon the number of days in such calendar month. “Lease Year” shall mean each consecutive twelve (12) month period thereof during the Term, with the first (1 ^st ) Lease Year for the Lower Premises commencing on the Lower Premises Commencement Date and for the Upper Premises commencing on the Upper Premises Commencement Date, provided, however, that, if either the Lower Premises Commencement Date or the Upper Premises Commencement Date shall occur on a day other than the first (1 ^st ) day of a calendar month, then (a) the first (1 ^st ) Lease Year shall end on the last day of the twelfth (12 ^th ) full calendar month after the Lower Premises Commencement Date or the Upper Premises Commencement Date, as the case may be, and the second (2 ^nd ) and each succeeding Lease Year shall commence on the first (1 ^st ) day of the next calendar month, and (b) the last Lease Year shall end on the Expiration Date.
1.6 Deposit :	$13,253,868.00 (Article 7)
1.7 Permitted Uses :	The Premises shall be used only for the uses permitted in Section 3.1.



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1.8 Tenant’s Percentage Share :	FULL BUILDING EXPENSE SHARE: Lower Premises: 9.79 percent Upper Premises: 31.75 percent Total: 41.54 percent OFFICE ONLY EXPENSE SHARE: Lower Premises: 9.94 percent Upper Premises: 32.25 percent Total: 42.19 percent (Section 6.1)
1.9 Base Years :	The Base Expense Year for Operating Expenses shall be calendar year 2016, and the Base Tax Year shall be calendar year 2016.
1.10 Brokers: Landlord’s Broker :	Avison Young – Northern California, Ltd.
Tenant’s Broker :	Savills Studley
1.11 Tenant’s Parking Privileges :	Parking in the garage of the Building for up to thirty-three (33) automobiles (based on 1 parking permit for each 5,000 RSF of Premises delivered). Tenant shall be assessed monthly parking charges. In Landlord’s sole discretion, the parking garage may be leased to a parking operator who shall be responsible for providing such services. (Article 43)
1.12 Guarantor :	N/A
1.13 Contents :	This Lease consists of: All Articles, plus the Exhibits listed on the Table of Contents page attached to this Lease.



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2. LEASE OF PREMISES

2.1 Demising Clause .

2.1.1 Landlord hereby leases to Tenant, and Tenant hires from Landlord, the Premises, together with the nonexclusive right to the use and enjoyment of the “Base Building Systems” and the “Common Area” for the entire Term. “Base Building Systems” shall mean the Building’s HVAC, life-safety, plumbing, electrical, and mechanical systems. “Common Area” shall mean and refer to the parking facilities, walkways, elevators, stairwells, multi-tenant floor corridors, multi-tenant floor bathrooms, multi-tenant floor corridor fountains, multi-tenant floor corridor elevator lobbies, lobbies, plazas, landscaped areas, loading docks and driveways serving the Building and located at the Facility and other common facilities designated by Landlord from time to time for the common use of all tenants of the Building, together with any day care facility at the Facility, and the “Exercise Room” described in Article 56 below. Said letting and hiring are upon and subject to the terms, covenants, and conditions set forth in this Lease, including the “Salient Lease Terms” in Article 1 and the attached exhibits. Tenant covenants as a material part of the consideration for this Lease to keep and perform each and all of said terms, covenants, and conditions applicable to Tenant hereunder. This Lease is made upon the condition of such performance.

2.1.2 Landlord reserves to Landlord the areas beneath and above the Premises and the use thereof together with the right to install, maintain, use, repair and replace pipes, ducts, conduits, wires, and structural elements leading through the Premises and serving other parts of the Facility, so long as such items are concealed by walls, flooring or ceilings. Landlord reserves the right to affect such other tenancies in the Building as Landlord may elect in its reasonable business judgment, which tenancies shall be consistent with the first class nature of the Building and similar to other tenancies located in Comparable Buildings. Notwithstanding the foregoing, Landlord shall not lease space in the Building or the Facility on a direct basis to Jawbone or Garmin.

2.1.3 For the avoidance of doubt, Tenant shall have the exclusive use of the roof deck located on the Ninth Floor Premises (the “Roof Deck”) and the same shall be deemed a part of the Premises for all purposes herein (except that Tenant shall not be required to pay any additional rental in connection therewith). Notwithstanding the foregoing, Landlord shall be permitted access to the Roof Deck from time to time for the purpose of performing periodic Building maintenance activities. In the event Tenant elects to construct improvements on or in connection with the Roof Deck (the “Deck Improvements”), (a) Tenant shall present plans for said construction to Landlord for its prior approval, which shall not be unreasonably withheld, conditioned or delayed, (b) Landlord shall provide a one-time allowance in the amount of up to $100,000.00 (the “Deck Allowance”) to be applied to the costs incurred in connection with the Deck Improvements, said Deck Allowance to be paid to Tenant upon presentation of final permits, paid invoices and other evidence and documentation reasonably satisfactory to Landlord including, but not limited to, lien waivers and contractor’s certificates and (c) the obtaining of all required permits and governmental approvals (which shall be obtained prior to the commencement of any construction) and all costs incurred in connection with the Deck Improvements (except for the Deck Allowance) shall be the sole responsibility of Tenant.



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2.1.4 During the Term, as may be extended, Tenant shall have the option to lease the storage spaces B-313 and B-314 consisting of approximately 113 rentable square feet located in the basement of the Building (each, a “Storage Space”) upon written notice to Landlord. If Tenant elects to lease one or both of the Storage Spaces, Tenant shall pay Landlord rent for such Storage Space at the rate of Three and 00/100 Dollars ($3.00) per rentable square foot per month. The foregoing right to lease any Storage Space is explicitly subject to availability at the time of Tenant’s notice and Landlord makes no representation that the Storage Space will remain or be available at such time.

2.2 Description .

As used herein, the following capitalized terms shall have the indicated meanings:

2.2.1 The “Facility” shall mean that certain real property, including the high-rise office Building and the land on which such Building and plaza area are situated (specifically including any day care center that may be located on the third floor of that certain building located at 342 Howard Street and commonly known as the “Marine Electric Building,” as Common Area, the third floor of the Marine Electric Building, and an undivided one-third (1/3) interest in the land under the Marine Electric Building [but specifically excluding the first and second floors of the Marine Electric Building and an undivided two-thirds (2/3) interest in the land under the Marine Electric Building]; or, if a day care center is located elsewhere, the area used for the day care center and an equitable proportion of the land on which the day care center is located), the Building and Common Areas described in Exhibit A-1 attached hereto, said real property being described in Section 1.3.1 above.

2.2.2 The “Building” shall mean that certain building constituting a part of the Facility and located at the address described in Section 1.3.2 above.

2.2.3 The “Premises” shall mean that certain space located in the Building and described in Section 1.3.3 above and delineated on Exhibit A-2 attached hereto, which space will consist of the amount of rentable square footage specified in Section 1.3.4.

2.2.4 The “Term” shall mean, with respect to any portion of the Premises, the period commencing upon the Commencement Date and ending on the Expiration Date (both as defined in Sections 1.4 above).

2.3 Delivery of Premises .

Except as otherwise expressly stated in this Lease, Tenant shall accept the Premises in their “AS-IS” condition on the date of delivery. The Lower Premises shall be delivered to Tenant in the Required Delivery Condition on the date that is two (2) business days following the execution of this Lease by Landlord and Tenant. If Landlord has not delivered the Lower Premises to Tenant in the Required Delivery Condition on the date that is thirty (30) days following the execution of this Lease by Landlord and Tenant, subject to Force Majeure, Tenant shall be entitled to one (1) day of free Minimum Monthly Rent for each day of delay in delivering the Lower Premises to Tenant in the Required Delivery Condition beginning on the thirty-first (31 ^st ) day following the



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execution of this Lease by Landlord and Tenant until the Lower Premises are delivered to Tenant in the Required Delivery Condition, which free rent period shall commence after the expiration of three (3) month abatement period set forth in Section 1.5 above. If Landlord has not delivered the Lower Premises to Tenant in the Required Delivery Condition by that date that is sixty (60) days after the execution of this Lease by Landlord and Tenant, Tenant shall have the right to terminate this Lease upon ten (10) days prior written notice to Landlord. Notwithstanding the foregoing, Tenant acknowledges and agrees that, as of the Effective Date of this Lease, the Upper Premises (the “Occupied Premises”) is occupied by another tenant (the “Existing Tenant”), and that Landlord shall have no obligation to seek to obtain possession of the Occupied Premises from the Existing Tenant until after December 31, 2015 (the “Anticipated Repossession Date”). In the event the Existing Tenant remains in possession of the Occupied Premises, or any portion thereof, after the Anticipated Repossession Date, Landlord agrees to use commercially reasonable efforts, including, if necessary, commencing and diligently pursuing any summary proceedings, to obtain possession of the Occupied Premises from the Existing Tenant. Landlord agrees to deliver possession of the Occupied Premises in the Required Delivery Condition to Tenant upon the earlier to occur of (a) January 1, 2016, or (b) within five (5) days after Landlord obtains possession thereof from the Existing Tenant. If, despite Landlord’s commercially reasonable efforts, Landlord is unable to deliver possession of the Occupied Premises in the Required Delivery Condition to Tenant within one hundred twenty (120) days after the Anticipated Repossession Date, Tenant shall be entitled to one (1) day of free Minimum Monthly Rent for each day of delay in delivering the Occupied Premises to Tenant in the Required Delivery Condition until the Occupied Premises are delivered to Tenant in the Required Delivery Condition, which free rent period shall commence after the expiration of three (3) month abatement period set forth in Section 1.5 above. If, despite Landlord’s commercially reasonable efforts, Landlord is unable to deliver possession of the Occupied Premises to Tenant in the Required Delivery Condition within two hundred forty (240) days after the Anticipated Repossession Date, then either Landlord or Tenant may terminate this Lease at any time thereafter upon ten (10) days’ advance written notice to the other party (provided that if Landlord obtains possession of the Premises within such ten (10) day period after Tenant provides notice, the termination notice shall be deemed null and void), without cost or penalty to either party.

In addition, and notwithstanding the foregoing, Landlord may delay delivery of the Eleventh Floor Premises, upon written notice to Tenant, to a date no later than April 1, 2016. In the event of a delay in delivery of the Eleventh Floor Premises, as aforesaid, the Commencement Date for the Eleventh Floor Premises shall likewise be delayed on a day-for-day basis to a date no later than June 1, 2016.

Notwithstanding anything in this Lease to the contrary, Landlord shall deliver the Premises to Tenant in the Required Delivery Condition. As used in this Lease, the term “Required Delivery Condition” means that each applicable floor or portion of a floor comprising the Premises has been delivered to Tenant (a) free of tenants or other occupants, (b) with the Base Building Systems in good condition and repair, and (c) in broom-clean condition, without any debris, personal property or trade fixtures of any prior occupant.



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3. USES

3.1 Permitted Uses .

The Premises shall be used for general office use and hardware lab for the research, testing and prototyping of Tenant’s products in its business of developing mobile software applications and accessories for use in the health and wellness industry, commercial cafeteria (including a kitchen), all hands meeting space for assembly, and related uses incidental thereto and no other use. Tenant shall not use the Premises for any other use or purpose besides those permitted under this Section 3.1. Tenant’s use of the Premises shall be consistent with the character of those Class A high-rise office buildings in the San Francisco Financial District which are perceived in the marketplace to be similar to the Facility, taking into account the size, age, quality, tenant-mix, and location within the sub-areas of the Financial District, as such market perception may change over time, depending upon future development in downtown San Francisco (“Comparable Buildings”) and shall not unreasonably interfere with the use of the Building by other tenants or occupants thereof. Tenant shall not use or operate the Premises or permit the Premises to be used or operated in any manner that will cause the Building or any part thereof not to conform to Landlord’s sustainability practices or the LEED-EBOM certification of the Building described in Section 3.4 below.

Tenant’s permitted lab use shall be subject to the following conditions: (i) such hardware labs shall be located at not more than four (4) separate locations in the Premises unless otherwise approved by Landlord in its reasonable discretion, (ii) the use of such portions of the Premises as hardware labs shall be consistent with office occupancy and shall not include any manufacturing or production or life science or chemical laboratories; (iii) the use of such portions of the Premises as hardware labs shall not include the use of any Hazardous Substances other than those normally utilized in connection with typical office occupancy or as provided below; and (iv) Tenant shall not sublease any hardware lab to any sub-tenant separate and apart from a bona fide sublease of office space where the predominant use of the subleased premises is for office purposes and the subtenant’s use of the hardware lab is ancillary to its use of the balance of the subleased premises for office purposes. Landlord and Tenant recognize that Tenant’s use of the hardware labs may include Tenant’s use of reasonable amounts of the Hazardous Substances listed on Schedule 1 attached to this Lease (“Substances”) and Tenant shall not be considered to be in violation of the foregoing provision by virtue of the use of such Substances in quantities reasonably necessary for Tenant’s use of the hardware lab for the purposes herein described provided and so long as (1) Tenant’s use, storage, generation and disposition of such Substances shall be in accordance with and subject to the provisions of Sections 8 and 50 of this Lease, and (2) all flammable Substances will be stored in a fire-proof cabinet in the hardware lab. Landlord reserves the right to require Tenant, at its expense, to take remedial measures to address any deleterious effects of the use of the Premises, or applicable portion thereof, as hardware labs, including without limitation, to address the presence of such Substances in the Premises or Building, installing adequate venting and filtration of any smoke, fumes, vapors or odors generated by the use of the Premises or applicable portion thereof, as a hardware lab and installing one arm extraction system at each soldering station.



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To the extent Tenant uses any portion of the Premises for a commercial cafeteria, the following provisions shall apply;

(a) Tenant shall, at Tenant’s sole cost and expense, cause the Premises to be exterminated from time to time, to the satisfaction of Landlord, as is necessary to prevent the presence of vermin, rodents or other pests therein, and shall employ exterminators which are approved by Landlord. In addition, Tenant shall be responsible, at its sole cost and expense, for the removal of its cafeteria-related trash and rubbish. In the event Landlord has established or should establish a common trash and rubbish removal or disposal program at the Building for such trash removal, Tenant shall participate in such program. All garbage and refuse shall be stored, handled and transported in such manner as will prevent odors and vermin. Any janitorial requirements not covered by Landlord’s Janitorial Specifications attached hereto as Exhibit H shall be the sole responsibility of Tenant. Under no circumstances may garbage be stored at or picked up from any service corridor. Tenant shall be responsible for any spillage or residue of garbage and refuse from the Premises outside of the Premises and shall immediately remove such spillage or residue upon its occurrence.

(b) Tenant shall install grease traps in the Premises in order to eliminate the problem of sewer back-up and health hazards, the type and manner of installation of such grease traps being subject to Landlord’s prior written approval. In addition, Tenant shall establish a bi-monthly servicing and cleaning program with respect to any grease traps installed in the Premises pursuant to this Section and provide Landlord with written confirmation of full compliance with such service and cleaning program. In the event that Tenant shall fail to provide such confirmation, Landlord may (but shall not be obligated to) initiate such program for Tenant, and Tenant shall pay the cost of such program, plus a fifteen percent (15%) administrative fee. In addition to the bi-monthly servicing and cleaning of any grease traps installed in the Premises, Tenant shall use “Cloroben PT,” or a similar type of chemical, in all drain lines, in accordance with the manufacturer’s recommendation, to help dissolve any grease build-up. Tenant shall provide Landlord with copies of its cleaning contract for its grease traps and its extermination contracts on a yearly basis or sooner if requested by Landlord.

(c) Tenant shall keep all grease traps and kitchen exhaust systems located within the Premises in a clean and orderly condition and replace all kitchen exhaust filters on a regular basis (and in no event less than once every three (3) calendar months), and shall provide Landlord with written documentation evidencing such regular maintenance and servicing.

3.2 Restriction on Use .

Without limitation to the generality of the foregoing use restriction, Tenant specifically covenants and agrees that it shall not (a) do, bring, or keep, or permit to be done, brought, or kept, anything in or about the Premises that will in any way (i) adversely interfere with the access or other rights of any other tenants or occupants of the Facility or injure or annoy them, (ii) cause a weight load or stress on the floor or any other portion of the Premises in excess of the weight load or stress that the floor or other portion of the Premises is designed to bear, or (iii) cause or threaten a cancellation of any fire or other insurance upon the Building or its contents, (b) use the Premises,



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or allow them to be used, for any residential or disreputable purpose; (c) sublease any portion of the Premises, or otherwise transfer occupancy, to a governmental agency, or (d) commit or suffer to be committed any waste in or upon the Premises or the Facility.

3.3 Compliance with Laws .

Tenant shall construct the Tenant Improvements in accordance with Exhibit B and all applicable Laws (as defined below). If triggered by the construction of the Tenant Improvements, any Alterations made by Tenant, or Tenant’s use of the Premises, then Tenant shall be responsible for any additional work required to cause the Premises to comply with all applicable and future laws, statutes, rules, regulations, ordinances, codes, licenses, permits, certificates of occupancy, orders, decrees, directives, judgments, approvals, plans, authorizations, and similar items of any local, state, or federal governmental or quasi-governmental authority (collectively, “Laws,” or individually, a “Law”) that impose any duty upon Landlord or Tenant with respect to the condition, use, occupancy, or alteration of the Premises, including, but not limited to, any required changes to the structural elements of the Premises such as floor shoring, elevator lobbies, corridors, and drinking fountains. Without limiting the generality of the forgoing definition, the parties expressly acknowledge that the term “Laws” shall include all Environmental Requirements (as defined below) and all Laws relating to the rights of individuals with disabilities. Tenant shall immediately furnish to Landlord any notices received from any insurance company or governmental agency or inspection bureau regarding any unsafe or unlawful conditions within the Premises. Notwithstanding the foregoing but subject to Section 10.4, Tenant shall not be required to make any changes to the base, shell or core of the Building, Common Areas, Base Building Systems or structural elements of the Premises (collectively, “Base Building”), except to the extent the same are caused or triggered by Tenant’s unique and particular use of the Premises. With respect to any changes described in the preceding sentence, Tenant shall make such changes, subject to Landlord’s direction and supervision; provided, however, that at Landlord’s option, Landlord may make the same at Tenant’s cost. The cost of all such work performed by Landlord shall be paid by Tenant to Landlord within 30 days after Landlord has invoiced Tenant therefor. Notwithstanding the foregoing, Tenant shall not be required to perform or pay for (1) removal of any asbestos, asbestos-containing material, or other Hazardous Substances present at the Premises, the Building and/or the Facility prior to the Commencement Date, or (2) any work or other changes necessary to cure any failure of the Premises to comply with any Laws existing as of the Commencement Date for such Premises.

3.4 Sustainable Building Operations .

3.4.1 The Building has been awarded the gold certification under the United States Green Building Council’s (“USGBC”) Leadership in Energy and Environmental Design (“LEED”) for Existing Building: Operations and Maintenance (“LEED-EBOM”) rating system. Tenant acknowledges and agrees that (i) Landlord shall have the right, but not the obligation to maintain the Building’s certification under LEED-EBOM including, without limitation, having the Building recertified under LEED-EBOM every five (5) years, and (ii) Landlord shall not be in default under this Lease if Landlord fails to maintain the LEED-EBOM certification or the certification of any other green building rating system for the Building. Landlord’s sustainability practices address



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whole-building operations and maintenance issues including chemical use; indoor air quality; energy efficiency; water efficiency; recycling programs; exterior maintenance programs; and systems upgrades to meet green building energy, water, Indoor Air Quality, and lighting performance standards.

3.4.2 Tenant shall use proven energy and carbon reduction measures, including energy efficient bulbs in task lighting; use of lighting controls; daylighting measures to avoid overlighting interior spaces; closing shades on the south side of the building to avoid over heating the space; turning off lights and equipment at the end of the work day; and purchasing ENERGY STAR® qualified equipment, including but not limited to lighting, office equipment, commercial quality kitchen equipment, vending and ice machines; and purchasing products certified by the U.S. EPA’s Water Sense® program.

3.5 Recycling and Waste Management .

Tenant covenants and agrees, at its sole cost and expense: (a) to comply with all present and future Laws of the Federal, State, county, municipal or other governing authorities, departments, commissions, agencies and boards regarding the collection, sorting, separation, and recycling of garbage, trash, rubbish and other refuse (collectively, “trash”); (b) to comply with Landlord’s recycling policy as part of Landlord’s sustainability practices where it may be more stringent than applicable Law; (c) to sort and separate its trash and recycling into such categories as are provided by Law or Landlord’s sustainability practices; (d) that each separately sorted category of trash and recycling shall be placed in separate receptacles as directed by Landlord; (e) that Landlord reserves the right to refuse to collect or accept from Tenant any waste that is not separated and sorted as required by Law or Landlord’s recycling policy, and to require Tenant to arrange for such collection at Tenant’s sole cost and expense, utilizing a contractor reasonably satisfactory to Landlord; and (f) that Tenant shall pay all costs, expenses, fines, penalties or damages that may be imposed on Landlord or Tenant by reason of Tenant’s failure to comply with the provisions of this Section.

3.6 Carbon Credits .

Landlord shall be entitled to all so-called “Carbon Credits” that may be created, credited or recoverable because of activities conducted within the Facility or the Premises, excluding Carbon Credits to which the Tenant is entitled in accordance with applicable Law. Landlord shall be entitled to allocate, acting reasonably, Carbon Credits created with the participation of the Tenant and/or other tenants in the Building.

4. ENERGY MANAGEMENT

Notwithstanding anything contained herein to the contrary, Landlord shall have the right, but not the obligation, to meet some or all of the Facility’s total energy use with on-site or off-site renewable energy systems. On-site systems may include, without limitation, photovoltaic, wind energy systems, solar thermal, biofuel-based, and geothermal energy systems. Off-site renewable energy sources may include, without limitation, solar, wind and other sources defined by the Center for Resource Solutions Green-e Energy program’s products certifications requirements, or similar



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green power certification system. Landlord may procure off-site renewable energy from a Green-e Energy-certificated power marketer or a Green-e Energy accredited utility program, or through a Green-e Energy-certified tradable renewable energy certificates or similar program.

5. RENT

5.1 Minimum Monthly Rent .

Tenant shall pay to Landlord, as “Minimum Monthly Rent” for the Premises, the amount specified in Section 1.5.1 above. Payments of Minimum Monthly Rent shall be made in advance, on or before the first day of each calendar month during the entire Term. The first installment of Minimum Monthly Rent (for the applicable Premises) shall be payable on the first day of the fourth (4 ^th ) month of Term of such applicable Premises.

5.2 Definition of Rent; Prorations .

Any and all payments of: (i) Minimum Monthly Rent; (ii) costs of Tenant’s electricity in accordance with Section 5.7 (only if such amounts are owed to Landlord and not to a utility company); (iii) Tenant’s Percentage Share of all other electricity utilized in the Facility (specifically including, without limitation, the Common Area variable portion of the electricity which shall be grossed up to 95% occupancy) but not including space demised to third party tenants of the Building; and (iv) any and all taxes, assessments, fees, charges, costs, expenses, insurance obligations, late charges, Operating Expenses, and all other payments or reimbursements that are attributable to, payable by or the responsibility of Tenant under this Lease (including, without limitation, charges for any “above-building-standard services” requested by Tenant or Tenant’s authorized representatives from time to time), shall constitute “Rent” for all purposes of this Lease and any applicable unlawful detainer statute. Any Rent payable to Landlord by Tenant for any fractional month shall be prorated based upon the actual number of days in such calendar month.

5.3 Place and Manner of Payment .

All Rent shall be paid by Tenant to Landlord in lawful money of the United States of America at Landlord’s address set forth in Section 1.1 above, or to such other person or at such other place as Landlord may from time to time designate in writing. All payments of Minimum Monthly Rent shall be payable without prior notice or demand and all payments of Rent shall be paid, except as otherwise expressly provided herein, without deduction, setoff or counterclaim for any reason whatsoever. Payments made by check must be drawn either on a financial institution in the state where the Facility is located or on a financial institution that is a member of the Federal Reserve System. Any payment made to cure a default after receipt of a default notice must be by cashier’s check.

5.4.1 Late Charges. Tenant acknowledges that the late payment of Rent will cause Landlord to incur damages, the exact amount of which would be impractical and extremely difficult to ascertain. Such damages may include, without limitation, processing, accounting, and other administrative costs, loss of use of the overdue funds, and late charges that may be imposed on Landlord by the terms of any encumbrance and note secured by any encumbrance covering the



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Premises. Landlord and Tenant agree that if Landlord does not receive a payment of Rent within seven (7) days after such payment becomes due, Tenant shall pay to Landlord a late charge in an amount equal to five percent (5%) of such overdue Rent. Notwithstanding the foregoing, such late charge shall not be assessed if all of the following conditions shall apply: (a) the late payment is made within five (5) days after Landlord’s written notice of delinquent payment and (b) Landlord shall not, during the 365-day period immediately preceding the due date of such late payment, have delivered to Tenant written notice of more than two (2) delinquent payments of Rent.

5.4.2 If Landlord does not receive a payment of Rent by the date such payment becomes due, Landlord shall be entitled to interest thereon computed at the interest rate of five percent (5%) per annum or, if lower, the maximum interest rate allowed by law (the “Interest Rate”).

5.4.3 The parties agree that such late charges and interest charges represent a fair and reasonable estimate of the cost that Landlord will incur by reason of late payment by Tenant. Acceptance of any late charge or interest charge by Landlord shall not cure or waive Tenant’s default nor prevent Landlord from exercising, before or after such acceptance, any of the rights and remedies for a default provided by this Lease or at law. Tenant shall be liable for late charges and interest charges regardless of whether Tenant’s failure to pay the Rent when due constitutes an Event of Default under this Lease.

5.5 Time of Payment .

Tenant agrees to pay all Rent required under this Lease within the applicable time limits set forth in this Lease. If no such time period is elsewhere specified herein for payment of a particular amount, then such amount shall be due and payable thirty (30) days after Landlord’s delivery of an invoice or demand therefor.

5.6 Partial Payments .

Payments by Tenant shall be applied against the then outstanding rental charges that first became due. No payment by Tenant or receipt by Landlord of a lesser amount than any installment or payment of Rent due shall be deemed to be other than on account of the amount due, and no endorsement or statement on any check or payment of Rent shall be deemed an accord and satisfaction. Landlord may accept such check or payment without prejudice to Landlord’s right to recover the balance of such installment or payment of Rent, or pursue any other remedies available to Landlord.

5.7 Electricity to the Premises .

All electricity directly serving the Premises shall be metered, and Tenant shall pay to Landlord, as Rent at the same time and in the same manner as payment of Monthly Minimum Rent, Operating Expenses, Taxes and Assessments, an amount equal to Landlord’s estimate of the cost of all such directly metered electricity to Landlord as a reimbursement. Concurrently therewith, Tenant shall additionally pay Landlord Tenant’s Percentage Share of the estimated cost of all other electricity utilized in the Facility (specifically including, without limitation, the Common Area variable portion of the electricity which shall be grossed up to 95% occupancy) but not including



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space demised to third party tenants of the Building. One time per calendar year, Landlord shall perform a reconciliation between such estimates and the actual costs, and notify Tenant of any deficiency or overage. Payments to Landlord of any deficiency shall be made within thirty (30) days of Landlord’s delivery of an invoice to Tenant therefor. Subject to all of the terms, conditions and limitations pertaining to Tenant’s audit right in Section 6.8 herein, Tenant shall have the right to review the books and records of the Landlord in connection with the electricity costs billed to Tenant, and audit the same at Tenant’s election. If any audit reveals that Landlord overstated the electricity costs by more than five percent (5%), Landlord shall pay the cost of such audit. Landlord shall refund to Tenant any overage in Tenant’s estimated payments to Landlord pursuant hereto. Notwithstanding the foregoing, at Landlord’s election, Tenant shall pay the electrical utility provider directly with respect to electricity directly serving the Premises.

6. PAYMENT OF TAXES, ASSESSMENTS, AND OPERATING EXPENSES

6.1 Tenant’s Percentage Share .

In addition to paying the Minimum Monthly Rent, Tenant shall pay to Landlord the percentage set forth in Section 1.8 (“Tenant’s Percentage Share”) of the amounts set forth below in Sections 6.2 and 6.3. Tenant’s Percentage Share has been calculated by dividing the RSF of the Premises by the RSF contained in the Building. Tenant’s Percentage Share shall not be subject to correction or recalculation, except as provided in connection with any expansion or contraction of the Premises (pursuant to the terms of an amendment to this Lease). In all other cases, Tenant’s Percentage Share shall be fixed during the initial Term of this Lease.

6.2 Taxes and Assessments .

6.2.1 Payment of Taxes . Tenant shall pay to Landlord an amount equal to Tenant’s Percentage Share of any increase in Taxes above the amount of Taxes accrued for the Base Tax Year set forth in Section 1.9, either by way of increase in the rate or in the assessed valuation of the Facility (or any portion thereof) or by imposition of any such charges by ordinance, statute or otherwise of any authority having jurisdiction.

(a) Definition . As used in this Article 6, the term “Taxes” shall mean all real property taxes, impositions, excises, penalties (unless due to Landlord’s negligence or willful misconduct or Landlord’s failure to pay Taxes in a timely manner), fees (including, without limitation, all license, permit and inspection fees), and other charges (but excluding Assessments, as defined in Section 6.2.2 below) assessed, levied, charged, confirmed, or imposed by and payable to any government, any political subdivision, public corporation, district, or other political or public entity or authority, including without limitation: (i) on the Facility (or any portion thereof), (ii) on Landlord with respect to the Facility (or any portion thereof), (iii) on the act of leasing or entering into leases of space in the Facility, (iv) on or measured by the Rent payable under leases of space in the Building, or (v) on personal property of Landlord used in the operation of the Facility (or any portion thereof). Such Taxes may be general or specific, ordinary or extraordinary, or of any kind or nature whatsoever, whether or not now customary or within the contemplation of the parties to this Lease. All references to Taxes herein shall be deemed to refer to taxes accrued during a particular



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year, including supplemental tax bills, regardless of when they are actually assessed and without regard to when such taxes are payable. For the avoidance of doubt, the parties hereto acknowledge that Tenant shall only be responsible for Taxes applicable to the time period within the Term of this Lease, irrespective of the date such Taxes are actually assessed or billed. The term “Taxes” shall include, without limitation, all “Carbon Taxes” (as herein defined). The term “Carbon Tax” shall mean and refer to the aggregate of all taxes, rates, duties, levies, fees, charges and assessments whatsoever, imposed, assessed, levied, confirmed, rated or charged against or in respect of the energy consumption of the Facility or the emissions of Greenhouse Gases (as defined below) from the Facility or any part of it or levied in lieu thereof, levied against Landlord by any local, state or federal government or any agency thereof having jurisdiction. “Greenhouse Gases” shall mean any or all of carbon dioxide, methane, nitrous oxide, CFC-12, HCFC-22, Perflouroethane, Sulfur Hexaflouride and ozone.

(b) Exclusion . Notwithstanding the foregoing, federal, state, and local documentary transfer taxes, gift, franchise, inheritance and estate taxes, and income taxes shall not be included as Taxes or Assessments, nor shall the computation of increases in Taxes or Assessments for which Tenant shall pay Tenant’s Percentage Share include any amounts paid by Tenant under Sections 6.2.3 and 6.2.4 or any amounts separately billed to a particular tenant of the Facility with respect to similar matters (other than as its percentage share of increases in Taxes or Assessments). In addition, “Taxes” and “Assessments” shall not include any capital levy, transfer, or capital stock taxes, any amounts paid by Tenant directly to the applicable governmental authorities on account of the Tenant Improvements or Tenant’s personal property. “Taxes” and “Assessments” shall also not include (i) any item to the extent included in Operating Expenses; (ii) environmental assessments, charges or liens arising in connection with the remediation of Hazardous Substances from the Building and/or the Facility in particular (as opposed to any such assessments, charges or lien imposed upon the Building, the Facility and other buildings generally based on location or classification); or (iii) reserves for future Taxes or Assessments (provided, however, that the collection of Tax accruals for Taxes that will become due but are not yet payable shall not be excluded).

(c) Base Year Calculation . The amount of Taxes attributable to the Base Tax Year shall be reduced by the amount of any Tax refund arising out of an appeal and permanent reduction of the Building’s assessed valuation for the Base Tax Year. If the Facility’s actual assessed valuation for the Base Tax Year shall be lower than what the taxing authority would have determined the Facility’s assessed valuation to have been under conditions where the Building was at stabilized occupancy for the full tax year, and the Building Standard tenant improvements were complete throughout the Building and the construction of the Facility in accordance with the Final Plans were complete prior to commencement of the Base Tax Year, then the amount of Taxes for the Base Tax Year shall be set at an amount equal to what such Taxes would have been if the taxing authority had determined the Facility’s assessed valuation based upon all of said conditions being satisfied.

6.2.2 Payment of Assessments . Tenant shall also pay to Landlord an amount equal to Tenant’s Percentage Share of any increase in Assessments above the amount of Assessments levied or assessed against the Facility for the Base Tax Year.



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(a) Definition . As used in this Article 6, the term “Assessments” shall mean all assessments, transit charges, housing charges, and levies assessed, charged, levied, confirmed, or imposed by any government, any political subdivision, public corporation, district, or other political or public entity or authority thereof on or with respect to any of the items described in clauses (i) through (v) of Section 6.2.1(a) or with respect to the use, occupancy, management, maintenance, alteration, repair, or operation of the Facility (or any portion thereof) or any services or utilities furnished or consumed in connection with the use, occupancy, management, alteration, repair or operation of the Facility (or any portion thereof).

(b) Base Year Calculation . Except to the extent otherwise expressly provided below, the amount of Assessments attributable to the Base Tax Year shall be reduced by the amount of any Assessment refund arising out of an appeal of an assessment levied or assessed against the Facility for the Base Tax Year. If an Assessment shall be lower than what the taxing authority would have determined it to be if the Building was at stabilized occupancy for the full tax year and the Building standard tenant improvements were complete throughout the Building and the construction of the Facility in accordance with the Final Plans were complete prior to the commencement of the Base Tax Year, then the amount of the assessments for the Base Tax Year shall be set at an amount equal to what such Assessments would have been if the taxing authority had determined the Facility’s assessed valuation based upon all of the said conditions being satisfied.

6.2.3 Full Responsibility . In addition to paying Tenant’s Percentage Share of increases in the Taxes and Assessments described in Sections 6.2.1 and 6.2.2, Tenant shall pay one hundred percent (100%) of the following, as reasonably determined by Landlord: any increase in Taxes or Assessments after the Base Tax Year resulting from any improvements or installations above Building-standard made to the Premises by or at the request of Tenant. The total amounts due under this Section 6.2.3 shall be paid to Landlord on or before the date full payment of such Taxes or Assessments shall become due, or if payable in installments, the date payment of the installment of such Taxes or Assessments shall become due. In the event such Taxes or Assessments are paid by Landlord, Tenant forthwith upon demand therefor shall reimburse Landlord for all amounts of such Taxes or Assessments chargeable against Tenant pursuant to this Section 6.2.3.

6.2.4 Personal Property . Tenant shall pay, before delinquency, any and all levied or assessed taxes that become payable during or with respect to the Term upon Tenant’s equipment, furnishings, fixtures, and other personal property of Tenant located in the Premises (collectively, “Tenant’s Personal Property”). In the event said taxes are paid by Landlord, Tenant forthwith upon receipt of written demand therefor shall reimburse Landlord for all such taxes paid by Landlord within thirty (30) days.

6.2.5 Apportionment . Any Taxes or Assessments that may be paid over more than a one-year period shall be apportioned evenly over the maximum period of time permitted by Law and only the portion thereof accruing during a given year shall be included in Taxes or Assessments for that year. In the event that Landlord contests the amount of any Taxes or Assessments and receives a refund or credit as a result thereof, then, after first deducting all of Landlord’s expenses in connection with such contest, Landlord shall pay Tenant its pro rata share of such refund to the extent that the refund relates to Taxes or Assessments that have been paid by Tenant.



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6.3 Operating Expense Increases .

6.3.1 Definition . Tenant shall pay to Landlord an amount equal to Tenant’s Percentage Share of any increase in Operating Expenses above the Operating Expenses for the Base Expense Year. As used in this Article 6, the term “Operating Expenses” shall mean costs and expenses accrued by Landlord in connection with the ownership, operation, repair, replacement, management, or maintenance of the Facility (which costs shall be accounted for under sound accounting principles consistently applied), excluding, however, the items described in Section 6.3.3 below, which items shall not be included in Operating Expenses for purposes of this Lease. By way of illustration but not limitation, Operating Expenses shall include (subject to the specific exclusions described in Section 6.3.3 below) the following costs and expenses:

(a) costs for heating, cooling, ventilation, fuel, and utilities including, without limitation, the cost of building systems commissioning;

(b) costs and expenses for maintenance, ordinary and extraordinary repairs, testing, and operation of building systems and components including, without limitation, costs and expenses for maintenance and repair of the roof membrane;

(c) costs and expenses for security, landscaping, refuse disposal, janitorial services, labor, supplies, materials, equipment, tools, and leasing rotating art in the lobby, including any sales, use, or excise taxes thereon;

(d) market management fees and other costs of managing the Facility (not to exceed market rate management fees for Comparable Buildings, however in no event shall management fees exceed 3% of gross operating revenue for the Building), whether managed by Landlord or an independent contractor, which may or may not be affiliated with Landlord;

(e) wages, salaries, bonuses, employee benefits and payroll burden, pro-rated to account for the time actually spent with respect to the Facility, of all Landlord’s (or its agents’) on-site or off-site employees at or below the level of senior property manager engaged in the day-to-day operation, maintenance, management, or security of the Facility, including employers’ payroll, social security, workers’ compensation, unemployment, and similar taxes with respect to such employees;

(f) subject to the provisions of Section 6.3.2 below, insurance premiums paid or incurred by Landlord with respect to the Facility and all amounts paid in connection with claims or losses that are less than the amount of such deductibles or self-insured retentions as Landlord may have deemed reasonable for its insurance policies;

(g) all reasonable costs and expenses of contesting by appropriate proceeding the amount or validity of any Taxes or Assessments;

(h) the annual amortized costs (plus interest on the unamortized balance at a commercially reasonable interest rate (the “Reference Rate”) of any capital improvements, capital repairs, capital assets or other capital expenditures constructed, made, purchased or installed after the Base Year (i) to the Facility or any portion thereof that are required to comply with any



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Law (as defined in Section 3.3), (ii) in order to conserve energy or reduce other Operating Expenses or increase the efficiency of any of the Base Building Systems, or (iii) which are reasonably determined by Landlord to be in the best interests of the Facility and consistent with capital expenditures at Comparable Buildings (as defined in Section 3.1 hereof), with any such capital costs above to be amortized over the useful life of such capital improvements or capital assets, as determined by GAAP;

(i) the fair market rental value of the building office and other space in the building occupied by Landlord or its manager in connection with the operation or management of the Facility;

(j) the cost of complying with Section 48.3 below;

(k) the cost of complying with the rules and regulations applicable to the Facility as mandated by governmental authorities with jurisdiction over the Facility, including employment brokerage services pursuant to San Francisco Planning Code Article 164;

(l) the cost of insurance endorsements in order to repair, replace and recommission the Building for recertification pursuant to LEED;

(m) all other costs and expenses that under sound accounting principles or practices of Comparable Buildings would be included in Operating Expenses; and

(n) costs of maintenance of any exercise rooms, food service facility, day care center or other similar specialty service facility, subject to a credit against such costs of maintenance for any revenue generated by or rent collected from such facility.

The above itemization of Operating Expenses is for illustrative purposes only and shall not be deemed to increase or modify Landlord’s obligations to provide services under this Lease. In addition to the above Operating Expenses, Operating Expenses shall also include any and all costs incurred by Landlord in operating, managing, repairing, and maintaining the Facility in accordance with Landlord’s sustainability practices or the LEED-EBOM certification of the Building described in Section 3.4 including, without limitation, (i) all costs of maintaining, managing, reporting, commissioning, and recommissioning the Building or any part thereof that was designed and/or built to be sustainable and conform with LEED, and (ii) all costs of applying, reporting and commissioning the Building or any part thereof to seek certification or re-certification under LEED.

6.3.2 Earthquake Insurance . From time to time, Landlord may carry and maintain a policy of earthquake insurance insuring the Building and related income against property damage and business interruption caused by certain seismic hazards. The parties acknowledge that the market for earthquake insurance policies is very volatile, and may include large fluctuations in the availability and cost of such insurance. As more fully provided below, it is the intent of the parties that, when determining what insurance premium costs should be included in the calculation of Operating Expenses for the Base Expense Year and any later year (hereinafter, a “Comparison Year”), appropriate adjustments should be made so that Tenant will only be charged its percentage share of increases allocable to what comparable insurance policies would have cost in the two years then in question and so that Tenant will not be charged for cost increases allocable to insurance



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coverage exceeding what is then ordinary or customary. Accordingly, to the extent that Landlord at any time carries greater earthquake insurance coverage than is provided under any “Conventional Earthquake Policy” (as defined below), Landlord shall only include in Base Expense Year Operating Expenses and Comparison Year Operating Expenses the respective amounts reflecting what a then reasonable Conventional Earthquake Policy would have cost for the years in question. Also, to the extent that the coverage under the respective earthquake policies (or the deemed coverage, where the actual policy was greater than a then reasonable Conventional Earthquake Policy) are different from each other, Landlord shall recalculate the cost of the premiums for the Base Expense Year to reflect what an earthquake policy with coverage comparable to the Comparison Year’s coverage (not to exceed the reasonable Conventional Earthquake Policy) would have cost during the Base Expense Year. Notwithstanding any provision hereof to the contrary, if the earthquake coverage actually maintained during the Base Expense Year exceeds a then reasonable Conventional Earthquake Policy then available or exceeds the earthquake coverage actually maintained during the Comparison Year, then the amount attributed to the cost of such policy attributable to the Base Expense Year shall not be greater than the amount attributed to the cost of such Comparison Year’s earthquake insurance when calculating Tenant’s Percentage Share of increases in Operating Expenses for such Comparison Year.

(a) Conventional Policy . As used herein, the term “Conventional Earthquake Policy” shall mean, for any given year, a policy of earthquake insurance that was then either customary or usual for owners of Comparable Buildings. Landlord shall have the right, in its sole and absolute discretion, to carry no earthquake insurance at all.

(b) Determination . Whenever Section 6.3.2 above requires the determination of the cost of an earthquake policy different from that actually carried by Landlord for the year in question, a reputable independent insurance broker selected by Landlord with a minimum of five years of experience in the earthquake insurance market in the San Francisco Financial District shall reasonably determine what the premium would have been for such a policy in the year in question.

6.3.3 Exclusions . The following costs and expenses shall be excluded from the definition of “Operating Expenses” for purposes of this Lease:

(a) Any costs for which Landlord is reimbursed by insurance or warranty proceeds.

(b) Brokers/leasing commissions, attorneys’ fees, accountants’ fees, costs and disbursements and other expenses incurred in connection with negotiations with present or prospective tenants or other occupants.

(c) Costs (including permit, license and inspection fees) incurred in renovating or otherwise improving or decorating, painting, or redecorating space for new tenants or existing tenants in connection with extensions of the terms of their respective tenancies.

(d) Landlord’s costs of any services sold or provided to tenants or other occupants for which Landlord is entitled to be reimbursed by such tenants or other occupants as an additional charge or rental over and above the basic rental and escalations payable under the lease



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with such tenant or other occupant, unless Landlord is likewise entitled to reimbursement for like services provided to Tenant or its subtenants and elects not to require reimbursement from Tenant or its subtenants.

(e) Interest on debt or amortization payments (except as expressly included as Operating Expenses under Section 6.3.1 above) on any mortgages or deeds of trust.

(f) Taxes and Assessments, as defined in Sections 6.2.1 and 6.2.2 above.

(g) Costs of electricity (such costs are specifically treated in Sections 5.2 and 5.7 above).

(h) Rental under any ground lease or other underlying lease of the Building or Facility.

(i) Costs due to Landlord’s breach of this Lease.

(j) All costs, including legal fees, relating to the activities for the solicitation and execution of leases of space in the Building or Facility or disputes with other tenants of the Building or Facility.

(k) Any legal fees or other costs incurred by Landlord in enforcing its rights under other leases for space in the Building or Facility.

(l) Fines, penalties or interest resulting from late payment of Taxes or Assessments or Operating Expenses.

(m) Fines or penalties resulting from any violations of Law, negligence or willful misconduct of Landlord or its employees, agents, contractors or subcontractors;

(n) Advertising expenses.

(o) Landlord charitable and political contributions.

(p) Costs of purchasing or leasing major sculptures, paintings or other artwork (except as permitted above).

(q) Costs of curing defects in design or original construction of the Building or Facility.

(r) Reserves.

(s) Costs of selling, financing or refinancing the Building and/or the Facility.

(t) The cost of operating any commercial concession which is operated by Landlord at the Building and/or the Facility.



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(u) Replacement of the structural portions of the roof or to the exterior walls, the foundations, load bearing walls, or any other structural replacements to the Building and/or the Facility.

(v) Items that are or should be capitalized under GAAP, other than those referred to in Section 6.3.1(h) above.

(w) Landlord’s general overhead expenses not related to the Building or Facility.

(x) Costs of abatement or remediation of Hazardous Substances brought upon, stored, used or disposed of in or about the Building or the Facility by Landlord or by a particular tenant or occupant of the Building or the Facility other than Tenant.

(y) Earthquake insurance deductibles in excess of $16,000,000.00 (provided, however, that earthquake insurance deductibles of $16,000,000.00 or less shall be amortized over a ten [10] year period, and Tenant shall only be responsible for the amortized portion of such costs falling within the Term);

(z) Sums (other than management fees) paid to subsidiaries or other affiliates of Landlord for services on or to the Building and/or the Premises, but only to the extent that the costs of such services exceed competitive cost for such services rendered by unrelated persons or entities of similar skill, competence and experience.

(aa) Costs of compliance with all applicable building codes to the extent the Building or Facility does not comply with such building codes as of the Effective Date.

(bb) Costs of compliance with the ADA, to the extent the Building or Facility does not comply therewith as of the Effective Date.

(cc) Costs of installing or constructing telecommunications equipment or facilities unless such equipment or facilities are used by Tenant.

(dd) Costs of major Building or Facility signage which identifies a tenant other than Tenant.

(ee) Costs to the extent attributable to the garage in the Building and/or the Facility or any other concession or club operated by Landlord for which a separate charge or fee is required for the use thereof by Tenant or its employees, including, without limitation, payroll for clerks, attendants, book-keeping, parking, insurance premiums, parking charge taxes, parking management fees, parking tickets, janitorial services, striping and painting of surfaces.

(ff) Wages, salaries, benefits or other similar compensation paid to executive employees of Landlord or Landlord’s agents above the rank of general manager.



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If, in any year following the Base Year, Landlord incurs any category of Operating Expense that was not incurred and included in Operating Expenses for any portion of the Base Year, Operating Expenses for the Base Year shall be deemed increased by the amount that would have been included in Operating Expenses for the Base Year with respect to such category of Operating Expense if Landlord had incurred such category of Operating Expense and included the same in Operating Expenses during the entire Base Year. Conversely, if, in any year following the Base Year, Landlord does not incur a category of Operating Expense that was included in Operating Expenses during the Base Year, Operating Expenses for the Base Year shall be deemed reduced by the amount Landlord incurred during the Base Year with respect to such category of Operating Expense.

6.3.4 Gross-Up . If at any time, including the Base Year, less than ninety-five percent (95%) of the rentable area of the Building is occupied by office tenants and/or if the Base Year is less than twelve (12) full calendar months, then Operating Expenses shall be reasonably adjusted by Landlord to approximate such operating and maintenance costs which vary with the occupancy level of the Building as would have been incurred if the Building had been at least ninety-five percent (95%) occupied by office tenants. If Landlord is not furnishing any work or service (the cost of which if performed by Landlord would be included in Operating Expenses) to a tenant who has undertaken to perform such work or service in lieu of performance by Landlord, Operating Expenses shall be deemed increased by an amount equal to the Operating Expenses that would have been incurred by Landlord if it had performed such work or service.

6.4 Allocations of Certain Costs .

If any Taxes, Assessments, or Operating Expenses paid in one year relate to more than one calendar year or to buildings, land or facilities other than the Facility, Landlord shall allocate such Taxes, Assessments, or Operating Expenses among the appropriate calendar years or buildings, land or facilities. If the Term ends other than on December 31, Tenant’s obligations to pay Tenant’s Percentage Share of estimated and actual amounts of increases in Taxes, Assessments, and Operating Expenses for such final calendar year shall be prorated to reflect the portion of such year included in the Term. Such proration shall be made by multiplying the total estimated or actual (as the case may be) Taxes, Assessments, and Operating Expenses for such calendar year by a fraction, the numerator of which shall be the number of days of the Term during such calendar year, and the denominator of which shall be 365. Landlord may, but shall not be required to, calculate prorations with regard to when during a calendar year particular items of Operating Expenses accrued.

6.5 Estimated Payments .

Landlord shall notify Tenant of its reasonable good faith estimate of the monthly amount of Tenant’s Percentage Share of increases in Taxes, Assessments, or Operating Expenses and Tenant shall pay Landlord such estimated monthly payment at the same time as, and together with, Tenant’s Minimum Monthly Rent. Landlord may from time to time, by notice to Tenant, change such estimated monthly amounts based upon Landlord’s actual or projected Taxes, Assessments, or Operating Expenses.



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6.6 Statement of Expenses .

Landlord shall, after December 31 of each year, using its good faith efforts to do so by April 30, furnish to Tenant a “Final Statement”. The Final Statement shall contain a computation of the charge or credit to Tenant for any difference between (a) Tenant’s Percentage Share of the actual Taxes, Assessments, and Operating Expenses and (b) the estimated portion(s) thereof paid by Tenant for the preceding calendar year, and the amount of any underpayment shall be paid by Tenant within thirty (30) days after delivery of said notice. In the event of overpayment by Tenant, Landlord shall credit such overpayment in full against Tenant’s payment of Taxes, Assessments and Operating Expenses next coming due hereunder. Upon expiration or sooner termination of this Lease, if Tenant does not then owe Landlord any monies, Landlord shall refund to Tenant any overpayment within thirty (30) days after Landlord’s computation of the same.

6.7 Non-Waiver of Rights .

Without limitation to the provisions of Article 31 (Non-Waiver), no failure or determination of Landlord in any previous year to include or exclude certain items in its computation of Taxes, Assessments, or Operating Expenses or to invoice Tenant for the full amount of Tenant’s allocable share of Taxes, Assessments, or Operating Expenses shall be construed as depriving Landlord of the right to include such items as Taxes, Assessments, or Operating Expenses or to invoice Tenant for the full amount of Tenant’s Percentage Share for the current year in accordance with the provisions of this Article 6. Notwithstanding the foregoing, for any Final Statement issued by Landlord to Tenant within the time period listed in Section 6.6, Landlord may correct such Final Statement within eighteen (18) months after it was initially issued, but may not further correct it thereafter, and Tenant shall not be obligated to pay any Operating Expenses not reflected on the Final Statement, as may be corrected, for such Lease Year provided, however, that such 18-month correction window shall not apply to Taxes or Assessments, it being agreed and understood that Landlord may correct Taxes or Assessments at any time without limitation.

6.8 Right to Accounting Audit .

In the event Tenant disputes the amount of the Operating Expenses, Taxes and Assessments set forth in the Final Statement for a particular calendar year delivered by Landlord to Tenant pursuant to Section 6.6 above, Tenant shall have the right, but not more frequently than once during any calendar year, at Tenant’s cost and after thirty (30) days prior written notice to Landlord, to have Tenant’s authorized employees or agents inspect, at Landlord’s office during normal business hours, Landlord’s books and records concerning the Operating Expenses, Taxes and Assessments set forth in such Final Statement; provided, however, Tenant shall have no right to conduct such inspection, have an audit performed by the Accountant as described below, or object to or otherwise dispute the amount of the Operating Expenses, Taxes or Assessments set forth in any such Final Statement, unless Tenant notifies Landlord of such objection and dispute within five (5) months immediately following Landlord’s delivery of the particular Final Statement in question and completes such inspection, and has the Accountant commence and complete such audit within eight (8) months immediately following Landlord’s delivery of the particular Final Statement in question (the “Review Period”); provided, further, that notwithstanding any such timely objection, dispute, inspection, and/or audit, and as a condition precedent to Tenant’s exercise of its right of



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objection, dispute, inspection and/or audit as set forth in this Section 6.8, Tenant shall not be permitted to withhold payment of, and Tenant shall timely pay to Landlord, the full amounts as required by the provisions of this Article 6 in accordance with such Final Statement. In connection with any such inspection by Tenant, Landlord and Tenant shall reasonably cooperate with each other so that such inspection can be performed pursuant to a mutually acceptable schedule, in an expeditious manner and to minimize interference with Landlord’s operation and management of the Facility. If after such inspection, Tenant still disputes the amount of the Operating Expenses, Taxes and Assessments set forth in the Final Statement, Landlord and Tenant shall endeavor in good faith to resolve any dispute. If Landlord and Tenant cannot resolve such dispute, Tenant shall have the right, within the Review Period, to cause an independent certified public accountant which is not paid on a contingency basis and which is mutually approved by Landlord and Tenant (the “Accountant”) to complete an audit of Landlord’s books and records pertaining to Operating Expenses, Taxes and Assessments to determine the proper amount of Operating Expenses, Taxes and Assessments incurred and amounts payable by Tenant for the calendar year which is the subject of such Final Statement. If Landlord and Tenant cannot mutually agree as to the identity of the Accountant within thirty (30) days after Tenant notifies Landlord that Tenant desires an audit to be performed, then the Accountant shall be one of the “Big 4” accounting firms, which is not paid on a contingency basis and which is selected by Tenant and reasonably approved by Landlord. The Accountant shall, at no charge to Landlord, submit its report in draft form to Landlord for Landlord’s review and comments before the final approved report is submitted to Landlord, and any reasonable comments by Landlord shall be incorporated into the final report. If such audit reveals that Landlord has overcharged Tenant, then within thirty (30) days after the results of such audit are made available to Landlord, Landlord shall reimburse to Tenant the amount of such overcharge. If Landlord and Tenant determine, or if the audit reveals that Operating Expenses, Taxes or Assessments for the Building and/or the Facility were overstated by more than five percent (5%), Landlord shall, within thirty (30) days thereafter, reimburse Tenant for the reasonable costs paid by Tenant to third parties in connection with such review and/or audit. If the audit reveals that the Tenant was undercharged, then within thirty (30) days after the results of such audit are made available to Tenant, Tenant shall reimburse to Landlord the amount of such undercharge. The failure of Tenant to object to the Final Statement, conduct and complete its inspection and have the Accountant conduct and complete the audit as described above prior to the expiration of the Review Period shall be conclusively deemed Tenant’s approval of the Statement in question and the amount of Operating Expenses, Taxes and Assessments shown thereon. In connection with any inspection and/or audit conducted by Tenant pursuant to this Section 6.8, Tenant agrees to keep, and to cause all of Tenant’s employees and consultants and the Accountant to keep, all of Landlord’s books and records and the audit, and all information pertaining thereto and the results thereof, strictly confidential, and in connection therewith, Tenant shall cause such employees, consultants and the Accountant to execute such reasonable confidentiality agreements as Landlord may require prior to conducting any such inspections and/or audits.



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7. SECURITY DEPOSIT

7.1 Deposit.

Concurrently with the execution of this Lease (or within ten [10] business days of the full execution of this Lease in the case of a letter of credit), Tenant shall deposit with Landlord the amount specified in Section 1.6 (the “Deposit”). Upon Landlord’s receipt of the Deposit, Landlord shall hold it as security for the full and faithful performance of Tenant’s covenants and obligations under this Lease. The Deposit is not an advance Minimum Monthly Rent deposit, an advance payment of any other kind, or a measure of Landlord’s damages in case of Tenant’s default. If Tenant fails to comply with the full and timely performance of any or all of Tenant’s covenants and obligations set forth in this Lease (after the expiration of applicable notice and cure periods), then Landlord may (but shall not be required to), from time to time, without waiving any other remedy available to Landlord, use the Deposit, or any portion of it, to the extent necessary to cure or remedy such failure or to compensate Landlord for all damages sustained by Landlord resulting from Tenant’s failure to comply fully and timely with its obligations pursuant to this Lease. No acceptance of such payment shall be construed as an admission that Tenant has performed all of its obligations hereunder. If Landlord elects to make such application of all or any portion of the Deposit, Landlord shall notify Tenant of the amount thereof and Tenant shall within ten (10) days thereafter deposit with Landlord an amount sufficient to increase the Deposit to an amount equal to one hundred percent (100%) of the amount thereof set forth in Section 1.6 and any Tenant failure to immediately do so shall constitute an Event of Default under this Lease. If Tenant is in compliance with this Lease’s covenants and obligations as of the sixtieth (60th) day after the expiration or earlier termination of this Lease and Tenant’s vacating of the Premises, Landlord shall thereupon return to Tenant the unused portion of the Deposit. Landlord’s obligations with respect to the Deposit are those of a debtor and not a trustee. Landlord shall not be required to maintain the Deposit separate and apart from Landlord’s general or other funds, and Landlord may commingle the Deposit with any of Landlord’s general or other funds. Tenant shall not at any time be entitled to interest on the Deposit. Tenant hereby waives and releases all rights with regard to the Deposit set forth in California Civil Code Section 1950.7(except subsection (b)) or under any similar law, statute or ordinance now or hereafter in effect.

7.2 Letter of Credit .

The Deposit may be in the form of a letter of credit. In such event, Tenant, simultaneously with the execution of this Lease, shall deliver to Landlord (as beneficiary), and a copy to Landlord’s attorney, a standby letter of credit, in form and content satisfactory to Landlord (“Letter of Credit”). The Letter of Credit shall be, among other things:

(a) subject to International Standby Practices 1998, International Chamber of Commerce Publication No. 590;

(b) irrevocable and unconditional;



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(d) conditioned for payment solely upon presentation of the Letter of Credit and a sight draft certifying to the issuer of the Letter of Credit the existence of such grounds or circumstances upon which Landlord is permitted to make such draw, and

(e) transferable one or more times by Landlord without the consent of Tenant.

Tenant acknowledges and agrees that it shall pay upon Landlord’s demand, as Additional Rent, any and all costs or fees charged in connection with the Letter of Credit that arise due to: (i) Landlord’s sale or transfer of all or a portion of the Property, or (ii) the addition, deletion, or modification of any beneficiaries under the Letter of Credit. The Letter of Credit shall be issued by a member of the New York Clearing House Association or a commercial bank or trust company satisfactory to Landlord possessing a net worth reasonably acceptable to Landlord. Landlord hereby approves of Silicon Valley Bank (“SVB”) as an issuing bank for the Letter of Credit provided and for so long as SVB maintains a minimum star rating of “Green/One Star” as determined from time to time by VERIBANC (the “Minimum Rating”). In the event SVB falls below the Minimum Rating, Tenant agrees, promptly upon notice from Landlord, to deliver a substitute Letter of Credit to Landlord from an issuing bank reasonably satisfactory to Landlord. The Letter of Credit shall expire not earlier than twelve (12) months after the date of delivery thereof to Landlord and shall provide that same shall be automatically renewed for successive twelve (12) month periods through a date which is not earlier than sixty (60) days after the Expiration Date, or any renewal or extension thereof, unless written notice of non-renewal has been given by the issuing bank to Landlord and Landlord’s attorney by registered or certified mail, return receipt requested, not less than sixty (60) days prior to the expiration of the current period. If the issuing bank does not renew the Letter of Credit, and if Tenant does not deliver a substitute Letter of Credit or cash in lieu thereof at least thirty (30) days prior to the expiration of the current period, then in addition to its rights granted under this Lease, Landlord shall have the right to draw on the existing Letter of Credit and maintain such funds as a cash security deposit. With respect to draws on the Letter of Credit:

(x) Landlord may use, apply, or retain the proceeds of the Letter of Credit to the same extent that Landlord may use, apply, or retain the cash Deposit, as set forth above in this Article or elsewhere in this Lease;

(y) Landlord may draw on the Letter of Credit, in whole or in part, from time to time, at Landlord’s election, to the same extent that Landlord may draw on the cash Deposit, as set forth above in this Article or elsewhere in this Lease; and

(z) If Landlord partially draws down the Letter of Credit, Tenant shall within ten (10) business days after Landlord gives Tenant notice thereof, restore all amounts drawn by Landlord, or substitute cash security instead.

Tenant hereby agrees to cooperate, at its expense, with Landlord to promptly execute and deliver to Landlord any and all modifications, amendments and replacements of the Letter of Credit, as Landlord may reasonably request to carry out the terms and conditions of this Article. Tenant shall pay, at Tenant’s expense, all costs to obtain a replacement Letter of Credit in connection with the reduction of the Letter of Credit as set forth below.



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Notwithstanding anything set forth in this Lease to the contrary, provided that (i) no material or monetary Event of Default has occurred and (b) Tenant maintains at least One Billion Two Hundred Million Dollars ($1,200,000,000.00) in annual revenue, an EBITDA of Three Hundred Million Dollars ($300,000,000.00) and at least Five Hundred Million Dollars ($500,000,000.00) in cash during the year of the potential reduction, Landlord shall allow Tenant to replace the Letter of Credit with a new Letter of Credit in the amount of the Adjusted Deposit as of the applicable Reduction Date as follows:



REDUCTION DATE	ADJUSTED DEPOSIT
First (1 ^st ) day of Lease Year 3 - Upper Premises (the “First Reduction Date”)	$6,626,934.00
Each Anniversary of the First Reduction Date	The then-current Deposit minus one (1) month of the then-payable Minimum Monthly Rent*
*Notwithstanding the foregoing, in no event shall the Deposit be reduced below an amount equal to one month’s Rent as reasonably determined by Landlord.

7.3 No Bar or Defense to Other Remedies.

No security or guaranty that may now or hereafter be furnished to Landlord for the payment of the rent herein reserved or for performance by Tenant of the other covenants or conditions of this Lease shall in any way be a bar or defense to any action in unlawful detainer, or for the recovery of the Premises, or to any action that Landlord may at any time commence for a breach of any of the covenants or conditions of this Lease.

8. HAZARDOUS SUBSTANCES

8.1 Definitions .

As used herein, “Hazardous Substance” shall mean any substance, material, or waste that is or becomes regulated by any federal, state, or local governmental authority because of its toxicity, infectiousness, radioactivity, explosiveness, ignitability, corrosiveness, or reactivity. As used herein, “Environmental Requirements” shall mean all Laws and prudent industry practices relating to industrial hygiene, protection of human health, warnings, hazard communication, employee rights-to-know, environmental protection, or any Hazardous Substance.

8.2 Consent Required for Hazardous Substances .

Tenant shall not cause or authorize any Hazardous Substance to be brought upon, generated, produced, kept or used in or about the Facility by Tenant or any “Tenant Parties” or “Tenant Invitees” (as those terms are defined in Section 11.1 below) unless (a) such Hazardous Substance is necessary for the business (and such business is a Permitted Use) of Tenant or its permitted subtenant or assignee, and (b) Tenant first obtains the consent of Landlord if such Hazardous Substance is other than (i) an “Article” (as defined in 29 C.F.R. §1910.1200) that is free of asbestos (whether friable or nonfriable) and polychlorinated biphenyls (PCBs) or (ii) a consumer



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product that is used on the Premises in quantities that would not require any notification or reporting under any Environmental Requirement, or any warnings to any persons located anywhere outside the Premises, if the entire quantities were released into the environment. Any request by Tenant for such consent shall be in writing and shall demonstrate to the reasonable satisfaction of Landlord that such Hazardous Substance will be stored, used, and disposed of in a manner that complies with all Environmental Regulations applicable to such Hazardous Substance. Such consent shall not be unreasonably withheld, but Landlord shall in no case be obligated to consent to the presence of any Hazardous Substance that will increase the likelihood or magnitude of Landlord’s liability, or to any treatment, storage, or disposal upon the Premises or the Facility of any Hazardous Substance whose treatment, storage, or disposal requires a permit or variance under applicable Environmental Requirements. In no event shall Landlord ever be obligated to execute any application for any such permit or variance.

At such times as Landlord may reasonably request, Tenant shall provide Landlord with a written list, certified to be true and complete in all material respects, identifying any Hazardous Materials then used, stored, or maintained upon the Premises, the use and approximate quantity of each such materials (other than Hazardous Substances used commonly in office buildings), a copy of any Materials Safety Data Sheet issued by the manufacturer therefor, together with a list of corresponding chemicals, and such other information as Landlord may reasonably require or as may be required by applicable laws.

8.3 Notices .

Tenant shall promptly deliver to Landlord copies of any reports made to any environmental agency arising out of or relating to any Hazardous Substances in, on, or from the Premises and copies of all hazardous waste manifests reflecting the legal and proper disposal of all hazardous wastes removed by Tenant from the Facility. If at any time Tenant shall become aware that any Hazardous Substances, other than those already known by Landlord or permitted under this Lease, have come to be located in or about the Premises, or that any known Hazardous Substances within the control of Tenant have been, are being, or are threatened to be released into the environment, Tenant shall, immediately upon discovering same, give notice of that condition to Landlord. In addition, Tenant shall immediately provide Landlord with a copy of any notices regarding Hazardous Substances in the Premises it receives from a governmental entity.



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8.4 Compliance with Environmental Requirements .

Tenant, at its sole cost and expense, shall comply with all applicable laws relating to any Hazardous Material, (as that term is defined in Section 25260 of the California Health and Safety Code, as amended from time to time). Without limitation to the generality of Section 3.2 (Restriction on Use), Tenant shall, at its own expense, use commercially reasonable efforts to comply with all Environmental Requirements, prudent industry practices, and Landlord’s Rules and Regulations regarding use, handling, disturbance, management, or disposal of Hazardous Substances pertaining to the Premises and Facility. Except as discharged into the sanitary sewer in strict accordance and conformity with all applicable Environmental Requirements, Tenant shall cause any and all Hazardous Substances removed from the Premises (or from any other portion of the Facility, if their removal is at the instance or direction of Tenant) to be removed and transported solely by duly licensed haulers to duly licensed facilities for final disposal of such materials and wastes. Upon expiration or earlier termination of the Term, Tenant shall cause to be removed from the Premises and the Facility all Hazardous Substances that Tenant or any Tenant Parties or Tenant Invitees caused or authorized to be located there; provided, however, that Tenant shall not be responsible for removing Hazardous Substances caused to be located in the Premises or within or under the Building that are not caused Tenant or Tenant Parties or that were otherwise existing in the Premises or within or under the Building as of the Commencement Date for the Lower Premises or Upper Premises, as applicable. If the presence of Hazardous Substances brought onto the Facility by Tenant or any Tenant Party results in contamination of any portion of the Facility, Tenant shall be solely responsible, at its sole expense, for taking any and all necessary steps to return the affected portion of the Facility to its condition prior to such contamination, as reasonably determined by Landlord; provided, however, that Tenant shall not take any remedial action (except in emergencies) in response to the presence of, nor enter into any settlement agreement, consent decree, or other compromise in respect to any claims relating to, any Hazardous Substance in any way connected with the Facility, without first notifying Landlord of Tenant’s intention to do so and affording Landlord ample opportunity to appear, intervene, or otherwise appropriately assert and protect Landlord’s interest with respect thereto; and further provided, that Landlord shall have the right (but not the obligation) to perform any such remediation on Tenant’s behalf, in which event Tenant shall reimburse Landlord for all of Landlord’s reasonable costs and expenses incurred in connection therewith. Landlord shall indemnify and hold harmless the Tenant from any and all claims, damages, fines, judgments, penalties, costs, expenses or liabilities (including, without limitation, any and all sums paid for settlement of claims, attorneys' fees, consultant and expert fees) in connection with the use, storage, generation or disposal of Hazardous Substances in, on or about the Facility, the Building or Premises by Landlord, Landlord's agents, employees or contractors. Tenant shall have no liability or responsibility for any remediation costs and/or fees arising from the use, storage, generation or disposal of Hazardous Substances in, on or about the Facility, the Building or Premises not otherwise caused by Tenant or the Tenant Parties. Landlord represents and warrants that (1) to Landlord's actual knowledge, there are no environmental conditions affecting the Premises or the Building in violation of Environmental Requirements except as may have been disclosed to Tenant in writing, and (2) there is no asbestos or asbestos-containing materials in the Premises.



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9. NO LIGHT, AIR OR VIEW EASEMENT

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 darkened or the light or view therefrom is obstructed by reason of any repairs, improvements, maintenance or cleaning in or about the Building, or otherwise, the same shall be without liability to Landlord and without any reduction or diminution of Tenant’s obligations under this Lease.

10. ALTERATIONS

10.1 Tenant’s Right to Make Alterations .

Tenant shall not make or suffer to be made any alterations, additions, improvements, or utility installations (collectively, “Alterations”) to the Premises or any part thereof (subsequent to the construction of the tenant improvements pursuant to the Work Letter (the “Tenant Improvements”)) without the prior consent of Landlord, which shall not be unreasonably withheld or delayed. Tenant specifically acknowledges that it shall not be unreasonable for Landlord to withhold approval of any proposed contractor or subcontractor of Tenant on the grounds that Landlord reasonably believes that the performance of work in the Building by such contractor or subcontractor could result in labor disputes with Landlord’s own contractors or employees of Landlord or Landlord’s contractors. Landlord may, at any time during the Term, require Tenant to remove any or all Alterations made without Landlord’s consent or otherwise made in violation of any of the provisions of this Article 10. In no event shall Landlord be required to consent to any Alterations that would, in Landlord’s good faith opinion, adversely affect the utility or value of the Premises or the Building for future tenants, that would alter the exterior appearance of the Building, that would be of a structural nature, that could adversely affect the plumbing, mechanical, electrical or other systems servicing the Facility, that would be excessively expensive to remove (unless Tenant expressly agrees, upon Landlord’s request, to remove the same upon the expiration or sooner termination of this Lease), or that would otherwise be prohibited under this Lease. All permitted Alterations shall be made in conformity with the requirements of Section 10.2 below. Any and all Tenant Improvements and/or Alterations will be performed in accordance with Landlord’s sustainability practices including, without limitation, LEED. Notwithstanding the foregoing, Landlord’s prior consent shall not be required for any Alteration that is decorative only (i.e., carpet installation, wall covering or painting) or any non-structural, non-system-related, interior Alteration costing less than $100,000 per project (each, a “Permitted Alteration”).

10.2 Installation of Alterations .

Any Alterations installed by Tenant during the Term shall be done in strict compliance with all of the following requirements:

10.2.1 Approval . No Alterations (other than Permitted Alterations) shall proceed without Landlord’s prior written approval of (a) Tenant’s contractor(s); (b) certificates of insurance from a company or companies licensed in California with a policy holders’ rating of A- and financial rating of not less than X as designated by Best’s Insurance Reports, furnished to Landlord by Tenant’s contractor, evidencing combined single limit bodily injury and property damage insurance covering commercial general liability and automobile liability in an amount reasonably determined by Landlord given the nature and scope of such alterations (and which in no event shall be less than



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One Million Dollars ($1,000,000) per occurrence and general aggregate) and endorsed to show Landlord, Landlord’s property manager, and each constituent general partner of Landlord (if Landlord is a partnership) as additional insureds, and for workers’ compensation as required by law, endorsed to show a waiver of subrogation by the insurer to any claims Tenant’s contractor may have against Landlord (provided, however, nothing in this Section 10.2.1 shall release Tenant of its other insurance obligations hereunder); and (c) detailed plans and specifications for such work. Any changes in, deviations from, modifications of, or amendments to the approved plans and specifications shall also require Landlord’s prior written approval, if required. Any approval to be given by Landlord under this Section 10.2 shall not be unreasonably withheld, conditioned or delayed.

10.2.2 Coordination . Tenant shall cause its contractor(s) to coordinate with Landlord’s building management all construction and installation activities covered by this Section 10.2. All such work shall be done in accordance with Landlord’s standard rules and regulations for construction in the Building (the “Construction Rules”) (attached hereto as Exhibit F) in a skillful and first class workmanlike manner, consistent with the best practices and standards of the construction industry, and shall be pursued diligently and continuously until completed, always in conformity with the approved plans and specifications. All materials, equipment, and articles incorporated into the Alterations shall be new, and of recent manufacture, and of the most suitable grade for the purpose intended.

10.2.3 Permit . No Alterations (other than Permitted Alterations) shall be commenced without Tenant first having obtained a valid building permit and/or all other permits or licenses required to be obtained prior to commencement of such Alterations, copies of which shall be furnished to Landlord before the work is commenced. Upon completion, those permits which are not required prior to commencement of such Alterations shall be obtained, and a copy of such permits shall be provided to Landlord. Any work not acceptable to any governmental authority or agency having or exercising jurisdiction over such work shall be promptly replaced and corrected at Tenant’s expense. Except for Permitted Alterations, no work shall commence until and unless Landlord has approved plans and specifications and the schedule for the performance of such Alterations.

10.2.4 Reimbursement . Other than in connection with a Permitted Alteration, Tenant shall reimburse Landlord for any reasonable expense incurred by Landlord (not to exceed 3% of the cost of the Alteration) in reviewing and approving the plans and specifications (and any modifications thereto) for such work or the work itself within thirty (30) days after Tenant’s receipt of Landlord’s invoice therefor; provided that such expense shall be based on the complexity of the plans, the level of engineering to be reviewed, and the cost of such Alteration.

10.2.5 Oversight . Landlord may, to the extent appropriate, supply Tenant with the Building regulations and procedures for working in areas where there is a risk of coming into contact with materials or Base Building Systems that, if not properly handled, could cause health or safety risks or that could damage the Base Building Systems and/or the Building. Tenant shall cause its contractors, at Tenant’s sole cost and expense, to strictly comply with all such Building regulations and procedures established by Landlord and with all applicable Laws. Landlord shall have the right at all times to monitor the work for compliance with the Building regulations and any applicable Laws. If Landlord reasonably determines that any applicable Law or any Building regulations and/or procedures are not being strictly to complied with, Landlord may immediately require the cessation of all work being performed in or around the Premises until such time as Landlord is



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reasonably satisfied that the applicable Laws and Building regulations and procedures will be observed. Neither Landlord’s review and approval of the plans, specifications, and working drawings nor Landlord’s monitoring of any work in or around the Premises shall create any responsibility or liability on the part of Landlord for their completeness, design sufficiency, or compliance with applicable Laws or with the Building regulations and procedures nor shall any such review, approval, or monitoring by Landlord be deemed to constitute a waiver by Landlord of its right to require strict compliance with such Laws, regulations, or procedures, nor shall such monitoring relieve Tenant from any liabilities relating to such work.

10.2.6 Plans . Upon completion of any Alterations (other than Permitted Alterations), Tenant shall provide Landlord with field-grade “as built” plans and proof of payment for all labor and materials.

10.3 Tenant Improvements - Treatment at End of Lease .

10.3.1 Landlord’s Property . All Tenant Improvements (and all Alterations, upon their completion) made by or for Tenant, whether temporary or permanent in character, and whether made by Landlord or Tenant, shall be Landlord’s property, and shall be surrendered to Landlord in good order, condition, and repair (ordinary wear and tear excepted and damage caused by fire or other casualty excepted), broom clean, upon the expiration or earlier termination of the Term, and Tenant shall not be entitled to any compensation therefor. If Landlord indicated in writing to Tenant at the time Landlord consented to an Alteration that the Alteration or any portion thereof would have to be removed at the expiration or earlier termination of the Lease, Landlord may require the removal of any Alteration or Tenant Improvement at the end of the Term, in which case Tenant, at Tenant’s expense, shall remove the same, repair all damage caused by such removal and restore the Premises to its original condition prior to the expiration of the Term. Any damage or deterioration of the Premises or any Tenant Improvements that could have been prevented by good maintenance practices shall not be deemed to be ordinary wear and tear. Tenant shall have no obligation to remove any Permitted Alterations at the expiration or earlier termination of the Lease.

10.3.2 Personal Property . All of Tenant’s Personal Property located in the Premises, all trash and debris, and, if required by Landlord, all Tenant’s wiring and cabling, whether or not affixed to the Property, shall be completely removed by Tenant, at its sole cost, prior to the expiration of the Term pursuant to the Construction Rules; provided, however, that Tenant shall promptly repair all damage caused by such removal prior to the expiration of the Term. To the extent that Tenant does not remove its Personal Property pursuant hereto, Landlord may retain or in any manner dispose of said Personal Property not so removed, without liability to Tenant.

10.3.3 Damages . Tenant shall reimburse Landlord upon written demand for any and all reasonable costs and losses (including lost rents and other consequential damages) incurred by Landlord as a result any failure by Tenant to surrender the Premises in the condition required hereunder.

10.4 Other Improvements in the Building .

Notwithstanding anything to the contrary contained herein, if as a result of any Alterations or as a result of Tenant’s unique and specific use of the Premises, Landlord shall be



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required by any applicable Law to make other improvements (including, without limitation, upgrading of installations of life safety systems or compliance with standards for handicapped persons) in or upon the Premises or any other portion of the Building or Facility, including, without limitation, the Base Building, then Landlord shall have the right to charge Tenant for the cost of such other improvements.

11. REPAIR OBLIGATIONS

Tenant’s Obligations Excepting those maintenance, repair and restoration obligations that have been expressly delegated to Landlord under other provisions of this Lease, Tenant, at its sole cost and expense, shall keep the interior of the Premises and every part thereof in good, clean, pest-free, and sanitary condition and repair at all times during the Term. All damage, injury or breakage to any part or portion of the Premises or the Facility caused by Tenant, any of its affiliates, constituent partners, subtenants or licensees, or agents, or any of their respective officers, directors, trustees, employees, contractors and licensees (collectively, the “Tenant Parties”), and any invitee, visitor, or customer of any Tenant Party (a “Tenant Invitee”) shall be promptly repaired at Tenant’s sole cost and expense, to the reasonable satisfaction of Landlord. If Tenant fails to perform any such repair obligation within thirty (30) days, then Landlord shall have the right to perform such repair work at Tenant’s expense. If any such damage occurs outside of the Premises or to the Base Building or a Base Building item, then Landlord may elect to repair such damage at Tenant’s expense, rather than having Tenant repair such damage. The cost of all maintenance, repair or replacement work performed by Landlord under this Section 11 shall be paid by Tenant to Landlord within thirty (30) days after Landlord has invoiced Tenant therefor. Tenant shall be solely responsible for the design and function of all of the Tenant Improvements, whether or not installed by Landlord at Tenant’s request. Tenant waives all rights to make repairs to the Premises or to the Facility at the expense of Landlord, or to deduct the cost of such repairs from any payment owed to Landlord under this Lease. All maintenance and repairs made by Tenant must comply with Landlord’s sustainability practices, including any third-party rating system concerning the environmental compliance of the Building or the Premises, as the same may change from time to time.

11.2 Landlord’s Obligations .

11.2.1 Except to the extent otherwise expressly provided elsewhere in this Lease and excluding any responsibilities expressly delegated to Tenant elsewhere in this Lease, but subject to Landlord’s right to reimbursement of certain costs or expenses under other provisions of this Lease, as applicable, Landlord shall keep the Facility and Building, including the Common Areas and the Base Building Systems (including the above-ceiling distribution thereof), the mechanical rooms and the stairwells (exclusive of Tenant’s security system) in good condition and repair. Landlord shall repair and maintain (subject to reimbursement as an Operating Expense) and replace (at Landlord’s sole cost and expense, not to be passed through as an Operating Expense except to the extent otherwise permitted herein), the structural portions of the Building and the Facility. Landlord shall not, however, be obligated to maintain, repair, or replace any of the following within the Premises: interior windows, window coverings, doors, or door hardware. Landlord’s maintenance, repair and replacement activities shall be at a level substantially similar to the level of maintenance, repair and replacement standards of Comparable Buildings.



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11.2.2 Subject to Landlord’s right to reimbursement of certain costs or expenses under other provisions of this Lease, as applicable, Landlord shall perform all needed repairs to and replacements of the exterior windows in the Premises; provided, however, that Tenant shall reimburse Landlord for the full cost of repairs or replacements needed because of damage caused by the negligence or willful misconduct of Tenant or any Tenant Party. Also, Landlord shall not be obligated to perform repairs for which Tenant has expressly assumed responsibility under other provisions of this Lease. Tenant hereby acknowledges that the foregoing description of certain obligations and rights of Landlord is not intended to limit or restrict Landlord’s rights under other provisions of this Lease to reimbursement for costs and expenses incurred in connection with such matters.

12. LIENS

Tenant shall keep the Premises, the Building, and the rest of the Facility free from liens arising out of any work or materials actually or allegedly performed or furnished, or obligations incurred, by or for Tenant. Tenant agrees to defend, indemnify and hold Landlord harmless from and against any and all claims for mechanics’, materialmen’s or other liens in connection with any Alterations, repairs, or any work performed, materials furnished, or obligations incurred by or for Tenant. In the event any such lien is filed, and Tenant has not provided Landlord with a lien release bond or other adequate security therefor, as provided below, Landlord may, upon thirty (30) days’ written notice to Tenant, without waiving Landlord’s rights based on such breach by Tenant and without releasing Tenant from any obligations hereunder, pay and satisfy the same and in such event the sums so paid by Landlord shall be due and payable by Tenant immediately, with interest from the date paid by Landlord through the date Tenant pays Landlord, at the Interest Rate. Tenant shall nevertheless have the right to contest or object to the amount or validity of any lien against the Premises or the Building arising out of work performed by or on behalf of Tenant by appropriate legal proceedings so long as (a) Tenant notifies Landlord of Tenant’s intent to contest such lien within thirty (30) days after Tenant has notice of the imposition thereof, (b) Tenant, within such thirty (30) day period, furnishes Landlord with and arranges for recordation of a lien release bond complying with the requirements of California Civil Code Section 3143 (or any successor statute) so as to release the lien from the Premises and the balance of the Facility upon recordation of such bond, or with other security reasonably satisfactory to Landlord to satisfy such claim or lien, (c) upon any final determination of such contest which is not appealable or is not being appealed by Tenant, Tenant pays the amount of such claim or lien then due (provided that Tenant shall at its sole cost post any bond required to pursue an appeal), and (d) Tenant’s indemnity set forth above in this Article 12 shall apply to all claims arising in connection with such contest or objection.

13. SIGNS; NAMES OF BUILDING AND FACILITY

Except for the signage provided for in Article 51 of this Lease, Tenant shall not place any other logo, sign, advertisement, announcement, warning, or notice upon or in front of the Premises, the Facility or any Common Areas. Tenant shall not use any insignia or logotype of the Building or Facility for any purpose nor shall Tenant use any picture of the Building or Facility in its advertising or stationery or in any other manner.

14. ASSIGNMENT AND SUBLETTING



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14.1 “ Transfer” Defined .

Subject to Section 14.2 below, as used herein, the term “Transfer” shall mean any assignment of this Lease (including, without limitation, assignment by operation of law, e.g., death of an individual tenant or merger, dissolution, consolidation, or other reorganization of a corporate tenant), subletting of all or any part of the Premises, or transfer of possession, or right of possession or contingent right of possession of all or any portion of the Premises, including without limitation, concession, mortgage, encumbrance, devise, hypothecation, agency, or franchise agreement, or to suffer any other person to occupy or use the said Premises or any portion thereof. Subject to Section 14.2 below, if Tenant is a corporation that is not a public corporation, or is an unincorporated association, partnership or other entity, or if Tenant consists of more than one party, the transfer, assignment (including, without limitation, assignment by operation of law), or hypothecation of any stock of or interest in Tenant in the aggregate in excess of fifty percent (50%) shall also be deemed to be a “Transfer.” If Tenant is a partnership or consists of more than one party, then any of the foregoing events with respect to any such party comprising Tenant, or with respect to any constituent general partner of Tenant or any such party, shall also be deemed to be a “Transfer.”

14.2 No Transfer Without Consent .

Tenant shall not, either voluntarily or by operation of law or otherwise, suffer a Transfer without the prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed, except as otherwise expressly provided below. Landlord’s consent to one Transfer shall not be deemed to be a consent to any subsequent Transfer; nor shall Landlord’s consent constitute an acknowledgment that no default then exists of the obligations to be performed by Tenant under this Lease; nor shall such consent be deemed a waiver of any then-existing default, except as may be otherwise stated in writing by Landlord at the time; nor shall Landlord’s acceptance of Rent from any person be deemed a waiver by Landlord of any provision of this Article 14. If Landlord’s approval or consent for any agreement or instrument is required hereunder, then no material amendment or modification shall be made thereto without Landlord’s prior consent. Any Transfer that is not in compliance with the provisions of this Article 14 shall be voidable at Landlord’s election. Landlord in its sole discretion may refuse to allow a Transfer unless Tenant certifies that the rents payable by the transferee are not based on the income or profits of any person from the Premises (other than a percentage or percentages of gross receipts or sales). Notwithstanding the foregoing, provided that Tenant has furnished Landlord with fifteen (15) days prior written notice, this Lease may be assigned, or the Premises may be sublet, to any Permitted Affiliate (as hereinafter defined), in each case without Landlord's consent. For the purposes of this section, “Permitted Affiliate” shall mean (a) any entity which is controlled by, is under common control with, or which controls Tenant, or in which Tenant has a fifty percent (50%) or greater voting or ownership interest, (b) any entity into which Tenant merges, is consolidated or is acquired, or (c) any entity into which Tenant is merged or any corporation or other entity resulting from the consolidation of Tenant with some other entity, or (d) any successor corporation or other entity arising from any bona fide reorganization of Tenant, or (e) any entity that acquires all of the assets of Tenant. In addition, any issue, sale or transfer of shares of Tenant on any national securities exchange (as defined in the Securities Exchange Act of 1934, as amended) shall not constitute a “Transfer” under this Lease. The foregoing transfer shall not constitute an assignment or sublease requiring the consent of



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Landlord and will not extend any rights under Section 14.5 and 14.6 below. In addition, Landlord’s consent shall not be required for subleases or sublicenses by Tenant to entities with whom Tenant is doing business or who are part of a joint venture with Tenant where such subleases or licenses in the aggregate constitute less than five thousand (5,000) square feet of the Premises.

14.3 Procedure for Assignment and Subletting/Landlord’s Recapture Rights .

Tenant shall advise Landlord by written notice of (a) Tenant’s intent to make a Transfer, (b) the name of the proposed transferee, and evidence reasonably satisfactory to Landlord that such proposed transferee will use the Premises in compliance with the use provisions of this Lease and is comparable in reputation and stature to the other tenants then leasing comparable space in the Building or in Comparable Buildings (such evidence shall include, without limitation, (i) a description of the proposed transferee’s business background and experience, and (ii) such other information as Landlord may reasonably request concerning such transferee, and (c) the terms of the proposed assignment or subletting (including the financial terms and the intended use of the Premises), together with a copy of the proposed Transfer documents. Landlord need not commence its review of any proposed Transfer, or respond to any request by Tenant with respect to such, unless and until Landlord has received all of the foregoing documentation from Tenant. Landlord shall, within twelve (12) days after receipt of such notice and documentation, and any additional information reasonably requested by Landlord, elect one of the following:

(a) Consent to such proposed Transfer;

(b) Refuse such consent, which refusal shall be on reasonable grounds, subject to the provisions of Section 14.4 below; or

(c) Only in the event Tenant (i) assigns this Lease or (ii) subleases in excess of fifty percent (50%) of the Premises, elect to terminate this Lease (in the event of an assignment other than to a Permitted Affiliate (as such term is defined in Section 14.2 above)), or in the case of a sublease, terminate this Lease as to the portion of the Premises proposed to be sublet for the proposed term of the sublease (such election may be exercised for any reason whatsoever, including, without limitation, the intent of Landlord to enter into a direct lease with the proposed assignee or subtenant). If Landlord exercises such termination option, then (i) this Lease shall terminate as to all or such portion, as the case may be, of the Premises effective as of the date on which the proposed Transfer was intended to have become effective, (ii) Tenant shall vacate such portion of the Premises prior to such date, and (iii) Landlord and Tenant shall have no further liability to each other under this Lease from and after such date with respect to such space, except as otherwise provided in this Section and in Article 42 (Survival of Certain Rights and Obligations). If this Lease is terminated as to less than all of the Premises pursuant to the preceding sentence, the Rent, including, without limitation, Tenant’s Percentage Share, under this Lease shall be equitably adjusted by Landlord on the basis that the rentable area of the portion of the Premises remaining bears to the rentable area of the entire Premises. No failure of Landlord to exercise its termination option hereunder shall be deemed a waiver of the right to terminate this Lease subsequently (with respect to a subsequent Transfer) in accordance with the terms hereof, as it is intended that this option to terminate shall continue to exist during the entire Term. If Landlord elects to recapture as set forth in this Section 14.3(c), Tenant shall have the right to revoke the notice of Transfer within ten (10)



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days after receipt of notice from Landlord that it intends to recapture the Premises or portion thereof listed in the notice of Transfer.

If (i) Landlord fails to notify Tenant whether or not it will consent to such proposed Transfer within such twelve (12) day period, and, thereafter, Tenant delivers notice (“Response Failure Notice”) to Landlord of such failure (which Response Failure Notice must refer to this provision and state in capital bold letters the following: “LANDLORD MUST RESPOND TO TENANT’S REQUEST CONTAINED HEREIN WITHIN THREE (3) BUSINESS DAYS OF RECEIPT OR SUCH REQUEST SHALL BE DEEMED APPROVED”) and (ii) Landlord fails to respond to such request within three (3) business days after Landlord’s receipt of the Response Failure Notice, then such proposed Transfer shall be deemed approved by Landlord.

14.4 Conditions to Approval .

14.4.1 Reasonable Standards . It is understood and agreed that, without limiting Landlord’s right of consent as provided herein, Landlord’s withholding consent shall be deemed reasonable if the proposed assignment or sublease fails to meet any one or more of the following criteria: (a) neither the proposed Transfer nor the proposed use of the Premises by the proposed transferee shall conflict with or result in a breach of Sections 3.2 (Restriction on Use) or 8.2 (Consent Required for Hazardous Substances), or any other provision of this Lease, nor shall it violate any exclusivity arrangement that Landlord may then have with any other tenant of the Facility which Landlord entered into prior to the date the Tenant requested Landlord’s consent for such proposed transfer; (b) the proposed transferee’s proposed use of space in the Premises shall not be for an office or facility of any governmental agency or authority, or an embassy or consulate or similar office; (c) the proposed transferee’s use of space in the Premises is not for a school or classroom use, an entertainment, sports or recreation facility, retail sales to the public, medical offices, or a personnel or employment agency, telephone “boiler rooms,” or a business where the general public routinely makes payments, receives cash or checks or processes applications for permits or registrations; (d) the proposed transferee shall be of a reputation and stature consistent with the character of the Comparable Building as reflected by the then existing tenants of the Comparable Building with respect to comparable space; (e) intentionally deleted; (f) the proposed transferee shall not be a party for which Landlord’s consent is required under Section 14.8 below; and (g) if the proposed transferee would be subleasing less than all of the Premises included in any particular floor, there shall not be (following consummation of the proposed sublease) more than three (3) “Occupants” on such floor. For purposes of the preceding sentence, an “Occupant” of a floor shall include Tenant (if Tenant is occupying any portion of the floor through personnel of Tenant or any affiliate), any of Tenant’s subtenants or sub-subtenants (other than affiliates) occupying any space on said floor, and in the case of any floor of which Tenant leases only a portion, any other tenant (and any of its subtenants or sub-subtenants) of space on such floor. It shall be a reasonable basis for Landlord to withhold its consent if Tenant tenders for Landlord’s approval an assignment of this Lease or a sublease of the Premises or any part of the Premises to a proposed assignee/subtenant whose proposed use or operation in the Premises may or will cause the Building or any part thereof not to conform with the environmental and green building clauses in this Lease.



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14.4.2 Fees . In the event that Landlord shall consent to a proposed Transfer, or shall reasonably disapprove a proposed Transfer (other than in connection with an exercise of Landlord’s recapture rights under Section 14.3), pursuant to the provisions of this Article 14 Tenant shall pay, within thirty (30) days of Landlord’s demand therefor, Landlord’s reasonable, actual processing costs and attorneys’ fees (which shall be either the reasonable, actual costs of Landlord’s in-house counsel or the reasonable, actual costs of Landlord’s outside counsel, but not both) incurred in connection with such matter, provided that such amount (costs and attorneys’ fees) shall not exceed Four Thousand Dollars ($4,000) in the event such consent shall not require or include the drafting and/or negotiation of additional documentation such as, by way of example, an amendment to this Lease.

14.5 Sublease Gross Receipts .

If Landlord consents to a sublease of the Premises or any portion thereof, Tenant will pay to Landlord fifty percent (50%) of any Sublease Gross Receipts (as defined below) derived by Tenant from such subletting in excess of the Minimum Monthly Rent, Operating Expenses, Taxes, Assessments, electricity costs, and all other Rent and other charges payable by Tenant to Landlord under the Lease. Sublease Gross Receipts shall mean any rents and pass through of insurance, taxes and maintenance and operating charges payable under the sublease to Tenant (less all reasonable and customary expenses incurred by Tenant pursuant to such sublease, including brokerage fees, legal fees, a tenant improvement allowance and any landlord review fees). Such portion of excess Sublease Gross Receipts shall be paid by Tenant to Landlord on a monthly basis in arrears commencing thirty (30) days after the effective date of the sublease. Within thirty (30) days after the effective date of the sublease, Tenant will submit to Landlord a statement containing a reasonably detailed calculation of any Sublease Gross Receipts derived from a subletting, certified as correct by an officer of Tenant. At Landlord’s request, Tenant will provide substantiation of Tenant’s calculation of Sublease Gross Receipts, reasonably satisfactory to Landlord, and Landlord shall have the right upon request to inspect Tenant's books and records to confirm as correct the Tenant's calculation of any Sublease Gross Receipts. In addition to any other certifications required under this Lease, the Tenant must obtain from any sublessee and deliver to Landlord the certificates described in Section 53 below.



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14.6 Assignment Gross Receipts .

If Landlord consents to an assignment of this Lease, Tenant will pay to Landlord fifty percent (50%) of any Assignment Gross Receipts (as defined below) Tenant derives from such assignment. The term “Assignment Gross Receipts” means any amount paid or payable by an assignee to Tenant as consideration for such assignment (less all reasonable and customary expenses incurred by Tenant pursuant to such assignment, including brokerage fees, legal fees, a tenant improvement allowance and any landlord review fees). Within thirty (30) days after Tenant receives any amount from an assignee as consideration for an assignment, Tenant will submit to Landlord a statement containing a reasonably detailed calculation of any Assignment Gross Receipts derived from such assignment, certified as correct by an officer of Tenant, and simultaneously with the delivery of such statements, Tenant will pay such portion of any Assignment Gross Receipts shown by such statements. At Landlord’s request, Tenant will substantiate Tenant’s calculation of any Assignment Gross Receipts in a manner reasonably satisfactory to Landlord, and Landlord shall have the right upon request to inspect Tenant's books and records to confirm as correct the Tenant's calculation of any Assignment Gross Receipts. In addition to any other certifications required under this Lease, the Tenant must obtain from any assignee and deliver to Landlord the certifications described in Section 53 below.

14.7 Joint and Several Obligations .

Each permitted subtenant or assignee shall assume all obligations of Tenant under this Lease with respect to the Premises, or such portion thereof as may be covered by the sublease entered into by such party, and, if the party executing this Lease (“Original Tenant”) is in default under this Lease (beyond applicable notice and cure periods), such permitted subtenant or assignee shall, if Landlord so elects, make direct payment to Landlord of the Rent in the amount set forth in the sublease or assignment, unless otherwise agreed in writing by the parties thereto, and perform all of the terms, covenants, conditions, and agreements herein contained on Tenant’s part to be performed with respect to the Premises or such subleased space, as the case may be. No Transfer shall be valid and no transferee shall take possession of the Premises or any part thereof unless, within ten (10) days after the execution of the documentary evidence thereof, Tenant shall deliver to Landlord a duly executed duplicate original of the Transfer instrument that (a) provides that the transferee assumes Tenant’s obligations for the payment of Rent to the extent set forth in the sublease or assignment (or the allocable portion thereof, in the case of a sublease of a portion of the Premises) and for the full and faithful observance and performance of the covenants, terms and conditions contained herein, applicable to the Premises in the event of an assignment or applicable to the subleased space in the event of a sublease, (b) provides that the transferee will, at Landlord’s election, attorn directly to Landlord if Landlord will recognize the sublease or assignment, as the case may be, and not disturb the subtenant’s or assignee’s, as the case may be, right to possession of the Premises in the event Tenant’s Lease is terminated for any reason on the terms set forth in the instrument of transfer, and (c) contains such other non-financial assurances as is then customarily required by Landlord’s lenders, the form for which will be provided to Tenant on request. The failure or refusal of a transferee to execute such an instrument of assumption shall not release or



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discharge the transferee from its obligations set forth above. Notwithstanding anything contained herein to the contrary, Tenant shall remain fully liable for the performance of all of the obligations of Tenant hereunder and no Transfer shall release or discharge Tenant or any guarantor from liability under this Lease.

14.8 Non-Competition .

Notwithstanding anything in this Article 14 to the contrary, in no event shall Tenant, without Landlord’s prior consent, which consent, except as provided below, may be withheld in Landlord’s reasonable discretion, transfer all or a portion of the Premises or this Lease to any then tenant or occupant of space in the Building with whom Landlord (or Landlord’s broker or representative) is then, or has been within the five-month period prior to the time Tenant seeks to enter into such assignment or sublease, engaged in written negotiations or with whom Landlord (or Landlord’s broker or representative) has exchanged written correspondence regarding lease negotiations or discussions; provided, however, if Landlord does not then have in the Building space available that would generally meet the size and location requirements of such existing tenant and Landlord also does not expect to have such space available by the proposed commencement date under Tenant’s desired sublease or assignment of Lease, then Landlord shall not unreasonably withhold such consent.

14.9 No Merger .

The voluntary or other surrender of this Lease by Tenant or mutual cancellation of this Lease shall not work a merger. At the option of Landlord, any such surrender or cancellation of this Lease shall either terminate any and all then existing subleases or subtenancies or operate as an assignment to Landlord of Tenant’s interest in any and all such subleases or subtenancies.

14.10 Landlord’s Right to Assign .

Landlord shall have the right to sell, encumber, convey, transfer, and/or assign any of its rights and obligations under this Lease (in connection with a transfer of all or any portion of Landlord’s interest in the Facility); provided Landlord provides Tenant with written notice of such transfer or sale, and a copy of the assignment and assumption of lease or other documentation evidencing the assignment of the lease to the new transferee or owner.

14.11 ERISA/UBIT .

The provisions of this Article 14 shall be subject to Articles 53 and 54 below.

14.12 Reasonable Standard .

Each of the rights of Landlord set forth in this Article 14 is a reasonable standard or condition for purposes of California Civil Code, Section 1951.4 relating to Landlord’s remedy after Tenant’s breach and abandonment.



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15. INDEMNIFICATION; INSURANCE; ALLOCATION OF RISK

15.1 Indemnification .

15.1.1 Tenant’s Indemnity . Except as may be the direct result of Landlord’s negligence or willful misconduct, Tenant will indemnify, hold harmless, and defend Landlord, and its members (and the members of its members), and their respective agents, employees, and invitees (collectively, the “ Indemnified Parties ”) from any claims, loss, damage, liability, or cost (including reasonable attorneys’ fees and all court costs) incurred by the Indemnified Parties (collectively, “ Claims ”) and occasioned by or in any way related to or based on (a) the use and occupancy of the Premises or the Property by Tenant or Tenant Parties or invitees, (b) the acts or omissions of Tenant or Tenant Parties, (c) any default, breach or violation of this Lease by Tenant or Tenant Parties, and (d) injury or death (including death and physical, psychological, and emotional injuries) to individuals or damage to property sustained in or about the Premises.

15.1.2 Landlord’s Indemnity . Except as may be the direct result of Tenant’s negligence or willful misconduct, Landlord shall at its expense defend, protect, indemnify, and hold harmless Tenant and the Tenant Parties from and against any and all Claims for injury (including death and physical, psychological, and emotional injuries) to any person or damage to any property whatsoever, to the extent arising from any occurrence in, on, or about the Premises or Common Areas, to the extent such injury or damage shall be caused by the acts or omissions of Landlord or its employees, agents, contractors or subcontractors, or Landlord’s breach of this Lease.

15.1.3 Insurers Not Released . The indemnification obligations of Landlord and Tenant hereunder are not intended to and shall not relieve any insurance carrier of its obligations to Landlord or to Tenant (if any).

15.2 Tenant’s Insurance .

Tenant shall have the following insurance obligations:

15.2.1 Liability Insurance . Tenant shall, at Tenant’s expense, obtain and keep in force at all times during the Term, a policy of commercial general liability insurance (including automobile liability) for occurrences in or about the Premises or otherwise resulting from Tenant’s operations at the Facility. The minimum limits of liability shall be a combined single limit of not less than Five Million Dollars ($5,000,000.00) per occurrence and a deductible not greater than Ten Thousand Dollars ($10,000.00). The policy shall protect and name Landlord and the Indemnified Parties as additional insureds. The policy shall also provide for severability of interest; shall provide that an act or omission of one of the insureds or additional insureds that would void or otherwise reduce coverage shall not void or reduce coverages as to other insureds or additional insureds. The policy shall be primary coverage for Tenant and Landlord and Indemnified Parties’ insurance shall not contribute to any liability arising out of Tenant’s and the Tenant Parties’ and Tenant Invitees’ use, occupancy or maintenance of the Premises and all areas appurtenant thereto. The limits of said insurance shall not, however, limit any liability of Tenant under Section 15.1.



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15.2.2 Personal Property Insurance . Tenant shall maintain in full force and effect on all of its fixtures, personal property, and equipment in the Premises a policy or policies of fire and casualty insurance in “special form” form to the extent of at least ninety percent (90%) of their replacement cost (without deduction for depreciation). No such policy shall have a deductible (other than as to earthquake coverage, which may have a commercially reasonable deductible) in a greater amount than Thirty Thousand Dollars ($30,000.00). Tenant shall also insure in the same manner the physical value of all its leasehold improvements, if any, in the Premises. The “full replacement value” of the improvements to be insured under this Section 15.2.2 shall be determined by the company issuing the insurance policy at the time the policy is initially obtained and from time to time throughout the Term. During the Term, the proceeds from any such policy or policies of insurance shall be used for the repair or replacement of the fixtures, equipment, and leasehold improvements so insured. Landlord shall have no interest in said insurance, and will sign all documents necessary or proper in connection with the settlement of any claim or loss by Tenant. All property insurance shall contain waivers of subrogation and shall be mutual.

15.2.3 Worker’s Compensation Insurance . Tenant shall carry and maintain Workers Compensation as required by applicable Laws and Employer’s Liability insurance with a limit of not less than $1,000,000. Such policy(s) shall be endorsed to waive any subrogation rights by Tenant and/or Tenant's workers' compensation carrier against Landlord and/or any Indemnified Parties in the Lease.

15.2.4 Business Interruption . Tenant shall maintain loss of income and business interruption insurance in such amounts as will reimburse Tenant for direct or indirect loss of earnings attributable to all perils commonly insured against by prudent tenants or attributable to prevention of access to the Premises or to the Building as a result of such perils, but in no event in an amount less than the Rent payable hereunder for twelve (12) months. All such insurance shall contain waivers of subrogation in favor of Landlord; provided, however, that Tenant shall have the right to self-insure the insurance otherwise required under this Section 15.2.4; provided further, however, that such self-insurance shall be deemed to be for the full extent of the otherwise required coverage and with full waiver of subrogation in favor of Landlord.

15.2.5 Other Coverage . During such times as Tenant is performing approved Alterations in the Premises, Tenant shall carry such builder’s risk insurance as Landlord may require pursuant to Section 10.2.1 above.

Not more frequently than every three (3) years, if, in the reasonable opinion of Landlord’s lender or of the independent insurance consultant retained by Landlord, the amount of commercial general liability insurance coverage at that time is not adequate, or additional coverages not specified above should be obtained, Tenant, at its cost, shall increase such insurance coverage, and/or obtain such additional coverages, as required by either Landlord’s lender or Landlord’s insurance consultant, consistent with the then prevailing custom for new leases of similar space in Comparable Buildings but only to the extent required of tenants similar to Tenant for comparable space.

15.2.6 Insurance Criteria . All the insurance required to be carried by Tenant pursuant to this Lease (except Tenant’s self-insurance under Section 15.2.4 above) hereunder shall:



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(a) Be issued by insurance companies that are qualified and admitted to do business in the State of California and that carry a designation in “Best’s Insurance Reports,” as issued from time to time throughout the Term, as follows: Policy holders’ rating of A-; financial rating of not less than VII.

(b) Be issued in a form reasonably acceptable to Landlord.

(d) Waive subrogation, as required by Sections 15.2.2, 15.2.4, and 15.2.5.

(e) To the extent that Landlord shall have any repair or replacement obligations with respect to the insured property, name Landlord and the Indemnified Parties as additional insureds (except the Worker’s Compensation Insurance) and, at Landlord’s request, shall carry a lender’s loss payee endorsement in favor of Landlord’s lender.

15.2.7 Evidence of Coverage . A certificate of insurance for the insurance required to be carried by Tenant hereunder shall be delivered to Landlord prior to Tenant’s commencing remodeling work in or taking occupancy of the Premises, and Tenant shall keep each such policy in full force and effect throughout the Term. Renewal policies or certificates thereof shall be delivered to Landlord within ten (10) days of policy expiration.

15.2.8 Tenant Insurance Default . In the event that Tenant fails to deliver to Landlord any certificate of insurance hereunder required within the prescribed time period (together with a so-called “additional insured” endorsement attached to said certificate) and if such failure continues after ten (10) days written notice thereof from Landlord to Tenant, or if any such policy is canceled or the coverage with respect to the Premises reduced during the Term without Landlord’s consent, Landlord may at its option, but shall not be obligated to, obtain such insurance on behalf of Tenant and bill Tenant, as additional rent, for the cost thereof. The provisions of this Article 15 are for the benefit of Landlord and its lenders only and are not nor shall they be construed to be for the benefit of any employee of Tenant, any other tenant or occupant of the Building or the Facility, or any other person whatsoever.

15.3 Landlord’s Insurance .

Landlord shall maintain policies of insurance covering loss of or damage to the Building in the full amount of its replacement cost. Such policies shall provide protection (subject to reasonable deductibles) against all perils included within the classification of fire, extended coverage, vandalism, malicious mischief, special extended perils (special form), sprinkler leakage, and any other perils that Landlord in good faith deems appropriate. Landlord shall not obtain insurance for Tenant’s Alterations, trade fixtures or equipment. Landlord shall also maintain a policy of commercial general liability insurance with a combined single limit of not less than Ten Million Dollars ($10,000,000) per occurrence for bodily injury and property damage, plus coverage against such other risks as Landlord deems advisable from time to time, insuring Landlord against liability arising out of the ownership, use, occupancy or maintenance of the Facility and the performance by Landlord of the indemnity provisions, to the extent commercially available in



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commercial general liability insurance policies or, for a reasonable additional cost, with riders thereto, of this Lease; provided, however, that Landlord may at its option elect to substitute for said policy insurance that is part of a blanket insurance policy maintained by Landlord. In addition, if Landlord determines that a majority of landlords of Comparable Buildings do so, Landlord shall increase such insurance coverage and/or obtain such additional coverages to the level carried by such other landlords. All the insurance required to be carried by Landlord hereunder shall: (a) Be issued by insurance companies that are qualified and admitted to do business in the State of California and that carry a designation in “Best’s Insurance Reports,” as issued from time to time throughout the Term, as follows: Policy holders’ rating of A-; financial rating of not less than X, and (b) Waive subrogation in favor of Tenant with respect to property loss or damage by fire or other casualty.

The amount of such liability coverage may be increased from time to time as required by Landlord (but Landlord shall not increase such liability coverage to an amount greater than that required by owners of Comparable Buildings) or Landlord’s lender. Notwithstanding anything above to the contrary, Landlord may self-insure the obligations set forth herein so long as (i) Landlord maintains a net worth at least equal to 2.5 times the greater of initial replacement value of the Facility and the replacement value of the Facility from time to time according to its most recent audited financial statement (in accordance with sound accounting principles consistently applied), and (ii) Landlord governs and manages its self-insurance program in a manner consistent with programs managed by reasonable businesses. If Landlord elects to self-insure, Landlord shall be responsible for any losses or liabilities which would have been assumed by the insurance companies which would have issued the insurance required of Landlord under this Lease.

15.4 Exculpation .

15.4.1 Waiver of Subrogation . Landlord and Tenant release each other and Indemnified Parties and Tenant Parties, respectively, from any Claims of whatever nature for damage, loss, or injury to the Premises, the Building, and/or the Facility, or to the other’s property in, on, or about the Premises and the Facility, to the extent of any insurance proceeds that are received or receivable (or that would have been receivable but for such releasing party’s breach or default of its obligations to carry insurance under this Lease), even if such damage, loss, or injury shall have been caused by the fault or negligence (but not willful misconduct) of the other party or anyone for whom such party may be responsible. Landlord and Tenant shall each cause their respective insurance policies to provide that the insurance company waives all right of recovery by way of subrogation against either Landlord or Tenant in connection with any damage covered by any policy. To the extent of any insurance proceeds actually received, or that would have been payable but for a breach of this Lease, neither Landlord nor Tenant shall be liable to the other for any damage caused by fire or any of the risks insured against under any insurance policy required by this Lease. Further, except to the extent otherwise expressly provided below in this Subsection and except to the extent caused by the negligence or willful misconduct of Landlord, its agents, employees or contractors, Tenant hereby waives all Claims against Landlord and the Indemnified Parties for any loss, theft, or damage to Tenant’s business or Personal Property or injury (including death and physical, psychological, and emotional injuries) to persons, in, upon or about the Premises and/or the Facility. Without limiting the generality of the foregoing, Tenant specifically acknowledges that such waived Claims include injuries, losses, and damage resulting from the following causes: Fire; smoke;



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explosion; falling plaster, ceiling tiles, fixtures, or signs; broken glass; steam; gas; fumes; vapors; odors; dust; dirt; grease; acid; oil; any other Hazardous Substance; debris; noise; air or noise pollution; vibration; theft; breakage; vermin; electricity; computer or electronic equipment or systems malfunction or stoppage; water; rain; flooding; freezing; windstorm; snow; sleet; hail; frost; ice; excessive heat or cold; sewage; sewer backup; toilet overflow; leaks or discharges from or into the Premises or any other part of the Facility, or from any pipes, sprinklers, appliances, equipment (including, without limitation, heating, ventilating, and air-conditioning equipment); electrical or other wiring; plumbing fixtures; roofs; windows; skylights; doors; trapdoors; the surface or subsurface of any floor or ceiling of any part of the Facility; dampness or climatic conditions; maintenance, repair, or construction activities; renovation work; and any interruption, cessation, or failure of any public or other utility service.

16. SECURITY SERVICES

16.1 Landlord’s Obligation to Furnish Security Services .

Landlord may supply to the Building unarmed lobby attendant services that are generally comparable to the lobby attendant services provided in Comparable Buildings; provided, however, that neither Landlord nor any other Indemnified Parties shall be liable to Tenant, Tenant’s employees, invitees or any other person or entity for (and Tenant waives all claims against them arising by reason of) direct or consequential damages including, without limitation, damage or injury to person or property or loss of life, resulting from the presence, admission to or exclusion from the Building or Facility of any person, and Tenant acknowledges that Landlord’s provision of security guards or other security services for the Building or Facility shall not be construed as Landlord’s or any Landlord Party’s acceptance of any responsibility or liability for the security of persons or property in, on or about the Premises, the Building or the Facility. Landlord may, but shall not be obligated to, furnish additional security services for the Premises, the Building and/or the Facility as Landlord deems appropriate in its sole and absolute discretion. In the event Landlord furnishes or contracts to furnish any such additional services, Tenant shall nevertheless remain solely responsible for the protection of itself, the Tenant Parties and the Tenant Invitees and all property of Tenant and the Tenant Parties and the Tenant Invitees located in, on, or about the Premises or the Building or the Facility, and the provisions of Article 15 shall nevertheless continue in full force and effect. Landlord shall have the right to take all such reasonable and lawful measures as Landlord may deem advisable for the security of the Building or the Facility and their occupants, including, without limitation, the lawful search of any person entering or leaving the Building, the evacuation of the Building (or any part thereof) for cause, suspected cause, or for drill purposes, the temporary denial of access to the Building (or any part thereof), and the closing of the Building after normal business hours and on Sundays and holidays, subject, however, to Tenant’s right to admittance, when the Building is so closed, under such reasonable regulations as Landlord may prescribe from time to time.

16.2 Tenant’s Right to Install Security System .

Tenant shall have the right to establish or install an automated and/or non-automated security system in, on, or about the Premises, provided that Tenant shall first notify Landlord of Tenant’s plan for any such system, and provided further that such system does not have an adverse



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effect on the Facility or on other tenants and is installed in accordance with the provisions of this Lease.

17. BUILDING SERVICES

17.1 Standard Building Services .

Landlord shall furnish the Premises with the standard building services and utilities as set forth in the attached Exhibit D.

17.2 Additional Services .

Except with respect to electricity which is separately payable by Tenant under this Lease in whatever quantities consumed by Tenant, Tenant shall not, without the consent of Landlord (which consent shall not be unreasonably withheld), (a) use any equipment, apparatus, or device in the Premises that will in any way increase the amount of cooling capacity or water usually furnished or supplied for use to the Premises for general office purposes (i.e., the amounts provided at the standard levels specified in the attached Exhibit D as being available without additional charge), or (b) connect to water pipes or any apparatus or device for the purpose of using water. Tenant agrees to pay within thirty (30) days of demand all charges imposed by Landlord from time to time for all building services and all charges for services and utilities requested by and supplied to or used by Tenant in excess of or in addition to those standard building services and utilities described in Exhibit D. Such excess and additional building services and utilities are hereinafter referred to as “Additional Services.” If Tenant uses services or utilities in excess of such standards, Landlord may, upon prior notice to Tenant, cause a switch and/or metering system to be installed at Tenant’s expense (which expense shall be Landlord’s actual cost of installing such switch and Tenant shall pay within thirty (30) days after receipt of an invoice from Landlord covering the cost to install such switch or metering system) to measure the amount of building services, utilities, and/or Additional Services consumed by Tenant or used in the Premises. Tenant shall have the right, at Tenant’s cost, to install additional HVAC units for Tenant’s server rooms upon written notice to Landlord and in compliance with all provisions of this Lease including, but not limited to, the provisions regarding Alterations and Landlord’s consent with respect thereto.

17.3 Conservation .

Tenant shall cooperate in a commercially reasonable manner with Landlord to effect conservation of all utilities in the Building and shall use its commercially reasonable efforts to minimize its use of water, heat, electricity, and air conditioning to the extent that such efforts do not unreasonably interfere with the conduct of Tenant’s business. Upon written request of Landlord, Tenant shall be required to submit to Landlord electricity consumption data in a format deemed reasonably acceptable by Landlord.

17.4 Landlord’s Right to Cease Providing Services .

Landlord reserves the right, in its reasonable discretion, to reduce, interrupt, or cease service of the heating, air conditioning, ventilation, elevator, plumbing, electrical systems, telephone



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systems, and/or utility services of the Premises, the Building, or the Facility, for any of the following reasons or causes:

17.4.1 any accident, emergency, Law (including, without limitation, Laws requiring conservation or rationing of electricity, fuel, or water), or Force Majeure (as defined in Article 18); or

17.4.2 the making of any repairs or additions, alterations, or improvements to the Premises, the Building, or the Facility, until such repairs or additions, alterations, or improvements shall have been completed.

Landlord agrees to use commercially reasonable efforts to minimize interference with Tenant’s business operations in connection with the foregoing.

If Landlord desires to do any work (for maintenance or repairs or otherwise) that would require an interruption of power or any other utility to the Premises or any interference with Tenant’s operations or access to the Premises, the following requirements shall apply: (1) Landlord shall give Tenant not less than ten (10) days advance written notice of such planned work and (2) such work may not occur between the hours of 9 a.m. and 5 p.m., Monday through Friday (except on holidays). The foregoing limitations shall not apply in the event of an emergency.

No such interruption, reduction, or cessation of any such building services or utilities (each, a “Service Interruption”) shall constitute an eviction or disturbance of Tenant’s use or possession of the Premises or Common Areas, or a breach of Landlord’s obligations hereunder, or render Landlord liable for any damages (including, without limitation, any damages, compensation, or claims arising from any interruption or cessation of Tenant’s business), or entitle Tenant to be relieved from any of its obligations under the Lease, or result in any abatement of Rent. However, Landlord shall use commercially reasonable diligence to restore such service or to reduce the length of such interruption as provided above, and to minimize any disturbance to Tenant, where it is within Landlord’s commercially reasonable control to do so. Notwithstanding the foregoing, if all or any portion of the Premises is made untenantable or inaccessible for more than three (3) consecutive business days after notice from Tenant to Landlord by a Service Interruption that (a) does not result from a casualty or condemnation event, and (b) is caused by Landlord, its agents, employees or contractors and can be corrected through Landlord’s reasonable efforts, then, as Tenant’s sole remedy, Minimum Monthly Rent shall abate for the period beginning on the day immediately following such 3-business-day period and ending on the day such Service Interruption ends, but only in proportion to the percentage of the rentable square footage of the Premises made untenantable or inaccessible. In addition, if a Service Interruption is reasonably within the control of Landlord and continues for one hundred eighty (180) consecutive days after written notice from Tenant, then Tenant, as its sole remedy, shall have the right to elect to terminate this Lease, without penalty, by delivering written notice to Landlord after the expiration of such one hundred eighty (180) day period.



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18. FORCE MAJEURE

Other than Landlord or Tenant’s obligations under this Lease that can be performed by the payment of money, neither Landlord nor Tenant shall be chargeable with, liable for, or responsible to the other party for anything or in any amount for any failure to perform or delay caused by any of the following events (collectively, “Force Majeure”): fire; earthquake; explosion; flood; hurricane; the elements; acts of God or the public enemy; actions, restrictions, limitations or interference of governmental or quasi-governmental authorities or agents; war; invasion; insurrection; rebellion; riots; strikes or lockouts; inability to obtain necessary materials, goods, equipment, services, utilities or labor; accident; breakage; or any other cause whether similar or dissimilar to the foregoing which is beyond the reasonable control of such party (but not unavailability of funds); and any such failure or delay due to said causes or any of them shall not be deemed a breach of or default in the performance of this Lease by such party.

19. RULES AND REGULATIONS

Tenant, its agents, employees, and servants and those claiming under Tenant will at all times observe, perform, and abide by all of the general rules and regulations promulgated by Landlord as set forth in Exhibit C and the Rules and Regulations for Construction by Tenant set forth in Exhibit F, and, to the extent that Tenant is provided with written notice of same, as reasonably modified, supplemented, or amended by Landlord from time to time (together, the “Rules and Regulations”) so long as Tenant’s rights under this Lease are not materially or adversely impaired. Landlord shall not be responsible to Tenant for the nonperformance by any other tenant or occupant of the Facility of any of said Rules and Regulations (provided Landlord shall use commercially reasonable efforts to enforce the same in a non-discriminatory manner against all tenants and occupants of the Building and Facility), and provided that Landlord shall do the same for Tenant, Landlord shall have the right to make reasonable exceptions for specific tenants or occupants with respect to the application of certain rules and regulations. Subject to the foregoing, Landlord agrees to use commercially reasonable efforts, consistent with Landlord’s rights under applicable leases, to apply the Rules and Regulations in a fair, responsible, nondiscriminatory and equitable manner. If there is a conflict between the Rules and Regulations and any provision of this Lease, the provisions of this Lease shall prevail.

20. HOLDING OVER

20.1 Surrender of Possession .

Tenant shall surrender possession of the Premises immediately upon the expiration of the Term or termination of this Lease. If Tenant surrenders possession of the Premises to Landlord in a condition other than that required under this Lease, Tenant shall be deemed to be holding over during the period that would reasonably be required for the completion of such repairs, alterations, or restorations as may be required in order to put the Premises into such required condition. If Tenant retains possession of all or a portion of the Premises after the expiration or earlier termination of the Term, with Landlord’s express written consent, Tenant’s occupancy shall be deemed to be that of a month-to-month tenancy, terminable upon thirty (30) days’ written notice. In the event



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that Tenant commits an Event of Default or remains in possession of the Premises or any part thereof after the expiration of any month-to-month tenancy, then Tenant’s occupancy shall be deemed to be a tenancy-at-sufferance.

20.2 Holding Over Without Consent .

If Tenant, without Landlord’s consent, retains possession of the Premises after the expiration or earlier termination of this Lease, then Tenant shall pay to Landlord monthly rental equal to the “Applicable Percentage” (as defined below) of the Minimum Monthly Rent applicable immediately prior to the expiration or earlier termination of the Term. The “Applicable Percentage” shall be determined as follow: 150% for the first month of such holdover and 200% for the second month and any additional months of such holdover. In addition, Tenant shall indemnify and defend Landlord from and against all losses, costs, claims, liabilities, damages and expenses (including, without limitation, reasonable attorneys’ fees and disbursements) sustained by Landlord by reason of such retention (including, without limitation, claims for damages by any other person to whom Landlord may have agreed to lease all or any part of the Premises effective on or after the date Tenant was obligated to surrender possession of the Premises). Upon written request by Tenant, Landlord shall advise Tenant in writing as to whether or not Landlord has entered into a lease with a succeeding tenant. No acceptance by Landlord of Rent during any such holding over without Landlord’s approval shall reinstate, continue, or extend the Term or shall affect any notice of termination given to Tenant prior to the payment of such money, it being agreed that after the service of such notice or the commencement of any suit by Landlord to obtain possession of the Premises, Landlord may receive and collect when due any and all payments owed by Tenant under this Lease, and otherwise exercise its rights and remedies. The making of any such payments by Tenant shall not waive such notice, or in any manner affect any pending suit or judgment obtained.

21. SUBORDINATION

21.1 Subordination and Non-Disturbance .

This Lease shall be subject and subordinate to any mortgage, deed of trust, ground lease or master lease (collectively, “Incumbrance”) now or hereafter placed upon the Facility and to all renewals, modifications, replacements and extensions thereof; provided that, as a condition to any subordination to a future Incumbrance, a separate written agreement in a form as such holder of or lessor under such Incumbrance (“Incumbrancer”) shall require, and which is commercially reasonable, shall be entered into between Tenant and such Incumbrancer that will provide, among other things, that notwithstanding any default in the Incumbrance and any foreclosure or termination thereof, or the enforcement by the Incumbrancer of any rights or remedies, including sale thereunder, or otherwise, this Lease shall be recognized and shall remain in full force and effect, and Tenant shall be permitted to remain in possession of the Premises throughout the Term in accordance with and subject to all the provisions of this Lease as long as no Event of Default by Tenant is outstanding. To the extent there are any Incumbrancers existing as of the execution of this Lease, within sixty (60) days following the execution of this Lease by Landlord and Tenant, Landlord shall deliver to Tenant a commercially reasonable non-disturbance agreement in favor of Tenant executed by any current Incumbrancer of the Building and/or Facility. If Landlord is unable to deliver the same to



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Tenant within sixty (60) days after the execution of this Lease, Tenant shall have the right to terminate this Lease upon written notice to Landlord.

21.2 Attornment .

In the event that Landlord at any time sells or conveys its estate in the Facility, or any part thereof, to any other party, or in the event Landlord’s estate therein is at any time acquired by any other party upon the foreclosure of any mortgage or deed of trust, or upon any termination of any ground lease or underlying lease to which this Lease is subordinated, as provided in Section 21.1 above, or by reason of any merger or consolidation or otherwise by operation of law, (i) Tenant shall, upon request, attorn to such successor in interest and, this Lease, shall automatically become a new Lease between Tenant and such successor in interest, upon all of the terms and conditions hereof, for the remainder of the term hereof, and (ii) Landlord shall be relieved of any further obligations hereunder. Upon request by Landlord, Tenant shall execute and deliver such commercially reasonable instruments as may be reasonably necessary or convenient to evidence such subordination, nondisturbance, and/or attornment. Also notwithstanding any provision hereof to the contrary, if any Incumbrancer shall elect to have this Lease prior to the lien of its Incumbrance and shall give notice thereof to Tenant, this Lease shall be deemed prior to the Incumbrance irrespective of whether the Lease is dated prior or subsequent to the date of the Incumbrance or the recording date thereof.

22. ENTRY BY LANDLORD

22.1 Reservation .

Landlord reserves and shall have the right to enter the Premises at reasonable times after twenty-four (24) hours’ written notice of same (except in cases of emergency and/or to perform janitorial or other services required of Landlord pursuant to this Lease in which case no notice shall be required) and in the presence of a representative of Tenant to the extent a representative is available (except in cases of emergency and/or to perform janitorial or other services required of Landlord pursuant to this Lease in which case no representative need be present) (a) to inspect the same, (b) in the event Landlord has a reasonable belief of a potential violation of this Lease, to verify Tenant’s compliance with its obligations under this Lease, (c) to post notices of non-responsibility, (d) to post any notices Landlord is required by law to post on the Premises or deemed reasonably necessary by Landlord for Landlord to protect its interest in the Premises and/or the Facility or for health and safety purposes, (e) to deliver notices to Tenant or any subtenant or occupant of any portion of the Premises, (f) to show the Premises to prospective lenders, purchasers, investors, or, during the last twenty-four (24) months of the Term, tenants. Tenant shall maintain any such notices required by law posted by Landlord in or on the Premises.

22.2 Designation .

Tenant may designate certain areas of the Premises as “Secured Areas” should Tenant require such areas for the purpose of securing certain valuable property or confidential information. Landlord may not enter such Secured Areas except in the case of emergency (in which case no notice shall be required) or in the event of a Landlord entry, in which case Landlord shall provide



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Tenant with three (3) days’ prior written notice of the specific date and time of such Landlord inspection and Landlord shall make such inspection in the presence of a representative of Tenant to the extent a representative is available (except in cases of emergency, in which case no representative need be present).

22.3 Representative .

Landlord also reserves and shall have the right to enter the Premises at reasonable times, after twenty-four (24) hours’ written notice of same (except in cases of emergency, in which case no notice shall be required) and in the presence of a representative of Tenant to the extent a representative is available (except in cases of emergency, in which case no representative need be present), to perform Landlord’s obligations under Section 11.2 above and to perform those repairs to the Premises for which Tenant is responsible, but which Tenant failed to perform pursuant to Section 11.1 above, and Landlord may for such purposes erect scaffolding and other appropriate structures where reasonably required by the character of the work to be performed.

22.4 Limitation .

Except as otherwise set forth in this Lease, or except to the extent arising from the negligence or willful misconduct of Landlord or its employees, agents or contractors, in no event shall Tenant be entitled to any abatement of Rent on account of any noise, vibration, or other disturbance to Tenant’s business at the Premises that may arise out of any such entry by Landlord into the Premises or out of Landlord’s performance of any such work at the Facility, and under no circumstances shall any such noise, vibration, disturbance, work, or entry by Landlord be construed or deemed to be a forcible or unlawful entry into or a detainer of the Premises or an eviction of Tenant from the Premises or any portion thereof.

22.5 Mitigation .

Landlord shall use commercially reasonable efforts (which shall not include any obligation to employ labor at over time rates) to minimize disruption of Tenant’s business during any such entry or work by Landlord, including Landlord’s initial construction of other premises in the Building.

22.6 Emergency .

Landlord shall have the right to use any and all means that Landlord may deem reasonably appropriate to open any doors in an emergency in order to obtain entry to the Premises.

23. DEFAULTS AND REMEDIES

23.1 Events of Default .

23.1.1 Definition . In addition to those events designated as Events of Default in other provisions of this Lease, each of the following shall constitute an “Event of Default” by Tenant:



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(a) Tenant’s failure to make any payment owed by Tenant under this Lease, as and when due, where such failure is not cured within five (5) days following Tenant’s receipt of Landlord’s written notice thereof, provided, however, that in the event Tenant shall fail to make timely payment of Rent payments which are due monthly two (2) or more times in any twelve (12) month period and Landlord shall have delivered to Tenant a written notice of such delinquencies, then during the twelve (12) consecutive months immediately after such failure the five (5) day cure period shall be reduced to a three (3) day cure period; or

(b) Tenant’s failure to observe, keep, or perform any of the terms, covenants, agreements, or conditions under this Lease that Tenant is obligated to observe or perform, other than that described in clause (a) above below, for a period of thirty (30) days after delivery of notice to Tenant of said failure; or

(c) The occurrence of any of the events described in Section 37.5 (Events of Bankruptcy) below with respect to any guarantor of any obligations of Tenant under this Lease, where Tenant fails to furnish a substitute guarantor, or alternative security, satisfactory to Landlord within thirty (30) (or sooner if reasonably possible) days after Landlord’s delivery of Landlord’s written demand therefor; or

23.1.2 Notice of Default . The notices of default provided for in Sections 23.1.1(a) and (b) shall in each case be in lieu of, and not in addition to, any notice required by Section 1161, et seq ., of the California Code of Civil Procedure);

23.2 Remedies .

Upon the occurrence of any Event of Default, Landlord may exercise any one or more of the termination rights and other remedies described in this Article 23, in addition to all other rights and remedies now or hereafter provided at law or in equity.

23.3 Right to Cure .

All covenants and agreements to be performed by Tenant under this Lease shall be performed by Tenant at Tenant’s sole cost and expense. If Tenant shall fail to perform any act on its part to be performed under this Lease, and such failure shall continue beyond any applicable notice and cure period (except that no notice or cure shall be required in cases of emergency), Landlord may, but shall not be obligated to do so, without waiving or releasing Tenant from any obligations of Tenant, perform any such act on Tenant’s part to be performed as provided in this Lease. All reasonable costs incurred by Landlord with respect to any such performance by Landlord (including reasonable attorneys’ fees) shall be paid by Tenant to Landlord within thirty (30) days of Landlord’s demand therefor.

23.4 Waiver of Redemption .

Tenant hereby waives, for itself and all persons claiming by and under Tenant, all rights and privileges which it might have under any present or future law to redeem the Premises or to continue the Lease after being dispossessed or ejected from the Premises.



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23.5 Remedies Cumulative .

All remedies of Landlord under this Lease are cumulative. Efforts by Landlord to mitigate the damages caused by Tenant’s default shall not constitute a waiver of Landlord’s right to recover damages, nor shall Landlord have any obligation to mitigate damages, except to the extent provided by applicable Laws.

23.6 Default by Landlord .

23.6.1 Notice . In no event shall Landlord be deemed to be in default if Landlord fails to perform any covenant, term, or condition of this Lease upon Landlord’s part to be performed, unless and until thirty (30) days have expired (provided, that if more than 30 days are required to cure such default, Landlord shall have such additional time as is reasonably necessary) after delivery to Landlord and to any Incumbrancer whose name and address shall have theretofore been furnished to Tenant, of a written notice specifying in detail Landlord’s failure to perform and demanding the correction of such deficiency. If Landlord is deemed to be in default under the provisions of this Subsection, Tenant shall be entitled to bring an action for declaratory judgment or specific performance, or for damages (subject to the provisions of this Lease limiting Landlord’s liability). Except as otherwise set forth herein, no event shall Tenant have any right to terminate this Lease or withhold Rent as a result of Landlord’s default. Notwithstanding the above, Landlord acknowledges that continuous operation is critical to Tenant’s business and agrees that if Landlord’s default causes material interference to Tenant’s operations, Landlord shall commence its cure within such shorter period as is commercially reasonable given the nature of the default and the interference with Tenant’s operations and shall diligently prosecute the cure to completion. If Tenant notifies Landlord that Landlord’s default is causing material interference to Tenant’s operations, Landlord shall respond within one (1) business day with a statement of the actions being taken by Landlord to address the default, and the estimated time for cure, and shall diligently pursue and keep Tenant informed of the progress of the cure. Landlord’s failure to comply with the preceding sentence shall constitute a default hereunder .

23.6.2 Consequential Damages . Tenant agrees that, in the event it becomes entitled to receive damages from Landlord, Tenant shall not, in any event, be allowed to recover from Landlord consequential damages. Further, Tenant shall look solely to the then interest of Landlord in the Facility (including rents and insurance proceeds) for the satisfaction of any remedy of Tenant for failure to perform any Landlord’s obligations under this Lease, express or implied, or under any Law.

23.6.3 Non-Liability . Neither Landlord nor any disclosed or undisclosed principal of Landlord (or officer, director, stockholder, member, partner or agent of Landlord or of any such principal), nor any successor of any of them, shall have any personal liability for any such failure under this Lease or otherwise. Except as specifically set forth in this Lease, Tenant hereby expressly waives its rights under any and all Laws to terminate this Lease (whether prior to or after the commencement of the Term) or to withhold any payment owed by Tenant under this Lease, on account of any damage, condemnation, destruction, or state of disrepair of the Premises, or any part thereof, it being the parties’ intent that the provisions of this Lease shall govern the parties’ rights and obligations with respect to such matters.



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23.6.4 Tenant Self-Help . If Landlord is in default under the Lease as hereinabove described (but Tenant may exercise its rights under this paragraph without prior notice if such prior notice is not reasonably possible due to an emergency situation that threatens or interrupts Tenant’s use of the Premises or the Building), Tenant, in addition to pursuing any or all other remedies at law or in equity, also shall have the right, subject to the limitations set forth below, to take such commercially reasonable actions as Tenant deems necessary to cure Landlord's default (or to cure or repair an emergency situation described above) and, if Landlord fails to reimburse Tenant for the reasonable costs, fees and expenses incurred by Tenant in taking such curative actions within thirty (30) days after demand therefor, accompanied by supporting evidence of the expenses incurred by Tenant, Tenant (i) shall have the right to set off such reimbursement from the Minimum Monthly Rent and other amounts payable by Tenant in accordance with the terms hereof, or (ii) may bring an action for damages against Landlord to recover such costs, fees and expenses, together with interest thereon at the Interest Rate, and reasonable attorney's fees incurred by Tenant in bringing such action for damages. Notwithstanding anything to the contrary contained herein, Landlord may contest its obligation to make any such payment or perform any such other act, and therefore Tenant’s right of self-help with respect thereto (a “Contest”) by delivering written notice (a “Contest Notice”) to Tenant of such Contest prior to the expiration of any applicable cure period set forth in this Lease. The parties agree to try in good faith to settle the Contest by mediation in accordance with this paragraph, and Tenant shall not exercise any self-help right pending such mediation process. Unless the parties mutually agree otherwise, such mediation shall be in accordance with Commercial Mediation Procedures of the American Arbitration Association (or any successor organization) currently in effect, and shall be concluded no later than five (5) business days after the date of the Contest Notice. Such mediation shall be conducted by a single mediator. The fee of the mediator shall be paid equally by the parties, and each party shall pay all other costs incurred by it in connection with the mediation. Notwithstanding the foregoing, in the event of an emergency, Tenant may exercise self-help rights to preserve property or prevent injury to persons provided, however, that Tenant’s right to set off monies expended shall nevertheless be subject to Landlord’s Contest right set forth above.

23.7 Landlord’s Remedies .

23.7.1 Unlawful Detainer Notice . Tenant hereby specifically agrees that any notice of default provided for in Section 23.1 of the Lease shall be in lieu of, and not in addition to, any notice required under Article 1161 of the California Code of Civil Procedure.

23.7.2 Exercise of Remedies of Landlord . Upon the occurrence and continuation of any Event of Default described in Section 23.1 of this Lease, Landlord may exercise any one or more of the following remedies, in addition to all other rights and remedies provided elsewhere in this Lease or now or hereafter provided at law or in equity:

(a) Right to Terminate . Landlord shall have the right, in addition to all other rights available to Landlord under this Lease or now or later permitted by law or equity, to terminate this Lease by providing Tenant with a notice of termination. Upon termination, Landlord may recover any damages proximately caused by Tenant’s failure to perform under the Lease, including, without limitation, any reasonable amount (collectively, the “Costs of Reletting”)



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expended or to be expended by Landlord in an effort to mitigate damages (including, without limitation, advertising costs, brokerage fees, attorneys’ fees, and costs for maintaining the Premises and putting them into good order, condition, and repair, and performing such remodeling, renovations, or alterations as may be desirable to prepare the Premises for reletting), as well as any other damages to which Landlord is entitled to recover under any Law now or hereafter in effect. Pursuant to and in accordance with California Civil Code Section 1951.2, Landlord’s damages include (but are not limited to) the worth, at the time of any award, of the amount by which the unpaid Rent for the balance of the Term after the time of the award exceeds the amount of the rental loss that Tenant proves could be reasonably avoided. The worth at the time of award shall be determined by discounting to present value such amount at one percent (1%) more than the discount rate of the Federal Reserve Bank in San Francisco in effect at the time of the award. Damages to which Landlord is entitled shall bear interest, commencing on the date such damages are incurred, at the Interest Rate.

(b) Right to Recover Rent as It Becomes Due . Landlord may exercise the remedy described in California Civil Code Section 1951.4 (Landlord may continue lease in effect after tenant’s breach and abandonment, and recover Rent as it becomes due, if tenant has right to sublet or assign, subject only to reasonable limitations). Tenant hereby specifically acknowledges and agrees that each of rights of Landlord set forth in Article 14 is a reasonable standard or condition for purposes of California Civil Code, Section 1951.4 relating to Landlord’s remedy after Tenant’s breach and abandonment.

(c) Right to Remove Personal Property . Upon any reentry by Landlord into the Premises under this Section, Landlord shall have the right to cause any movable furniture, equipment, trade fixtures, or other personal property left on the Premises to be removed and stored in a public warehouse or elsewhere at Tenant’s sole cost and expense, and/or after thirty (30) days’ notice to Tenant, to dispose of or sell such property and apply the proceeds therefrom pursuant to applicable Law. In the event Landlord stores such property at premises owned or leased by Landlord, Landlord may charge Tenant for such storage at such reasonable rates as Landlord shall from time to time determine. The foregoing notwithstanding, nothing set forth in this paragraph or elsewhere in this Lease shall impose on Landlord any obligation for the care or preservation of such property so left upon the Premises.

23.7.3 Waiver of Certain California Code Sections . Tenant waives the provisions of California Civil Code Sections 1932.1, 1932.2, and 1933.4 with respect to termination rights due to an interruption, failure or inability to provide services and the destruction of the Premises; California Civil Code Sections 1941, 1942, with respect to Landlord’s repair duties and Tenant’s right to repair; California Civil Code Section 1654 with respect to the interpretation of language in a contract being construed most strongly against the party who caused the uncertainty to exist; California Civil Code Section 1950.7(except subsection (b)) with respect to the use of the Security Deposit by the Landlord; and California Code of Civil Procedure Section 1265.130, allowing either party to petition the Superior Court to terminate this Lease in the event of a partial taking of the Premises by Condemnation. This waiver applies to amendments or modifications to the cited sections and any future statutes enacted in addition or in substitution to the statutes specified herein.



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24. DAMAGE OR DESTRUCTION

24.1 Exclusive Remedy .

The remedies provided for in this Article 24 shall be Tenant’s and Landlord’s sole and exclusive remedy in the event a Casualty (as defined below) causes damage to or destruction of all or any portion of the Premises, Building, or Facility, and Tenant and Landlord, as a material inducement to the other party’s entering into this Lease, each irrevocably waives and releases the provisions of any Law that would automatically terminate this Lease or otherwise be contrary to the provisions of this Article in the event of any such damage or destruction, it being the intent of both parties that the provisions of this written Lease shall instead govern the rights and obligations of the respective parties with respect to such matters.

24.2 Loss Covered by Insurance .

If at any time prior to the expiration or termination of this Lease, (i) all or any portion of the Premises, or any portion of the Common Areas whose use is necessary for Tenant’s business, shall be wholly or partially damaged or destroyed by fire or other casualty or peril (collectively, a “Casualty”), and (ii) such damage or destruction shall render the Premises totally or partially inaccessible or unusable by Tenant in the ordinary conduct of Tenant’s business, then the following provisions shall apply.

24.2.1 Repairs That Can Be Completed Within Nine Months .

(a) On or before the date (the “Damage Notice Date”) which is sixty (60) days after the earlier of (i) the date Landlord obtains actual knowledge that the Premises or any portion of the Common Areas whose use is necessary for Tenant’s business are damaged and require repair, or (ii) the date of Tenant’s notice to Landlord of such damage or destruction, Landlord shall give Tenant notice of Landlord’s contractor’s good faith determination, as evidenced by a certificate of such contractor in favor of Landlord and Tenant, of whether such damage or destruction can be repaired under applicable Laws, without the payment of overtime or other premiums, within nine (9) months after the date such determination of Landlord’s contractor is made.

(b) If all such repairs to the Premises and/or such portions of the Common Areas can, in Landlord’s contractor’s good faith judgment, be substantially completed in such manner within such nine (9) month period, Landlord shall diligently and continuously undertake such repairs and this Lease shall remain in full force and effect. If, however, such repairs are not completed within such nine (9) month period, Tenant may terminate this Lease upon thirty (30) days’ prior written notice to Landlord if the actual restoration is not completed within one (1) month after the end of such nine (9) month period, subject to extension for Force Majeure.



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24.2.2 Repairs That Cannot Be Completed Within Nine Months .

(a) In the event that Landlord’s contractor determines in good faith, as evidenced by a certificate to Landlord and Tenant, that such repairs to the Premises or to such portions of the Common Areas cannot be substantially completed under applicable Laws, without the payment of overtime or other premiums, within nine (9) months after the date of such determination, then Landlord shall notify Tenant by the Damage Notice Date of such determination and Landlord shall notify Tenant of the completion date. In such notice Landlord shall either agree to undertake such repairs or elect to terminate this Lease. If Landlord so agrees to undertake repairs, but states that the required repairs will not be completed within nine (9) months after delivery of such notice, then Tenant shall have an option, exercisable by written notice thereof delivered to Landlord not later than the fifteenth (15th) business day after Landlord’s delivery of Landlord’s notice that the repairs will not be completed within such nine (9) month period, to terminate this Lease.

(b) If neither Landlord nor Tenant exercise such a right of termination following Landlord’s determination that repairs will take more than nine (9) months, then Landlord shall diligently and continuously undertake to repair such damage or destruction.

24.3 Landlord’s Rights .

If, at any time prior to the expiration or termination of this Lease, any portion of the Facility is damaged by Casualty, whether or not the Premises are affected, and the damage is not fully covered by Landlord’s insurance, or Landlord is required to pay any insurance proceeds arising out of the Casualty to an Incumbrancer, then Landlord shall deliver to Tenant, within sixty (60) days after the Damage Notice Date, a written notice whereby Landlord shall either (a) elect to terminate this Lease or (b) agree to undertake such repairs diligently and continuously; provided, however, if Casualty does impact the Premises and such repairs are estimated to take longer than nine (9) months, Tenant shall have the right to terminate this Lease by written notice to Landlord. If Landlord does not elect by such notice to Tenant to repair such damage, this Lease shall be deemed to have been terminated by Landlord.

24.4 Destruction During Final Twelve Months .

Notwithstanding anything to the contrary contained in this Article 24, if the Premises or the Building or a portion of the Common Areas the use of which is required for Tenant’s business or Tenant’s access to the Premises are wholly or partially damaged or destroyed within the final twelve (12) months of the Term, and no renewal rights have been exercised prior to such damage or destruction, Landlord or Tenant may, at its option, by giving the other party written notice prior to substantial completion of the repairs, and in no event later than the 60th day after the Damage Notice Date, elect to terminate this Lease.

24.5 Effective Date of a Lease Termination .

Any notice of Tenant’s election to terminate under this Article 24 shall include a statement of the effective date of such termination, which shall not be more than sixty (60) days



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after the date such notice is delivered. Any notice of Landlord’s election to terminate under this Article 24 shall be effective (a) on the date Landlord delivers the notice, if the damage or destruction shall have prevented Tenant from conducting business at the Premises, or (b) on the sixtieth (60th) day after delivery of the notice, in the event that Tenant shall not have been so prevented from conducting business at the Premises. Notwithstanding anything to the contrary, in no event shall Tenant be required to pay any portion of the deductible under Landlord’s insurance policies if Landlord or Tenant elect to terminate this Lease in accordance with the terms and conditions of this Article 24.

24.6 Abatement of Rent .

In the event that all or any portion of the Premises shall be rendered inaccessible or unusable to Tenant, then Rent shall be reduced proportionately for such portion of the Premises as shall be rendered inaccessible or unusable to Tenant, and unused by Tenant for normal business operations, during the period of time that such portion is unusable or inaccessible to Tenant, and unused by Tenant for normal business operations.

24.7 Destruction of Tenant’s Personal Property, Tenant Improvements or Property of the Tenant Parties .

In the event a Casualty causes damage to or destruction of the Premises or the Building or the Facility, under no circumstances shall Landlord be required to repair damage to, or make any repairs to or replacements of, Tenant’s Personal Property (as such term is defined in Section 6.2.4 above) or Alterations (as such term is defined in Section 10.1 above), all of which shall be repaired or replaced at Tenant’s sole cost. However, as part of Operating Expenses, Landlord shall cause to be insured Tenant Improvements (at a level not exceeding Building standard) that do not consist of Tenant’s Personal Property or Alterations and shall cause proceeds of such insurance to be applied to the cost of repairing or restoring such Tenant Improvements. Landlord shall have no responsibility for any contents placed or kept in or on the Premises or the Building or the Facility by Tenant or the Tenant Parties or Tenant Invitees.

25. EMINENT DOMAIN

25.1 Definitions .

The following terms shall have the indicated definitions as used herein: (a) ”Condemnation” or “Taking” means (i) the exercise of any governmental power, whether by legal proceedings or otherwise, by a Condemnor (as defined below) and/or (ii) a voluntary sale or transfer by Landlord to any Condemnor, while legal proceedings for eminent domain are pending or threatened; (b) ”Date of Taking” means the date the Condemnor has the right to possession of the property being condemned; (c) ”Award” means all compensation, sums, or anything of value awarded, paid, or received on a total or partial Condemnation; and (d) ”Condemnor” means any public or quasi-public authority, or private corporation or individual, having the power of eminent domain.



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25.2 Permanent Taking .

25.2.1 Total Taking . If the Premises are totally taken by Condemnation, this Lease shall terminate on the Date of Taking.

25.2.2 Partial Taking; Common Areas .

(a) Tenant’s Rights . If any portion of the Premises is taken by Condemnation, this Lease shall remain in effect, except that Tenant shall have the right to elect to terminate this Lease if twenty-five percent (25%) or more of the rentable square footage of the Premises is taken. To be effective, such election to terminate must be made by written notice delivered to Landlord within thirty (30) days after the Decision Period (as such term is defined in Section 25.2.3 below). Tenant’s notice shall contain a clear and unequivocal statement of its election to terminate.

(b) Interference . If any part of the Common Areas of the Facility is taken by Condemnation, this Lease shall remain in full force and effect so long as there is no material interference with access to the Premises. If such a Taking materially interferes with access to the Premises, either party may elect to terminate this Lease pursuant to this Article 25.

(c) Landlord’s Rights . If twenty-five percent (25%) or more of the Building or the Facility is taken by Condemnation (whether or not any portion of the Premises shall have been taken) or if Landlord is required to pay any portion of the Award to an Incumbrancer, Landlord may elect to terminate this Lease in the manner prescribed herein.

25.2.3 Termination or Abatement . If either party elects to terminate this Lease under the provisions of Section 25.2.2 (such party is hereinafter referred to as the “Terminating Party”), it must terminate by giving notice to the other party (the “Non-terminating Party”) within thirty (30) days after the nature and extent of the Taking have been finally determined and written notice thereof has been delivered to Tenant (the “Decision Period”). The Terminating Party shall notify the Non-terminating Party of the date of termination, which date shall not be earlier than sixty (60) days after the Terminating Party has notified the Nonterminating Party of its election to terminate, nor later than the Date of Taking. If such notice of termination is not given within the Decision Period, this Lease shall continue in full force and effect except that the Minimum Monthly Rent and Tenant’s Percentage Share shall be reduced by a fraction, the numerator of which is the rentable square footage taken from the Premises and the denominator of which is the rentable square footage in the Premises prior to the Taking.

25.2.4 Restoration . If there is a partial Taking of the Premises and this Lease remains in full force and effect pursuant to this Article 25, Landlord, at its cost, shall accomplish all necessary restoration so that the Premises are returned as near as practical to their condition immediately prior to the Date of Taking (“Pre-Taking Condition”), but in no event shall Landlord be obligated to expend more for such restoration than the extent of funds actually paid to Landlord by the Condemnor.



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25.2.5 Award . Any Award arising from the Condemnation or the settlement thereof shall belong to and be paid to Landlord, and Tenant hereby assigns to Landlord any right of Tenant thereto, except that Tenant may receive compensation for the following, if specified by the Condemnor, so long as it does not reduce Landlord’s Award and such claim is payable separately to Tenant: Tenant’s trade fixtures, tangible personal property, and relocation expenses. In all events, Landlord shall be solely entitled to all Awards with respect to the Facility, including the bonus value of the leasehold.

26. SALE BY LANDLORD

In the event Landlord shall sell, assign, convey, or transfer its interest in the Facility or any part of the Facility, Tenant agrees to attorn to such transferee, assignee, or new owner. If all of Landlord’s interest in the Facility shall be sold, assigned, conveyed, or transferred, then upon consummation of such sale, assignment, conveyance, or transfer, Landlord shall be freed and relieved from all liability and obligations accruing or to be performed from and after the date of such sale, assignment, transfer, or conveyance, and in such event Tenant agrees to look solely to the responsibility of such transferee, assignee, or new owner, provided such transferee, assignee or new owner expressly assumes all the obligations of Landlord under this Lease. In the event of such sale, assignment, transfer, or conveyance, Landlord shall transfer, or in lieu thereof grant a credit at closing, to such transferee, assignee, or new owner of the Facility the balance of the Deposit, if any, remaining after lawful deductions and in accordance with applicable Law, and Landlord shall thereupon be relieved of all liability with respect to the Deposit.

27. ESTOPPEL CERTIFICATES

Upon Landlord’s request from time to time, Tenant shall execute, acknowledge, and deliver to Landlord, not later than fifteen (15) days after such request, a statement in the form attached hereto as Exhibit G (a) certifying the date of commencement of this Lease, (b) stating that this Lease is unmodified and in full force and effect (or if there have been modifications, that this Lease is in full force and effect as modified and the date and nature of such modifications), (c) stating the dates to which Rent has been paid, (d) acknowledging that there are not, to Tenant’s knowledge, any uncured defaults on the part of Landlord, or specifying each such default if any are claimed, and (e) setting forth such other matters as may reasonably be requested. Tenant intends that any such statement delivered pursuant to this Article may be relied upon by any existing or prospective Incumbrancer or by any purchaser or prospective purchaser of the Facility. If Tenant’s failure to deliver such statement within the required time is not cured within five (5) days after Landlord’s delivery of written notice of such default, such failure to deliver the statement shall, at Landlord’s option (without any further notice or cure period otherwise provided under this Lease), be a default under this Lease by Tenant. At Tenant’s request from time to time, Landlord shall execute, acknowledge, and deliver to Tenant, not later than fifteen (15) days after such request, a statement (a) certifying the date of commencement of this Lease, (b) stating that this Lease is unmodified and in full force and effect (or if there have been modifications, that this Lease is in full force and effect as modified and the date and nature of such modifications), (c) stating the dates to which Rent has been paid, (d) acknowledging that there are not, to Landlord’s knowledge, any uncured defaults on the part of Tenant, or specifying each such default if any are claimed, and (e) setting forth such other matters as may reasonably be requested.



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28. REQUIREMENTS OF LANDLORD’S LENDERS

28.1 Mortgagee Protection .

Tenant agrees to give any present or future Incumbrancers, by certified or registered mail, a copy of any notice of default served upon Landlord, provided that prior to such notice Tenant has been notified, in writing, of the address of such Incumbrancer. Tenant further agrees that if Landlord shall have failed to cure such default within the time provided for in this Lease, then the Incumbrancers shall have an additional thirty (30) days within which to cure such default or if such default cannot be cured within that time, then such reasonable additional time as may be necessary if, within such thirty (30) days, any Incumbrancer has commenced and is diligently pursuing the remedies necessary to cure such default. Such Incumbrancer shall have the right, but not the obligation, to perform all obligations of Landlord under this Lease on behalf of Landlord without becoming an owner of the Building and/or Facility.

29. CONFIDENTIALITY

Landlord shall make no public announcements regarding Tenant's proposed or actual occupancy of the Premises without Tenant's prior written consent, which Tenant may withhold in its reasonable discretion. In addition, all information specifically labeled as “confidential” or that would reasonably be presumed to be confidential, including without limitation all nonpublic information relating to Tenant’s technology, operations, customers, business plans, promotional and marketing activities, finances and other business affairs (“Confidential Information”), that is learned by or disclosed to Landlord with respect to Tenant's business in connection with this leasing transaction shall be kept strictly confidential by Landlord, Landlord's legal representatives, successors, assigns, employees, and agents (collectively, “Representatives”) and shall not be used (except for Landlord's confidential internal purposes or as otherwise required by law) or disclosed to others by Landlord, or Landlord's legal representatives, successors, assigns, employees, and agents, without the express prior written consent of Tenant, which Tenant may withhold in its reasonable discretion. Notwithstanding the foregoing or anything else contained in this Lease to the contrary: (a) the provisions of this Article 29 shall automatically expire on the first anniversary of the Effective Date; (b) Landlord and its Representatives may retain copies of the Confidential Information, and any analysis or other materials prepared by Landlord or its Representatives which contain the Confidential Information or any portion thereof, in order to comply with internal document retention policies and procedures and/or applicable law and regulation, including but not limited to ERISA, SEC, OCC and DOL regulations; (c) the confidentiality and disclosure restrictions in this Article 29 shall not pertain to or include any information or document which (1) was already in a party’s possession prior to the time of disclosure by the other party, (2) was or becomes generally available to the public other than as a result of disclosure by the other party or its representatives, and/or (3) becomes available to a party on a non-confidential basis from a source other than the other party; (d) Confidential Information may be disclosed by Landlord and/or any of its Representatives, without any prior written notice to or approval by Tenant, if disclosure is required or requested by applicable law, regulatory authority, subpoena, or judicial or government order; and (e) in no event shall Landlord and/or its Representatives be responsible or liable for any indirect, consequential or punitive damages in connection with a breach of the provisions of this Article 29.



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Any provision in this Lease requiring a party to indemnify and/or hold harmless another party shall not be applicable to actions arising out of this Article 29.

30. ATTORNEYS’ FEES

If any action or proceeding between the parties, including any appellate or alternative dispute resolution proceeding, the prevailing party may recover from the other party all of its costs and expenses in connection therewith, including reasonable attorneys’ fees and costs. The term “prevailing party” shall include, without limitation, a party who brings an action against the other party by reason of the other party’s breach or default and substantially obtains the relief sought, whether by compromise, settlement, or judgment. If such prevailing party shall recover in any such action, proceeding, or appeal, such costs and expenses (including court costs and reasonable attorneys’ fees, costs and disbursements) shall be included in and as a part of such judgment.

31. NON-WAIVER

The waiver by Landlord or Tenant of any term, covenant, agreement or condition contained in this Lease shall not be deemed to be a waiver of any subsequent breach of the same or of any other term, covenant, agreement, condition or provision of this Lease. Nor shall any consent by Landlord or Tenant in any one instance dispense with necessity of consent in any subsequent or other instance. Nor shall any custom or practice that may develop between the parties in the administration of this Lease be construed to waive or lessen the right of Landlord or Tenant to insist upon performance by the other in strict accordance with all of the terms, covenants, agreements, conditions, and provisions of this Lease. The subsequent acceptance by a party hereto of any payment owed by the other party to that party under this Lease, or the payment of Rent by Tenant, shall not be deemed to be a waiver of any preceding breach by the other party of any term, covenant, agreement, condition, or provision of this Lease, other than the failure of the other party to make the specific payment so accepted by that party, regardless of either party’s knowledge of such preceding breach at the time of the making or acceptance of such payment.

32. NOTICES

All notices, notifications, demands, requests, consents, approvals, designations, elections, and waivers that may or are required to be given by either party to the other hereunder shall be in writing and shall be deemed to have been duly given when delivered personally, or one business day after such notice or demand is sent by a reliable overnight courier service, or three (3) business days after it is sent by United States certified or registered mail, return receipt requested, in each case with postage prepaid and the notice or demand addressed to the other party at its address set forth in Section 1.2 of this Lease, or to such other place as such party may from time to time by like notice designate.

33. JOINT AND SEVERAL LIABILITY

If Tenant consists of more than one person or other entity, then Tenant’s obligations hereunder shall be joint and several as between all such persons or entities.



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34. TIME

Subject to the provisions of Article 18 (Force Majeure), time is of the essence of this Lease and each and all of its provisions.

35. SUCCESSORS

Subject to the provisions of Article 14 (Assignment and Subletting) and Article 26 (Sale by Landlord), and except as otherwise provided to the contrary in this Lease, the terms, covenants, and conditions herein contained shall apply to, bind, and inure to the benefit of the heirs, successors, executors, administrators, and permitted assigns of the respective parties hereto.

36. ENTIRE AGREEMENT

This Lease (including the exhibits, riders, addenda, and schedules referred to herein and made a part hereof) embodies the entire agreement between, and understanding of, the parties and supersedes all prior agreements and understandings (oral or written) between the parties with respect to the subject matter hereof. This Lease shall not be modified by any oral agreement, either express or implied, and all modifications hereof shall be in writing and signed by both Landlord and Tenant.

37. RESTRICTIONS ON OPTIONS

37.1 Definition .

As used in this Article 37, the word “Option” shall mean any of the following rights or options of Tenant, if any such rights or options are granted pursuant to this Lease: (a) any right or option to extend the Term, (b) any right or option to lease any other space within the Facility, and (c) any right or option of Tenant to terminate or cancel this Lease prior to the last day of the initial Term contemplated by Section 2.2.4.

37.2 Options Personal .

Each Option, if any, granted to Tenant in this Lease is personal to the Original Tenant and may be exercised only by the Original Tenant or a Permitted Affiliate while the Original Tenant and/or a Permitted Affiliate are directly (and not through subleases) occupying at least fifty percent (50%) of the Premises, and may not be exercised or assigned, voluntarily or involuntarily, by or to any person or entity other than the Original Tenant or a Permitted Affiliate. The Options, if any, herein granted to the Original Tenant or a Permitted Affiliate are not assignable separate and apart from this Lease, nor may any Option be separated from this Lease in any manner, by reservation or otherwise.

37.3 Multiple Options .

In the event that Tenant has multiple Options to extend or renew the Term, a later Option cannot be exercised unless the prior Option to extend or renew this Lease has been so exercised.



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37.4 Strict Enforcement of Conditions and Limitations Upon Options .

37.4.1 Tenant hereby specifically acknowledges and agrees that the time limitations upon the exercise of any Option will be strictly enforced, that any attempt to exercise such Option at any other time shall be void and of no force or effect, and that if any such Option is not exercised within the applicable time period, Landlord intends immediately thereafter to undertake appropriate efforts relating to the marketing or management of the space affected by the Option. Notwithstanding anything to the contrary contained in this Lease, the period of time within which an Option may be exercised shall not be extended or enlarged by reason of Tenant’s inability to exercise such Option because of the provisions of this Section or for any other reason (except in the event of Force Majeure).

37.4.2 Tenant further agrees that if a monetary or material Event of Default has occurred or exists on the date of giving the required notice of exercise of such Option or at the commencement of the Option Term, such notice shall at Landlord’s sole election be totally ineffective, in which event this Lease shall expire at the end of the Term as theretofore in effect. Notwithstanding any provision of this Lease to the contrary, all Options shall automatically be void, and shall have no further effect, upon the commencement of any holdover by Tenant after the expiration or earlier termination of the Term.

37.5 Events of Bankruptcy .

In addition to those events and occurrences constituting Events of Default under other provisions of this Lease, the occurrence of any of the following events shall also constitute an Event of Default:

37.5.1 Filing by Tenant of a voluntary petition under any applicable bankruptcy Law, or the issuance of an order for relief entered under any applicable bankruptcy Law, or the filing by Tenant of any petition or answer seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief for Tenant under the present or any future applicable Law relative to bankruptcy, insolvency, or other relief for debtors, or Tenant’s consent to or acquiescence in the appointment of any trustee, receiver, conservator, or liquidator of Tenant or of all or any substantial part of its properties or its interest in the Premises (the term “acquiesce,” as used in this clause, includes, but is not limited to, the failure to file a petition or motion to vacate, appeal, or discharge any order, judgment, or decree within sixty (60) days after entry of such order, judgment, or decree);

37.5.2 Issuance or entry, by a court of competent jurisdiction, of any order, judgment, or decree approving a petition filed against Tenant seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under any present or future applicable Law relating to bankruptcy, insolvency, or other relief for debtors, and acquiescence by Tenant in the entry of such order, judgment, or decree; or the failure of such order, judgment, or decree to be vacated or stayed within an aggregate of ninety (90) days (whether or not consecutive) after the date of entry thereof; or the appointment, without the consent or acquiescence of Tenant, of any trustee, receiver, conservator, or liquidator of Tenant or of all or any substantial part of its



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properties or its interest in the Premises and the failure of such appointment to be vacated or stayed within an aggregate of ninety (90) days (whether or not consecutive); or

37.5.3 Tenant’s making a general arrangement or general assignment for the benefit of creditors or taking any other similar action for the protection or benefit of creditors.

38. RIGHT OF FIRST OFFER

38.1 Scope of Right .

During the Term of this Lease (the “Offer Period”), provided that (a) this Lease is in full force and effect and that no Event of Default shall exist under this Lease (both at the time of the exercise of the right(s) described in this Article 38 and on the date of entry into the agreement incorporating the Offer Space (as hereinafter defined)] and (b) Tenant has provided Landlord with a written space needs notice dated not earlier than twelve (12) months prior to the date a particular Offer Space “becomes available”, Tenant shall have the right (the “Right of First Offer”), at the expiration of the term of any lease in respect of the Offer Space, to lease any space in the Building (the “Right of First Offer Space”) on the first (1st) occasion that such space “becomes available.” For purposes of this Article 38, the Right of First Offer Space shall be deemed to “become available” when the lease or other occupancy agreement for the current occupants of any Right of First Offer Space expires or is otherwise terminated.

38.2 Exceptions .

Notwithstanding anything set forth in this Section to the contrary, the Right of First Offer Space shall not be deemed to “become available” if the Right of First Offer Space is:

(i) Assigned or subleased by the current tenant of the Right of First Offer Space; or

(ii) Re-leased by the current tenant of the Right of First Offer Space by renewal, extension, or renegotiation (whether or not an express renewal option is afforded to such tenant under the terms of its lease); or

(iii) Not leased to a tenant as of the date of this Lease (until that space is leased, and then subsequently “becomes available”); or

(iv) Subject to an existing, prior right of first offer of another tenant in the Building (the parties acknowledge that an existing tenant has the prior right of first offer to lease floors 15, 16, 17, 18, 20, 21 and/or 23 of the Building and such right is the only existing right); or

(v) Subject to a holdover by the current tenant.



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38.3 Procedure .

Subject to the foregoing, the first time during the Offer Period that Landlord proposes to offer for lease any Right of First Offer Space which Landlord anticipates will “become available,” Landlord shall furnish to Tenant a notice (the “First Offer Proposal”) containing the material terms of the proposed lease in respect of the applicable portions of the available Right of First Offer Space (the “Offer Space”), including (i) a floor plan of the Offer Space, (ii) the proposed effective date of the lease for the Offer Space, and (iii) any other material terms which Landlord shall deem appropriate. Tenant shall have the option, exercisable by notice delivered to Landlord within ten business (10) days after Tenant’s receipt or refusal of receipt of Landlord’s First Offer Proposal, TIME BEING OF THE ESSENCE, to lease the Offer Space upon such terms and conditions as are contained in the First Offer Proposal. If Tenant timely delivers to Landlord written notice of Tenant’s exercise of the Right of First Offer for the Offer Space, then, within ten (10) business days thereafter, the parties shall enter into an amendment to this Lease incorporating the Offer Space as part of the Premises on the terms and conditions contained in the First Offer Proposal provided, however, that Monthly Minimum Rent shall be the Then Prevailing Market Rent (as defined and determined in Article 59 hereof). If Tenant declines or fails to timely exercise its Right of First Offer, Landlord shall thereafter be free to lease the Offer Space without regard to the restrictions contained in this Article 38 and on such terms and conditions as Landlord presented to Tenant, Landlord shall thereafter have the right to lease the Offer Space without restriction provided, however, that the average annual net effective rental rate (gross rent paid, less any tenant improvement costs amortized over the lease term) paid by the subsequent tenant cannot be less than ninety percent (90%) of the average net effective rental rate contained in the First Offer Proposal without first re-offering the Offer Space to Tenant. The Right of First Offer is only available to Tenant on the first (1 ^st ) occasion that such Offer Space “becomes available” and Tenant recognizes and agrees that it shall have no further right to lease such Offer Space.

38.4 Limitations .

This Right of First Offer is personal to Tenant and Permitted Affiliates and shall otherwise become null and void upon the occurrence of an assignment of the Lease or subletting of all or any portion of the Premises in accordance with the terms of this Lease.

39. RECORDING

Tenant shall not record this Lease or any memorandum hereof. Further, upon Landlord’s written request at any time on or after the expiration or earlier termination of this Lease, at Landlord’s cost and expense, Tenant shall promptly execute, acknowledge, and deliver to Landlord any quitclaim deed or other document required by any reputable title company to remove any cloud or encumbrance created by this Lease upon the Facility.

40. AUTHORIZATION TO SIGN LEASE

Each individual executing this Lease on behalf of Landlord represents and warrants that he/she is duly authorized to do so pursuant to authority delegated by Landlord’s duly authorized entity formation documents and that this Lease is binding on Landlord in accordance with its terms. Each individual executing this Lease on behalf of Tenant represents and warrants that he/she is duly



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authorized to execute and deliver this Lease on behalf of Tenant in accordance with the terms of such entity’s formation documents, and that this Lease is binding upon Tenant in accordance with its terms.

41. BROKER PARTICIPATION

In consideration for brokerage services rendered to Landlord in this transaction, Landlord shall pay its and Tenant’s brokers (which brokers are identified in Section 1.10 above) a commission as set forth in separate agreements between Landlord and said brokers. Except as otherwise set forth in the preceding sentences, each party agrees to indemnify, defend, and hold harmless the other party from any claim, liability or loss arising out of any actual or alleged dealings of the indemnifying party with any real estate broker, agent or finder in connection with this transaction.

42. SURVIVAL OF CERTAIN RIGHTS AND OBLIGATIONS

The respective parties’ remedies, payment obligations, indemnities, waivers and releases under this Lease, with respect to Tenant’s use or possession of the Premises during the Term and any holdover period, and with respect any cost or expense incurred during or with respect to the Term or any holdover period, shall survive the termination of this Lease.

43. PARKING

43.1 Entitlement .

Subject to the terms and conditions of this Article 43, Tenant shall be obligated to use, in common with other tenants and Landlord and its agents, the number of undesignated vehicle parking permits allocated to Tenant in Section 1.11, provided, however, that if the size of the Premises shall hereafter be increased or reduced, whether pursuant to an amendment of lease or any modification to this Lease or otherwise, the number of parking permits allocated to Tenant shall automatically be increased or reduced pro rata based on one space per 5,000 RSF of Premises, as the case may be. If Tenant parks more vehicles in the Facility’s parking area than are permitted under this Section, Landlord shall have the right, without limitation to Landlord’s other remedies under this Lease, to collect from Tenant a daily charge, to be reasonably determined by Landlord, for each such additional vehicle.

43.2 Basis of Operation .

The parking facility shall generally be operated on a parking assist/valet basis, and the hours of such operation shall be extended if demand warrants the same and provided that the cost of such additional operation is paid by the tenants of the Building who are users of such extended hours program.

43.3 Rates .

Tenant’s use of such parking spaces shall be subject to payment by Tenant of such standard monthly parking rates as may be charged from time to time to persons other than the officers and employees of Landlord and its affiliates, and subject to such non-discriminatory rules and regulations as may be reasonably established or altered from time to time by Landlord or its



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manager of such parking facilities, provided that, subject to any Laws or closures which may be reasonably required from time to time for construction, maintenance, repairs, actual or threatened emergency or other events or circumstances which make it reasonably necessary to temporarily restrict or limit access, Tenant shall have access to the Building’s parking facility at all times (i.e., 365 days a year, 24 hours a day).

43.4 Licenses .

At Landlord’s request, Tenant (or its designated employees with parking privileges) shall enter into commercially reasonable parking licenses or lease agreements or other arrangements then in use by Landlord (or Landlord’s operator of the parking facilities) with respect to such monthly parking. Upon request, Tenant shall provide Landlord with the license plate numbers of all vehicles that Tenant’s employees park in the Building’s parking facility.

43.5 Parking Facility Operator .

In the sole discretion of Landlord, the parking facility may be leased to a third party operator who shall be responsible for providing the parking services described hereunder.

43.6 Bike Racks .

Tenant shall be allowed to use the bike racks located in the garage of the Building. Tenant shall have the right to use the area delineated as “Fitbit Bike Parking Cage Area” on Exhibit A-3 hereto (as part of the parking spaces allocated to Tenant under this Lease) for the purpose of installing bike racks for Tenant’s exclusive use (the “Exclusive Bike Racks”). Tenant shall be required to install a cage to house the Exclusive Bike Racks, such installation of which shall be subject to Landlord’s approval in all respects. Tenant shall maintain the Exclusive Bike Racks at its sole cost and expense and shall pay to Landlord the sum of $1,500.00 per month for the use of the area, as additional rent, together with the payment of Minimum Monthly Rent (the “Bike Racks Charge”). The Bike Racks Charge shall be in lieu of any other charge that might be imposed by Landlord or the parking facility operator for the use of parking spaces in the parking facility. Landlord shall have access to the area of Tenant’s Exclusive Bike Racks for proper business or operational purpose including, but not limited to, Building maintenance and repair.

44. SEVERABILITY

Should any provision of this Lease be illegal, void, invalid, inoperative, or unenforceable, no other provision of this Lease shall be affected thereby, and the remainder of this Lease shall be effective as though such illegal, void, invalid, inoperative, or unenforceable provision had not been included herein.

45. CERTAIN RIGHTS RESERVED BY LANDLORD

Landlord hereby expressly reserves the rights set forth in the Sections of this Article 45. Except to the extent otherwise expressly provided elsewhere in this Lease or otherwise required by Law, such rights shall be exercisable (a) upon written notice to Tenant, (b) without liability to Tenant for damage or injury to property, persons, or business, (c) without effecting a constructive or actual eviction of Tenant or disturbance of Tenant’s use, possession, or enjoyment of its Premises, and (d) without giving rise to any claim for setoff or abatement of Rent; provided, however, that Landlord



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shall use commercially reasonable efforts to minimize any interference with Tenant’s business operations or Tenant access to the Premises and Tenant’s parking rights in Landlord’s exercise of its rights hereunder. The enumeration of such rights of Landlord in the following Sections is not intended to limit any other rights of Landlord, whether expressed or implied, at law or under other provisions of this Lease.

45.1 Repairs .

Landlord shall have the right to decorate and make repairs, alterations, additions, changes, and/or improvements, whether structural or otherwise, in and about the Building and elsewhere in the Facility, including, without limitation, construction of additional buildings or other new improvements and changes in the location, size, shape, and number of driveways, entrances, parking spaces, parking areas, loading and unloading areas, ingress, egress, direction of traffic, landscaped areas, sidewalks, and walkways. For such purposes Landlord may enter upon the Premises subject to the terms and conditions of Section 22 of the Lease, and, during the continuance of any such work, temporarily close doors, entryways, public space and corridors in the Building or elsewhere in the Facility, to interrupt or temporarily suspend building services and facilities, and to change the arrangement and location of entrances, or passageways, doors and doorways, corridors, elevators, stairs, toilets, or other public parts of the Building or Facility.

45.2 Security .

Landlord shall, in compliance with all applicable leases, have the right to take all such reasonable measures as Landlord may deem reasonably advisable for the security of the Building or the Facility and their occupants, including, without limitation, the lawful search of any person entering or leaving the Building, the evacuation of the Building (or any part thereof) for cause, suspected cause, or for drill purposes, the temporary denial of access to the Building (or any part thereof), and the closing of the Building after normal business hours and on Sundays and holidays, subject, however, to Tenant’s right to admittance, when the Building is so closed, under such reasonable regulations as Landlord may prescribe from time to time.

46. WAIVER OF JURY TRIAL

TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY HEREBY WAIVES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, OR RELATED TO, THE SUBJECT MATTER OF THIS LEASE. THIS WAIVER IS KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY MADE BY TENANT AND TENANT ACKNOWLEDGES THAT NEITHER LANDLORD NOR ANY PERSON ACTING ON BEHALF OF LANDLORD HAS MADE ANY REPRESENTATIONS OF FACT TO INDUCE THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT.



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47. INTERPRETATION

The words “Landlord” and “Tenant” as used herein shall include the plural as well as the singular and, when appropriate, shall refer to action taken by or on behalf of Landlord or Tenant by their respective employees, agents, or authorized representatives. Words in masculine gender include the feminine and neuter. The titles of the Sections, Subsections, and other provisions of this Lease are for convenience only and they shall not in any way limit or amplify the terms or provisions of this Lease. All provisions, whether covenants or conditions, on the part of Tenant shall be deemed to be both covenants and conditions. This Lease shall not be construed against either party more or less favorably by reason of authorship of origin of language. The only inference that shall be drawn from the fact of any provision of this Lease having been stricken, crossed out, or otherwise deleted is that said stricken, crossed out, or deleted provision is not a part of this Lease; no inference shall be drawn to the effect that the parties intended the opposite of what the stricken, crossed out, or deleted provision would have provided for. This Lease shall in all respects be governed by and construed and enforced in accordance with the Laws of the State of California, and any litigation concerning this Lease between the parties hereto shall be initiated in the City and County of San Francisco.

48. COOPERATION WITH LANDLORD’S SUSTAINABLE PRACTICES AND GOVERNMENT SPONSORED PROGRAMS

48.1 In General .

Tenant hereby covenants and agrees, at its sole cost and expense, to participate in and cooperate with Landlord’s sustainability practices described in Section 3.4 and the requirements of any and all governmentally mandated programs adopted for the Building or the Facility concerning employment, transportation system management, child care facilities, recycling, energy or water conservation, safety, emergency training procedures and drills, or the like. Tenant shall designate floor wardens and assistant floor wardens for each floor of the Premises. Upon reasonable notice from Landlord, Tenant shall cause its floor wardens to attend Landlord’s emergency response training during regular business hours. Tenant shall establish appropriate procedures for communicating Landlord’s emergency procedures to all of Tenant’s employees occupying the Premises.

48.2 Transportation .

Tenant shall fully comply with Landlord’s sustainability practices and all present or future governmentally mandated programs intended to manage parking, transportation or traffic in and around the Building, and in connection therewith, Tenant shall take responsible 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: (a) restrictions on the number of peak-hour vehicle trips generated by Tenant; (b) increased vehicle occupancy; (c) implementation of an in-house ridesharing program and an employee transportation coordinator; (d) working with employees and any Building or area-wide ridesharing program manager; (e) instituting employer-sponsored incentives (financial or in-kind) to encourage employees to rideshare; and (f) utilizing flexible work shifts for employees.



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48.3 Assistance .

Pursuant to the City of San Francisco Planning Code Article 163, Landlord has entered into an agreement with the San Francisco Department of City Planning to provide and implement a transportation management program for tenants of the Building and to participate in a program designed to coordinate commute alternatives marketing and brokerage for employees in the Greater Downtown San Francisco, California area. During the term of Tenant’s tenancy, Landlord agrees to provide transportation brokerage and commute assistance services, as part of Operating Expenses, to Tenant to assist Tenant in meeting the transportation needs of its employees to the extent required by law. Tenant agrees to cooperate with and assist the Landlord’s transportation management coordinator (the “Coordinator”), through designation of a responsible employee, to distribute to Tenant’s employees written materials promoting and encouraging the use of public transit and/or ridesharing, and distribute and return to the Coordinator transportation survey questionnaire forms.

49. OFFER

Preparation of this Lease by Landlord or Landlord’s agent and submission of same to Tenant shall not be deemed an offer to lease and neither party shall act in reliance on said Lease being thereafter signed. This Lease shall become binding upon Landlord and Tenant only when fully executed by both Landlord and Tenant.

50. LANDLORD’S DISCLOSURE REGARDING HAZARDOUS SUBSTANCES

50.1 In General .

By signing this Lease, Tenant represents that Tenant has read and understood the required disclosures, if any, of Landlord set forth in the paragraph below, which disclosures relate to certain Hazardous Substances known or suspected to exist at the Premises, Building, or Facility.

50.2 Disclosures .

California law requires landlords to disclose to tenants the existence of certain Hazardous Substances. Accordingly, the existence of gasoline and other automotive fluids, maintenance fluids, copying fluids and other office supplies and equipment, certain construction and finish materials, tobacco smoke, cosmetics and other personal items, and asbestos-containing materials (“ACM”) must be disclosed. Gasoline and other automotive fluids will likely be found in the garage area of the Building. Cleaning, lubricating and hydraulic fluids used in the operation and maintenance of the Building will likely be found in the utility areas of the Building not generally accessible to Building occupants or the public. Many Building occupants will use copy machines and printers with associated fluids and toners, and pens, markers, inks, and office equipment that may contain Hazardous Substances. Certain adhesives, paints and other construction materials and finishes which will be used in portions of the Building may contain Hazardous Substances. Building occupants and other persons entering the Building from time to time may use or carry prescription and non-prescription drugs, perfumes, cosmetics and other toiletries, and foods and beverages, some of which may contain Hazardous Substances. Further, the real property under and surrounding the Building was formerly occupied by a gasoline service station.



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51. SIGNAGE

51.1 Grant of Signage Rights .

Subject to the terms and conditions of this Article 51 and provided Tenant or a Permitted Affiliate is in occupancy of at least 120,000 rentable square feet of the Premises, Tenant or a Permitted Affiliate shall be entitled to install an appropriate and tasteful “plaque-type” sign, including its name only, (a) on the exterior eastern exposure of the Building, on the corner of Beale and Howard Streets, at a level of not more than 100 feet high on the Building in accordance with the requirements of the City of San Francisco (it being agreed and understood that Landlord has made no representation that the City of San Francisco permits such signage or, if permitted, shall approve Tenant’s request for such signage), (b) on the exterior Building signage, similar to existing tenant plaque signage, (c) in each elevator lobby on any full floor of Tenant’s Premises, and (d) on the main entry doors to the Premises from any elevator lobbies. In accordance with the approval process set forth in Exhibit B, Landlord shall have the right to reasonably approve the location, design, size, construction materials, and method of installation of Tenant’s signage.

51.2 Costs and Installation .

The costs of Tenant’s signage and the installation thereof shall be paid for by Tenant, but such costs may be reimbursed from the Tenant Construction Allowance (as such term is defined in Exhibit B). Tenant shall adhere to Landlord’s reasonable requirements regarding Tenant’s installation of Tenant’s signs. If Landlord elects to install any of Tenant’s Signs, and provided that Landlord shall first provide Tenant with its estimate of the costs of such installation, Landlord shall be promptly reimbursed by Tenant (either directly or through a credit against the Tenant Construction Allowance) for the reasonable out-of-pocket cost of such installation.

51.3 Multi-Tenant Directory .

Landlord shall provide, at no charge to Tenant, a listing on the ground floor lobby directory identifying Tenant.

52. LABOR COVENANT

52.1 Maintenance Covenant .

Tenant shall use Union Labor (as defined below) for all repairs, alterations or additions to the Premises (the "Maintenance Labor Covenant"), except that the Maintenance Labor Covenant shall not apply to the services for installation, operation, maintenance and repair of personal property owned exclusively by Tenant (e.g., computer systems, telephones, and furniture other than modular furniture) or for any of Tenant's specialized equipment. To the extent Union Labor is unavailable in the market to perform a specific repair, maintenance, alteration or addition, Tenant shall not be in default of the Maintenance Labor Covenant. Tenant shall (i) include the Maintenance Labor Covenant in each of its service contracts, (ii) provide such evidence as Landlord may reasonably require, from time to time during the Term, that the Maintenance Labor Covenant is being fully and faithfully observed and Tenant shall include the obligation to provide such evidence



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in each service contract entered into by Tenant for such services, and (iii) incorporate the foregoing requirements in any sublease, license, or occupancy agreement relating to all or any part of the Premises (without implying Landlord's consent to same).

52.2 Construction Covenant .

In addition to any other conditions contained in this Lease (or any Exhibit attached hereto) with respect to the Work (as defined in Exhibit B attached hereto) or Tenant making any Alteration, before commencing the Work or making any Alteration to the interior or exterior of the Premises, Tenant shall (i) deliver to Landlord evidence satisfactory to Landlord that Tenant shall cause such construction or alteration work (collectively, the "Construction Activities") to be performed by contractors who employ craft workers who are members of unions that are affiliated with The Building and Construction Trades Department, AFL-CIO ("Union Labor"), and such work shall conform to traditional craft jurisdictions as established in the area (the "Construction Labor Covenant"), (ii) include the Construction Labor Covenant in each of its contracts for the Construction Activities, (iii) provide such evidence as Landlord may reasonably require, from time to time during the course of the Construction Activities, that the Construction Labor Covenant is being fully and faithfully observed and Tenant shall include the obligation to provide such evidence in each contract entered into by Tenant for the Construction Activities, and (iv) incorporate the foregoing requirements in any sublease, license, or occupancy agreement relating to all or any part of the Premises (without implying Landlord's consent to same). Off-site construction and fabrication of components traditionally manufactured off-site used in any alterations or improvements to the interior or exterior of the Premises are exempt from the Construction Labor Covenant. Exterior and structural alterations or improvements constructed or fabricated off-site as well as all concrete and cement used must be delivered to the Premises by a union-signatory transportation company. Tenant shall require that all contractors and subcontractors, of whatever tier, performing Construction Activities agree to submit all construction jurisdictional disputes (i.e., disputes about which union is the appropriate union to perform a given contract) to final and binding arbitration to the procedures of the jointly administered "Plan for the Settlement of Jurisdictional Disputes in the Construction Industry," a dispute resolution plan established and administered by The Building and Construction Trades Department, AFL-CIO, and various construction industry employer associations.

52.3 Indemnity .

Except for those Claims resulting from Landlord’s gross negligence or willful misconduct, Tenant shall, at its expense, defend (by counsel reasonably approved by Landlord), protect, indemnify and hold harmless Landlord and Landlord’s Indemnified Parties from and against any and all Claims for injury (including death and physical, psychological, and emotional injuries) to any person or damage to any property whatsoever, to the extent arising from or caused by (whether in whole or in part, directly or indirectly) any action taken by Landlord in connection with a breach of the Maintenance Labor Covenant or the Construction Labor Covenant.



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52.4 Default and Remedies .

In addition to those events designated as Events of Default pursuant to Section 23.1 of the Lease and notwithstanding anything to the contrary set forth in the Lease, an "Event of Default" by Tenant and a breach of the Lease shall also exist if Tenant shall fail to comply with the Maintenance Labor Covenant or the Construction Labor Covenant and shall not cure such failure immediately after (and in all events within one (1) day after) notice thereof to Tenant, which notice shall be given as follows: Dawn Birkett, Telephone: 415-305-1449, Email: dbirkett@fitbit.com. Notwithstanding anything contained in the Lease to the contrary, if the Event of Default arises out of or is in any way related to a breach of the Maintenance Labor Covenant or the Construction Labor Covenant, then, in addition to all other remedies, Landlord may immediately take any and all actions that Landlord deems necessary in its reasonable to cure said default on behalf of Tenant including, but not limited to, causing the stoppage of any and all work and/or the removal of any workers performing activities in violation of the Maintenance Labor Covenant or the Construction Labor Covenant, in which case, Tenant shall promptly reimburse Landlord for all amounts expended by Landlord in connection therewith together with interest thereon at the Interest Rate, all of which shall constitute additional rent hereunder. No action taken by Landlord in accordance with the provisions of this paragraph shall constitute a breach by Landlord of any implied or express provision of this Lease including, but not limited to, a breach of the covenant of quiet enjoyment, or an act of trespass or conversion. Tenant hereby releases Landlord from all liabilities, claims and causes of action in any way related to the exercise of any rights or remedies set forth in this paragraph. Nothing herein shall impose any duty on the part of Landlord to stop the work of and/or remove any persons, and Landlord’s failure to do so shall not constitute a waiver of any remedies available to Landlord resulting from such Event of Default.

53. ERISA AND THE CODE

53.1 ERISA Representation .

Tenant represents and warrants to Landlord that neither Tenant nor any guarantor of Tenant’s obligations under this Lease is (a) a party in interest, as defined in Section 3(14) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), to the AFL-CIO Building Investment Trust (“Trust”), or any of the plans participating therein, (a current list of which is attached to this Lease as Exhibit E ) , or (b) a disqualified person under Section 4975(e)(2) of the Internal Revenue Code of 1986, as amended (“Code”), with respect to the Trust or the plans participating therein. Neither Tenant nor any guarantor of Tenant’s obligations under this Lease shall take any action that would cause this Lease or the exercise by Landlord or the Trust of any rights hereunder, to be a non-exempt prohibited transaction under ERISA or the Code.



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53.2 No Affiliation .

Except as set forth below, Tenant represents and warrants to Landlord that (a) neither Tenant nor any guarantor of Tenant’s obligations under this Lease is an affiliate of PNC Bank, National Association or an affiliate or subsidiary of PNC Bank, National Association, (b) Tenant is not using any financing obtained from PNC Bank, National Association or any affiliate or subsidiary of PNC Bank, National Association in connection with this Lease, and (c) Tenant has not directly or indirectly granted to PNC Bank, National Association, or any affiliate or subsidiary of PNC Bank, National Association, any security interest in Tenant’s interest in this Lease or in any of Tenant’s fixtures, furniture of equipment located at the Premises in connection with any financing obtained from PNC Bank, National Association, or any affiliate or subsidiary of PNC Bank, National Association. Landlord and Tenant acknowledge that PNC Bank, National Association, is a current lender of Tenant under Tenant’s ALB Revolver credit facility (the “Revolver”).

53.3 Conditions Precedent to Assignment or Sublease .

Notwithstanding any contrary provision of this Lease, Tenant shall not assign this Lease or sublease all or any portion of the Premises unless (i) such assignee or subtenant delivers to Landlord a certification (in form and content satisfactory to Landlord) disclaiming status of such assignee or subtenant (and any guarantor of such assignee’s or subtenant’s obligations) as an affiliate of PNC Bank, National Association and as using financing from PNC Bank, National Association, as provided above in 53.2; and (ii) such assignee or subtenant undertakes not to take any action that would cause this Lease or the exercise by Landlord or the Trust of any rights hereunder, to constitute a non-exempt prohibited transaction under ERISA or the Code.

54. UBIT

Notwithstanding any contrary provision of this Lease, Tenant shall not sublease all or any portion of the Premises under a sublease in which the rent is based on the net income or net profits of any person, since the revenues to be received by Landlord or the Trust from time to time in connection with this Lease may, as a result of such action, be subject to the Unrelated Business Income Tax under Sections 511 through 514 of the Code.

55. COVENANT OF QUIET ENJOYMENT

Provided Tenant performs the terms, conditions and covenants of this Lease, and subject to the terms and provisions hereof, Tenant shall have quiet and peaceful possession of the Premises, for the Term, without hindrance, claim or molestation by Landlord or any other person lawfully claiming under Landlord. The foregoing is in lieu of any other covenant, express or implied.

56. EXERCISE ROOMS AND DAYCARE CENTER

The Facility currently includes a day care center (as mandated pursuant to the final conditions of approval for the Facility dated December 5, 1991 as may be subsequently amended by Landlord and the City of San Francisco) and an “Exercise Room” for the use of the tenants of the Building, both operated on a first-come, first-serve basis, and usable pursuant to rules and procedures as



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adopted by Landlord in its sole discretion, including the requirement of execution of indemnity agreements, waivers and releases as a preconditions to their use. Either or both of such enterprises may be located in the Marine Electric Building.

Landlord shall have the sole right to determine the size of the Exercise Room, which may be unsupervised and unmonitored. Notwithstanding anything set forth in this Article 56, Landlord shall have the right to review the use of the Exercise Room and related facilities at any time, and, if Landlord determines that the Exercise Room is not consistently used in a manner which makes the Exercise Room worthwhile, then Landlord may alter the Exercise Room, use the Exercise Room for other purposes or otherwise change the Exercise Room.

57. ANTI-MONEY LAUNDERING/INTERNATIONAL TRADE LAW COMPLIANCE

57.1 Anti-Money Laundering/International Trade Law Compliance .

57.1.1 Tenant hereby represents and warrants that, as of the date of execution of this Lease, no Covered Entity: (1) is a Sanctioned Person; and (2) either in Covered Entity’s own right or through any third party, (a) has any of its assets in a Sanctioned Country or in the possession, custody or control of a Sanctioned Person in violation of any Anti-Terrorism Law, (b) does business in or with, or derives any of its income from investment in or transactions with, any Sanctioned Country or Sanctioned Person in violation of any Anti-Terrorism Law, or (c) engages in any dealings or transactions prohibited by any-Anti-Terrorism Law.

57.1.2 Tenant hereby covenants during the term of this agreement, that no Covered Entity: (1) will become a Sanctioned Person, and (2) either in Covered Entity’s own right or through any third party (a) will have any of its assets in a Sanctioned Country or in the possession, custody or control of a Sanctioned Person in violation of any Anti-Terrorism Law, (b) will do business in or with, or derive any of its income from investment in or transactions with, any Sanctioned Country or Sanctioned Person in violation of any Anti-Terrorism Law, (c) will engage in any dealings or transactions prohibited by any-Anti-Terrorism Law; or (d) will use any proceeds, funds or fees advanced pursuant to this agreement to fund any operations in, finance any investments or activities in, or, make any payments to, a Sanctioned Country or Sanctioned Person in violation of any Anti-Terrorism Law. Tenant further covenants that Each Covered Entity shall comply with all Anti-Terrorism Laws. Tenant shall promptly notify Landlord in writing upon the occurrence of a Reportable Compliance Event.

57.1.3 As used in this Section:

1. “Anti-Terrorism Laws” means any Laws relating to terrorism, trade sanctions programs and embargoes, import/export licensing, money laundering, or bribery, and any regulation, order, or directive promulgated, issued, or enforced pursuant to such Laws, all as amended, supplemented or replaced from time to time.

2. “Covered Entity” means (a) Tenant, each of Tenant’s subsidiaries and any guarantor of this Lease and (b) each person or entity that, directly or indirectly, is in control of a person or entity described in clause (a) above. For purposes of this definition, control of a person or entity shall mean the direct or indirect (x) ownership of, or power to vote, 25% or more of the issued and outstanding equity interests having ordinary voting power for the election of directors



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of such person or entity or other persons or entities performing similar functions for such person or entity, or (y) power to direct or cause the direction of the management and policies of such person or entity whether by ownership of equity interests, contract or otherwise.

3. “Governmental Body” means any nation or government, any state or other political subdivision thereof or any entity, authority, agency, division or department exercising the executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to a government (including any supra-national bodies such as the European Union or the European Central Bank) and any group or body charged with setting financial accounting or regulatory capital rules or standards (including, without limitation, the Financial Accounting Standards Board, the Bank for International Settlements or the Basel Committee on Banking Supervision or any successor or similar authority to any of the foregoing).

4. “Law” shall mean any law(s) (including common law), constitution, statute, treaty, regulation, rule, ordinance, opinion, issued guidance, release, ruling, order, executive order, injunction, writ, decree, bond, judgment, authorization or approval, lien or award of or any settlement arrangement, by agreement, consent or otherwise, with any Governmental Body, foreign or domestic.

5. “Reportable Compliance Event” means that any Covered Entity becomes a Sanctioned Person, or is charged by indictment, criminal complaint or similar charging instrument, arraigned, or custodially detained in connection with any Anti-Terrorism Law or any predicate crime to any Anti-Terrorism Law, or has knowledge of facts or circumstances to the effect that it is reasonably likely that any aspect of its operations is in actual or probable violation of any Anti-Terrorism Law.

6. “Sanctioned Country” means a country subject to a sanctions program maintained under any Anti-Terrorism Law.

7. “Sanctioned Person” means any individual person, group, regime, entity or thing listed or otherwise recognized as a specially designated, prohibited, sanctioned or debarred person, group, regime, entity or thing, or subject to any limitations or prohibitions (including but not limited to the blocking of property or rejection of transactions), under any Anti-Terrorism Law.

58. INCORPORATION

Tenant agrees that it shall incorporate the requirements of Sections 53 (ERISA and the Code), 54 (UBIT), and 57 (Anti-Money Laundering/International Trade Law Compliance) in any sublease of the Premises.



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59. RENEWAL OPTION

59.1 Grant of Renewal Option .

Subject to the terms and conditions of this Article 59 and Article 37 of this Lease, Tenant shall have one option (the “Renewal Option”) to extend the Term for one period of five (5) years (the “Renewal Term”). The Renewal Option shall be exercisable one time only upon written notice (an “Option Notice”) given to Landlord not fewer than twelve (12) months prior to the expiration of the Term.

59.2 Minimum Monthly Rent.

For purposes of this Article 59, the term “Minimum Monthly Rent” shall be deemed to include both the Minimum Monthly Rent payable pursuant to Section 5.1 of this Lease and also any monthly rent paid for any storage space Tenant may then be leasing from Landlord. In the event the Renewal Option is validly exercised in accordance with the terms and conditions of this Article, then the Term shall be extended to include the Renewal Term, during which all the terms and conditions contained in this Lease shall remain in full force and effect, except that (a) the Minimum Monthly Rent during such Renewal Term shall be one hundred percent (100%) of the “Then Prevailing Market Rent,” as defined below, but in no event shall the Then Prevailing Market Rent be less than the Minimum Monthly Rent payable during the month immediately preceding the commencement of the Renewal Term, (b) Landlord shall not be obligated to supply, nor shall Tenant be entitled to, any further tenant improvements or any further allowances therefor or further rent concessions of any kind in connection with the Renewal Term, and (c) the Base Expense Year and the Base Tax Year shall be the calendar year 2025. Provided that the Renewal Option shall have been validly exercised by Tenant, the “Then Prevailing Market Rent” shall be determined in the following manner:

59.2.1 Then Prevailing Market Rent . The term “Then Prevailing Market Rent” shall mean the “effective” rental rate as of the commencement of the Renewal Term, expressed as a rental rate per rentable square foot of leased space, being charged in arms’-length transactions in Comparable Buildings (“Comparable Transactions”) within the sub-areas of the Financial District of the Building for new leases and renewal leases (but not for subleases) for space comparable to the Premises for a comparable term considering, and if appropriate, adjusted for, all relevant factors advantageous to either Landlord or Tenant in the determination of Then Prevailing Market Rent, including, without limitation, the condition and value of existing tenant improvements in the Premises, and to the extent then being offered in Comparable Transactions, rent abatement and tenant improvement and moving allowances. The Then Prevailing Market Rent shall include annual periodic rental increases of three percent (3%) during the Renewal Term.

59.2.2 Landlord’s Proposed Rental Rate . Within thirty (30) days following Landlord’s receipt of Tenant’s Option Notice, Landlord shall deliver to Tenant a statement of Landlord’s proposed Then Prevailing Market Rent for each year of the proposed Renewal Term (the “Landlord’s Proposed Rental Rate”). If Tenant accepts such estimate of the Then Prevailing Market Rent, or if the parties agree upon some other rental rate, they shall immediately execute an amendment to this Lease stating the Minimum Monthly Rent that shall apply to the Renewal Term.



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59.2.3 Arbitration . If Tenant believes that Landlord’s Proposed Rental Rate, as the same may have been revised in writing during the course of negotiations, is in excess of the Then Prevailing Market Rent for the Premises, then Tenant may elect, by delivering written notice (the “Arbitration Notice”) to Landlord not later than thirty (30) days following receipt of Landlord’s Proposed Rental Rate, to arbitrate, in the manner described below, the Then Prevailing Market Rent for the Premises. If Tenant fails to deliver the Arbitration Notice, Tenant shall be deemed to have accepted Landlord’s Proposed Rental Rate. If Tenant delivers the Arbitration Notice, then within twenty (20) days following delivery of the Arbitration Notice (the “Arbitration Notice Period”), Landlord and Tenant shall each, at its cost and by giving written notice to the other party, appoint a qualified real estate broker with at least ten (10) years commercial real estate brokerage experience in the submarket in which the Premises are located (each, an “arbitrator”). If Landlord or Tenant fails to select its arbitrator within such twenty (20) day period, then Landlord or Tenant may petition the then presiding judge of the San Francisco County Superior Court to appoint such arbitrator subject to the criteria set forth in this Article 59, or if he or she refuses to act, either party may petition any judge having jurisdiction over Landlord and Tenant to appoint such arbitrator. Each arbitrator shall deliver its written determination of Then Prevailing Market Rent, taking into account the requirements of this Article 59, to the other arbitrator within twenty (20) days after such arbitrator’s retention. In the event the determinations of the two arbitrators differ and, after good faith efforts over the succeeding twenty (20) day period, they cannot mutually agree, the arbitrators shall, within ten (10) days thereafter, appoint a neutral third arbitrator with the qualifications specified above and deliver their respective determinations to such third arbitrator. If the two arbitrators fail to select the third arbitrator within such ten (10) day period, then Landlord or Tenant may petition the then presiding judge of the San Francisco County Superior Court to appoint such arbitrator subject to the criteria set forth in this Article 59, or if he or she refuses to act, either party may petition any judge having jurisdiction over Landlord and Tenant to appoint such arbitrator. Within five (5) days after its appointment, the third arbitrator shall choose either the determination of Landlord’s arbitrator or Tenant’s arbitrator and such choice of the third arbitrator shall be final and binding on Landlord and Tenant. The determination of the third arbitrator shall be limited solely to the issue of whether Landlord’s or Tenant’s estimated Then Prevailing Market Rent is closer to the Then Prevailing Market Rent as determined by the third arbitrator taking into account the requirements of this Article 59. Each party shall pay the costs of its arbitrator. The parties shall equally share the costs of any third arbitrator. Within fifteen (15) days after the Then Prevailing Market Rent shall have been established pursuant to this Article 59, the parties shall execute a mutually acceptable amendment to this Lease memorializing Tenant’s exercise of such Renewal Option and stating the Minimum Monthly Rent for the Renewal Term as so established at 100% of said Then Prevailing Market Rent. The arbitrators shall have the right to consult experts and competent authorities with factual information or evidence pertaining to the matter to be determined by them, but any such consultation shall be made in the presence of both parties with full right on their part to cross-examine. The arbitrators shall render their decision and award in writing with counterpart copies to each party. The arbitrator shall have no power to modify the provisions of this Lease. If one or more of the arbitrators should resign, die, withdraw, or otherwise be unable to perform his or her duties, either party may declare such office vacant, in which event the vacancy shall be filled in the same manner provided herein for the initial selection of such arbitrator.



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60. EXECUTION; COUNTERPARTS

This Lease and any amendment hereto may be executed in any number of counterparts, each of which shall be deemed an original, but all of which when taken together will constitute one and the same instrument. The signature page of any counterpart may be detached therefrom without impairing the legal effect of the signature(s) thereon provided such signature page is attached to any other counterpart identical thereto except having additional signature pages executed by other parties to this Lease or any amendment attached thereto. Facsimile signatures to this Lease or any amendment shall be binding upon the parties and the parties agree to exchange ink-signed originals within three (3) business days after the date of this Lease or any amendment.

61. FINANCIAL STATEMENTS

At any time during the Term that Tenant is not a “publicly traded company” (i.e., ownership interests are listed on a public securities exchange), then within one hundred and twenty (120) days after the end of each fiscal year of Tenant, Tenant shall furnish to Landlord a financial statement, in form and substance satisfactory to Landlord, showing the complete results of Tenant’s operations for its immediately preceding fiscal year. Such financial statements must be either certified by a certified public accountant or sworn to as to their accuracy by Tenant’s (or the guarantor’s, if applicable) chief financial officer. Landlord will retain such statements in confidence, but may provide copies to Mortgagees and potential Mortgagees and purchasers as required.

62. ROOFTOP EQUIPMENT

Tenant shall have the right, at Tenant’s sole risk and expense, to erect an antenna on the roof of the Building in a location and in a manner acceptable to Landlord and subject to the requirements of all applicable laws, provided that (i) such antenna shall be a free-standing, non-penetrating antenna or satellite dish not exceeding one meter in diameter together with accessory cables and conduits (the “Antenna”); (ii) the installation of such Antenna shall be done by contractors approved by Landlord in good and workmanlike manner in compliance with all building codes and regulations, free from any liens or claims of liens and in accordance with plans and specifications therefor reasonably approved in writing by Landlord, which plans shall show the proposed installation thereof and the method of connecting the same to the facilities within the Premises; (iii) throughout the Term, Tenant shall keep the Antenna in good condition and repair and perform all maintenance and repairs thereto at Tenant’s sole cost or expense and without voiding or adversely affecting any warranty granted to Landlord with respect to the roof or adversely affecting the watertightness of the roof membrane; (iv) Landlord shall not be responsible for any loss or damage to the Antenna, and (except for losses occasioned by the gross negligence or willful misconduct of Landlord) Tenant shall indemnify, hold Landlord harmless and defend Landlord from and against all claims, damages, liability or expense (including attorney fees) related directly or indirectly to the installation, existence, use, maintenance, repair, testing, removal or replacement of the Antenna; (v) Tenant shall be responsible for all repairs, maintenance, preventing and repairing any leakage or other damage to the Building or any system currently serving the Building related directly or indirectly to the installation, existence, use, maintenance, repair, testing, removal or replacement of the Antenna and, at Landlord’s option, shall either reimburse Landlord for the cost thereof or cause the same to



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be performed by contractors and workmen reasonably acceptable to Landlord; (vi) at the request of Landlord, Tenant shall remove or temporarily relocate the Antenna, if necessary, to facilitate any repairs or replacements to the roof of the Building being performed by Landlord; (vii) prior to the expiration of the Term or upon the earlier termination of this Lease, Tenant, at its sole cost, shall remove the Antenna, repair any damages caused thereby and restore the Building to the condition existing prior to the installation thereof; (viii) Tenant may have access to the roof to perform any of the foregoing work only with Landlord’s permission and with Landlord’s supervision; (ix) the use of the Antenna shall not interfere with any transmission or reception equipment presently located in the Building and should such interference occur, Tenant shall eliminate the interference within two (2) business days after notice from Landlord, failing which Landlord reserves the right to disconnect power to Tenant’s Antenna; and (x) Tenant shall not provide or resell antenna services to any other tenant or occupant in the Building without Landlord’s prior written approval. Tenant’s rights hereunder shall be coterminous with the Term of the Lease, as extended herein, including any renewals or extensions thereof. Tenant, at its sole expense and risk, shall ensure that a physical inspection of the rooftop portion of the Antenna equipment occurs at intervals of no more than six (6) months and that this inspection include a survey of structural integrity and watertightness and a review and correction of any loose bolts, fittings or other appurtenances. Tenant shall provide a written certification of such inspections to Landlord not more than ten (10) days following each such inspection. In the absence of such a certification, Landlord shall have the right (but not the obligation) to conduct or arrange for such an inspection and corrective action and to charge Tenant for such costs.

63. ACCESSIBILITY; AMERICANS WITH DISABILITIES ACT

The Premises: x have not undergone an inspection by a Certified Access Specialist (CASp). □ have undergone an inspection by a Certified Access Specialist (CASp) and it was determined that the Premises met all applicable construction-related accessibility standards pursuant to California Civil Code §55.51 et seq. □ have undergone an inspection by a Certified Access Specialist (CASp) and it was determined that the Premises did not meet all applicable construction-related accessibility standards pursuant to California Civil Code §55.51 et seq.

Since compliance with the Americans with Disabilities Act (ADA) is dependent upon Tenant’s specific use of the Premises, Landlord makes no warranty or representation as to whether or not the Premises comply with ADA or any similar legislation. In the event that Tenant’s use of the Premises requires modifications or additions to the Premises in order to be in ADA compliance, Tenant agrees to make any such necessary modifications and/or additions at Tenant’s expense.



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64. ENERGY USE DISCLOSURE REQUIREMENTS

In order to assist Landlord with its reporting and disclosure obligations under the Nonresidential Building Energy Use Disclosure Program established under Cal. Pub. Res. Code § 25402.10 and Regulations promulgated thereunder (the “Energy Use Disclosure Program”), or any similar federal, state or local laws or regulations, Tenant shall, within thirty (30) days after written request by Landlord, provide to Landlord all energy use data for the Premises within tenant’s possession or control from at least the most recent twelve (12) months prior to the date of the request, together with such other information and data as may be requested by Landlord in its reasonable judgment with respect to Landlord's compliance with the Energy Use Disclosure Program or any similar federal, state or local laws or regulations. Such other information and data to be provided by Tenant hereunder may include, without limitation, all sources of energy use data, space use characteristics for all space types in the Premises, and any information necessary to generate a current Disclosure Summary Sheet, Statement of Energy Performance, Data Checklist, and Facility Summary, as those terms are defined in Cal. Code Regs. tit. 20 § 1681. Tenant hereby consents to Landlord obtaining the information and data set forth above from the applicable utility or energy provider, and Tenant expressly authorizes any such energy or utility provider to provide such information and data to Landlord.

65. TENANT’S PROPERTY

Tenant’s equipment, fixtures, furnishings, furniture, accounts receivable, inventory or other personal property (“ Tenant’s Property ”), however installed or located on the Premises, shall be and remain the property of Tenant and may be installed, modified, and removed at any time and from time to time during the Lease Term. In no event (including an Event of Default under this Lease) shall Landlord have any lien or other security interest in any of Tenant’s Property located in the Premises or elsewhere, and Landlord hereby expressly waives and releases any lien or other security interest however created or arising. Landlord shall, at Tenant’s request and cost, execute a reasonable lien waiver and access agreement requested by a reputable institutional lender providing financing for Tenant’s Property.

66. GOVERNING LAW

This Lease will be governed by and construed pursuant to the laws of the State of California.

67. AMENDMENTS

No amendment, alteration, modification of, or addition to the Lease will be valid or binding unless expressed in writing and signed by Landlord and Tenant.

68. TIME PERIODS

Unless otherwise specified, in computing any period of time described herein, the day of the act or event after which the designated period of time begins to run is not to be included and



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the last day of the period so computed is to be included, unless such last day is a Saturday, Sunday or legal holiday for national banks in San Francisco, California, in which event the period shall run until the end of the next day which is not a Saturday, Sunday, or legal holiday. The last day of any period of time described herein shall be deemed to end at 5:00 p.m. Pacific time.

[Signatures Appear On Following Page]



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IN WITNESS WHEREOF, the parties have executed this Lease as of the date first set forth above, acknowledging that each party has freely entered into this Lease of its own free will and volition.



Landlord: GLL BIT FREMONT STREET PARTNERS, L.P., a California limited partnership By: GLL Fremont Interest II, LLC, a Delaware limited liability company, its sole General Partner By:_________________________________ Name: ______________________________ Title: ______________________________ By: _________________________________ Name: _______________________________ Title: _______________________________ Date: _______________________________	Tenant: FITBIT INC., a Delaware corporation By:______________________________ Name:___________________________ Its:______________________________ Date:____________________________



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EXHIBIT A-1

LEGAL DESCRIPTION OF THE FACILITY



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EXHIBIT A-2

FLOOR PLAN OF THE PREMISES



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EXHIBIT A-3

FITBIT BIKE PARKING CAGE AREA



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EXHIBIT B

WORK LETTER

(Tenant Build)

Acceptance of Premises . Except as otherwise expressly provided in the Lease, Tenant accepts the Premises in their “AS-IS” condition on the date of delivery of the Premises to Tenant.

Space Plans

(a) Preparation and Delivery . On or before the fifteenth (15 ^th ) day following the Effective Date (the “Space Plans Delivery Deadline”), Tenant shall deliver to Landlord a space plan prepared by Perkins & Will or another design consultant reasonably acceptable to Landlord (the “Architect”) depicting improvements to be installed in the Premises (the “Space Plans”).

(b) Approval Process . Landlord shall notify Tenant whether it approves of the submitted Space Plans within five (5) business days after Tenant’s submission thereof. If Landlord disapproves of such Space Plans, then Landlord shall notify Tenant thereof specifying in reasonable detail the reasons for such disapproval, in which case Tenant shall, within five (5) business days after such notice, revise such Space Plans in accordance with Landlord’s objections and submit same to Landlord for its review and approval. Landlord shall notify Tenant in writing whether it approves of the resubmitted Space Plans within five (5) business days after its receipt thereof. This process shall be repeated until the Space Plans have been finally approved by Landlord and Tenant.

Working Drawings

Preparation and Delivery . On or before the fifteenth (15 ^th ) day following the date on which the Space Plans are approved by Landlord and Tenant (the “Working Drawings Delivery Deadline”), Tenant shall provide to Landlord for its approval final working drawings, prepared by the Architect, of all improvements that Tenant proposes to install in the Premises; such working drawings shall include the partition layout, ceiling plan, electrical outlets and switches, telephone outlets, and detailed plans and specifications for the construction of the improvements called for under this Exhibit in accordance with all applicable Laws. Engineered drawings are required; no design build project is allowed.

Approval Process . Landlord shall notify Tenant whether it approves of the submitted working drawings within seven (7) business days after Tenant’s submission thereof. If Landlord disapproves of such working drawings, then Landlord shall notify Tenant thereof specifying in reasonable detail the reasons for such disapproval, in which case Tenant shall, within three (3) business days after such notice, revise such working drawings in accordance with Landlord’s objections and submit the revised working drawings to Landlord for its review and



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approval. Landlord shall notify Tenant in writing whether it approves of the resubmitted working drawings within four (4) business days after its receipt thereof. This process shall be repeated until the working drawings have been finally approved by Tenant and Landlord.

Landlord’s Approval; Performance of Work . If any of Tenant’s proposed construction work will affect the Building’s structure or the Base Building Systems, then the working drawings pertaining thereto must be approved by the Building’s engineer of record. Landlord’s approval of such working drawings shall not be unreasonably withheld, provided that (1) they comply with all Laws, (2) the improvements depicted thereon do not adversely affect (in the reasonable discretion of Landlord) the Building’s structure or the Base Building Systems (including the Building’s restrooms or mechanical rooms), the exterior appearance of the Building, or the appearance of the Building’s common areas or elevator lobby areas, (3) such working drawings are sufficiently detailed to allow construction of the improvements in a good and workmanlike manner, and (4) the improvements depicted thereon conform to the rules and regulations promulgated from time to time by Landlord for the construction of tenant improvements. As used herein, “ Working Drawings ” means the final working drawings approved by Landlord, as amended from time to time by any approved changes thereto, and “ Work ” means all improvements to be constructed in accordance with and as indicated on the Working Drawings, together with any work required by governmental authorities to be made to other areas of the Building as a result of the improvements indicated by the Working Drawings. Landlord’s approval of the Working Drawings shall not be a representation or warranty of Landlord that such drawings are adequate for any use or comply with any Law, but shall merely be the consent of Landlord thereto. Tenant shall, at Landlord’s request, sign the Working Drawings to evidence its review and approval thereof. After the Working Drawings have been approved, Tenant shall cause the Work to be performed in accordance with the Working Drawings.

Contractors; Performance of Work . The Work shall be performed only by licensed union contractors and subcontractors familiar with Class A building in the San Francisco Financial District and approved in writing by Landlord, which approval shall not be unreasonably withheld. Landlord hereby approves Skyline Construction as a contractor. All contractors and subcontractors shall be required to procure and maintain insurance against such risks, in such amounts, and with such companies as Landlord may reasonably require. Certificates of such insurance, with paid receipts therefor, must be received by Landlord before the Work is commenced. The Work shall be performed in a good and workmanlike manner free of defects and in compliance with applicable Laws, shall conform strictly with the Working Drawings, and shall be performed in such a manner and at such times as and not to interfere with or delay Landlord’s other contractors, the operation of the Building, and the occupancy thereof by other tenants. All contractors and subcontractors shall contact Landlord and schedule time periods during which they may use Building facilities in connection with the Work.

Construction Contracts . Tenant shall enter into a construction contract with a general contractor selected by Tenant in a form acceptable to Tenant’s representative for the Work, which shall comply with the provisions of this Section 5 and provide for, among



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other things, (1) a one-year warranty for all defective Work; (2) a requirement that Tenant’s general contractor maintain general commercial liability insurance of not less than a combined single limit of $5,000,000 (which amount can be met through an umbrella policy), naming Landlord, Landlord’s property management company, Landlord’s asset management company, Landlord’s Incumbrancers, Tenant, and each of their respective affiliates as additional insureds; (3) a requirement that the contractor perform the Work in accordance with the Working Drawings and in a good and workmanlike manner; and (4) a requirement that the contractor is responsible for daily cleanup work and final clean up (including removal of debris).

Change Orders . Tenant may initiate changes in the Work. Unless a change is (a) cosmetic in nature (i.e., does not affect the structure of the Building or any Building system) and (b) costs less than $100,000.00 (for which prior notice to Landlord is required but not prior approval), each such change must receive the prior written approval of Landlord, such approval not to be unreasonably withheld or delayed; however, if such requested change would adversely affect (in the reasonable discretion of Landlord) (1) the Building’s structure or the Base Building Systems (including the Building’s restrooms or mechanical rooms), (2) the exterior appearance of the Building, or (3) the appearance of the Building’s common areas or elevator lobby areas, Landlord may withhold its consent in its sole and absolute discretion. Tenant shall, upon completion of the Work, furnish Landlord with an accurate architectural “as-built” plan of the Work as constructed, which plan shall be incorporated into this Exhibit B by this reference for all purposes. If Tenant requests any changes to the Work described in the Space Plans or the Working Drawings, then such increased costs and any additional design costs incurred in connection therewith as the result of any such change shall be added to the Total Construction Costs.

Definitions . As used herein “ Substantial Completion ,” “ Substantially Completed ,” and any derivations thereof mean the Work in the Premises is substantially completed (as reasonably determined by both Landlord’s and Tenant’s Architects) in accordance with the Working Drawings. Substantial Completion shall have occurred even though minor details of construction, decoration and mechanical adjustments remain to be completed.

Excess Costs . The entire cost of performing the Work (including design of and space planning for the Work and preparation of the Working Drawings and the final “as-built” plan of the Work, costs of construction labor and materials, electrical usage during construction, additional janitorial services, general tenant signage, related taxes and insurance costs, licenses, permits, certifications, surveys and other approvals required by Law, and the construction supervision fee referenced in Section 10 of this Exhibit, all of which costs are herein collectively called the “ Total Construction Costs ”) in excess of the Construction Allowance shall be paid by Tenant. Upon approval of the Working Drawings and selection of a contractor, Tenant shall promptly execute a work order agreement which identifies such drawings and itemizes the Total Construction Costs and sets forth the Construction Allowance.



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Construction Allowance . Landlord shall provide to Tenant a construction allowance not to exceed $10,144,936.00 (the “ Construction Allowance ”) to be applied toward the Total Construction Costs, as adjusted for any changes to the Work. Landlord shall pay to Tenant the Construction Allowance in multiple disbursements (but not more than once in any calendar month) following the receipt by Landlord of the following items: (a) a request for payment, (b) final or partial lien waivers, as the case may be, from all persons performing work or supplying or fabricating materials for the Work, fully executed, acknowledged and in recordable form, and (c) the Architect’s certification that the Work for which reimbursement has been requested has been finally completed, including (with respect to the last application for payment only) any punch-list items, on the appropriate AIA form or another form approved by Landlord, and, with respect to the disbursement of the last 10% of the Construction Allowance: (1) the permanent certificate of occupancy issued for the Premises, (2) Tenant’s occupancy of the Premises, and (3) delivery of the architectural “as-built” plan for the Work as constructed (and as set forth above) to Landlord’s construction representative (set forth below), and (4) an estoppel certificate confirming such factual matters as Landlord or Landlord’s Incumbrancer may reasonably request) (collectively, a “ Completed Application for Payment ”). Landlord shall pay the amount requested in the applicable Completed Application for Payment to Tenant within 30 days following Tenant’s submission of the Completed Application for Payment. During such time that the Total Construction Costs (as set forth in Tenant’s construction contract, a copy of which shall be delivered to Landlord upon request) exceed the amount of the Construction Allowance, disbursements shall be made in an amount equal to the product of (x) .50 multiplied by (y) the lesser of: (A) the amount requested, or (B) the amount actually payable to, as applicable, the contractor or subcontractor(s), in each case including any applicable ten percent (10%) retainage. Once any excess between the Total Construction Costs and the amount of the Construction Allowance has been fully funded by Tenant, disbursements shall be made in the amount requested by Tenant, excluding any ten percent (10%) retainage, until all conditions to final disbursement are satisfied. Tenant shall fund the remainder in each instance. Notwithstanding anything to the contrary contained in this Exhibit, Landlord shall not be obligated to make any disbursement of the Construction Allowance during the pendency of any of the following: (A) Landlord has received written notice of any unpaid claims relating to any portion of the Work or materials in connection therewith, other than claims which will be paid in full from such disbursement, (B) there is an unbonded lien outstanding against the Building or the Premises or Tenant’s interest therein by reason of work done, or claimed to have been done, or materials supplied or specifically fabricated, claimed to have been supplied or specifically fabricated, to or for Tenant or the Premises, (C) the conditions to the advance of the Construction Allowance are not satisfied, or (D) an Event of Default by Tenant exists. The Construction Allowance must be used (that is, the Work must be fully complete and the Construction Allowance disbursed) within twelve (12) months following the Upper Premises Commencement Date or shall be deemed forfeited with no further obligation by Landlord with respect thereto. Tenant shall not be entitled to receive, as a credit against Rent or otherwise, any unused portion of the Construction Allowance. In no event shall the Construction Allowance be used for any Tenant furniture, fixtures or



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equipment or any communications or data cabling, all of which shall be at Tenant’s sole cost.

Construction Management . Landlord or its affiliate or agent shall supervise the Work and coordinate the relationship between the Work, the Building and the Base Building Systems. In consideration for Landlord’s construction supervision services, Tenant shall pay to Landlord a construction supervision fee equal to one and one half percent (1.5%) of the hard costs portion of Total Construction Costs, not to exceed $10,000.00. Notwithstanding anything to the contrary contained herein, Landlord shall have no liability with respect to the performance of the Work.

Construction Representatives . Landlord’s and Tenant’s representatives for coordination of construction and approval of change orders will be as follows, provided that either party may change its representative upon written notice to the other:

Landlord’s Representative: Doug Baker

c/o GLL BIT Fremont Street Partners, L.P.,
199 Fremont Street, Suite 100

San Francisco, CA 94105

Telephone: 415-836-0155

Facsimile: 415-836-0198

Tenant’s Representative: Dawn Birkett

Fitbit Inc.

405 Howard Street, Suite 550

San Francisco, CA 94105

Telephone: 415-305-1449

Miscellaneous . To the extent not inconsistent with this Exhibit, Article 10 of this Lease shall govern the performance of the Work and Landlord’s and Tenant’s respective rights and obligations regarding the improvements installed pursuant thereto. Further, all Work and the performance thereof must comply with Article 52 of the Lease.



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EXHIBIT C

RULES AND REGULATIONS

Adherence to these rules and regulations by each and every tenant contributes to safe occupancy and quiet enjoyment of the 199 Fremont Street building and the Common Areas in and around it (the "Building"). Any violation of these rules and regulations by the Tenant may constitute a default under the Lease. In the event of any conflict between these Rules and Regulations and the terms of the Lease, the terms of the Lease shall prevail.

Landlord may, upon request by the Tenant, waive compliance by Tenant of any of the following rules and regulations, provided that (i) no waiver shall be effective unless signed by Landlord or Landlord's authorized agent, and (ii) no such waiver shall relieve Tenant from the obligation to comply with any rule or regulation in the future, unless expressly consented to by Landlord. Landlord shall not unreasonably withhold consent to any requested modification to these rules that may be required in order to make a reasonable accommodation to a person with disabilities.

1. Except as expressly provided in the Lease, no signs, logos, posters, advertisements, notices or other lettering shall be inscribed, painted, affixed or displayed on any exterior window, door or other exterior part of the Premises. If such sign, logo, poster, advertisement, notice or other lettering is exhibited, Landlord shall have the right to remove the same and the tenant exhibiting the same shall be liable for any and all expenses incurred by Landlord by said removal.

2. No awning or other projection shall be attached to the exterior walls of the Premises. No curtains, drapes, blinds, shades or screens visible from the exterior of the Building or visible from the exterior of the Premises, shall be attached to or hung in, or used in connection with any exterior window or door of the Premises.

3. Tenant shall not place against glass partitions or doors or windows any objects that would be unsightly from the Building corridors or from the exterior of the Building or the Common Areas and will promptly remove any such objects upon notice from Landlord.

4. Tenant shall not make excess noises, cause disturbances or vibrations or use or operate any electrical or mechanical devices that emit excessive sound or other waves or disturbances or create obnoxious odors, any of which may be offensive to the other tenants and occupants of the Building, or that would materially interfere with the operation of any device, equipment, radio television broadcasting or reception from or within the Building or elsewhere and shall not place or install any projections, antennas, or similar devices inside or outside of the Premises or on the Building.

5. Tenant shall not waste electricity, water, heating, or air conditioning and shall cooperate fully with Landlord to insure the effective operation of the Building's heating and air conditioning systems and shall refrain from attempting to adjust any controls other than unlocked room



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thermostats installed for Tenant's use. Tenant shall keep closed all corridor doors on multi-tenant floors and all corridor doors that are rated for fire egress. Tenant shall not use any method of heating or air-conditioning other than that supplied by Landlord. No doors, windows, light fixtures, or any lights or skylights that reflect or admit light into halls or other places of the Building shall be covered or obstructed. No person shall waste water by interfering or tampering with the faucets or otherwise. Tenant shall exercise reasonable care and caution that all water faucets or water apparatus are shut off each day before the Premises are left unoccupied and that all electricity or gas shall likewise be carefully shut off so as to prevent waste of such utility or possible property damage or injury to Landlord's janitor or other employees or representatives or to other occupants of the Building.

6. Tenant will use reasonable and diligent efforts to protect the Premises.

7. Tenant shall not mark, drive nails, screw, or drill into any woodwork or any brick or masonry walls or in any way deface any portion of the Common Areas for any purpose whatsoever, except that Landlord's approval shall not be required for driving nails or screws into sheetrock or plaster walls as necessary for supporting pictures, paintings, and other similar decorative items, provided that the weight thereof does not exceed fifteen (15) pounds.

8. In no event shall Tenant bring into the Building inflammables, such as gasoline, kerosene, naphtha and benzene, or explosives or any other article of intrinsically dangerous nature, except those items used in normal general office operations, such as reproduction equipment, etc. If, by reason of the failure of Tenant to comply with the provisions of this paragraph, any insurance premium for all or any part of the Building shall at any time be increased, Landlord shall have the option, without limiting its other remedies, to require Tenant to make immediate payment of the whole of the increased insurance premium.

9. Tenant shall comply with all applicable federal, state and municipal laws, ordinances and regulations, and rules and shall not directly or indirectly make any use of the Premises which may be prohibited by any of the foregoing or which may be dangerous to persons or property.

10. The Premises shall not be used for cooking (i.e., the use of devices with an open heating element) (except as expressly provided in the Lease), lodging, sleeping, or for any immoral or illegal purpose. Microwave ovens and coffee makers and food and vending machines may be used in kitchen or kitchenette areas of the Premises for use by Tenant’s employees, provided that all such equipment is UL approved and further provided that all such coffee makers are equipped with a properly functioning automatic shut-off device.

11. Tenant and Tenant's employees, agents, visitors and licensees shall observe faithfully and comply strictly with these Rules and Regulations.

12. Subject to the provisions of the Lease, no additional locks or bolts of any kind shall be placed by Tenant upon any of the doors or windows by Tenant, nor shall any changes be made in existing locks or the mechanics thereof, without the prior written consent of Landlord. Except for the doors



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to Tenant's reception areas on the floors of the Building which are solely leased by Tenant, the doors leading to the corridors or main halls shall be kept closed during business hours except as they may be used for ingress or egress. Tenant shall, upon the termination of its tenancy, return to Landlord all keys used in connection with the Premises, including any keys to the Premises, to rooms and offices within the Premises, to storage rooms and closets, to cabinets and other built-in furniture, and to toilet rooms, whether or not such keys were furnished by Landlord or procured by Tenant. On termination of Tenant's lease, Tenant shall disclose to Landlord the combination of all locks for safes, safe cabinets and vault doors, if any, remaining in the Premises.

13. Tenant shall not affix any floor covering in any manner, except as approved by Landlord. Any carpeting cemented down shall be installed with a releasable adhesive or other releasable fastening process.

14. The water and wash closets, toilets, urinals, wash bowls, drinking fountains and other plumbing fixtures shall not be used for any purpose other than those for which they were constructed, and no sweepings, rubbish, rags, hazardous substances, coffee grounds, paint or other foreign substances shall be thrown or deposited therein.

15. No electric or other wires for any purpose shall be brought into the Premises without Landlord's written permission specifying the manner in which same may be performed or installed. Landlord reserves the right to restrict the use of any electrical extension cord. At no time shall more than two electrical devices be connected to any one duplex outlet. Multiple adapters, with the exception of "surge protectors," are prohibited. Any extension cord used shall be a two-wire cord with ground, shall be sized according to the power draw on the circuit, and shall be a UL approved extension cord.

16. No bicycles or vehicles shall be brought into or kept in occupied portions of the Building other than the bicycle storage area in the Building's parking facility, nor shall any animals, birds or pets (other than so-called "seeing-eye" dogs) be brought into or kept in or about Tenant's Premises or in the Building.

17. Tenant shall not throw anything out of the door or windows, off any balcony, or down any passageways or elevator shafts.

18. Landlord's employees are prohibited from receiving articles delivered to the Building and, if such employee receives any article for Tenant, such employee shall be acting as the agent of Tenant for such purpose. Landlord assumes no liability and shall bear no risk in connection with such deliveries.

19. All loading, unloading, receiving or delivery of goods and supplies, or disposal of garbage or refuse, shall be made only through entryway and freight elevators provided for such purposes and as indicated by Landlord. Tenant shall be responsible for any damage to the Building or the



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property of its employees or others and injuries sustained by any person whomsoever resulting from the use or moving of such articles in or out of the Premises or the Building.

20. All hand trucks used anywhere in the Building shall be equipped with rubber tires and side guards. Tenant shall not place upon any floor of the Premises a load that exceeds the structural design for the live load in that area of the Building. Landlord reserves the right to prescribe the weight and position of all safes, files and heavy installations that the Tenant wishes to place in the Premises so as to properly distribute the weight thereof, or to require plans prepared by a qualified structural engineer, at Tenant's sole cost and expense, for such heavy objects. Notwithstanding the foregoing, Tenant hereby agrees to indemnify and hold Landlord harmless from any injuries sustained by any person whomsoever, liability, damages, expenses and costs, including reasonable attorney's fees, caused by or arising out of the installation of any such heavy equipment, safes or files.

21. Live/cut Christmas trees (unless certified to be treated with fire retardant), candles, and open flames are strictly prohibited. Tenant may use electrical decorative lights only if the same are UL approved.

22. Tenant shall be responsible for all persons for whom it authorizes entry into the Premises, and shall be liable for all acts of such persons. Anything herein to the contrary notwithstanding, Landlord shall not be liable for any lack of security in respect to the Building whatsoever. In case of invasion, mob, riot, public excitement, or other commotion, Landlord reserves the right to prevent access to the Building during the continuance of the same by closing the doors or otherwise, for the safety of the tenants or the protection of the Building and the property therein. Landlord shall in no event be liable for damages for any error or other action taken with regard to the admission or exclusion from the Building of any person.

23. All entrance doors to the Premises shall be locked against ingress when the Premises are not in use. All corridor doors shall also be closed during times when the HVAC equipment in the Building is operating so as not to dissipate the effectiveness of the system or place an overload thereon. Notwithstanding the foregoing, on any full-floor premises leased by Tenant, Tenant may, to the extent allowed under all applicable Laws, keep one or more such main corridor doors open during Business Hours.

24. Tenant shall not do anything, or permit anything to be done, in or about the Building, or bring or keep anything therein, that will in any way increase the possibility of fire or other casualty or do anything in conflict with the valid pertinent laws, rules, or regulations of any governmental authority.

25. Subject to the provisions of the Lease, Landlord reserves the right at any time and from time to time to add to these Rules and Regulations such other and further rules or regulations as Landlord may deem appropriate so long as such do not unreasonably adversely affect Tenant’s right under the Lease or access to the Premises. Landlord also reserves the right at any time and from time to



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time to rescind, alter or waive, in whole or in part, any of these Rules and Regulations when it is deemed necessary, in Landlord's reasonable judgment, to do so. Landlord shall give Tenant reasonable prior notice of any additions, alterations, rescissions, or other changes in or to any provisions of these Rules and Regulations, and such additions, alterations, rescissions, or changes shall operate only prospectively, if retroactive application would be unreasonably burdensome to Tenant.

26. Tenant shall not permanently stock, pile, store, or place any objects in any freight elevator lobby, in any hallways or corridors, in any Common Areas, or closer than 18 inches to the ceiling of its Premises. All costs of relocating or adding sprinkler heads (if any) due to walls or objects in a tenant area that project closer than 18 inches to the ceiling, shall be at Tenant's cost.

27. Tenant shall be responsible for any damage to carpeting and flooring as a result of rust, staining, or corrosion caused by any spillage of food or chemicals or by any of Tenant's potted plants, file cabinets, pot holders, roller chairs, or other metal objects.

28. No burglar alarm system may be installed without Landlord's prior written approval of such system.

29. Tenant shall not obstruct, or sweep or throw dirt or any other substance into, or temporarily or permanently store or dispose of any trash, garbage, waste, or refuse in, any sidewalk, hall, passage, balcony, exit, entrance, elevator, or stairway of the Building, or use the same for any purpose other than for ingress to and egress from Tenant's Premises. No person shall go upon or use the roof of the Building.

30. No trash, garbage, waste, or refuse shall be stored or disposed of in any Common Areas, except in the dumpsters or trash containers provided by Landlord for that purpose. Tenant shall only use such dumpsters and trash containers for disposal of nonhazardous trash or waste generated at the Building in connection with the ordinary conduct of Tenants' business at the Building in accordance with the terms and conditions of its lease.

31. Tenant shall by written notice to Landlord appoint a person or persons to act as Tenant's authorized representatives. All tenant requests to Landlord or its management for services shall be made through the authorized representatives. Tenant's authorized representatives shall also serve as Tenant contacts in the event of Building emergencies, interruptions of services, or security problems.

32. In the event Landlord shall elect, or be required, to perform any maintenance, repairs, alterations, improvements, or installations on Tenant's Premises, Tenant shall, upon Landlord's request, move any file cabinets, furniture, or equipment as required by Landlord's workers in order for them to obtain full, unobstructed access to the area where their work is to be performed.



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33. Smoking of cigarettes, cigars, and pipes is prohibited in Building lobbies, stairways, corridors, elevators, restrooms, and other Common Areas, and in all occupied spaces within the Building as well. All cigarettes, cigars, and pipes shall be extinguished before entering the Building. Smoking is not allowed within 25 feet of all building entrances.

34. Landlord may exclude or expel from the Building or from the Building’s exercise room any person who, in the judgment of Landlord, shall in any manner do any act in material violation of any of the rules or regulations of the Building.

35. The Building’s exercise room is reserved for the use of the employees of tenants of office space in the Building. Guests of employees are not allowed to use the Building’s exercise room. The Building’s exercise room is an unsupervised and unmonitored common area. Employees wishing to use the exercise room or its facilities must sign Landlord’s standard waiver of liability form. All persons using the Building’s exercise room or its facilities must comply with Landlord’s reasonable rules and regulations (as modified from time to time) governing the use thereof. A copy of such rules and regulations shall be kept on display in the Building’s exercise room.

36. Tenant acknowledges that 199 Fremont is a union labor building.

37. Tenant is required to follow the recycling program established by the building.



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EXHIBIT D

STANDARDS FOR UTILITIES AND SERVICES

The furnishing of building services and utilities to Tenant shall be accomplished in accordance with and subject to the terms and conditions set forth in this Exhibit D and elsewhere in the Lease.

1. Subject to the provisions of Section 17 of the Lease, Landlord shall furnish the Premises with building services and utilities as set forth below. The furnishing of such services and utilities shall be subject to all Laws and to any curtailment which may be required from time to time for construction, maintenance, repairs, actual or threatened emergency or other events or circumstances which make it reasonably necessary to restrict or limit such services or utilities.

(a) Landlord shall provide elevator service (which in the lower elevator bank shall consist of five (5) passenger elevators and one (1) freight elevator) by nonattended automatic elevators for general office pedestrian usage. At least two (2) passenger elevators will be in service at all times. Landlord shall also provide, for use in accordance with all applicable rules and regulations for the Building, freight elevator service.

(b) Landlord shall provide heating and air conditioning generally consistent with Comparable Buildings Monday through Friday, from 7:00 a.m. to 7:00 p.m., and upon request on Saturday, from 8:00 a.m. to 12:00 p.m. (noon), excepting “Holidays” as defined in Paragraph 5 below (“Business Hours”).

(c) Landlord shall provide water for the restrooms serving the Premises. Landlord shall also provide water for all drinking fountains furnished by Landlord. Notwithstanding the foregoing, Tenant consents to the use of water-saving appliances, such as waterless urinals, and other equipment as may be otherwise consistent with Landlord’s sustainability practices or the LEED-EBOM certification of the Building. Where use of potable water is not necessary, the Tenant acknowledges and consents to the Landlord’s collection, treatment and reuse of condensate water, rainwater, and graywater for use as flushing water in washrooms and in other applications within and around the Building.

(d) Landlord shall provide janitorial services generally consistent with Comparable Buildings. Such janitorial services shall be provided to the Common Areas and the office areas of the Premises (but specifically excluding any cafeterias, kitchens, kitchenettes, or computer rooms, etc.) each evening, Monday through Friday, or, at Landlord’s option, Monday through Thursday evenings and Sunday during the day or evening, except Holidays, provided that the Premises are kept reasonably in order by Tenant. Tenant may contract directly with the Building’s janitorial services contractor or, subject to Landlord’s approval and provided no labor disputes arise



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from the retention of such third-party contractors, with third-party janitorial services contractors to provide supplemental cleaning services for the Premises. Janitorial services shall be performed at Landlord’s direction without interference by Tenant or Tenant’s employees. Notwithstanding the foregoing, Tenant and Landlord agree that in the interests of controlling energy consumption, maintaining building security, and minimizing the environmental footprint of the Building and Premises the Landlord has the right, but not the obligation, to provide janitorial services during the Business Hours on Monday to Friday subject to the following:

(i) Landlord may (A) provide light housekeeping functions in the Premises during the Business Hours exclusive of the use of any equipment with a noise level greater than 66 db, and (B) carry out deep cleaning functions in the Premises during the non-Business Hours; and

(ii) Tenant has the right to: (A) from time to time “wave off” or request that no cleaning be carried out in a specific office, room, or workstation for a specific day, and (B) request a thorough cleaning of an individual office, room, or workstation at their convenience.

(e) Landlord shall provide vermin and pest control services when reasonably necessary in connection with normal office usage.

(f) Landlord shall wash the exterior windows of the Building at least two (2) times per year.

(g) Landlord shall furnish HVAC service during Business Hours and at other times upon not less than twenty-four (24) hours’ request by Tenant. Tenant shall pay to Landlord an amount equal to Tenant’s proportionate share of the cost to Landlord in providing HVAC service to Tenant and all other tenants of the Building receiving such HVAC services during normal Business Hours. Outside of normal Business Hours, Tenant shall pay 100% of the cost for HVAC service.

(h) The method for calculating the costs of providing HVAC services will be performed using industry standard practices, which will include the energy consumption of the pumps, cooling towers, fans, chillers and boilers as well as other associated costs, such as chemical treatment, increased frequency of changing air filters and building engineer’s time for monitoring such equipment outside of normal Business Hours.

2. Additional Services. The services for which Landlord shall be entitled to payment from Tenant pursuant to Section 17.2 of the Lease shall include, without limitation, those specified below in this Section 2.

(a) If the temperature otherwise maintained in any portion of the Premises by the HVAC system is affected as a result of (i) the occupancy of the Premises by more than one person per one hundred fifty (150) square feet of usable area therein, (ii) an electrical load for lighting and power in excess of 3.0 watts per usable square foot, or (iii) any rearrangement of



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partitioning or other improvements, Landlord may install any equipment, or modify any existing equipment (including the standard air conditioning equipment) Landlord reasonably deems necessary to restore the temperature balance. The cost of any such equipment and the cost of installing, operating, maintaining, or repairing the same, including the cost of any electrical or engineering consultant engaged by Landlord in connection therewith, shall be paid by Tenant pursuant to Section 17.2 of the Lease, without any right of credit or offset for underutilization of services specified in Section 1 above; provided, however, Landlord may require that Tenant, at Tenant’s sole cost and expense, perform the work contemplated by this sentence, in accordance with Landlord’s construction procedures and guidelines for performing such work and in a manner otherwise reasonably satisfactory to Landlord.

(b) If Tenant otherwise requires, on a regular basis, water, heat, air conditioning, electric current, elevator or janitorial service in excess of that provided for in Section 1 above, Tenant shall first obtain Landlord’s written consent, which shall not be unreasonably withheld, in which event Landlord may install an electric current or water meter (including, without limitation, any additional wiring, conduit, or panel required therefor) to measure the electric current or water consumed by Tenant, or Landlord may cause the usage to be measured by other reasonable methods (e.g., by temporary “check” meters or by survey). The costs to be paid by Tenant pursuant to Section 17.2 of the Lease for such additional services shall include (i) the cost to Landlord of any and all water, heat, air conditioning, electric current, janitorial, elevator, or other services or utilities furnished to Tenant in excess of the services and utilities required to be furnished by Landlord as provided in Section 1 above, (ii) the cost of installation, maintenance, and repair of any meter installed in the Premises by Landlord to measure Tenant’s utility usage if Landlord installed such meter after a request by Tenant for excess usage, or if in any event such meter shall have disclosed that Tenant is using excess utilities or services, and (iii) the cost to Landlord of all electricity and water consumed by Tenant in connection with any dedicated or supplemental HVAC systems of Tenant (all such dedicated or supplemental systems to be maintained by Tenant at Tenant’s expense). Such payments made pursuant to Section 17.2 of the Lease shall be made without any right of credit or offset for underutilization of services specified in Section 1 above.

(c) Tenant shall pay to Landlord, pursuant to Section 17.2 of the Lease, the cost of removal of any of Tenant’s trash, refuse or rubbish (whether or not in the Premises) (i) that exceeds the quantity of trash, refuse or rubbish usually accumulated in the daily routine of ordinary office occupancy during normal business hours or (ii) that is generated by any machinery, equipment or eating facilities of Tenant or requires special handling. Trash generated from Tenant activities such as restacking, moving, or purging files shall be deemed to constitute such excess trash, as shall any cardboard boxes that Tenant wishes to dispose of. Such payments made pursuant to Section 17.2 of the Lease shall be made without any right of credit or offset for underutilization of services specified in Section 1 above.

(d) Notwithstanding any provision of Section 1 above, Tenant shall pay to Landlord, pursuant to Section 17.2 of the Lease, the cost of any nonroutine vermin and pest control



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services required in Tenant’s cafeteria, kitchen or kitchenette areas or required because of unhygienic practices of personnel occupying the Premises.

3. Light Bulb, Tubes and Ballasts

(a) Landlord shall replace, as necessary, Building Standard light bulbs, tubes, and ballasts in the Common Areas and the Premises. To the extent Tenant has installed any non-Building standard lighting (which installation shall be in accordance with the Lease), Tenant shall pay Landlord, pursuant to Section 17.2 of the Lease, all costs incurred by Landlord for any maintenance or replacement of such items, together with a fee of fifteen percent (15%) or, if required by Landlord, Tenant shall perform such work, at its sole cost, in accordance with Landlord’s construction procedures and guidelines for performing such work and in a manner otherwise reasonably satisfactory to Landlord.

(b) Landlord shall also have the right (but not the obligation) to make, from time to time, reasonable changes to the Building Standard for electric light bulbs, tubes, and ballasts.

(c) The Landlord may, at Landlord’s reasonable discretion, adopt a system of relamping and reballasting periodically on a group basis in accordance with good practice.

4. Landlord’s failure to bill Tenant for any of the additional services or utilities described in Section 2 above shall not waive Landlord’s right to bill Tenant for the same at a later time.

5. As used herein, the term “Holiday” shall mean New Year’s Day, Martin Luther King Day, President’s Day, Memorial Day, Independence Day, Labor Day, Thanksgiving, the Friday following Thanksgiving, and Christmas Day, and such other days which are recognized by the owners of the Comparable Buildings as a holiday.



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EXHIBIT E

PARTICIPATING PLANS



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EXHIBIT F

RULES AND REGULATIONS FOR CONSTRUCTION BY TENANT

GLL BIT FREMONT STREET PARTNERS, L.P.

199 FREMONT STREET, SAN FRANCISCO

RULES AND REGULATIONS FOR CONTRACTORS

TABLE OF CONTENTS

1. INTRODUCTION

2. SUPERVISION

3. APPEARANCE

4. ACCESS

5. STAGING AREA

6. UTILITY ACCESS

7. UTILITY INTERRUPTION

8. TEMPORARY FACILITIES

9. PROTECTION

10. ELEVATORS/LOADING DOCK DELIVERIES

11. CLEAN-UP

12. FINAL CLEAN-UP

13. SITE POLICING

14. DEBRIS BOXES

15. QUALITY OF WORKMANSHIP

16. LABOR RELATIONS

17. FIRE PROTECTION

18. PANEL AND EQUIPMENT LABELING

19. SECURITY

20. FLOOR AND WALL PENETRATIONS

21. ROOF ACCESS AND PENETRATIONS

22. SYSTEM TIE-INS AND OWNER INSPECTIONS

23. CODE COMPLIANCE AND INSPECTIONS

24. APPROVED PLANS

25. WORK COORDINATION

26. ADJACENT IMPROVEMENTS

27. SAFETY

28. INSURANCE

29. HOURS FOR WORK ONSITE

30. PRIOR TO COMMENCEMENT OF WORK ONSITE

31. CONDUCT/CLEANLINESS AT WORK SITE

32. MECHANICAL EQUIPMENT

33. AIR SYSTEMS FILTERS

34. CUTTING AND CORING

35. AS-BUILTS AND WARRANTIES

36. AIR SYSTEM BALANCING

37. WATER BALANCING

38. DISINFECTING

39. PLUMBING CONNECTIONS

40. PARKING

41. WORK SCHEDULE



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42. SIGNS

43. NO SMOKING

44. NO INTOXICATION

45. NO IMPROPER CONDUCT

46. NO LOITERING

47. NO EXCESSIVE NOISE

48. HAZARDOUS SUBSTANCES

49. OTHER MAINTENANCE, ALTERATIONS AND CONSTRUCTION

50. ENFORCEMENT OF RULES AND REGULATIONS

51. AMENDMENTS

52. CONTRACTOR RESPONSIBLE FOR OTHERS.

53. SUSTAINABLE DEVELOPMENT CONTRACTOR RULES AND REGULATIONS.

GLL FREMONT STREET PARTNERS

RULES AND REGULATIONS FOR CONTRACTORS

1. Introduction

The following Rules and Regulations for Contractors are to govern the actions and operations of Contractors, subcontractors, and suppliers for construction (collectively referred to herein as "Contractor") within the confines of the Property (as used herein, Property shall refer to the Building and the common areas associated therewith). Each Contractor is responsible for ensuring compliance with each of the Rules and Regulations by each subcontractor, subsubcontractor and supplier of such contractor.

2. Supervision

Contractor shall maintain a competent superintendent or supervisory representative on the Premises full-time who is authorized to act in all manners pertaining to the work.

The name, phone number, mobile telephone number and pager number for this individual shall be given to Owner along with an emergency contact in the event of an after hours emergency.

3. Appearance

All tools, equipment and building materials must be maintained at all times within the area under construction when not in transit to or from the area.

In all cases where construction is taking place in an occupied area or visible common area, all necessary steps and precautions shall be taken to shield the work site from public view. This shall include keeping doors closed (construction of temporary doors if necessary), latexing "storefront" windows in retail areas and building out a one-side drywall partition on public corridors, if appropriate. The use of tape (of any kind) on any finished surfaces is expressly forbidden.

4. Access

Access will be directed by the Owner . Access to the project is limited to the loading dock entrance only. Contractor is not to use the main building entrance, main lobby or passenger elevators during the course of the work. No Contractor personnel are allowed in the main lobby nor any floor of the building other than the floor on which the work occurs.

All tools, equipment and building materials must enter the project through the loading dock area and freight elevator. Removal of trash, tools and equipment must be made via the same route.



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Access to mechanical, electrical or telephone rooms can be obtained by checking out a key. Keys can be checked out between 8:00 AM and 4:00 PM only if a driver's license is left with the building office or their designee.

No hard wheeled carts or hand trucks will be permitted on any stone or tile surface without adequate protection and prior approval of Owner.

Access forms must be submitted by the contractor and signed by the tenant weekly and for weekends. Access forms need to list times, type of work, and all subcontractors performing the work. All General Contractors and their subcontractors must have a current Certificate of Insurance on file.

5. Staging Area

Owner may designate unloading and staging areas. All materials unloaded at these areas are to be moved into the premises immediately.

6. Utility Access

Other than the existing utilities currently existing in the Premises, Contractor shall provide its own source of power for performing work on the job site. Access to any common area utility (e.g., electrical panels/service, gas valves, water/sewer hook-ups, etc.) shall only be provided by Owner upon one full business day's prior notice.

7. Utility Interruption

Contractor shall take all necessary and appropriate steps to ensure that utility services to existing occupants of the Property are not interrupted.

In the event that minimal service interruption is necessary during the course of the work, it must be arranged with Owner no less than 5 business days prior to its occurrence and must occur during hours when the businesses affected are not generally open nor in operation.

8. Temporary Facilities

Water and electric power are provided in the building for the use of the various contractors. Contractor is to verify the locations and adequacy of the facilities provided and make all allowances in its bid for modifying the facilities (such as tie-ins, temp-power boxes, etc.) if he/she so desires. Any changes to Power Panels must receive prior written approval of Owner. Temporary power must be maintained within the construction premises. No power cords will be allowed outside the work area. Monthly electric power and water charges are paid by Owner and charged to Contractor at Owner's discretion.

Owner may provide (at Owner’s discretion) temporary sanitary facilities. If Owner chooses not to, then Contractor will provide adequate temporary sanitary facilities for his employees and subcontractors. Contractor is to maintain these facilities in a clean and acceptable manner subject to Owner's inspection. If these sanitary facilities are provided and found to be abused, their use will be withdrawn by Owner and the Contractor will be required to provide other facilities. In the event that Contractor is granted by Owner permission to place a temporary office facility on the site, the size, location, and quality of the facility is at the sole discretion of Owner.

9. Protection

Where Contractor's work engages work performed by others or if access to the Premises passes through areas of work performed by others, marring or damaging of such areas will not be permitted. Any work which must take place in an area previously prepared by others shall be approved by Contractor before commencing work and any unsatisfactory conditions shall be reported to Owner.



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Where existing work is damaged in the execution of the work, Contractor shall be responsible for repairing or replacing the damaged work (at Contractor's expense) as required and to the satisfaction of Owner. Contractor will be responsible for the security of its own materials, equipment and work.

Upon completion of tenant construction, Contractor shall promptly dismantle, remove and dispose of any temporary enclosures and any excess materials from the Premises.

Should Contractor fail to comply with the above, Owner will proceed upon 24 hours’ notice to Contractor with the necessary clean-up, demolition and removal, and charge Contractor.

10. Elevators/Loading Dock Deliveries

Contractor agrees to comply with the freight elevator policy for this Building. Use of the freight elevator during the week and on weekends and other than normal business hours must be arranged and approved upon 24 hours advance notice to Owner (not later than 5:00 PM, Thursday for weekend service).

After-hours’ use of the freight elevator, loading dock and garage will require the presence of a security guard if the dock gates cannot be closed and will be billed to Contractor requesting this convenience. Contractors may not use passenger elevators at any time for any reason, except with Owner’s prior written consent. If Owner consents to Contractor’s use of a passenger elevator, Contractor shall take all necessary and prudent measures to safeguard the passenger elevator against damage, wear, or tear. Contractor shall bear the expense of any repairs required due to any damage caused to such passenger elevators. Except as Owner, at its sole discretion, may otherwise allow in writing, Contractor's movement shall be through the freight elevators only.

11. Clean-Up

Contractor will ensure that no tools, equipment, materials or debris of any kind are permitted to accumulate anywhere outside of the work area, including but not limited to: dirt, dust, paint, sawdust, taping and/or taping mud, sheet rock and/or related debris, paper and trash of any kind. Tracking of construction dirt onto public streets or sidewalks or into corridors or stairways must be prevented through the use of walk-off mats provided by Contractor and changed frequently to remain clean. The walk-off mats shall be placed immediately inside the work area. In addition, Contractor will sweep clean the work area (using sweeping compound to minimize dust) as often as necessary to maintain a safe workplace and a clean public access to and from it.

Contractor shall assign someone responsible for policing the common areas between the loading area and the work area and/or the areas workmen travel as necessary to ensure cleanliness. The Freight Elevator will be wiped clean and the floor mopped at the end of each shift. Janitorial services may be required to supplement Contractor’s cleaning. Costs for providing such cleaning will be billed to and paid by the Contractor.

12. Final Clean-Up

At completion of the project, Contractor is to provide a thorough janitorial cleaning of the entire Premises (and surrounding areas affected by the construction), including but not necessarily limited to the following:

a. Interior glass, mullions, and all interiors of exterior glass.

b. High and low dusting (including baseboards).

c. Light fixtures.

d. All sinks, cabinets, and countertops.

e. All mini-blinds or other window coverings.

f. Vacuum all carpeted floors.



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g. Mop all tile, VCT and other hard surfaced floors.

13. Site Policing

Contractor is to maintain the Premises free of general debris and trash. Provisions shall be made to control visible dust emissions. Food is to be consumed in designated areas with all food remains, garbage and containers removed by Contractor nightly.

At all times during demolition and construction, Contractor shall assign someone responsible to police and clean public areas where construction debris is present.

14. Debris Boxes

Contractor is to arrange for its own debris boxes to be placed in areas and at times approved by Owner.

Any use by Contractor of Property debris boxes, compactors or portable janitorial bins may be cause for removal of Contractor from the Premises and/or assessment of charges to cover dumping costs.

15. Quality of Workmanship

Contractor's work shall be performed in a thoroughly first class and journeyman like manner and shall be in good and usable condition at the date of completion thereof.

16. Labor Relations

Any and all work performed by Contractor shall be performed in a manner so as to avoid any labor dispute which results or could result in a stoppage or impairment of work, deliveries or any other services in the Property. 199 Fremont is a union labor building and only union labor is to be used at the Property. If there shall be any such stoppage or impairment or threat thereof as a result of any such labor dispute, Contractor shall immediately undertake such action as may be necessary to eliminate such dispute or potential dispute including, without limitation:

a. Removing all disputants from the jobsite until such time as the labor dispute no longer exists;

b. Seeking an injunction in the event of a breach of contract between Contractor and Contractor's subcontractor; and

c. Filing appropriate unfair labor practice charges in the event of a union jurisdictional dispute.

17. Fire Protection

The Owner’s Property Management representative is to be given at least 24 hours’ notice prior to shutting down an area for work on the sprinkler system. The building engineer or Owner’s representative will drain the area on which it is working in the presence of the sprinkler fitter (if requested) each day of the work. Contractor agrees to recharge the area at the close of each work day. In no case will a system not be recharged each night.

Contractor shall supply its own Fire Extinguisher and will provide a fire watch when fire suppression equipment is disabled or during welding. Additionally, this policy shall apply to the smoke detection system on each floor.

18. Panel and Equipment Labeling

Prior to completion of work and turning work over to a Representative of Owner, properly label each piece of equipment and electric panel with its name, function and circuit. Use permanent etched plastic sign materials or typed panel cards as appropriate. No penciled, hand marked or incomplete label will be accepted. Owner reserves the right at Contractor’s cost, to call in an outside contractor to label or correct panel schedules not correctly done by the original Contractor.



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19. Security

Contractor shall ensure the security of the Premises as well as its own materials, equipment and work in progress. This shall include the re-keying, where applicable, of locksets at completion of job in accordance with the keying schedule provided by Owner. Contractor shall provide adequate security so as to avoid the risk of the construction site becoming an attractive nuisance. ATTENTION: 199 Fremont uses a Schlage Security Keyway – this is a long lead item, please contact the Building authorized locksmith, Complete Security, San Francisco for locks and associated materials.

20. Floor and Wall Penetrations

Piping penetrations through rated floors and walls are to be sealed using approved materials to assure existing ratings.

21. Roof Access and Penetrations

Access to the roof is restricted to Owner's personnel and Owner's designated contractors, only. No other contractor or subcontractor will be permitted on the roof unless written permission has been obtained from Owner.

All roof penetrations must be made by a roofing contractor acceptable to Owner at Contractor's expense and must conform to Owner's standard criteria. Penetrations shall be subject to Owner's approval as to construction detail, size, configuration, location and support.

Contractor shall contact Owner directly to obtain approval of the roof penetration and patching. Western is an approved roofing contractor.

Once the roof curbs are on the job, the roofing contractor will make the penetration and Contractor will install the curb and the roofing contractor will repair the roof. No penetration will be made that cannot be repaired by the roofing contractor on the same day. Contractor shall pay all such costs for this work directly.

22. System Tie-ins and Owner Inspections

Contractors are not allowed, under any circumstances, to tie into building mechanical, electrical, sprinkler, life safety, or security primary systems without prior written approval and coordination from Owner. Owner may coordinate, at Contractor's cost, having these tie-ins performed by Owner's own contractors. Owner may observe all work prior to closing-in and observe all tie-ins and interfaces with Property systems to assure Owner specifications compliance, warranty protection, and Property systems operations. Contractor should be prepared to separately clean any new system that is being brought on-line. This may include, descaling, degreasing, industry accepted methods of chemical cleaning and fully charging the system with chemicals that are the same as those currently used in the base building systems. Forty-eight (48) hours’ notice is to be given to Owner prior to any tie-in.

23. Code Compliance and Inspections

Contractor is responsible for acquiring all additional permits, if any, for the work contemplated by its approved scope of work (e.g., street parking, excavating or dewatering into the sewer system, etc.) Contractor is also responsible for scheduling inspections by the Building Department and other inspections as necessary and to comply with their requirements and all codes and regulations. A copy of all inspection reports must be submitted to Owner. In the event Contractor is notified of any violations of codes by the jurisdictional authorities or by Owner's representative, Contractor shall correct such violation within seven (7) calendar days from such date of notification. Construction shall comply in all respects with applicable federal, state, county and/or location statutes, ordinances, regulations, laws and codes. Permits are required for ALL work prior to commencement of demolition or construction and shall be delivered to Owner prior to such commencement.



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24. Approved Plans

Work shall be constructed in accordance with plans that have been approved by Owner and comply with all city, county and state ordinances, rules and regulations relating thereto. No design build projects will be allowed. Contractor shall not deviate from approved drawings and specifications without obtaining prior written permission from Owner. No M.E.P. work is allowed without Landlord approved plans that have been provided to the Engineer of Record – Flack and Kurtz - for peer review.

25. Work Coordination

Construction shall be coordinated with all work being performed or to be performed by Owner and other occupants of the Property to such extent that the work will not interfere with or delay the completion of any other work. No Contractor or subcontractor participating in Contractor's work shall at any time damage, injure, interfere with or delay the completion of the work or any other construction within the Property. All Contractors and subcontractors and suppliers shall comply with all procedures and regulations prescribed by Owner for the integration of Contractor's work with the work to be performed in connection with the project. Common areas, plazas, public corridors, service corridors and exterior of Owner's buildings must be kept clear of Contractor's equipment, merchandise, fixtures, refuse and trash at all times. Any mechanical, electrical or plumbing item which needs to be routed through another space requires written permission from Owner's office with not less than 72 hours’ notice.

26. Adjacent Improvements

Contractor shall be responsible for the repair, replacement or clean-up of any damages caused to any other work in any area of the Property. Contractor shall be required to maintain continuous protection of adjacent premises in such a manner as to prevent any damage to such adjacent property and the improvements thereon. If any property is damaged by Contractor then Contractor shall promptly repair such damages and restore it to its pre-damaged condition.

Contractor shall neatly patch, replace, and finish all adjacent surfaces or features disturbed in performance of the work, including, but not limited to glass, glazing, exterior and/or interior surfaces, paving, stripping, signage, landscaping, concrete work, and improvements of every kind. All replaced or patched work shall be of the same type and quality as the existing surfaces or features.

27. Safety

Contractor shall at all times while work is in progress provide all appropriate protection, as required by law or prudent industry practices, (1) to protect Contractor's employees, the Property's occupants, and the public from any personal injury or any damage to personal property that could occur in connection with the work and (2) to protect all portions of the Property and all fixtures, equipment, finishes, furniture, and supplies located therein from any damage that could occur in connection with the work.

Contractor shall comply with all safety, fire protection, and evacuation procedures and regulations reasonably established by Owner or any governmental agency. In no event shall any emergency exits, emergency exit signs, fire lanes, or other safety aspects of the Property be blocked or impeded by Contractor. Further, Contractor shall exercise extreme caution to avoid leaving any hazardous situation exposed to occupants and/or guests of the Property (i.e., a tripping hazard caused by an electrical cord stretched across a walkway.)

Contractor shall supply its own First Aid Kit. All life safety devices must remain operational during construction except where specific systems or devices are being altered. In no event shall the construction area be unprotected after normal business hours.

28. Insurance

At all times while work is in progress, Contractor shall carry and maintain all insurance policies and coverage required under its contract and the Lease, and in any event Contractor shall carry and maintain (i) comprehensive



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general liability insurance, in a reasonable and prudent amount, insuring against liability for property damage and personal injury and (ii) Workers' Compensation and employer's liability insurance, as required by law.

29. Hours for Work Onsite

Prior to commencing work in or about the Building, Contractor shall obtain Owner's consent as to the hours and days of the week that Contractor intends to perform its work. Contractor shall use all reasonable efforts to perform its work in a manner to minimize interference with occupants of the Building by scheduling certain types of work for times and days in which the Building is generally unoccupied. In no event, however, shall Contractor be permitted to perform its work after Owner's customary business hours or on days the Building is not open for business to the public, without first obtaining Owner's written consent to such work and appropriate security precautions to be taken. Notice must be given to Owner not less than 24 hours in advance of the schedule of off-hours work.

30. Prior to Commencement of Work Onsite

Contractor shall furnish the following items to Owner prior to commencing any work in or about the Building:

a. A certificate of insurance evidencing the compliance with the insurance requirements of the contract, the Lease and these Rules and Regulations.

b. Contractor's License Number.

c. One (1) copy of any permits required by the local governmental authorities for the performance of the work.

d. A copy of Contractor's Bond in connection with the work to be performed.

e. A certified list of all subcontractors and material suppliers to be used by Contractor in connection with the work.

31. Conduct/Cleanliness at Work Site

Contractor shall take all reasonable steps to minimize interference with occupants of the Property and adjacent properties during the course of the work.

Contractor, its employees, and subcontractors shall use only the service or freight elevators during times when work is to be performed, and they shall enter and exit through service areas only. Contractor shall leave all common areas in clean condition after each use. Owner shall have the right to prescribe the weight, size, and position of any heavy equipment brought onto the Property. Heavy equipment and objects shall, if considered necessary by Owner, stand on wood strips (or other material) of such thickness as reasonably determined by Owner to be necessary to properly distribute the weight thereof. If a structural engineer is needed to determine if structural bracing is required for contractors equipment, etc., then such costs shall be at the expense of Contractor. Owner shall not be responsible for loss of or damage to any such equipment or property and all damage done to the Property by moving or maintaining such equipment or property shall be repaired at the expense of Contractor. During construction, Contractor shall clean up and remove all discarded materials, refuse, debris and similar items from the work site on a daily basis, and thereby leave the construction area and surrounding areas in a neat and clean condition. At all times, the work site shall be maintained in a neat and clean condition, consistent with the work being performed. In no event shall any materials be left or stored in any common areas of the Property, including, without limitation, Property parking lots, walkways or vacant spaces without the prior consent of Owner.

All salvageable items that are removed shall be reused in the work whenever possible and appropriate (except as otherwise provided in the contract), and Owner shall receive an appropriate credit for any such reused items.

Contractor, its employees, and subcontractors shall supply all of their own tools and materials required for the work and shall not use any tools, supplies, or materials belonging to Owner or its agents.



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Public drains, storm drains, toilet rooms, toilets, urinals, wash bowls, and other apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be thrown therein. The expense of any breakage, stoppage, or damage resulting from the violation of this rule by Contractors, its employees, or subcontractors shall be borne by Contractor.

32. Mechanical Equipment

Contractor is responsible to ensure that the existing HVAC system is not permitted to operate during the construction process in the construction areas without the written permission of Owner. Further, a working test of the system must be completed by Contractor prior to tenant move-in. HVAC hook-up to the energy management system including the control interface screens (if any) must be completed prior to tenant move-in.

33. Air System Filters

Prior to completion of work, Contractor is to replace all floor main supply fan filters under the direction of Owner prior to tenant occupancy and prior to releasing retention.

34. Cutting and Coring

No cutting or coring of the Building premises or installations, or those of any Building occupant, shall be permitted without prior written consent of Owner. Any cutting and/or coring must be done outside of normal Building hours. Request for permission to do cutting shall include explicit details and description of work and shall not under any circumstances diminish the structural integrity of the Building's components or systems. If any work is to be done in another space or in any public area, such work is to be done only with the explicit written permission of Owner and at times as directed by Owner. Any such area is to be promptly repaired and returned to a fully functioning, complete, and clean condition.

35. As-Builts and Warranties

Upon completion of construction, two sets of full size as-built prints and one set full size as-built sepias are to be forwarded to Owner. In addition to as-builts, all cut sheets, warranties and manuals for installed mechanical equipment and/or appliances must be given to Owner.

Failure to provide “AS BUILTS” may result in the Owner REMOVING the contractor from the approved vendor list. Landlord reserves the right to call in an outside Architectural firm to supply as-built drawings at Tenant’s expense.

36. Air System Balancing

The Building exhaust and make-up air systems for ventilation and conditioning are designed for total floor occupancy. It is the responsibility of Contractor to adjust the base building air system as necessary at the completion of the project work. Contractor shall provide to the Owner evidence of re-balancing prior to tenant occupancy and prior to releasing retention. Air balance will not be conducted by the installing contractor.

37. Water Balancing

Contractor is to water re-balance the base building loop at completion of project connection. Contractor shall provide evidence of re-balancing to the Owner’s Property Management representative.

38. Disinfecting

Contractor is to clean and disinfect the water systems after installation and before connecting to the Building system. Before placing water piping in service and before washing out, piping must be thoroughly blown out with air to remove dirt, rust, scale or other contaminants. Insides of all regulating valves must be removed and blank covers provided where necessary. All condensing and water system piping must be washed out with water, thoroughly cleaned



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by flushing water to waste. All strainer screens shall be removed and thoroughly cleaned after flushing. Contractor shall provide a certificate of disinfection together with bacteriological reports prior to final connection to base building system.

39. Plumbing Connections

Plumbing wet taps may not interrupt service. Forty-eight (48) hours’ notice is to be given to Owner prior to connection.

40. Parking

Contractor, its employees, and subcontractors shall park their vehicles only in those areas of the parking lot or parking garage designated by Owner for use by contractors (if any). In any case, Contractor parking shall be located as far away from operating businesses during open hours as possible. Contractor shall comply with all rules or regulations applicable to such parking areas. Loading docks are for drop off and unloading only and not for parking. In no event shall Contractor block public access to the parking lot or garage or otherwise disrupt the normal use of the parking facilities without first notifying Owner and obtaining Owner's prior written consent. No vehicles may be parked overnight in the parking facilities without Owner's prior written consent. Washing, waxing, cleaning, and servicing of vehicles in the parking facilities are prohibited. Contractor is responsible for the cost of parking its employees’ vehicles.

41. Work Schedule

As soon as possible prior to commencement of the work, Contractor shall prepare, and submit for Owner's approval, progress schedules for the work. These progress schedules shall indicate the dates for the starting and completing of the various stages of the work and shall be revised as required by the conditions of the work, subject to Owner's approval.

42. Signs

Contractor shall not be permitted to post any sign, placard, picture, name, advertisement, or notice visible from the exterior of the Building or the work site at the Building without Owner's prior consent, unless the posting of such sign, placard, or notice is required by law. Such consent may be withheld in Owner's sole discretion.

43. No Smoking

Smoking of cigarettes, cigars, and pipes is prohibited in all enclosed areas of the Property (i.e., restrooms, utility service rooms, etc.).

44. No Intoxication

Owner may exclude or expel from the Property any person who, in the judgment of Owner, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any violation of any of the rules or regulations of the Property.

45. No Improper Conduct

No employee of Contractor, or any of its subcontractors, shall be permitted to dress, or behave or speak in any rude, lewd, suggestive, obnoxious, or inappropriate manner to any occupants or visitors to the Property.

46. No Loitering

No employee of Contractor or any of its subcontractors shall loiter in any entrance, exits, or common areas or in any way obstruct any sidewalk or driveway.

47. No Excessive Noise



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Contractor shall ensure that it and each of its employees, subcontractors, and other workers shall perform all work and services in or about the Building in a courteous manner, respectful of the rights and convenience of others, and with the least amount of noise, dust, and vibration possible under the circumstances. Playing of radios or other audio devices is prohibited and these devices are subject to confiscation.

No loud machinery will be used from 8:00 AM to 5:30 PM without express written permission from the Owner .

Noisy work such as hammering, drilling, jack-hammering, chipping, shooting anchors, roto-hammering and other disruptive activity must take place outside of the hours of 8:00 AM - 5:30 PM, Monday through Friday. Marginal activities such as shooting anchors may be performed up to 8:30 AM, between 12:00 noon and 1:00 PM and after 5:00 PM. Contractors must include adequate overtime allowances for these activities in their contract price as exceptions to the above will not be granted.

48. Hazardous Substances

The following rules concern "Hazardous Substances", which term shall mean any kerosene, gasoline, oils, solvents, paint thinner, acids, caustics, insecticides, pesticides, herbicides, corrosives, flammable explosives, asbestos, PCBs, vinyl chloride, cyanide solutions, urea formaldehyde, waste chemicals, sludge, radioactive materials, infectious or medical waste, or other substance or material that, after release into the environment and upon exposure, ingestion, inhalation or assimilation, either directly from the environment or indirectly by ingestion, through food chains, will or may reasonably be anticipated to cause death, disease, behavior abnormalities, cancer, reproductive harm, or genetic abnormalities:

a. Contractor shall minimize the use of Hazardous Substances, and avoid any releases of Hazardous Substances into the environment, in performing services or work in or about the Building. If the use of some Hazardous Substance is required in connection with a service or work to be performed in or about the Building, Contractor shall procure and use the least hazardous substance or material suitable for such work or service, which use shall be in compliance with all applicable laws.

b. Contractor shall not, without Owner's prior written consent, use any Hazardous Substances, or any construction materials containing Hazardous Substances, in or about the Building if the presence of such substances or materials, or the manner in which they are used, will cause or risk causing any exposure for which a warning or disclosure, to any occupant of the Building other than Contractor's own employees and permitted subcontractors, would be required under any applicable federal, state, or local law, ordinance, regulation, or order at any time during the performance of services or work in or about the Building or within six months after the completion of such services or work.

c. If at any time Contractor shall become aware, or have reasonable cause to believe, that there has occurred or will occur any release of any Hazardous Substance for which a warning or disclosure is or will be required under any applicable federal, state, or local law, ordinance, regulation, or order, Contractor shall immediately upon discovering such condition or suspected condition give notice thereof to Owner. At Owner's request, Contractor shall cooperate with Owner in giving any such required warning or disclosure.

d. Contractor shall provide Owner with material safety data sheets ("MSDSs") for any chemicals or materials used by Contractor in connection with work at the work site. If MSDSs are not available for any material or item for which applicable law requires the producer or manufacturer to provide an MSDS, Contractor shall obtain from the producer, manufacturer, or vendor appropriate information concerning any Hazardous Substances used in the manufacture of such material or item.

e. If Owner has identified to Contractor any material located at the site as containing asbestos, PCBs, or other Hazardous Substances, Contractor shall be responsible for satisfying itself and assuring that the procedures specified in its contract are adequate to ensure that no one will be exposed to such Hazardous Substances in connection with or as a result of the performance of any work or services to be performed by or through Contractor. In the event Contractor encounters in or about the Building any other material that Contractor reasonably believes may contain any Hazardous



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Substance that has not been rendered harmless or that might possibly be disturbed or rendered harmful by the work to be performed by Contractor, then Contractor shall immediately so notify Owner and cause all work in the affected area to stop until Contractor receives instructions from Owner as to whether and how to proceed.

f. In no event shall any work involving the generation of toxic fumes or objectionable odors be permitted or undertaken in occupied areas during Building operating hours or prior to operating hours when fumes, gasses or other emissions cannot be fully exhausted by 8:00 AM. Work of this type shall include, but not be limited to any and all oil-based painting, priming or sealing and any direct glue carpet or wall covering installation.

49. Other Maintenance, Alterations, and Construction

In the event Owner is aware of asbestos or asbestos-containing material (ACM) that could potentially be disturbed by any work or services to be performed by Contractor in the Building, Owner shall so notify Contractor and make available to Contractor a copy of Owner's operations and maintenance plan regarding such ACM. Contractor shall strictly comply with all precautions and requirements contained in such asbestos operations and maintenance plan. Before any work of any kind may commence, Contractor will familiarize themselves with the Owner's Operations & Maintenance Plan.

50. Enforcement of Rules and Regulations

Owner shall attempt to enforce these Rules and Regulations equitably, but Owner may waive any one or more of these Rules and Regulations for the benefit of any particular contractor or contractors, but no such waiver by Owner shall be construed as a waiver of such Rules and Regulations in favor of any other contractor or contractors, nor shall any such waiver prevent Owner from thereafter enforcing any such Rules and Regulations against such contractors.

If in the sole judgment of Owner's representative one or more of these rules are being or have been violated, Owner's representative may immediately remedy the deficiency at Contractor's expense and/or hereby levy a fine between $100-$500 per occurrence, based on the severity of the breach and the number of times Contractor has been warned. Such remedy shall be in addition to any other remedies Owner may have under the contract, the Lease, or at law or in equity.

51. Amendments

Owner reserves the right to make such other and reasonable rules and regulations as in its judgment may from time to time be desirable for safety or security, for care or cleanliness of the Property, or for the preservation of good order therein. Contractor shall, from and after receipt of written notice thereof, abide by any such additional rules and regulations as may be adopted by Owner.

52. Contractor Responsible for Others

Contractor shall be responsible for observance of all of the Rules and Regulations by Contractor's employees, agents, subcontractors, suppliers, invitees, and guests.

The below signed Contractor acknowledges the receipt of the Rules and Regulations for Contractor and accepts all the conditions contained therein.

53. Sustainable Development Contractor Rules and Regulations.

Contractor shall comply with the Sustainable Development Contractor Rules and Regulations attached hereto as Exhibit F-1 and incorporated herein by this reference.

Contractor:



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Firm: _______________________________

By: _______________________________ (Sign)

_______________________________ (Print)

Its: _______________________________ (Title)

Date: _______________________________

Issued by:______________________ Approved by:______________________

Date:___________________________ Date:_____________________________



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EXHIBIT F-1

SUSTAINABLE DEVELOPMENT
CONTRACTOR RULES AND REGULATIONS

1. GREEN BUILDING

The general contractor (the “Contractor”) acknowledges that the Building is gold certified pursuant to United States Green Building Council’s (“USGBC”) Leadership in Energy and Environmental Design (“LEED”) for Existing Buildings: Operation and Maintenance (“LEED-EBOM”) rating system. All construction and maintenance methods and procedures, material purchases, and disposal of waste must be in compliance with minimum green building standards and specifications as defined in these Sustainable Development Contractor Rules and Regulations and the latest version of the USGBC’s Existing Buildings Reference Guide. Where there is a difference between the two, the more restrictive shall prevail.

2. CONSTRUCTION MANAGEMENT PLAN FOR INDOOR AIR QUALITY

Contractor agrees to develop and implement an Indoor Air Quality (IAQ) Management Plan for the construction and occupancy phases of the area being built out as follows:

(a) During construction, meet or exceed the recommended control measures Design Approaches of the Sheet Metal and Air Conditioning National Contractors Association (SMACNA) IAQ Guidelines for Occupied Buildings Under Construction, 2nd Edition 2007, ANSI/SMACNA 008-2008 (Chapter 3).

(b) Protect stored on-site or installed absorptive materials from moisture damage.

(c) If air handlers must be used during construction, filtration media with a Minimum Efficiency Reporting Value (MERV) of 8 must be used at each return air grill, as determined by ASHRAE 52.2-1999

(d) Replace all filtration media immediately prior to occupancy

(e) Remove contaminants that may be remaining at the end of the construction period:

(A) Conduct a minimum two-week building flush-out with new filtration media with 100% outside air after construction ends and prior to occupancy of the affected space. After flush-out, replace the filtration media with new media, except for filters solely processing outside air; or

(B) After construction ends, conduct a baseline indoor air quality testing procedure for the affected space in the building that demonstrates that the concentration levels for the chemical air contaminants are below specified levels. For each sampling point where the maximum concentration limits are exceeded, conduct a partial building flush-out, for a minimum of two weeks, then retest the specific parameter(s) that were exceeded to indicate the requirements are achieved. Repeat procedure until all requirements have been met.



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3. OPTIMIZE USE OF IAQ COMPLIANT PRODUCTS

(a) Contractor agrees to develop an indoor air quality management program and to maintain it in conjunction with all construction projects in the Property as well as ongoing maintenance and repairs of the Premises optimizing and documenting the use of air quality compliant materials inside the Premises to reduce the emissions from materials used in the Premises.

(b) Ongoing indoor air quality requires the use of low- or no-VOC paints, solvents, adhesives, furniture, and fabrics. Do not exceed the VOC and chemical component limits of Green Seal’s Standard GS-11 requirements.

(c) Paints used on site shall be low-VOC and are to be brush-applied only; spray painting is not allowed on site. Paints must not exceed the VOC and chemical component limits of Green Seal’s Standard GS-11 requirements: interior non-flat < or = 150 g/L, Interior flat < or = 50 g/L.

(d) All painting must be completed outside of normal Building hours.

(e) Carpet must meet the requirements of the CRI Green Label Plus Carpet Testing Program.

(f) Carpet cushion must meet the requirements of the CRI Green Label Testing Program.

(g) Composite panels and agrifiber products must not contain added urea-formaldehyde resins. Laminate adhesives used to fabricate on-site and shop applied assemblies containing these laminate adhesives must contain no urea-formaldehyde.

(h) Documentation of all covered materials purchased and the total cost of these purchases shall be provided. Documentation shall be provided in a format deemed acceptable to Landlord.

4. WATER USE EFFICIENCY

(a) Contractor agrees to maintain maximum fixture water efficiency within the Premises to reduce the burden on potable water supply and wastewater systems.

(b) Fire systems, domestic water systems, and landscape irrigation systems are separate systems and are to be maintained and metered separately. Modifications to the water systems must maintain the integrity of these three systems.

(d) Faucets, shower heads, toilets and urinals should be low-flow (minimum 1.5 gpf for toilets, 1.8 gpm for faucets and showerheads). The total water efficiency of all interior fixtures shall not exceed 20% above the baseline set by the Energy Policy Act of 1992.

(f) All water using equipment; appliances and controls must conform to the Property’s then-current standards and practices and be approved by the Property’s chief engineer and/or energy manager.

5. ENERGY MANAGEMENT



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(a) Contractor agrees to install, calibrate and operate fundamental Premises’ elements and systems as intended so they can deliver functional and efficient performance and leverage the Premises’ energy management system. Contractor agrees to engage a commissioning authority independent from the design and construction responsibilities as the responsible party for all commissioning activities. All energy-related systems to be included in the commissioning process activities include as a minimum:

(i) Heating, ventilating, air conditioning and refrigeration (HVAC&R) systems (mechanical and passive) and associated controls.

(ii) Lighting controls, including daylighting.

(iii) Domestic hot water systems.

(iv) Renewable energy systems.

(b) All energy using equipment, appliances, lamps, ballasts and controls must be state-of-the-art energy efficient and Energy Star rated where available, conform to the Property’s then-current standards for energy management, and tie in to existing Premises and/or Property’s controls and monitoring systems.

(c) When available, Contractor shall install only ENERGY STAR® qualified equipment and appliances in the Property, including but not limited to lighting, office equipment, commercial and residential quality kitchen equipment, vending and ice machines, and products certified by the U.S. EPA’s Water Sense® program. Documentation shall be provided in a format deemed reasonably acceptable to Landlord.

(d) Lamps and ballasts, including manufacturer, type, watts, and mercury content are specified and are to be replaced with “like” or better. Contractor shall reduce connected lighting power density below that allowed by ASHRAE/IESNA Standard 90.1-2004 by a minimum of 15%.

(f) Install daylight responsive controls in all regularly occupied spaces within 15 feet of windows and under skylights. Use occupant adjustable lighting controls.

(g) All energy-related improvements must be reviewed and approved by the Property’s’ chief engineer and/or energy manager.

6. PURCHASING

Landlord has a sustainable purchasing policy as part of its sustainability practices. In order to gauge the building’s and the Premises’ performance, it is necessary for contractors to provide information about all material purchases for facility additions and alterations. Landlord will supply a standard formatting for reporting purposes that will include, but not be limited to, data on cost,



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recycled content, salvaged content, FSC-certified wood, rapidly renewable materials, and geographic origin.

7. REMOVAL OF WASTE MATERIALS

Contractor agrees to provide documentation demonstrating that at least 70% by volume of any and all construction waste were recycled, salvaged or otherwise diverted from landfill and incineration.

8. HOUSEKEEPING PRACTICES

Contractor agrees to use whole-building cleaning and maintenance practices, using:

(a) Sustainable cleaning chemicals that meet the Green Seal GS-37 standard

(b) Use of micro-fiber wipes, dust cloths and dust mops in place of paper wipes (and where paper products are used, use of products that contain at least 30% recycled content and which are recyclable)

(c) Chemicals for which the GS-37 rating is not applicable, for example, floor finishes and strippers, shall be durable, slip resistant and free of zinc (metal-free) OR GS-40 and/or CCD-147

(d) Carpet Care Products shall meet the requirements of GS-37 and/or CCD-148

(e) Proper training of maintenance personnel in the hazards, use, maintenance and disposal of cleaning chemicals, dispensing equipment and packaging

(f) Use of hand soaps that do not contain antimicrobial agents, except where required by health codes

(g) Use of cleaning equipment that reduces impacts on IAQ.

Contractor shall provide a copy of a low environmental impact cleaning policy that meets these criteria. Contractor shall provide documentation that this policy has been followed, showing:

(a) Specifications for chemicals used

(b) Dates and activities associated with cleaning maintenance

9. MATERIAL SAFETY DATA SHEETS (MSDS)

Contractor agrees to provide the Property’s manager with at least 72 hours advance notice of all chemicals to be used on site through written notice and delivery of MSDS sheets.



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EXHIBIT G

TENANT ESTOPPEL CERTIFICATE

The undersigned, as Tenant under that certain Lease Agreement (the “Lease”) made and entered into as of _________________, 201__ and between GLL BIT FREMONT STREET PARTNERS, L.P., a limited partnership organized under the laws of California, as Landlord, and the undersigned as Tenant, for Premises on the _________ floor [ s ] of the Building located at 199 Fremont Street, San Francisco, California, hereby certifies as follows:

1. Attached hereto as Exhibit A is a true and correct copy of the Lease and all amendments and modifications thereto, consisting of the following: ____________________. The documents contained in Exhibit A represent the entire agreement between the parties as to the Premises. All capitalized terms used but not defined herein shall have the meaning given such terms in the Lease.

2. The undersigned has commenced occupancy of the Premises described in the Lease and currently occupies the Premises.

3. The Lease is in full force and effect and has not been modified, supplemented or amended in any way except as provided in Exhibit A.

4. Tenant currently occupies the Premises described in the Lease, and Tenant has not transferred, assigned, or sublet any portion of the Premises nor entered into any license or concession agreements with respect thereto except as follows: _____________________.

5. Tenant has not voluntarily prepaid any amounts owing under the Lease to Landlord in excess of thirty (30) days.

6. The Term commenced on __________________, 20__ and the Term expires, excluding any renewal options, on _____________________, 20__, and Tenant has no option to purchase all or any part of the Premises or the Building or, except as expressly set forth in the Lease, any option to terminate or cancel the Lease.

7. The Premises consist of _______ rentable square feet.

8. All conditions of the Lease to be performed by Landlord necessary to the enforceability of the Lease have been satisfied and, to Tenant’s knowledge, Landlord is not in default thereunder.

9. All monthly installments of Minimum Monthly Rent, all Operating Expenses, Taxes and Assessments and all monthly installments of estimated Operating Expenses, Taxes and Assessments have been paid when due through ______________. The current monthly installment of Minimum Monthly Rent is $___________.



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10. No rental has been paid in advance and no security has been deposited with Landlord except as provided in the Lease, except as follows: .

11. As of the date hereof, there are no existing defenses or offsets that the undersigned has which preclude enforcement of the Lease by Landlord.

12. The undersigned acknowledges that this Estoppel Certificate may be delivered to Landlord, Landlord’s existing or prospective mortgagee, or a prospective purchaser, and their respective successors and assigns, and acknowledges that all such persons or entities will be relying upon the statements contained herein.

13. If Tenant is a corporation, limited liability company, partnership or other entity, each individual executing this Estoppel Certificate on behalf of Tenant hereby represents and warrants that Tenant is a duly formed and existing entity qualified to do business in the state in which the Building is located and that Tenant has full right and authority to execute and deliver this Estoppel Certificate and that each person signing on behalf of Tenant is authorized to do so.

Executed at __________________ on the _____ day of ______________, 20___.

Tenant:

By:

Print Name:

Title:



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EXHIBIT H

JANITORIAL SPECIFICATIONS



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SCHEDULE 1

Hardware Lab Substances

Isopropyl alcohol (99%)

Machine Oil

Epoxy, various types

Rosin flux, for electrical rework

Acrylic solvent

Urea

Lactic Acid (85%)

Sodium Hydroxide

Mineral Spirits

Spray Paint

Spray Adhesives

Paint thinner

Acetone

Household cleaners (409, bleach, etc)



	1

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, James Park, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Fitbit, Inc.;

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

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

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

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

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

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:	August 7, 2015	/s/ James Park
		James Park President, Chief Executive Officer, and Chairman (Principal Executive Officer)

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, William Zerella, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Fitbit, Inc.;

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





Date:	August 7, 2015	/s/ William Zerella
		William Zerella Chief Financial Officer (Principal Financial and Accounting Officer)

EXHIBIT 32.1

CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, James Park, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge, the Quarterly Report on Form 10-Q of Fitbit, Inc. for the fiscal quarter ended June 30, 2015 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Fitbit, Inc.



Date: August 7, 2015	By:	/s/ James Park
		James Park
		President, Chief Executive Officer, and Chairman (Principal Executive Officer)

I, William Zerella, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge, the Quarterly Report on Form 10-Q of Fitbit, Inc. for the fiscal quarter ended June 30, 2015 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Fitbit, Inc.



Date: August 7, 2015	By:	/s/ William Zerella
		William Zerella
		Chief Financial Officer (Principal Financial and Accounting Officer)